{"Case_Name": "Commissioner of Taxation v Baya Casal [2026] FCAFC 11", "Venue_Reference_No": "VID 322 of 2025 (Full Federal Court)", "Venue": "Full Federal Court of Australia", "Judgment_Date": "20 February 2026", "Date_Published": "27 May 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case, which considered whether the position of the dismissed employee (Applicant) had become genuinely redundant for the purposes of subsection 83-175(1) of the Income Tax Assessment Act 1997 (ITAA 1997). | 2. The Full Federal Court concluded that the Applicant's position had become genuinely redundant. Accordingly, the payment the Applicant received from their employer in consequence of the voluntary termination of their employment was a genuine redundancy payment. As the Applicant's circumstances satisfied the formula in subsection 83-170(3) of the ITAA 1997, the entire amount of the payment was non-assessable non-exempt income and excluded from the Applicant's assessable income (that is, the entire amount was tax free) under subsection 83-170(2) of the ITAA 1997. | 3. All further legislative references in this Decision impact statement are to the ITAA 1997, unless otherwise indicated. | 4. All judgment references in this Decision impact statement are to the judgment of Commissioner of Taxation v Baya Casal [2026] FCAFC 11, unless otherwise indicated.", "Overview_of_Facts": "5. The case concerned an appeal by the Commissioner from the Federal Court. The primary judge had allowed the Applicant's appeal against an objection decision to a private ruling. The private ruling concluded that the payment to the Applicant was an employment termination payment and not a genuine redundancy payment for the purposes of subsection 83-175(1). | 6. The description of the facts of the scheme in the private ruling was very limited. The primary judge construed the scheme as supplemented by the documentation that accompanied the Applicant's private ruling application. | 7. In summary, the Applicant was employed on a part-time basis of 34.56 hours per week by an early learning centre (ELC) as an ELC assistant. The employer notified the Applicant that the ELC structure was to be remodelled. The Applicant was advised that they were eligible to be redeployed to a remodelled ELC role or they could take a redundancy. | 8. The employer proposed 3 new ELC roles for the Applicant to choose from, one consisted of 28.5 hours per week and the other 2 roles consisted of 21.5 hours per week. If the Applicant accepted one of these roles, their part-time hours would decrease and their working days would change (although how the days would change was not specified in the private ruling application or supplemented documentation), but the skills and duties of the Applicant's new role would be similar. | 9. The Applicant opted to accept the redundancy because the days and number of hours offered were not acceptable to them. The employer paid the Applicant 13 weeks pay in consequence of the termination of the Applicant's employment. The employer treated the payment as an employment termination payment that was subject to tax. | 10. Based on the scheme, the primary judge concluded that the 3 roles offered to the Applicant involved an unknown change in the days to be worked, and a reduction in both hours and remuneration of between approximately 20% and 40% which was a material reduction in both hours and remuneration. [1] The primary judge concluded that the Applicant's position had become genuinely redundant for the purposes of subsection 83-175(1). [2]", "Issues_Decided": "11. The phrase 'genuinely redundant' in subsection 83-175(1) is not defined in the ITAA 1997. 12. The Full Federal Court clarified the following principles are relevant for determining whether an employee's position is genuinely redundant for the purposes of subsection 83-175(1): • It is the 'position', not the employee, as a person, that must be the subject of the genuine redundancy. [3] • The question of redundancy is a question of the continued utility of the job performed by the employee. There is no redundancy where an employee is dismissed for reasons relating to the personal competence of the individual employee. [4] • The test is one of fact and degree. It is not a bright-line test, but a matter of impression based on the totality of the facts and circumstances. [5] It requires an evaluative, holistic analysis. [6] • The 'attributes' of a position must be identified. The change to those attributes then must result in 'the position' becoming redundant. [7] • The attributes of a position are a matter of substance and not form. A position involves a collection of functions, duties and responsibilities of the employee. A position encompasses the type and nature of the tasks, functions and duties to be performed, the location at which those tasks and functions are to be performed, the scale of the tasks, functions and duties and the scope of responsibilities. [8] The ordinary concepts of 'duties' and 'responsibilities' are wide enough to incorporate days and hours of work. [9] • A reduction in hours and remuneration is a relevant factor to be considered as part of the evaluative and holistic analysis of whether an employee's position has become genuinely redundant. Especially, where the reduction in hours and remuneration results from a change to the scope of the responsibilities or duties to be performed, the scale of the tasks to be carried out, or the location of the role. [10] The importance of a reduction in hours and remuneration will vary depending on the circumstances. [11] A reduction in hours and remuneration are relevant, but they are not determinative in all cases. [12] • It is necessary to consider the particular changes to the position to determine whether the role has so changed that the previous position can be said to no longer exist. The degree to which the original role has been changed must be sufficient to conclude that for all practical purposes the role no longer exists. [13] This outcome can occur even where the role is replaced by a new position, no position at all, or some aspects of the employee's duties are still required to be performed by somebody. [14] • It is the 'position', not the employee, as a person, that must be the subject of the genuine redundancy. [3] • The question of redundancy is a question of the continued utility of the job performed by the employee. There is no redundancy where an employee is dismissed for reasons relating to the personal competence of the individual employee. [4] • The test is one of fact and degree. It is not a bright-line test, but a matter of impression based on the totality of the facts and circumstances. [5] It requires an evaluative, holistic analysis. [6] • The 'attributes' of a position must be identified. The change to those attributes then must result in 'the position' becoming redundant. [7] • The attributes of a position are a matter of substance and not form. A position involves a collection of functions, duties and responsibilities of the employee. A position encompasses the type and nature of the tasks, functions and duties to be performed, the location at which those tasks and functions are to be performed, the scale of the tasks, functions and duties and the scope of responsibilities. [8] The ordinary concepts of 'duties' and 'responsibilities' are wide enough to incorporate days and hours of work. [9] • A reduction in hours and remuneration is a relevant factor to be considered as part of the evaluative and holistic analysis of whether an employee's position has become genuinely redundant. Especially, where the reduction in hours and remuneration results from a change to the scope of the responsibilities or duties to be performed, the scale of the tasks to be carried out, or the location of the role. [10] The importance of a reduction in hours and remuneration will vary depending on the circumstances. [11] A reduction in hours and remuneration are relevant, but they are not determinative in all cases. [12] • It is necessary to consider the particular changes to the position to determine whether the role has so changed that the previous position can be said to no longer exist. The degree to which the original role has been changed must be sufficient to conclude that for all practical purposes the role no longer exists. [13] This outcome can occur even where the role is replaced by a new position, no position at all, or some aspects of the employee's duties are still required to be performed by somebody. [14]", "ATO_View_of_Decision": "13. The ATO accepts that, as confirmed by the Full Federal Court, a material reduction in hours (and consequential remuneration) for an hourly paid employee can be a relevant factor in determining whether an employee's position is genuinely redundant. | 14. Ultimately, whether a position has become redundant is a question of fact and degree. It is not a question that involves bright-line tests but is a matter of impression based on the totality of the facts and circumstances. [15] An evaluative, holistic approach is required. [16] | 15. This decision does not mean that any reduction of 20% to 40% in hours and remuneration of a position will constitute a redundancy. The Full Federal Court rejected a purely mathematical approach. [17] | 16. A reduction in hours and remuneration are relevant, but they are not determinative in all cases. [18] Further, the outcome in this case 'does not mean that a reduction in hours/remuneration is significant in every case of part-time work. That will depend on the degree of reduction and the nature of the work performed.' [19]", "Administrative_Treatment": "17. The ATO is reviewing Taxation Ruling TR 2009/2 Income tax: genuine redundancy payments to ensure it reflects the principles for determining whether a position has become genuinely redundant for the purposes of subsection 83-175(1), as set out at paragraph 12 of this Decision impact statement.", "Related_Documents": "TR 2009/2 | ITAA 1997 83-170(2) | ITAA 1997 83-170(3) | ITAA 1997 83-175(1) | 2026 ATC 21-001 | 2025 ATC 20-947", "Legislative_References": "ITAA 1997 83-170(2) ITAA 1997 83-170(3) ITAA 1997 83-175(1)", "Case_References": "Commissioner of Taxation v Baya Casal [2026] FCAFC 11 314 FCR 294 2026 ATC 21-001 Baya Casal v Deputy Commissioner of Taxation [2025] FCA 87 2025 ATC 20-947 122 ATR 177 [2025] ALMD 1887 [2025] ALMD 1888", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID322of2025/00001", "Unmatched_Content": "ATO view of this decision | Implications for affected advice or guidance | Commissioner of Taxation 27 May 2026 | [3] At [26(b)] and [94-95]. | [6] At [39-40], [50], [68], [90], [124], and [133]. | [12] At [41-42], [110-111], [125], [127] and [136]. | [15] At [33] and [46-48]. | [16] At [39-40], [50], [68], [90], [124], and [133]. | [18] At [41-42], [110-111], [125], [127] and [136]."}
{"Case_Name": "Commissioner of Taxation v Hall [2026] FCAFC 43", "Venue_Reference_No": "VID 779 of 2025", "Venue": "Full Federal Court of Australia", "Judgment_Date": "10 April 2026", "Date_Published": "29 April 2026", "Document_Type": "Interim Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Interim decision impact statement outlines the ATO's interim response to the Full Federal Court's decision in Commissioner of Taxation v Hall [2026] FCAFC 43, which allowed the Commissioner's appeal and set aside the Administrative Review Tribunal's (Tribunal) decision of 21 May 2025. [1] | 2. In its decision, the Court determined that Mr Hall, an employee sports presenter and producer (taxpayer) was not entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for occupancy expenses, nor a deduction for car expenses claimed under section 28-12 of the ITAA 1997 or, alternatively, section 8-1 for the income year ended 30 June 2021 (relevant income year). | 3. All decision references in this Interim decision impact statement are to the decision of Commissioner of Taxation v Hall [2026] FCAFC 43 unless otherwise indicated. | 4. All further legislative references in this Interim decision impact statement are to the ITAA 1997 unless otherwise indicated.", "Overview_of_Facts": "6. During the relevant income year, the taxpayer was employed full time as a sports presenter and producer by the Australian Broadcasting Corporation (ABC) in Melbourne. [2] | 7. On relocating to Melbourne with his wife in June 2020, the taxpayer rented a 2-bedroom apartment in his own name. [3] The second bedroom was to be used as a place for him to work from home. Prior to moving to Melbourne, the taxpayer was advised by his manager that he would need to work from home when he moved. [4] | 8. During the relevant income year, Melbourne was subject to mandatory lockdowns ordered by the Victorian Chief Health Officer due to the COVID-19 pandemic. [5] The taxpayer worked at home for part of his duties due to these lockdowns and subsequent employer directions. [6] | 9. The taxpayer's role with the ABC had 2 quite distinct parts: • producing the ABC Sport Digital Radio station (Digital Role), which comprised 75% of his employment-related duties [7] , and • producing ABC live sports broadcasts (Live Role), which comprised the remainder of his employment-related duties. The Live Role could only be undertaken at his employer's premises in Southbank (Southbank Studios). [8] | • producing the ABC Sport Digital Radio station (Digital Role), which comprised 75% of his employment-related duties [7] , and • producing ABC live sports broadcasts (Live Role), which comprised the remainder of his employment-related duties. The Live Role could only be undertaken at his employer's premises in Southbank (Southbank Studios). [8] | 10. During the relevant income year, the restrictions imposed by the Victorian Chief Health Officer and the ABC prevented [9] the taxpayer from attending his usual place of employment (Southbank Studios) to perform the Digital Role. He was only allowed to attend the Southbank Studios to undertake the Live Role. [10] | 11. The taxpayer's usual work week was from Thursday to Monday. His general pattern of work was a mix of either [11] : • solely performing his Digital Role duties at home • commencing his Digital Role duties at home and then travelling to the Southbank Studios to undertake his Live Role duties, or • a variety of the 2 roles depending on the sporting season. | • solely performing his Digital Role duties at home • commencing his Digital Role duties at home and then travelling to the Southbank Studios to undertake his Live Role duties, or • a variety of the 2 roles depending on the sporting season. | 12. The taxpayer asserted that he undertook his Digital Role from a laptop in the second bedroom of his rented apartment. [12] This room was solely used for this purpose as he needed a quiet place to work from. [13] The room was only sparsely furnished, which included a small desk, a dining chair and a bookcase. [14] There was nothing to separate or distinguish that space from the rest of the apartment. | 13. The taxpayer's wife was a yoga instructor who continued her work by doing classes online. The classes were conducted from the main living area of the apartment. [15] | 14. To support his claims for a deduction for occupancy expenses (representing a portion of his rent attributable to the home office space) and car expenses for travel between his home and the employer's premises, the taxpayer contended that: • it was beyond his control where he worked, and he had to do the majority of his work from home [16] , and • he could only perform part of his employee duties at the employer's premises. | • it was beyond his control where he worked, and he had to do the majority of his work from home [16] , and • he could only perform part of his employee duties at the employer's premises. | 15. The taxpayer drove from his home to the Southbank Studios in his private car to undertake his Live Role. [17] | 16. The taxpayer sought to claim a deduction in the relevant income year of: • $5,878.87 for occupancy expenses [18] for his home office, and • $1,148.40 for car expenses [19] for travel for work from his home to the Southbank Studios on the days he undertook both the Digital Role and the Live Role. | • $5,878.87 for occupancy expenses [18] for his home office, and • $1,148.40 for car expenses [19] for travel for work from his home to the Southbank Studios on the days he undertook both the Digital Role and the Live Role. | 17. At audit and at objection, the taxpayer was denied, in full, a deduction for both expenses. | 18. The taxpayer sought a review of the Commissioner's objection decision in the Tribunal. The Tribunal allowed the deductibility of both expenses in full. | Questions of law decided by the Court | 19. This proceeding was an appeal against the decision of the Tribunal brought by the Commissioner under section 172 of the Administrative Review Tribunal Act 2024 on the following questions of law. | Question 1 - home office (occupancy) expenses | 20. The Court outlined that deductibility under section 8-1 turns on the essential character of the expenditure. A sufficient connection to income-earning activities under the positive limb in subsection 8-1(1) is necessary but not determinative of deductibility. An outgoing remains non-deductible under the negative limb in paragraph 8-1(2)(b) if it is private or domestic in nature. [20] That character is not determined by use, necessity or lack of choice [21] , and apportionment of an outgoing does not, of itself, preclude it from being characterised as private or domestic. [22] | 21. The Court's discussion of the High Court authorities of Faichney [23] , Handley [24] and Forsyth [25] on home office expenses highlights the structure of section 8-1, confirming that a study or home office ordinarily remains part of the home and does not become business premises merely because it is used regularly or necessarily for income-earning activities, and that a separate inquiry is required to determine whether the outgoing remains private or domestic. | 22. The Court also considered Swinford [26] , a case relied on by the taxpayer, in which Hunt J of the New South Wales Supreme Court, held that a self-employed scriptwriter's home office constituted business premises, notwithstanding that it formed part of the home. The Court made 2 observations about Swinford. First, Hunt J appeared to treat satisfaction of the positive limb as sufficient, without separately analysing why the expenditure was not private or domestic. [27] Secondly, although Hunt J, referring to Forsyth, concluded that the second bedroom was the scriptwriter's business premises because it was the sole base of operations [28] , the Court observed that the majority in Handley (heard with Forsyth) focused on the essential character of what the outgoing secured rather than treating reasons of convenience as determinative. [29] | 23. The Court identified 2 errors in the Tribunal's reasoning: • First, the Tribunal wrongly treated a single rent payment as separate outgoings, isolating 'additional rent' for the home office and thereby avoiding the proper application of paragraph 8-1(2)(b). [30] • Second, the Tribunal failed to undertake the distinct inquiry required by paragraph 8-1(2)(b) of the negative limb, instead treating satisfaction of the positive limb in paragraph 8-1(1)(a) as determinative. [31] | • First, the Tribunal wrongly treated a single rent payment as separate outgoings, isolating 'additional rent' for the home office and thereby avoiding the proper application of paragraph 8-1(2)(b). [30] • Second, the Tribunal failed to undertake the distinct inquiry required by paragraph 8-1(2)(b) of the negative limb, instead treating satisfaction of the positive limb in paragraph 8-1(1)(a) as determinative. [31] | 24. The Court rejected the Tribunal's approach that an expense must be purely private or domestic to be excluded by paragraph 8-1(2)(b). The Court instead held that an expense may be sufficiently connected to income-earning activities yet still be non-deductible because its essential character remains private or domestic. [32] | 25. The Court also held that the Tribunal misapplied section 8-1 by treating necessity and exclusive work use as determinative of deductibility. Although the taxpayer was compelled to work from home and used the second bedroom almost exclusively for work, the rent was incurred to secure domestic accommodation and retained that essential character. [33] It was not open to split the rent into separate outgoings or to treat the room as business premises. [34] While the rent had a sufficient connection to income-earning activities to satisfy the positive limb, that did not displace the negative limb. [35] The essential character of the rent remained private or domestic, and the Tribunal therefore erred in allowing a deduction for the 'additional rent' (in fact a portion of rent). [36] | Question 2 - car expenses | 26. The Court outlined the statutory framework for deductibility of car expenses. [37] The Court explained that section 28-12 refers to 2 prescribed methods for calculating a deduction for car expenses - the cents per kilometre method and the logbook method. [38] | 27. The taxpayer used the cents per kilometre method prescribed in section 28-25, under which deductions are confined to 'business kilometres'. [39] Business kilometres are limited to kilometres travelled in producing assessable income or as travel between workplaces, with section 25-100 expressly excluding travel between a workplace and the taxpayer's residence. [40] Because section 25-100 excludes home-to-work travel, the only remaining basis for the taxpayer to claim a deduction was car expenses incurred in the course of producing assessable income under paragraph 28-25(3)(a). [41] | 28. The taxpayer argued that the deduction arose under section 28-12, or alternatively section 8-1. [42] The Commissioner argued that section 28-12 did not operate independently of section 8-1, and that claiming car expenses under the cents per kilometre method in paragraph 28-25(3)(a) cannot avoid the application of the essential character test or the exclusion for private or domestic outgoings. [43] | 29. The Court held that the Tribunal erred in finding that the taxpayer was 'at work the entire time' while travelling between his home and the Southbank Studios (and back) and therefore erred in law in allowing a deduction for car expenses. [44] | 30. The Court found that the taxpayer's work at home and at the Southbank Studios involved distinct income-earning activities that ceased and commenced at different locations, and that he performed no income-producing activities while travelling. [45] His travel was therefore undertaken to begin work or after work had ended, not in the course of work already underway, and was properly characterised as ordinary commuting rather than income-earning travel. [46] The Tribunal therefore erred in allowing a deduction for car expenses. [47]", "Issues_Decided": "19. This proceeding was an appeal against the decision of the Tribunal brought by the Commissioner under section 172 of the Administrative Review Tribunal Act 2024 on the following questions of law. | Question 1 - home office (occupancy) expenses: 20. The Court outlined that deductibility under section 8-1 turns on the essential character of the expenditure. A sufficient connection to income-earning activities under the positive limb in subsection 8-1(1) is necessary but not determinative of deductibility. An outgoing remains non-deductible under the negative limb in paragraph 8-1(2)(b) if it is private or domestic in nature. [20] That character is not determined by use, necessity or lack of choice [21] , and apportionment of an outgoing does not, of itself, preclude it from being characterised as private or domestic. [22] 21. The Court's discussion of the High Court authorities of Faichney [23] , Handley [24] and Forsyth [25] on home office expenses highlights the structure of section 8-1, confirming that a study or home office ordinarily remains part of the home and does not become business premises merely because it is used regularly or necessarily for income-earning activities, and that a separate inquiry is required to determine whether the outgoing remains private or domestic. 22. The Court also considered Swinford [26] , a case relied on by the taxpayer, in which Hunt J of the New South Wales Supreme Court, held that a self-employed scriptwriter's home office constituted business premises, notwithstanding that it formed part of the home. The Court made 2 observations about Swinford. First, Hunt J appeared to treat satisfaction of the positive limb as sufficient, without separately analysing why the expenditure was not private or domestic. [27] Secondly, although Hunt J, referring to Forsyth, concluded that the second bedroom was the scriptwriter's business premises because it was the sole base of operations [28] , the Court observed that the majority in Handley (heard with Forsyth) focused on the essential character of what the outgoing secured rather than treating reasons of convenience as determinative. [29] 23. The Court identified 2 errors in the Tribunal's reasoning: • First, the Tribunal wrongly treated a single rent payment as separate outgoings, isolating 'additional rent' for the home office and thereby avoiding the proper application of paragraph 8-1(2)(b). [30] • Second, the Tribunal failed to undertake the distinct inquiry required by paragraph 8-1(2)(b) of the negative limb, instead treating satisfaction of the positive limb in paragraph 8-1(1)(a) as determinative. [31] • First, the Tribunal wrongly treated a single rent payment as separate outgoings, isolating 'additional rent' for the home office and thereby avoiding the proper application of paragraph 8-1(2)(b). [30] • Second, the Tribunal failed to undertake the distinct inquiry required by paragraph 8-1(2)(b) of the negative limb, instead treating satisfaction of the positive limb in paragraph 8-1(1)(a) as determinative. [31] 24. The Court rejected the Tribunal's approach that an expense must be purely private or domestic to be excluded by paragraph 8-1(2)(b). The Court instead held that an expense may be sufficiently connected to income-earning activities yet still be non-deductible because its essential character remains private or domestic. [32] 25. The Court also held that the Tribunal misapplied section 8-1 by treating necessity and exclusive work use as determinative of deductibility. Although the taxpayer was compelled to work from home and used the second bedroom almost exclusively for work, the rent was incurred to secure domestic accommodation and retained that essential character. [33] It was not open to split the rent into separate outgoings or to treat the room as business premises. [34] While the rent had a sufficient connection to income-earning activities to satisfy the positive limb, that did not displace the negative limb. [35] The essential character of the rent remained private or domestic, and the Tribunal therefore erred in allowing a deduction for the 'additional rent' (in fact a portion of rent). [36] | Question 2 - car expenses: 26. The Court outlined the statutory framework for deductibility of car expenses. [37] The Court explained that section 28-12 refers to 2 prescribed methods for calculating a deduction for car expenses - the cents per kilometre method and the logbook method. [38] 27. The taxpayer used the cents per kilometre method prescribed in section 28-25, under which deductions are confined to 'business kilometres'. [39] Business kilometres are limited to kilometres travelled in producing assessable income or as travel between workplaces, with section 25-100 expressly excluding travel between a workplace and the taxpayer's residence. [40] Because section 25-100 excludes home-to-work travel, the only remaining basis for the taxpayer to claim a deduction was car expenses incurred in the course of producing assessable income under paragraph 28-25(3)(a). [41] 28. The taxpayer argued that the deduction arose under section 28-12, or alternatively section 8-1. [42] The Commissioner argued that section 28-12 did not operate independently of section 8-1, and that claiming car expenses under the cents per kilometre method in paragraph 28-25(3)(a) cannot avoid the application of the essential character test or the exclusion for private or domestic outgoings. [43] 29. The Court held that the Tribunal erred in finding that the taxpayer was 'at work the entire time' while travelling between his home and the Southbank Studios (and back) and therefore erred in law in allowing a deduction for car expenses. [44] 30. The Court found that the taxpayer's work at home and at the Southbank Studios involved distinct income-earning activities that ceased and commenced at different locations, and that he performed no income-producing activities while travelling. [45] His travel was therefore undertaken to begin work or after work had ended, not in the course of work already underway, and was properly characterised as ordinary commuting rather than income-earning travel. [46] The Tribunal therefore erred in allowing a deduction for car expenses. [47]", "ATO_View_of_Decision": "31. The Full Federal Court's decision supports the ATO views in the following public advice and guidance dealing with the deductibility of occupancy expenses and work-related transport expenses: • Taxation Ruling TR 93/30 Income tax: deductions for home office expenses • Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? • Employees guide for work expenses. | • Taxation Ruling TR 93/30 Income tax: deductions for home office expenses • Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? • Employees guide for work expenses. | 32. Generally, expenses associated with a taxpayer's home, such as rent, are of a private or domestic nature and do not qualify as deductions for taxation purposes. An exception to this general rule is where part of the home is used for income-producing activities and has the character of a 'place of business', and the expense loses its essential character as private or domestic. The Full Federal Court decision confirms that the mere fact that a room in the house has been set aside during the circumstances of COVID-19 lockdowns for work purposes is not sufficient to enable a deduction for a portion of the rent, and that the positive limb and negative limbs of section 8-1 operate cumulatively, with a separate inquiry required to determine whether the outgoing is private or domestic in its essential character. | 33. The cost of travel from home to a regular place of work is not deductible (subject to very limited exceptions). The mere fact that an employee undertakes some work duties at home does not make expenses of travel to their regular place of work deductible. This is because these expenses are not incurred in gaining or producing assessable income as they are a prerequisite to earning assessable income. The Full Federal Court decision confirms that this treatment will not change even if the travel occurs during work hours. The decision also confirms that the circumstances of COVID-19 lockdowns requiring some work to be undertaken at home do not change this outcome. | Commissioner of Taxation 29 April 2026 | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] Hall and Commissioner of Taxation [2025] ARTA 600 ( Hall - first instance ). | [2] Hall – first instance at [2]. | [3] Hall – first instance at [7]. | [4] Hall – first instance at [64]. | [5] Hall – first instance at [27]. | [6] Hall – first instance at [12]. | [7] Hall – first instance at [9]. | [8] Hall – first instance at [10]. | [9] During the 2021 year, there were no restrictions imposed by the Victorian Chief Health Officer on the taxpayer working at the Southbank Studios between 26 March 2021 and 27 May 2021 ( Hall – first instance at [28]). Although the ABC permitted some staff to work from their offices between 29 March 2021 and 25 May 2021, the taxpayer was not in the group of permitted staff allowed by the ABC to return to the Southbank Studios on a full-time basis ( Hall – first instance at [30-31]). | [10] Hall – first instance at [22-30]. | [11] Hall – first instance at [12]. | [12] Hall – first instance at [2]. | [13] Hall – first instance at [14]. | [14] Hall – first instance at [15]. | [15] Hall – first instance at [8]. | [16] Hall – first instance at [24]. | [17] Hall – first instance at [19] and [20]. | [18] Which represent the portion of the total rent paid during the year which was attributable to the second bedroom on a per square metre basis. | [19] Based on the cents per kilometre method for claiming motor vehicle expenses. | [20] At [7]. | [21] At [9]. | [22] At [8]. | [23] At [11-16] ( Federal Commissioner of Taxation v Faichney [1972] HCA 67). | [24] At [17-22] ( Handley v Federal Commissioner of Taxation [1981] HCA 16). | [25] At [23-31] ( Federal Commissioner of Taxation v Forsyth [1981] HCA 15). | [26] At [41] ( Swinford v Federal Commissioner of Taxation [1984] 3 NSWLR 118). Also refer to [104]. | [27] At [48]. | [28] At [46]. | [29] At [49]. | [30] At [57]. | [31] At [58]. | [32] At [59]. | [33] At [71-73]. | [34] At [71-73]. | [35] At [72-74]. | [36] At [74-75] and [100]. | [37] Refer to [76-85]. | [38] At [83]. | [39] At [86]. | [40] At [79-81]. | [41] At [87]. | [42] At [92]. | [43] At [92]. | [44] At [98]. | [45] At [95]. | [46] At [96-97]. | [47] At [99] and [100]. Also see [105].", "Administrative_Treatment": "5. Pending the outcome of any appeal process, we are continuing to administer the law in accordance with the Full Court's decision, which supports the existing ATO views set out in paragraphs 31 to 33 of this Interim decision impact statement.", "Related_Documents": "2026 ATC 21-010 | TR 93/30 | TR 2021/1 | ITAA 1997 8-1 | ITAA 1997 8-1(1) | ITAA 1997 8-1(1)(a) | ITAA 1997 8-1(2)(b) | ITAA 1997 8-5 | ITAA 1997 8-10 | ITAA 1997 28-12 | ITAA 1997 28-25 | ITAA 1997 28-25(3)(a) | ITAA 1997 28-100 | Administrative Review Tribunal Act 2024 172 | 72 ATC 4245 | 81 ATC 4157 | 148 CLR 182 | 81 ATC 4165 | 55 ALJR 345 | 84 ATC 4803 | Employees guide to work expenses | Hall and Commissioner of Taxation [2025] ARTA 600", "Legislative_References": "ITAA 1997 8-1 ITAA 1997 8-1(1) ITAA 1997 8-1(1)(a) ITAA 1997 8-1(2)(b) ITAA 1997 8-5 ITAA 1997 8-10 ITAA 1997 28-12 ITAA 1997 28-25 ITAA 1997 28-25(3)(a) ITAA 1997 28-100 Administrative Review Tribunal Act 2024 172", "Case_References": "Commissioner of Taxation v Faichney [1972] HCA 67 129 CLR 38 72 ATC 4245 3 ATR 435 47 ALJR 35 Commissioner of Taxation v Forsyth [1981] HCA 15 148 CLR 203 81 ATC 4157 11 ATR 657 55 ALJR 340 Handley v Commissioner of Taxation [1981] HCA 16 148 CLR 182 81 ATC 4165 11 ATR 644 55 ALJR 345 Swinford v Commissioner of Taxation [1984] 3 NSWLR 118 80 FLR 1 84 ATC 4803 15 ATR 1154", "Subject_References": "", "Other_References": "Employees guide to work expenses Hall and Commissioner of Taxation [2025] ARTA 600", "Is_Interim": true, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/vid779of2025/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Morton [2026] FCAFC 31", "Venue_Reference_No": "VID 578 of 2025", "Venue": "Full Federal Court of Australia", "Judgment_Date": "27 March 2026", "Date_Published": "5 June 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to the Full Federal Court's decision in Commissioner of Taxation v Morton [2026] FCAFC 31, which affirmed the Federal Court's decision of 11 April 2025. [1] | 2. The Court found Mr Morton did not embark on a business of developing land nor did he venture the land into a profit-making scheme. Accordingly, no part of the proceeds was assessable income. | 3. All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1997, unless otherwise indicated. | 4. All judgment references in this Decision impact statement are to the judgment of Commissioner of Taxation v Morton [2026] FCAFC 31, unless otherwise indicated.", "Overview_of_Facts": "5. Mr Morton (taxpayer) is a retired farmer who owned a 10-acre parcel of land in Tarneit, Victoria known as Dave's Block. It was part of a larger family farm (Morton Farm) that had been bought by his family in the 1950s. The taxpayer acquired Dave's Block from his father in 1980 and continued to use it for farming and grazing until the mid-2010s. [2] | 6. In 2010, the Morton Farm was rezoned from rural to residential land, resulting in increased rates and land tax that led the taxpayer to form the view that farming Dave's Block would eventually become unviable. [3] The farm had also been difficult to manage because of the urban encroachment and his concerns about safety due to increasing traffic. [4] | 7. The taxpayer and his family then entered into 3 property development agreements with a property development group, Dacland (developer), for the Morton Farm to be developed, subdivided and sold as individual allotments as part of a residential estate. [5] The taxpayer retained ownership of Dave's Block until the lots were sold. | 8. The 3 agreements were entered into in 2012 with the agreement relating to Dave's Block being entered into on 23 November 2012. In his negotiations with the developer, the taxpayer proceeded on the basis of 2 key 'tenets' – that the land should not be used as security for loans taken out by the developer to fund the development, and that the Morton family should receive a fixed percentage of the proceeds from each subdivided lot, so that the developer could not artificially inflate expenses so as to reduce the entitlements of the family. [6] The development agreement included further clauses to the effect that [7] : • The developer undertook all planning, construction, and marketing activities for the land. The developer had exclusive right to subdivide and sell the land. The subdivision works included – obtaining development approvals – installation of infrastructure (for example, roads, services), and – sale of subdivided lots over time. Much of the development work was undertaken by the developer and outsourced to external professionals. • The developer was 'solely responsible for incurring and paying all Development Costs'. [8] • The agreement stated no partnership or joint venture was created. • The developer's Development Fee was calculated on a tiered percentage basis of Sales Proceeds per Lot – 57.9% up to and including $464 million – 30.9% from $464 million – $596 million, and – 51.9% from $596 million. • The taxpayer, as owner of the land, must also pay any GST on the fee. • The taxpayer, as owner of the land, was to be provided monthly reports in relation to the development and appointed Tarneit East Development Project Pty Ltd (a Dacland company) power of attorney to do anything required to be done by the taxpayer with respect to his land to facilitate the development. • The land was to be subdivided and sold in stages. | • The developer undertook all planning, construction, and marketing activities for the land. The developer had exclusive right to subdivide and sell the land. The subdivision works included – obtaining development approvals – installation of infrastructure (for example, roads, services), and – sale of subdivided lots over time. Much of the development work was undertaken by the developer and outsourced to external professionals. • The developer was 'solely responsible for incurring and paying all Development Costs'. [8] • The agreement stated no partnership or joint venture was created. • The developer's Development Fee was calculated on a tiered percentage basis of Sales Proceeds per Lot – 57.9% up to and including $464 million – 30.9% from $464 million – $596 million, and – 51.9% from $596 million. • The taxpayer, as owner of the land, must also pay any GST on the fee. • The taxpayer, as owner of the land, was to be provided monthly reports in relation to the development and appointed Tarneit East Development Project Pty Ltd (a Dacland company) power of attorney to do anything required to be done by the taxpayer with respect to his land to facilitate the development. • The land was to be subdivided and sold in stages. | – obtaining development approvals – installation of infrastructure (for example, roads, services), and – sale of subdivided lots over time. | – 57.9% up to and including $464 million – 30.9% from $464 million – $596 million, and – 51.9% from $596 million. | 9. Dave's Block was subdivided into 48 residential lots and 2 commercial lots. Settlement for the residential lots occurred in the 2019 income year. Settlement for the first commercial lot occurred on 19 October 2020 and settlement for the second commercial lot occurred on 2 July 2021. [9] | 10. The Commissioner of Taxation issued amended assessments to the taxpayer for the 2019 and 2021 income years, which brought proceeds from the sales of the allotments on Dave's Block into account as assessable income. The taxpayer lodged objections to the assessments, which were disallowed. [10] | 11. The taxpayer appealed to the Federal Court. At first instance, the taxpayer claimed the assessments were excessive, because the proceeds from the sales of the allotments that comprised Dave's Block were capital receipts derived upon the realisation of an asset, and were therefore not assessable as income. | 12. The Commissioner contended that the amounts were assessable income, namely that: • in developing, subdividing, and selling the land that comprised Dave's Block, the taxpayer carried on a business, and therefore the land was trading stock for the purposes of Division 70 [11] , or • the amounts were income according to ordinary concepts for the purposes of section 6-5, or • the amounts were profit arising from the carrying on or carrying out of a profit-making undertaking or plan under section 15-15. | • in developing, subdividing, and selling the land that comprised Dave's Block, the taxpayer carried on a business, and therefore the land was trading stock for the purposes of Division 70 [11] , or • the amounts were income according to ordinary concepts for the purposes of section 6-5, or • the amounts were profit arising from the carrying on or carrying out of a profit-making undertaking or plan under section 15-15. | 13. The primary judge allowed the taxpayer's appeal, finding the sale proceeds resulted from the mere realisation of a capital asset and were not assessable in his hands. [12] The primary judge concluded that the taxpayer had not embarked on a business of developing land nor had he ventured Dave's Block into a profit-making scheme. | 14. The Commissioner appealed the decision to the Full Federal Court.", "Issues_Decided": "15. The issues on appeal before the Full Federal Court were whether the primary judge erred in finding: • that the taxpayer at no stage embarked on a business of developing, subdividing and selling Dave's Block • in the alternative, that the taxpayer never ventured Dave's Block into a profit-making undertaking or plan. • that the taxpayer at no stage embarked on a business of developing, subdividing and selling Dave's Block • in the alternative, that the taxpayer never ventured Dave's Block into a profit-making undertaking or plan. 16. It was agreed by both parties that the primary judge had not misstated the relevant legal principles, but it was the Commissioner's main contention that the learned judge had mischaracterised the effect of the terms of the Dave's Block development agreement. [13] 17. The Court outlined that the central question for determination, in line with established principles from long-standing authorities was whether, in seeking to maximise the amount of money which he received from the sale of Dave's Block, the taxpayer had committed the land to a business venture or to a profit-making undertaking or plan or whether he merely sold the land to the best advantage. [14] 18. The Court confirmed the following long-standing principles: • Profits obtained from the realisation of property are to be treated on revenue account and as assessable to tax 'where what is done is not merely a realisation or change of investment but an act done in what is truly the carrying on or carrying out of a business'. [15] • The question of whether a person is carrying on a business is a matter of fact and degree and is a conclusion to be drawn from all relevant facts and circumstances. [16] • It is not necessary that a person carry on the activities personally. It is also relevant to consider activities carried on for or on behalf of the taxpayer, whether as agent, employee or pursuant to some other contractual or other arrangement. A person may appoint another to take the steps which constitute the business activity. [17] • When determining whether a business is being carried on, relevant factors to consider include the profit motive (although a non-profit company may still carry on a business), acting in a business-like way (although many businesses may be found which operate in a non-business-like way), the keeping of books of account and records (although the fact that there are none will not necessitate the conclusion that a business is not carried on), and repetition (although a fixed-term project may still be a business). [18] While no one indicia is determinative, it is possible that collectively they will demonstrate a business. It will be relevant in deciding whether a business is carried on that there is some repetition of acts and that the activities in question have something of a permanent character and what is required is that activities be engaged upon on a continuous and repetitive basis. [19] • The Commissioner does not need to show that the taxpayer was carrying on a business and it is enough to answer the statutory description that there was a profit-making undertaking or scheme which exhibited the characteristics of a business deal, even though it did not amount to the carrying on of a business. If what has happened amounted to no more than the mere realization of an asset then it was not a profit-making undertaking or scheme. [20] • Profits obtained from the realisation of property are to be treated on revenue account and as assessable to tax 'where what is done is not merely a realisation or change of investment but an act done in what is truly the carrying on or carrying out of a business'. [15] • The question of whether a person is carrying on a business is a matter of fact and degree and is a conclusion to be drawn from all relevant facts and circumstances. [16] • It is not necessary that a person carry on the activities personally. It is also relevant to consider activities carried on for or on behalf of the taxpayer, whether as agent, employee or pursuant to some other contractual or other arrangement. A person may appoint another to take the steps which constitute the business activity. [17] • When determining whether a business is being carried on, relevant factors to consider include the profit motive (although a non-profit company may still carry on a business), acting in a business-like way (although many businesses may be found which operate in a non-business-like way), the keeping of books of account and records (although the fact that there are none will not necessitate the conclusion that a business is not carried on), and repetition (although a fixed-term project may still be a business). [18] While no one indicia is determinative, it is possible that collectively they will demonstrate a business. It will be relevant in deciding whether a business is carried on that there is some repetition of acts and that the activities in question have something of a permanent character and what is required is that activities be engaged upon on a continuous and repetitive basis. [19] • The Commissioner does not need to show that the taxpayer was carrying on a business and it is enough to answer the statutory description that there was a profit-making undertaking or scheme which exhibited the characteristics of a business deal, even though it did not amount to the carrying on of a business. If what has happened amounted to no more than the mere realization of an asset then it was not a profit-making undertaking or scheme. [20] 19. The Full Court accepted the evidence of the taxpayer that the [21] : • Dave's Block development agreement involved a commercial transaction • taxpayer intended to derive a profit from subdividing the land by recovering a percentage of the sale proceeds of the lots • taxpayer anticipated that the value of the land, and thus the sales proceeds, would increase once the development was completed • development works involved bringing Dave's Block within the Wyndham Planning Scheme and were designed to effect major changes to the land, and • taxpayer appointed the developer as his agent to do and perform acts in respect of the development, and the development works, for the purpose of undertaking his obligations under the agreement (referring to express statements in clause 15.7 of the development agreement). • Dave's Block development agreement involved a commercial transaction • taxpayer intended to derive a profit from subdividing the land by recovering a percentage of the sale proceeds of the lots • taxpayer anticipated that the value of the land, and thus the sales proceeds, would increase once the development was completed • development works involved bringing Dave's Block within the Wyndham Planning Scheme and were designed to effect major changes to the land, and • taxpayer appointed the developer as his agent to do and perform acts in respect of the development, and the development works, for the purpose of undertaking his obligations under the agreement (referring to express statements in clause 15.7 of the development agreement). 20. The Court did not accept the Commissioner's contention that the developer was appointed to carry out the development 'on behalf' of the taxpayer as his agent and that he therefore ventured Dave's Block to a business venture or to a profit-making undertaking or plan. The Court found when considering whether the developer was acting as agent of the land-owner the true question must involve defining the content of that relationship. On the facts of this case, the Court found that the Commissioner's agency contentions did not come to terms with specific terms of the development agreement that limited and defined the content of that relationship. The Court observed that the existence of clause 15.7 of the development agreement would not be necessary if the developer was doing the work of the land-owner. 21. The Full Court considered agency was not the relevant ultimate question [22] , and ultimately affirmed the primary judge's observations on this point, stating [23] : In truth, the question whether [the developer's] actions should be taken into account in deciding whether [the taxpayer] was carrying on a business of property development does not find a complete answer in the law of agency. … it will be a question of fact whether, and to what extent, the acts of [the developer] should be taken into account in discerning the character of the proceeds of the sale of Dave's Block in [the taxpayer's] hands. (Emphasis added). 22. The Court found that there were many factors that pointed to the taxpayer's realisation of Dave's Block as being motivated by factors other than those normally to be expected in a business context. This included that the: • land was not acquired with the intention of profiting from its sale by subdivision, the circumstances of sale being motivated because farming on Dave's Block was not commercially viable for the reasons he gave (including the inclusion of the land in the Urban Growth Boundary and the consequential increase in land tax and so on) [24] • taxpayer did not seek to achieve the maximum available proceeds at any cost and adhered strictly to his 2 'tenets' [25] , and • taxpayer had little or no involvement as a practical manner in the development of the land, which tends against the notion he was engaged in any business of property development. [26] • land was not acquired with the intention of profiting from its sale by subdivision, the circumstances of sale being motivated because farming on Dave's Block was not commercially viable for the reasons he gave (including the inclusion of the land in the Urban Growth Boundary and the consequential increase in land tax and so on) [24] • taxpayer did not seek to achieve the maximum available proceeds at any cost and adhered strictly to his 2 'tenets' [25] , and • taxpayer had little or no involvement as a practical manner in the development of the land, which tends against the notion he was engaged in any business of property development. [26] 23. The Court did not accept the Commissioner's reliance on the 'massive' scale of the subdivision and accepted the primary judge's finding that [27] : \"[t]he scale of the subdivision and sale of the [farm] was a product of the size and nature of [it] as an asset, in combination with forces prevailing in the market for residential property in Tarneit over the relevant period\" and that he \"[did] not accept that, without more, the acreage or the number of lots involved indicates that [the taxpayer] was engaged in a business of land subdivision and development\" 24. The Court also did not accept the Commissioner's submission that where the activity is a fixed-term project such as a land development of the scale carried out by the taxpayer in this case, repetition holds less weight. The Court however disagreed with the primary judge's view that repetition was a significant factor in this case telling against the proceeds of sale being assessable income and considered that this factor 'was not informative in the particular circumstances of this case, and did not weigh in the balance one way or another'. [28] 25. Ultimately, the Full Court agreed with the primary judge's conclusion that the taxpayer merely realised a capital asset and he therefore did not embark on a business of developing land nor did he venture Dave's Block into a profit-making scheme. Accordingly, no part of the proceeds of the sale of Dave's Block was assessable income in the taxpayer's hands. [29]", "ATO_View_of_Decision": "26. The Full Federal Court's decision was an application of the existing case law and does not change the relevant legal principles concerning whether a taxpayer is carrying on a business and undertaking a profit-making undertaking or plan. The decision does not represent any departure from our long-standing approach to property development issues, as articulated in the following existing ATO guidance which continue to provide the relevant analytical framework: • Taxation Ruling TR 97/11 Income tax: am I carrying on of a business of primary production? • Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income. | • Taxation Ruling TR 97/11 Income tax: am I carrying on of a business of primary production? • Taxation Ruling TR 92/3 Income tax: whether profits on isolated transactions are income. | 27. We consider that this case turned on its own facts and circumstances and the Court's acceptance of the credibility of the taxpayer. Of significance was the fact that the taxpayer strictly adhered to his 2 'tenets', firstly that the land could not be used as security for loans taken out by the developer to fund the development and secondly, that the taxpayer should receive a fixed percentage of the proceeds from each subdivided lot, so that the developer could not artificially inflate expenses so as to reduce the entitlements of the family. The Court considered that this demonstrated that the taxpayer was not willing to take every step possible to maximise the profits received from the development which led to their finding that the taxpayer did not carry on a business of developing land or venture Dave's Block into a profit-making scheme. We do not consider that the case establishes a principle that where a taxpayer has taken steps to mitigate risk resulting in less profit is being obtained, a conclusion can always be drawn that the activities are a mere realisation. Each case will turn on their own facts. The Court considered the relevant facts and formed a view that because the taxpayer had merely realised their asset, they therefore, did not carry on a business of developing land or venture Dave's Block into a profit-making scheme. Our view is that the following are separate tests, and each requires their own independent analysis: • whether the taxpayer was carrying on a business of property development under section 6-5 • whether the profit is assessable income under section 6-5 (an isolated profit-making transaction), section 15-15 (profit-making undertaking or plan), or as trading stock under Division 70 (with proceeds brought to account under section 70-80 or section 70-90). [30] | • whether the taxpayer was carrying on a business of property development under section 6-5 • whether the profit is assessable income under section 6-5 (an isolated profit-making transaction), section 15-15 (profit-making undertaking or plan), or as trading stock under Division 70 (with proceeds brought to account under section 70-80 or section 70-90). [30] | 28. We will continue to apply the established legal principles to other cases by undertaking a fact-specific assessment of whether a taxpayer's activities amount to the carrying on of a business, an isolated profit-making transaction, or the mere realisation of a capital asset. This will involve a holistic evaluation of all relevant facts and circumstances, consistent with the law and TR 97/11 and TR 92/3.", "Administrative_Treatment": "", "Related_Documents": "2026 ATC 21-007 | TR 97/11 | TR 92/3 | ITAA 1997 6-5 | ITAA 1997 15-15 | ITAA 1997 Div 70 | ITAA 1997 70-80 | ITAA 1997 70-90 | 2025 ATC 20-957 | 82 ATC 4031 | 88 ATC 4620 | 2003 ATC 4782 | 2009 ATC 20-109", "Legislative_References": "ITAA 1997 6-5 ITAA 1997 15-15 ITAA 1997 Div 70 ITAA 1997 70-80 ITAA 1997 70-90", "Case_References": "Commissioner of Taxation v Morton [2026] FCAFC 31 2026 ATC 21-007 Morton v Commissioner of Taxation [2025] FCA 336 2025 ATC 20-957 122 ATR 521 Federal Commissioner of Taxation v Whitfords Beach Pty Ltd [1982] HCA 8 150 CLR 355 82 ATC 4031 12 ATR 692 Crow, D.M. v Commissioner of Taxation [1988] FCA 447 19 ATR 1565 88 ATC 4620 Puzey v Commissioner of Taxation [2003] FCAFC 197 131 FCR 244 2003 ATC 4782 201 ALR 302 53 ATR 614 Spriggs v Commissioner of Taxation; Riddell v Commissioner of Taxation [2009] HCA 22 239 CLR 1 2009 ATC 20-109 72 ATR 148", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID578of2025/00001", "Unmatched_Content": "ATO view of this decision | Commissioner of Taxation 5 June 2026 | Footnotes: [1] Morton v Commissioner of Taxation [2025] FCA 336 ( Morton – at first instance ). | [2] At [1]; Morton – at first instance at [7–8]. | [4] Morton – at first instance at [102]. | [6] At [100]; Morton – at first instance at [76]. | [11] For example, under section 70-80 or section 70-90. | [12] Morton – at first instance at [182]. | [14] At [158] citing Federal Commissioner of Taxation v Whitfords Beach Pty Ltd [1982] HCA 8 ( Whitfords Beach ); 150 CLR 355 at [400], per Wilson J. | [15] At [159] citing Crow, D.M. v Commissioner of Taxation [1988] FCA 447; 19 ATR 1565 at [1573]. | [16] At [160–161] citing Puzey v Commissioner of Taxation [2003] FCAFC 197 ( Puzey ) at [46–48]; Spriggs v Commissioner of Taxation; Riddell v Commissioner of Taxation [2009] HCA 22 at [59]. | [17] At [163] citing Puzey at [46] and [54]. | [18] At [160] citing Puzey at [46–48]. | [19] At [117] citing Puzey at [47]. | [20] At [162] citing Whitfords Beach 150 CLR 355 at [383-384], per Mason J. | [30] Section 70-80 provides that when you dispose of an item of your trading stock in the ordinary course of business, what you get for it is included in your assessable income (under section 6-5) as ordinary income. Section 70-90 applies to disposal of trading stock outside the ordinary course of your business."}
{"Case_Name": "Commissioner of Taxation v Shaw [2026] FCA 197", "Venue_Reference_No": "WAD 112 of 2025", "Venue": "Federal Court of Australia", "Judgment_Date": "4 March 2026", "Date_Published": "13 May 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case, which considered whether the taxpayer was entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for work-related travel expenses for meals. | 2. The Federal Court determined that the taxpayer was entitled to a deduction under section 8-1 of the ITAA 1997 for the expenses claimed in the income year ended 30 June 2021 (relevant income year). | 3. All further legislative references in this Decision impact statement are to the ITAA 1997, unless otherwise indicated. | 4. All judgment references in this Decision impact statement are to the judgment of Commissioner of Taxation v Shaw [2026] FCA 197, unless otherwise indicated.", "Overview_of_Facts": "5. During the relevant income year, the taxpayer worked as an employee long-haul truck driver. [1] He drove long distances, was away from home for 6 days every week and he slept in his truck. [2] The taxpayer was paid a travel allowance by his employer. [3] | 6. Given the taxpayer drove long distances through remote parts of Australia, there were often no available food outlets or, where there were, the food options were not always healthy. [4] To ensure that he did not have to rely on the food outlets on the road, the taxpayer regularly did a 'big shop' at the supermarket or he transferred funds to his wife to do the big shop for him. This big shop was done on a Monday or sometimes a Sunday to ensure his truck was fully stocked each week before he went on the road on a Monday. [5] The taxpayer had a freezer in his truck and a hot plate so he could prepare his own meals. [6] | 7. The taxpayer used cash to pay for some food and drinks at roadhouses and supermarkets during his trips. [7] | 8. The taxpayer said he spent more than the maximum reasonable daily amount on food during his trips away but only claimed a deduction for the lower reasonable daily amount for the days he was away. For the relevant income year, he claimed a total of $32,782.50 for meal expenses. [8] | History of the dispute | 9. At audit, the taxpayer did not provide the Commissioner with any written evidence of the deductions said to have been incurred or how he worked out the amounts claimed as a deduction. | 10. The taxpayer relied on the exception from the substantiation provisions in section 900-50 on the basis that he was in receipt of a travel allowance. The amount he claimed for meal expenses were based on the Commissioner's reasonable amounts set out in Taxation Determination TD 2020/5 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2020-21 income year? [9] | 11. In the alternative, the taxpayer sought relief from the effects of failing to substantiate on the basis that, for the purposes of section 900-200, he had a reasonable expectation that he would not need to substantiate. [10] The taxpayer said that he spent more than the maximum reasonable amount on meals during his trips away, but he claimed less than he spent because of the advice given to him by his tax agent. [11] The tax agent's advice was that if he claimed less, he did not need to keep records to substantiate his expenses. [12] | 12. As a consequence of the audit, the Commissioner reduced the taxpayer's deduction for meal expenses to zero and issued a Notice of Amended Assessment to that effect. [13] | 13. At objection, the taxpayer provided his logbook, fatigue diary and some bank statements. Based on a review of these documents, the Commissioner allowed the taxpayer's objection in part, increasing his allowable deductions for meal expenses. [14] The Commissioner issued a Notice of Amended Assessment giving effect to the objection decision. The taxpayer sought review of the objection decision by the then Administrative Appeals Tribunal. [15] | 14. The Administrative Review Tribunal [16] (Tribunal) set aside the objection decision and allowed the full amount of the claimed deduction. [17] | 15. The Commissioner appealed the Tribunal's decision to the Federal Court. The Federal Court dismissed the Commissioner's appeal on the basis that none of the grounds of appeal relied on were established.", "Issues_Decided": "16. Before dealing with the specific issues raised by the Commissioner's grounds of appeal, the Federal Court analysed the statutory framework of Division 900. Importantly, it emphasised that when it comes to a deduction for work expenses, there is a difference between qualifying for the deduction and substantiation of the deduction. Both requirements must be met. [18] 17. The Federal Court then went on to consider the Commissioner's grounds of appeal which challenged the Tribunal's reasoning on issues including apportionment, burden of proof and the operation of the substantiation provisions in Division 900. | The significance of the distinction between qualification for deduction and substantiation: 18. The Federal Court found that the substantiation rules (including their exceptions) in Division 900 do not provide the qualification for a deduction. [19] Rather, to qualify for a deduction, the work expense must come within a provision of the Act 'outside' Division 900 – in this case, the work expense had to meet the requirements for a deduction under subsection 8-1(1). [20] 19. Therefore, to demonstrate that an amount spent by an employee on food or drink while travelling for work purposes is deductible, it is necessary for the employee to establish that the expense was incurred in producing the employee's salary or wages. If that is demonstrated, it may also be necessary to substantiate the expense by getting written evidence that meets the requirements of Division 900. [21] 20. The publication of reasonable amounts in TD 2020/5 does not relieve a taxpayer of the requirement to demonstrate that the amount claimed qualifies as a deduction. [22] For claims under the maximum reasonable amount in TD 2020/5, the Federal Court maintained that 'there is no need to meet the specific substantiation requirements in Division 900, but there remains a need to substantiate deductibility'. [23] 21. When it comes to considering the nature of the proof that may be required to 'substantiate' deductibility in such cases, a taxpayer would not be expected to keep detailed records of the kind that would otherwise be required to meet the Division 900 substantiation requirements. The Federal Court found that '[a]n obligation of that kind would defeat the operation of the exceptions and relief provisions in Division 900'. [24] 22. Even with the application of section 900-200 there would still be a need for the taxpayer to demonstrate the basis for the deduction. Section 900-200 only relieves a taxpayer from the requirement to substantiate in the manner provided for in Division 900. [25] | The Tribunal's approach to the issue of apportionment: 23. Regarding the Tribunal's approach to the issue of apportionment, the Federal Court did not accept the Commissioner's contention that the taxpayer could only succeed if the Tribunal undertook an analysis of the bank statement amounts and reached a conclusion as to how much of those amounts were for private expenditure. [26] It found the Tribunal did not need to reach a firm conclusion about apportionment (between expenditure on food and the taxpayer's wife's personal expenses) of specific bank statement amounts. [27] 24. The Federal Court found that the key issue for the Tribunal was whether the amounts claimed by the taxpayer for meals had been incurred under subsection 8-1(1) while he was travelling for work. [28] 25. The Federal Court reasoned that the Tribunal did not make an apportionment finding of the kind relied on by the Commissioner because: • the Tribunal made an unqualified finding as to the credibility of the taxpayer and accepted the whole of the taxpayer's evidence advanced [29] • the Tribunal was of the view that there were ways of evaluating the taxpayer's evidence that was consistent with the taxpayer spending more than the amount claimed on meals [30] • there was a considerable amount of evidence (including about how the taxpayer's meal costs were incurred, the fact the taxpayer did the big shop himself at times, evidence that some meals were bought for cash on the road, and an explanation as to why the taxpayer did not have detailed records and evidence that his daily expenditure was more than $105.75 per day) that had been considered by the Tribunal as credible [31] • this evidence supported the conclusion that the bank statement amounts were linked to the expenditure of amounts for meals and, therefore, it was not necessary to undertake the kind of precise apportionment agitated by the Commissioner [32] • the Tribunal made a supplementary finding that the taxpayer's evidence also gave a broad mechanism for apportionment [33] • having found that the taxpayer's evidence was enough to satisfy that the amount has been incurred (including a finding that the taxpayer spent and incurred more on meals than that claimed), the Tribunal found that the evidence provided a mechanism that could have addressed most of the Commissioner's concerns. [34] • the Tribunal made an unqualified finding as to the credibility of the taxpayer and accepted the whole of the taxpayer's evidence advanced [29] • the Tribunal was of the view that there were ways of evaluating the taxpayer's evidence that was consistent with the taxpayer spending more than the amount claimed on meals [30] • there was a considerable amount of evidence (including about how the taxpayer's meal costs were incurred, the fact the taxpayer did the big shop himself at times, evidence that some meals were bought for cash on the road, and an explanation as to why the taxpayer did not have detailed records and evidence that his daily expenditure was more than $105.75 per day) that had been considered by the Tribunal as credible [31] • this evidence supported the conclusion that the bank statement amounts were linked to the expenditure of amounts for meals and, therefore, it was not necessary to undertake the kind of precise apportionment agitated by the Commissioner [32] • the Tribunal made a supplementary finding that the taxpayer's evidence also gave a broad mechanism for apportionment [33] • having found that the taxpayer's evidence was enough to satisfy that the amount has been incurred (including a finding that the taxpayer spent and incurred more on meals than that claimed), the Tribunal found that the evidence provided a mechanism that could have addressed most of the Commissioner's concerns. [34] 26. Further, the Tribunal's comments [35] about the steps that the Commissioner could have taken to establish a reasonable basis for apportionment of private expenditure did not form a part of the Tribunal's reasons for finding that the taxpayer had discharged his burden of proof to establish that he had incurred the claimed expenses. [36] | Did the Tribunal reach a conclusion on apportionment in the absence of evidence?: 27. For the purposes of apportioning private expenditure under paragraph 8-1(2)(b), the Federal Court found that the Tribunal did not reach a specific conclusion that the personal expenditure of the taxpayer's wife was limited to $50 per transfer. Rather, it reasoned that the taxpayer's evidence gave a broad mechanism for apportionment. [37] 28. The Federal Court found that the evidence given was not to the effect that the wife potentially spent $50 here and there on herself or the household. It was 'legally faulty reasoning' to treat the evidence on that basis. In any event, the Federal Court found this finding did not invalidate the Tribunal's decision as it was not used in reaching the Tribunal's conclusion on deductibility. [38] | Did the Tribunal reverse the onus of proof in section 14ZZK of the Taxation Administration Act 1953?: 29. The Federal Court found that the Tribunal had not reversed the onus of proof in section 14ZZK of the Taxation Administration Act 1953 and had not required the Commissioner to prove that the meal expenses were not deductible. [39] 30. The Federal Court was not persuaded that the Tribunal: • took the failure by the Commissioner to adopt the methodologies that the Tribunal suggested (including referencing footnotes suggesting possible investigative methods) as a basis upon which the taxpayer succeeded • found that the taxpayer succeeded because the Commissioner failed to disprove apportionment. [40] • took the failure by the Commissioner to adopt the methodologies that the Tribunal suggested (including referencing footnotes suggesting possible investigative methods) as a basis upon which the taxpayer succeeded • found that the taxpayer succeeded because the Commissioner failed to disprove apportionment. [40] 31. The overall structure of the Tribunal's reasons and its reliance upon the credibility of the taxpayer's account showed that the Tribunal found those matters sufficient to discharge the taxpayer's onus of proof. [41] | Did the Tribunal apply a general reasonableness standard to the question of deductibility under subsection 8-1(1)?: 32. The Federal Court found that the test for deductibility in subsection 8-1(1) did not involve the application of some form of reasonableness standard. [42] Where subsection 8-1(1) is the basis for the deduction, it must be shown that a loss or outgoing was incurred in gaining or producing assessable income. [43] The concept of what was reasonable was confined to the exception from substantiation under section 900-50 and relief from the effects of failing to substantiate in section 900-200. [44] | Tribunal's conclusions concerning the application of section 900-200: 33. The Federal Court observed that if the taxpayer was not entitled to rely upon the exception under section 900-50 [45] , section 900-200 [46] applied to relieve him of that substantiation obligation. [47] 34. The Tribunal did not find that the existence of a reasonable expectation within the meaning of section 900-200 relieved the taxpayer of his obligation to prove that the relevant expenses were incurred within the meaning of subsection 8-1(1). [48] 35. The factual aspect of the Tribunal's reasoning of whether the taxpayer had a reasonable expectation for the purpose of section 900-200 was not challenged by the Commissioner. [49] | Did the Tribunal's views about section 900-200 infect its reasoning as to subsection 8-1(1)?: 36. The Tribunal's views about section 900-200 did not infect its reasoning as to subsection 8-1(1). 37. The Federal Court observed that relief from the Division 900 substantiation requirements under section 900-200 does not relieve a person from the need to demonstrate that they incurred the amounts claimed. [50] The Tribunal did not reduce the evidentiary threshold that was required by subsection 8-1(1) on the basis of some form of 'reasonable expectation' held by the taxpayer. Further, the Tribunal did not excuse the taxpayer from having to prove that he incurred the expenses on the basis that he believed that he did not need to maintain records. [51]", "ATO_View_of_Decision": "General comments | 38. We consider that this decision confirms that: • Deductibility of expenses must first be established under section 8-1 and [52] – the Commissioner will continue to assess claims for deductions of meal expenses by reference to all relevant evidence to ensure that deductions are only allowed where the statutory requirements under section 8-1 are satisfied – this includes consideration of whether expenses were incurred in gaining or producing assessable income and whether any private component requires apportionment. • Once deductibility is established, Division 900 may require certain specific substantiation requirements to be met [53] – while the exception from the substantiation provisions in section 900-50 or seeking relief from the effects of failing to substantiate in section 900-200 may relieve taxpayers from complying with the formal substantiation requirements in Division 900, neither provision dispenses with the requirement to establish that the claimed expenses were incurred in gaining or producing assessable income within the meaning of section 8-1. [54] • While the taxpayer still bears the burden of establishing the deductibility of expenses, the Commissioner should not insist on a taxpayer keeping detailed records of the kind required to meet the substantiation requirements in Division 900 when an operative exception or relief from compliance with those requirements applies. [55] | • Deductibility of expenses must first be established under section 8-1 and [52] – the Commissioner will continue to assess claims for deductions of meal expenses by reference to all relevant evidence to ensure that deductions are only allowed where the statutory requirements under section 8-1 are satisfied – this includes consideration of whether expenses were incurred in gaining or producing assessable income and whether any private component requires apportionment. • Once deductibility is established, Division 900 may require certain specific substantiation requirements to be met [53] – while the exception from the substantiation provisions in section 900-50 or seeking relief from the effects of failing to substantiate in section 900-200 may relieve taxpayers from complying with the formal substantiation requirements in Division 900, neither provision dispenses with the requirement to establish that the claimed expenses were incurred in gaining or producing assessable income within the meaning of section 8-1. [54] • While the taxpayer still bears the burden of establishing the deductibility of expenses, the Commissioner should not insist on a taxpayer keeping detailed records of the kind required to meet the substantiation requirements in Division 900 when an operative exception or relief from compliance with those requirements applies. [55] | – the Commissioner will continue to assess claims for deductions of meal expenses by reference to all relevant evidence to ensure that deductions are only allowed where the statutory requirements under section 8-1 are satisfied – this includes consideration of whether expenses were incurred in gaining or producing assessable income and whether any private component requires apportionment. | 39. However, we consider that this decision does not: • establish that particular forms of evidence, including bank statements or oral testimony, will always show a consistent pattern of travel and eating and spending habits, and be sufficient to demonstrate that the meal expenses have been incurred in gaining or producing assessable income under section 8-1 • remove the need to consider apportionment of meal expenses where those expenses relate in part to private purposes – whether the evidence is adequate in establishing a broad mechanism for apportionment will depend on the facts and circumstances of each case • provide an automatic statutory deduction when the meal expenses claimed are within the Commissioner's published guideline on 'reasonable amounts'. | • establish that particular forms of evidence, including bank statements or oral testimony, will always show a consistent pattern of travel and eating and spending habits, and be sufficient to demonstrate that the meal expenses have been incurred in gaining or producing assessable income under section 8-1 • remove the need to consider apportionment of meal expenses where those expenses relate in part to private purposes – whether the evidence is adequate in establishing a broad mechanism for apportionment will depend on the facts and circumstances of each case • provide an automatic statutory deduction when the meal expenses claimed are within the Commissioner's published guideline on 'reasonable amounts'. | Distinction between qualification for deduction and substantiation | 40. The Federal Court's reasoning is consistent with established principles – the primary question of eligibility for a deduction is distinct from the question of substantiation. [56] A taxpayer must first establish an entitlement to a deduction under section 8-1 for the relevant amount and then determine whether an exception to substantiation under section 900-50 or relief from the effects of failing to substantiate under section 900-200 applies. [57] | Apportionment | 41. In accepting the taxpayer's evidence, the Federal Court found that the Tribunal provided a foundation for its conclusion that the claimed expenditure had been incurred and that the evidence of the taxpayer gave a broad mechanism for apportionment. [58] We accept on the facts found by the Tribunal, and the evidence provided by the taxpayer, that this conclusion was available to the Court. | Onus of proof | 42. The Federal Court found that the Tribunal ultimately decided the matter on the taxpayer's evidence, and not on any failure by the Commissioner to adopt the methodologies that it suggested. [59] We accept that this conclusion was available to the Court and is consistent with established principles regarding a taxpayer's onus of proof. | Reasonableness standard | 43. The Federal Court confirmed that the references by the Tribunal to 'reasonableness' were only relevant in the context of the exceptions in Division 900 and not in relation to the application of section 8-1. [60] These findings are consistent with the Commissioner's view on the application of the relevant provisions. | Section 900-200 | 44. We note that the Federal Court made some observations regarding the application of section 900-200 and the existence of a reasonable expectation where a taxpayer received incorrect advice from a tax agent. [61] These observations were not central to the finding that the meal expenses were deductible. | 45. Where a taxpayer is relieved from the requirement to substantiate expenses under Division 900, the Commissioner will not insist on a taxpayer keeping detailed records of the kind that would otherwise be required to meet the substantiation requirements. [62]", "Administrative_Treatment": "46. We are: • reviewing the impact of this decision on related advice and guidance, including Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses • considering whether a Practical Compliance Guideline about claiming and substantiating work-related travel expenses would be appropriate. | • reviewing the impact of this decision on related advice and guidance, including Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses • considering whether a Practical Compliance Guideline about claiming and substantiating work-related travel expenses would be appropriate. | 47. We will also ensure that the annual Taxation Determination setting out the reasonable travel and overtime meal allowance expenses amounts for the 2026–27 income year is updated accordingly.", "Related_Documents": "2026 ATC 21-002 | TR 2004/6 | TD 2020/5 | ITAA 1997 8-1 | ITAA 1997 8-1(1) | ITAA 1997 8-1(2)(b) | ITAA 1997 Division 900 | ITAA 1997 900-50 | ITAA 1997 900-200 | TAA 1953 14ZZK | 2025 ATC 10-750", "Legislative_References": "ITAA 1997 8-1 ITAA 1997 8-1(1) ITAA 1997 8-1(2)(b) ITAA 1997 Division 900 ITAA 1997 900-50 ITAA 1997 900-200 TAA 1953 14ZZK", "Case_References": "Commissioner of Taxation v Shaw [2026] FCA 197 2026 ATC 21-002 Shaw and Commissioner of Taxation [2025] ARTA 224 2025 ATC 10-750", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD112of2025/00001", "Unmatched_Content": "ATO view of this decision | Implications for affected advice or guidance | Stephanie.Oates@ato.gov.au | Commissioner of Taxation 13 May 2026 | [4] At [45] and Shaw and Commissioner of Taxation [2025] ARTA 224 ( Shaw ART ) at [21b-21c]. | [5] At [45], [47] and Shaw ART at [21g-21h]. | [6] At [45] and Shaw ART at [21f]. | [7] At [45] and Shaw ART at [21d]. | [8] At [45] and Shaw ART at [21o]. | [9] At [27-31] and Shaw ART at [10]. | [12] At [45], [48] and Shaw ART at [11]. | [13] At [1] and Shaw ART at [15]. | [14] At [1] and Shaw ART at [12] and [17]. | [15] The Administrative Appeals Tribunal was replaced by the Administrative Review Tribunal on 14 October 2024. | [21] At [17-18] and [23]. | [33] At [118-119], [121]. | [35] Shaw ART at footnotes 44, 45 and 73. | [45] See paragraph 10 of this Decision impact statement. | [46] See paragraph 11 of this Decision impact statement."}
{"Case_Name": "Commissioner of Taxation v Bendel [2025] FCAFC 15", "Venue_Reference_No": "VID 903 of 2023", "Venue": "Full Federal Court", "Judgment_Date": "19 February 2025", "Date_Published": "13 August 2025", "Document_Type": "Interim Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case, which concerns whether a private company's failure to call for payment of entitlements to income of an associated trust was the provision of 'financial accommodation' and, therefore, a loan for the purposes of section 109D of the Income Tax Assessment Act 1936. | 2. This decision is currently subject to a High Court appeal, the Commissioner's special leave application having been granted on 12 June 2025. | 3. All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1936 , unless otherwise indicated. | 4. All judgment references in this Decision impact statement are to the judgment of Commissioner of Taxation v Bendel [2025] FCAFC 15, unless otherwise indicated.", "Overview_of_Facts": "5. The Steven Bendel 2005 Discretionary Trust (Trust) was a discretionary trust. Its trustee was Gleewin Pty. Ltd. (Trustee). | 6. The beneficiaries of the Trust included Mr Bendel and Gleewin Investments Pty Ltd (Gleewin) (together, the Respondents). | 7. Mr Bendel was the sole shareholder and director of the Trustee and Gleewin. | 8. Mr Bendel and Gleewin were made presently entitled to income of the Trust for each of the 2013 to 2016 income years. | 9. In each of the 2013 to 2017 income years, the Trust made some payments for, or on behalf of, Gleewin that had the effect of reducing Gleewin's entitlements to trust income. However, those entitlements remained substantially unpaid by Gleewin's lodgment day [1] for each of its 2013 to 2016 income year income tax returns. | 10. The accounting records of the Trust also showed that in the 2014 to 2017 income years, it made significant payments to Mr Bendel, recorded as an amount owing to the Trust in its accounts. | 11. The Commissioner issued amended assessments to the Respondents for each of the 2014 to 2017 income years. Those assessments reflected additional amounts included in their assessable income under section 97, on the basis that: • The outstanding amounts represented loans from Gleewin to the Trust within the meaning of subsection 109D(3) that were taken to be dividends paid to the Trust under subsection 109D(1). • The beneficiaries entitled to the Trust's income had a corresponding proportion of each deemed dividend included in their assessable income by section 97. | • The outstanding amounts represented loans from Gleewin to the Trust within the meaning of subsection 109D(3) that were taken to be dividends paid to the Trust under subsection 109D(1). • The beneficiaries entitled to the Trust's income had a corresponding proportion of each deemed dividend included in their assessable income by section 97. | 12. The Commissioner appealed the decision made by the Administrative Appeals Tribunal's on 28 September 2023 that Gleewin's unpaid present entitlements to trust income were not loans for the purpose of section 109D.", "Issues_Decided": "13. The issues on appeal before the Full Federal Court are set out below. | Issue 1 – making a loan within the meaning of subsection 109D(3): 14. The primary issue was whether Gleewin made a loan within the meaning of subsection 109D(3) to the Trust during each of the 2014 to 2017 years on account of Gleewin's unpaid present entitlement (UPE) to trust income of the previous year. 15. The Court decided that Gleewin did not make a loan to the trustee of the Trust within the meaning of subsection 109D(3). There was therefore no deemed dividend paid by Gleewin to the Trust under subsection 109D(1). 16. In reaching its decision, the Court considered that subsection 109D(3) requires an obligation to repay and not merely an obligation to pay. While it was conceded that a debtor-creditor relationship had arisen in respect of Gleewin's UPE [2] , the Court considered there was no loan or creation of an obligation to repay an amount, as opposed to an obligation to pay. The Court found that section 109D was not satisfied. [3] | Issue 2 – including a deemed dividend in assessable income: 17. The second issue being considered was whether section 6-25 of the Income Tax Assessment Act 1997 prevents a deemed dividend from being included in the Trust's assessable income or, alternatively, the Applicant's assessable incomes on the basis that the same amount has already been included in assessable income. 18. Consistent with its conclusion for the primary issue (that is, section 109D was not engaged by the circumstances of Gleewin and the Trust), the Court found it unnecessary to decide this issue. [4]", "ATO_View_of_Decision": "19. The Commissioner's special leave application to the High Court in respect of the Full Federal Court's decision was granted on 12 June 2025. | 20. Until the appeal process is finalised, we do not intend to revise the current views relating to private company entitlements to trust income, as set out in Taxation Determination TD 2022/11: Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'? | 21. In addition to the application of section 109D, the basis on which private company beneficiaries deal with unpaid entitlements to trust income may have implications under other taxation laws, such as section 100A. | 22. Regarding section 100A, a commonly referred to exception to this provision applying is the arrangement being entered into as part of ordinary commercial dealing. In Practical Compliance Guideline PCG 2022/2 Section 100A reimbursement agreements – ATO compliance approach (broadly stated), we explain that: • Where a corporate beneficiary is made entitled to income from a related trust, and the trustee retains those funds by way of a loan on 'commercial terms' for working capital, we will not typically seek to apply compliance resources to consider the application of section 100A. • For these purposes, we accept that loans on Division 7A complying terms are sufficiently commercial. (See subparagraph 25(e) of PCG 2022/2.) | • Where a corporate beneficiary is made entitled to income from a related trust, and the trustee retains those funds by way of a loan on 'commercial terms' for working capital, we will not typically seek to apply compliance resources to consider the application of section 100A. • For these purposes, we accept that loans on Division 7A complying terms are sufficiently commercial. (See subparagraph 25(e) of PCG 2022/2.) | 23. If instead, a trustee retains funds that a corporate beneficiary has been made entitled to without converting that entitlement to a loan at least as commercial as the terms set out in Division 7A, the arrangement would fall outside the green zone described in PCG 2022/2. In situations such as this, we may engage with you to better understand your arrangement, including the risk of section 100A applying.", "Administrative_Treatment": "24. Pending the outcome of the appeal process, we are administering the law in accordance with the published views relating to private company entitlements and trust income in TD 2022/11. | 25. Until the appeal process is finalised, where a decision turns on whether or not a UPE is a subsection 109D(3) loan, we do not propose to seek to finalise: • decisions on issuing amending assessments • decisions on private ruling applications that go directly to this issue, or • objection decisions in relation to objections to past-year assessments (for which no settlement was reached). | • decisions on issuing amending assessments • decisions on private ruling applications that go directly to this issue, or • objection decisions in relation to objections to past-year assessments (for which no settlement was reached). | 26. However, if a decision is required to be made (for example, because the taxpayer's period of review will elapse or a taxpayer gives notice requiring the Commissioner to make an objection decision), our decisions will be based on the existing ATO view of the law. | Commissioner of Taxation 19 March 2025 | 13 August 2025 Part Comment Summary of decision and ATO view of this decision Updated to note that special leave to appeal decision was granted by the High Court on 12 June 2025. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] As defined in subsection 109D(6), being the earlier of the due date for lodgment of the private company's income tax return or the date on which that return is lodged. | [2] At [92]. | [3] At [93–94]. | [4] At [95].", "Related_Documents": "2025 ATC 20-946 | TD 2022/11 | ITAA 1936 Div 7A | ITAA 1936 97 | ITAA 1936 100A | ITAA 1936 109D | ITAA 1936 109D(1) | ITAA 1936 109D(3) | ITAA 1997 6-25 | PCG 2022/2", "Legislative_References": "ITAA 1936 Div 7A ITAA 1936 97 ITAA 1936 100A ITAA 1936 109D ITAA 1936 109D(1) ITAA 1936 109D(3) ITAA 1997 6-25", "Case_References": "", "Subject_References": "", "Other_References": "PCG 2022/2", "Is_Interim": true, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID903of2023/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v PepsiCo Inc & Anor [2025] HCA 30", "Venue_Reference_No": "M98/2024", "Venue": "High Court of Australia", "Judgment_Date": "13 August 2025", "Date_Published": "4 June 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. The High Court dismissed the Commissioner's appeal and found that PepsiCo Inc (PepsiCo) and Stokely-Van Camp Inc (the Taxpayers) were not liable to royalty withholding tax nor to diverted profits tax (DPT). | 2. The Court delivered a split decision, with 4 justices (Gordon, Edelman, Steward and Gleeson JJ) delivering the majority judgment (Majority) and 3 justices comprising the minority (Gageler CJ, Jagot and Beech-Jones JJ) (Minority). | 3. All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1936. | 4. All judgment references in this Decision impact statement are to the judgment of Commissioner of Taxation v PepsiCo Inc & Anor [2025] HCA 30 (PepsiCo), unless otherwise indicated. | Royalty withholding tax | 5. The Majority found that payments received by an Australian company in the PepsiCo Group from an independent third-party bottler were not made 'as consideration for' use of intellectual property and therefore not a royalty for withholding tax purposes. The Minority, in dissent, viewed the payments as containing a royalty. | 6. The Court was unanimous that the payments were not 'paid to' or 'derived by' the Taxpayers for withholding tax purposes. It followed that there was no royalty withholding tax payable. | Diverted profits tax | 7. The Majority rejected the Commissioner's alternative argument that the DPT applied, finding that there were no reasonable alternatives to the scheme and therefore no DPT benefit (tax benefit). The Minority, in dissent, considered that the DPT did apply.", "Overview_of_Facts": "8. PepsiCo and Stokely-Van Camp Inc are United States-resident companies in the global PepsiCo Group. They own the brands, recipes and trademarks for well-known branded drinks such as Pepsi, Mountain Dew and Gatorade. | The umbrella contract | 9. The Taxpayers each entered into exclusive bottling agreements (EBAs) with Schweppes Australia Pty Ltd (the Bottler), an Australian company outside of the global PepsiCo Group, to manufacture, bottle, and distribute branded drinks in Australia. | 10. The EBAs granted the Bottler exclusive rights to manufacture, bottle and distribute the drinks in Australia and also provided the Bottler with an implied licence from PepsiCo to use trademarks, as well as mixing formulas, and other intellectual property (IP). The EBAs also obliged the Bottler to purchase flavour concentrate necessary to make the drinks and required the Bottler to maintain quality standards. | 11. The relevant payments being made by the Bottler were expressed in the EBAs as the 'price' for flavour concentrate. In one EBA, the payments were expressly labelled as 'royalty-free'. | 12. Under the EBAs, the Bottler was able to purchase flavour concentrate from a 'seller'. The 'seller' under the EBA was identified as the relevant Taxpayer, but they could, and did, nominate another entity within the PepsiCo Group to take on this 'seller' role. | Other key contracts | 13. Alongside the EBAs, the Bottler also entered into other agreements with companies in the PepsiCo Group in respect of the marketing of the drinks. These included: (i) an agreement which the Bottler entered into with an Irish member of the PepsiCo Group, and (ii) co-operative annual advertising and marketing agreements which the Bottler entered into with the nominated seller. | (i) an agreement which the Bottler entered into with an Irish member of the PepsiCo Group, and (ii) co-operative annual advertising and marketing agreements which the Bottler entered into with the nominated seller. | 14. Under these additional agreements, the Bottler and members of the PepsiCo Group agreed to share contributions to marketing for the relevant drink brands in Australia. | Sales of concentrate | 15. As provided for in the EBAs, an Australian company, PepsiCo Beverage Singapore Pty Ltd (the Seller) was nominated as the 'seller'. The Seller was not a party to the EBAs. The Seller provided concentrate to the Bottler and received the relevant payments from the Bottler. The Taxpayers did not receive the relevant payments. | 16. The Bottler sent the Seller purchase orders requesting amounts of concentrate. The Seller shipped concentrate to the Bottler and invoiced the Bottler for that concentrate. The Bottler paid those invoices into the Seller's bank account. The purchase orders and invoices made no mention of being in relation to of anything other than concentrate. | 17. The Seller made only a negligible profit from its dealing in concentrate, making a 0.05% markup on its concentrate sales. The Seller's revenue from concentrate sales to the Bottler were matched almost entirely by the Seller's costs of concentrate it purchased from another PepsiCo Group company in Singapore. | Tax treatment adopted | 18. The Australian tax treatment adopted by the PepsiCo Group was that the only income tax liability in Australia was a negligible amount paid by the Seller because its income from concentrate sales was largely offset by its costs of concentrate purchased from overseas related parties. | Issues before the Court | 19. The Commissioner won at first instance, with the Federal Court finding that the Taxpayers were liable to royalty withholding tax, and in the alternative, the DPT applied. In the Full Federal Court, the Commissioner lost on both issues and appealed to the High Court. | 20. Before the High Court, the Commissioner contended that royalty withholding tax applied because: (i) part of the payment by the Bottler to the Seller was 'consideration for' the IP being provided to the Bottler by the Taxpayers and was thus a 'royalty', and (ii) the part of the payments that was 'consideration for' IP was being dealt with by the Seller on behalf of the Taxpayers, and thus was to be treated as paid to the Taxpayers due to a deeming rule set out in subsection 128A(2). | (i) part of the payment by the Bottler to the Seller was 'consideration for' the IP being provided to the Bottler by the Taxpayers and was thus a 'royalty', and (ii) the part of the payments that was 'consideration for' IP was being dealt with by the Seller on behalf of the Taxpayers, and thus was to be treated as paid to the Taxpayers due to a deeming rule set out in subsection 128A(2). | 21. In the alternative, the Commissioner contended that the DPT applied because: (i) there was a scheme involving the setting of the terms of the EBAs to exclude recognition of any part of the payments as a royalty (ii) a reasonable alternative to the scheme was that the Taxpayers would have entered into EBAs with terms that recognised a royalty and this illustrated that the scheme produced tax benefits, that is, savings of withholding tax, and (iii) there were parties to the scheme who had an objective principal purpose for the Taxpayers to obtain those tax benefits. | (i) there was a scheme involving the setting of the terms of the EBAs to exclude recognition of any part of the payments as a royalty (ii) a reasonable alternative to the scheme was that the Taxpayers would have entered into EBAs with terms that recognised a royalty and this illustrated that the scheme produced tax benefits, that is, savings of withholding tax, and (iii) there were parties to the scheme who had an objective principal purpose for the Taxpayers to obtain those tax benefits. | Decision on royalty withholding tax – was there a royalty? | 22. The first question considered by the Court was whether some part of the payments by the Bottler was a royalty. Royalty is defined in section 6, relevantly: royalty or royalties includes any amount paid or credited, however described or computed, and whether the payment or credit is periodical or not, to the extent to which it is paid or credited, as the case may be, as consideration for: (a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark, or other like property or right; … | (a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark, or other like property or right; … | Payment was 'consideration for' concentrate only | 23. The Majority characterised the relevant payments as consideration for concentrate alone. This means there was no royalty and royalty withholding tax did not apply. | The arrangements | 24. Key to the Majority's view that the relevant payments were not royalties to any extent was its conclusion that those payments arose under individual contracts that did not include provision of any rights to IP. The rights to IP were supplied for a different consideration. | 25. The Majority considered that there were 2 arrangements present, one being a broad arrangement comprising several contracts [1] which they referred to as 'the SAPL Bottler, Seller and Distributor Agreement' and the second being separate agreements under which concentrate was sold between Bottler and Seller. | 26. The Majority characterised the 'SAPL Bottler, Seller and Distributor Agreement' as an 'agreement that the Bottler would manufacture, bottle, sell and distribute' soft drinks'. [2] They found that the relevant rights to intellectual property were being provided under this broad commercial agreement as consideration for promises and payments provided under the broader agreement. | 27. Importantly, this broad agreement was seen as being separate from the series of future sales transactions for concentrate. [3] Those future sales transactions later materialised in the form of individual contracts (concentrate sales agreements) for the supply of concentrate (evidenced by purchase orders and invoices). The Majority pointed out that the Commissioner had not argued that these sales transactions between the Seller and the Bottler were a sham, or that the Seller was acting as an agent or trustee for the Taxpayers when receiving the payments for the concentrate. The Majority found that the relevant payments were being made under the concentrate sales agreements, in consideration for the concentrate alone. [4] | The stamp duty cases are good law for 'royalty' characterisation | 28. The Majority, having found the provision of IP and the payments were arising under different arrangements, considered that the payments could not be 'consideration for' IP. The Majority framed the test with reference to Archibald Howie [5] , Dick Smith [6] , and Lend Lease [7] as being one where it was necessary to identify what was a '\"moving cause\" or a \"material cause\" for the payment'. [8] The Majority did not see the payments being consideration for anything outside of the arrangements for concentrate sales. [9] The Majority was assisted in resolving the characterisation question by looking to the 'purpose' of the payment, or the 'basis' or 'condition' upon which it is made. [10] | 29. In concluding that the relevant payments arose under the concentrate sales agreements and were for concentrate only, the Majority observed that: (i) the Commissioner had not argued that the pricing of the payments for the concentrate were 'inflated' or otherwise included an amount that reflected additional consideration for intellectual property [11] , and (ii) the (clearly valuable) IP was not being provided 'for nothing' because the Taxpayers received a number of valuable promises in their favour under the broader 'Bottler, Seller and Distributor Agreement'. [12] | (i) the Commissioner had not argued that the pricing of the payments for the concentrate were 'inflated' or otherwise included an amount that reflected additional consideration for intellectual property [11] , and (ii) the (clearly valuable) IP was not being provided 'for nothing' because the Taxpayers received a number of valuable promises in their favour under the broader 'Bottler, Seller and Distributor Agreement'. [12] | 30. The Minority, however, considered the EBAs were part of a 'single, integrated and indivisible' transaction which also included the making of the relevant payments. The Minority's view was that the provision of IP, the agreement to buy concentrate and the various other interlocking promises between the Bottler and the Taxpayers were not separable – the agreement between the parties involved and depended on all of those things together. | 31. The Minority, having identified that there was only one transaction, viewed the Bottler's promise to make the relevant payments as being, in part, consideration 'for' the use of the IP rights provided under the EBA. The Minority emphasised that consideration should be assessed by reference to the entire transaction rather than the labels or computational inputs used by the parties. The Minority relied on Archibald Howie, Davis [13] , Dick Smith, and Lend Lease (the stamp duty cases) to support the principle that consideration encompasses the value that moves the transaction. | Decision on royalty withholding tax – if there was a royalty, was it income derived? | 32. The second question the Court considered was, if any of the payments were a royalty, whether those royalties were being 'paid or derived' by the Taxpayers. | 33. As the relevant amounts were not directly paid to the Taxpayers, the answer to this question was affected by the deeming in subsection 128A(2). Subsection 128A(2) is a constructive payment rule contained within the Division [14] which sets out the rules for withholding tax liability which reads as follows: For the purposes of this Division, interest or a royalty shall be deemed to have been paid by a person to another person although it is not actually paid over to the other person but is reinvested, accumulated, capitalized, carried to any reserve, sinking fund or insurance fund however designated, or otherwise dealt with on behalf of the other person or as the other person directs. | 34. The Court was unanimous in characterising the dealings in concentrate as involving the selling the concentrate by the Seller to the Bottler and the Seller receiving the payments as the proceeds of that sale. | 35. The Court found the relevant payments were occurring in the course of sales of concentrate between the Seller and the Bottler and the proper construction of the sales agreements was that the proceeds of the concentrate sales were not amounts that the Taxpayers had a pre-existing (antecedent) entitlement to. | 36. Accordingly, the nomination of the Seller under the EBA did not amount to a 'direction to pay' the relevant amounts to the Seller for the purposes of subsection 128A(2). The Majority characterised the effect of the nomination of the Seller as the Taxpayers giving the Bottler a 'direction to buy' concentrate from the Seller. | 37. Having found that there was no antecedent monetary obligation for the Bottler to pay the Taxpayers, the Court was unanimous in concluding that subsection 128A(2) did not deem the Taxpayers to have been paid the relevant amounts and thus the Court was unanimous that there was no withholding tax liability. | Decision on diverted profits tax – tax benefit? | 38. This case is the first time that the High Court has considered the application of the DPT and also the rules in section 177CB for identifying a 'tax benefit', which were introduced in 2013 and which have general application for Part IVA. Exceptions specific to the DPT (income test, sufficient foreign tax test and sufficient economic substance test) were not in contention, meaning the DPT dispute focused on whether the scheme produced a tax benefit and whether someone had a principal purpose [15] of producing that tax benefit. | 39. When considering whether a scheme produces a tax benefit, section 177C frames the test as having 2 limbs – first, what would have happened, and secondly, what might reasonably be expected to have happened. Section 177CB contains statutory directions about the satisfaction of these limbs. | 40. Our case was based on the second limb which involves a reconstruction. Subsection 177CB(3) requires that for this limb to be satisfied, there must be a postulate that is a reasonable alternative to the scheme. | 41. Subsection 177CB(4) provides that: In determining for the purposes of subsection (3) whether a postulate is such a reasonable alternative: (a) have particular regard to: (i) the substance of the scheme; and (ii) any result or consequence for the taxpayer that is or would be achieved by the scheme (other than a result in relation to the operation of this Act); but (b) disregard any result in relation to the operation of this Act that would be achieved by the postulate for any person (whether or not a party to the scheme). | (a) have particular regard to: (i) the substance of the scheme; and (ii) any result or consequence for the taxpayer that is or would be achieved by the scheme (other than a result in relation to the operation of this Act); but (b) disregard any result in relation to the operation of this Act that would be achieved by the postulate for any person (whether or not a party to the scheme). | (i) the substance of the scheme; and (ii) any result or consequence for the taxpayer that is or would be achieved by the scheme (other than a result in relation to the operation of this Act); but | The parties' arguments | 42. The Commissioner argued that the Taxpayers obtained a tax benefit in connection with the scheme by reference to 2 postulates, each of which were reasonable alternatives to the scheme and produced a liability for royalty withholding tax. As an alternative to the scheme, the Commissioner postulated that the Taxpayers might reasonably be expected to have entered into an EBA including terms that: (i) recognised that the relevant payments were being made for all things under the EBA, including the IP, or (ii) expressly recognised a royalty. | (i) recognised that the relevant payments were being made for all things under the EBA, including the IP, or (ii) expressly recognised a royalty. | 43. The Taxpayers argued that there was no tax benefit because: (i) our postulates were not reasonable because they did not align with the substance, results and consequences of the scheme, and (ii) there was no alternative to the scheme which was reasonable for the purposes of subsection 177CB(4). | (i) our postulates were not reasonable because they did not align with the substance, results and consequences of the scheme, and (ii) there was no alternative to the scheme which was reasonable for the purposes of subsection 177CB(4). | The decision | 44. The Court confirmed that taxpayers bear the onus of proving that they have not obtained a tax benefit in connection with a scheme. | 45. The Majority set out that the test of reasonable expectation is a question to be determined objectively on all of the evidence 'including inferences open on the evidence, as well as the apparent logic of events'. [16] | 46. In the Majority's view, the EBAs reflected a commercially standard contracting model, which did not involve the payment of royalties for concentrate-based drinks. In their view, the absence of a royalty was not contrived but consistent with global commercial practice. On this basis, they found that the postulates the Commissioner put forward were not reasonable. | 47. The Majority found that, on 'critical facts, unique to these appeals' [17] , the Taxpayers fell within the 'unusual' scenario of being able to show that there were no reasonable alternatives to the scheme. These unique facts included that: (i) the commercial and economic substance of the DPT scheme was that the relevant payments were for concentrate alone [18] (ii) the DPT scheme had come about through dealings between unrelated parties dealing at arm's length, and the pricing for the concentrate was not 'disproportionally high', and (iii) the DPT scheme was the implementation of an established 'market standard' business model that, as part of its substance, had no royalty component to the relevant payments. | (i) the commercial and economic substance of the DPT scheme was that the relevant payments were for concentrate alone [18] (ii) the DPT scheme had come about through dealings between unrelated parties dealing at arm's length, and the pricing for the concentrate was not 'disproportionally high', and (iii) the DPT scheme was the implementation of an established 'market standard' business model that, as part of its substance, had no royalty component to the relevant payments. | 48. Key to the Majority's decision – that the Commissioner's alternative postulates were not reasonable and that there was no alternative that was reasonable – was the finding that the substance of the scheme was that there was no royalty. | 49. Having found this to be the substance of the scheme, and noting the requirement in subsection 177CB(4) to have 'particular regard' to the scheme's substance, the Majority concluded that there were no alternative postulates that 'correspond' to this substance of the scheme. It followed from this that it was not reasonable to expect that the Taxpayers would have done anything different. | 50. By contrast, the Minority found that the Taxpayers did obtain a tax benefit. The Minority accepted the postulates that the EBAs would have incorporated a basis for recognition of a royalty as reasonable. In the Minority's view, these postulates aligned with the commercial and economic substance of the arrangements, which involved the Bottler obtaining valuable IP rights essential to its operations and the evidence supported the Taxpayers having flexibility when setting terms of the EBAs. | Decision on diverted profits tax – purpose? | 51. Having found that there was no tax benefit, the Majority noted that discussion of purpose was 'unnecessary'. [19] The Majority, however, did make observations in respect of the purpose element. | 52. The Majority observed that even if a tax benefit existed, the evidence did not support the inference that the Taxpayers entered the EBAs for a principal purpose of obtaining that benefit. They stressed that the arrangements were negotiated at arm's length and produced a fair price for concentrate. They also noted that the Commissioner's reliance on a reduction in United States tax, while a factor favouring the position put forward, was insufficient to establish the requisite purpose under paragraph 177J(1)(b). [20] | 53. In dissent, the Minority did consider that the obtaining of a tax benefit was a principal purpose of the Taxpayers. The Minority emphasised the statutory test was focused on substance rather than form. In their view, the EBAs were structured so that payments were described as for concentrate but in substance facilitated the Bottler's use of IP. | 54. The Minority found that this disconnect between form and substance, combined with the resulting reductions in US tax and the absence of detailed evidence explaining why the pricing structure was adopted, supported a conclusion that a principal purpose of the scheme was to obtain a tax benefit.", "Issues_Decided": "19. The Commissioner won at first instance, with the Federal Court finding that the Taxpayers were liable to royalty withholding tax, and in the alternative, the DPT applied. In the Full Federal Court, the Commissioner lost on both issues and appealed to the High Court. 20. Before the High Court, the Commissioner contended that royalty withholding tax applied because: (i) part of the payment by the Bottler to the Seller was 'consideration for' the IP being provided to the Bottler by the Taxpayers and was thus a 'royalty', and (ii) the part of the payments that was 'consideration for' IP was being dealt with by the Seller on behalf of the Taxpayers, and thus was to be treated as paid to the Taxpayers due to a deeming rule set out in subsection 128A(2). (i) part of the payment by the Bottler to the Seller was 'consideration for' the IP being provided to the Bottler by the Taxpayers and was thus a 'royalty', and (ii) the part of the payments that was 'consideration for' IP was being dealt with by the Seller on behalf of the Taxpayers, and thus was to be treated as paid to the Taxpayers due to a deeming rule set out in subsection 128A(2). 21. In the alternative, the Commissioner contended that the DPT applied because: (i) there was a scheme involving the setting of the terms of the EBAs to exclude recognition of any part of the payments as a royalty (ii) a reasonable alternative to the scheme was that the Taxpayers would have entered into EBAs with terms that recognised a royalty and this illustrated that the scheme produced tax benefits, that is, savings of withholding tax, and (iii) there were parties to the scheme who had an objective principal purpose for the Taxpayers to obtain those tax benefits. (i) there was a scheme involving the setting of the terms of the EBAs to exclude recognition of any part of the payments as a royalty (ii) a reasonable alternative to the scheme was that the Taxpayers would have entered into EBAs with terms that recognised a royalty and this illustrated that the scheme produced tax benefits, that is, savings of withholding tax, and (iii) there were parties to the scheme who had an objective principal purpose for the Taxpayers to obtain those tax benefits. | Decision on royalty withholding tax – was there a royalty?: 22. The first question considered by the Court was whether some part of the payments by the Bottler was a royalty. Royalty is defined in section 6, relevantly: royalty or royalties includes any amount paid or credited, however described or computed, and whether the payment or credit is periodical or not, to the extent to which it is paid or credited, as the case may be, as consideration for: (a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark, or other like property or right; … (a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark, or other like property or right; … Payment was 'consideration for' concentrate only 23. The Majority characterised the relevant payments as consideration for concentrate alone. This means there was no royalty and royalty withholding tax did not apply. The arrangements 24. Key to the Majority's view that the relevant payments were not royalties to any extent was its conclusion that those payments arose under individual contracts that did not include provision of any rights to IP. The rights to IP were supplied for a different consideration. 25. The Majority considered that there were 2 arrangements present, one being a broad arrangement comprising several contracts [1] which they referred to as 'the SAPL Bottler, Seller and Distributor Agreement' and the second being separate agreements under which concentrate was sold between Bottler and Seller. 26. The Majority characterised the 'SAPL Bottler, Seller and Distributor Agreement' as an 'agreement that the Bottler would manufacture, bottle, sell and distribute' soft drinks'. [2] They found that the relevant rights to intellectual property were being provided under this broad commercial agreement as consideration for promises and payments provided under the broader agreement. 27. Importantly, this broad agreement was seen as being separate from the series of future sales transactions for concentrate. [3] Those future sales transactions later materialised in the form of individual contracts (concentrate sales agreements) for the supply of concentrate (evidenced by purchase orders and invoices). The Majority pointed out that the Commissioner had not argued that these sales transactions between the Seller and the Bottler were a sham, or that the Seller was acting as an agent or trustee for the Taxpayers when receiving the payments for the concentrate. The Majority found that the relevant payments were being made under the concentrate sales agreements, in consideration for the concentrate alone. [4] The stamp duty cases are good law for 'royalty' characterisation 28. The Majority, having found the provision of IP and the payments were arising under different arrangements, considered that the payments could not be 'consideration for' IP. The Majority framed the test with reference to Archibald Howie [5] , Dick Smith [6] , and Lend Lease [7] as being one where it was necessary to identify what was a '\"moving cause\" or a \"material cause\" for the payment'. [8] The Majority did not see the payments being consideration for anything outside of the arrangements for concentrate sales. [9] The Majority was assisted in resolving the characterisation question by looking to the 'purpose' of the payment, or the 'basis' or 'condition' upon which it is made. [10] 29. In concluding that the relevant payments arose under the concentrate sales agreements and were for concentrate only, the Majority observed that: (i) the Commissioner had not argued that the pricing of the payments for the concentrate were 'inflated' or otherwise included an amount that reflected additional consideration for intellectual property [11] , and (ii) the (clearly valuable) IP was not being provided 'for nothing' because the Taxpayers received a number of valuable promises in their favour under the broader 'Bottler, Seller and Distributor Agreement'. [12] (i) the Commissioner had not argued that the pricing of the payments for the concentrate were 'inflated' or otherwise included an amount that reflected additional consideration for intellectual property [11] , and (ii) the (clearly valuable) IP was not being provided 'for nothing' because the Taxpayers received a number of valuable promises in their favour under the broader 'Bottler, Seller and Distributor Agreement'. [12] 30. The Minority, however, considered the EBAs were part of a 'single, integrated and indivisible' transaction which also included the making of the relevant payments. The Minority's view was that the provision of IP, the agreement to buy concentrate and the various other interlocking promises between the Bottler and the Taxpayers were not separable – the agreement between the parties involved and depended on all of those things together. 31. The Minority, having identified that there was only one transaction, viewed the Bottler's promise to make the relevant payments as being, in part, consideration 'for' the use of the IP rights provided under the EBA. The Minority emphasised that consideration should be assessed by reference to the entire transaction rather than the labels or computational inputs used by the parties. The Minority relied on Archibald Howie, Davis [13] , Dick Smith, and Lend Lease (the stamp duty cases) to support the principle that consideration encompasses the value that moves the transaction. | Decision on royalty withholding tax – if there was a royalty, was it income derived?: 32. The second question the Court considered was, if any of the payments were a royalty, whether those royalties were being 'paid or derived' by the Taxpayers. 33. As the relevant amounts were not directly paid to the Taxpayers, the answer to this question was affected by the deeming in subsection 128A(2). Subsection 128A(2) is a constructive payment rule contained within the Division [14] which sets out the rules for withholding tax liability which reads as follows: For the purposes of this Division, interest or a royalty shall be deemed to have been paid by a person to another person although it is not actually paid over to the other person but is reinvested, accumulated, capitalized, carried to any reserve, sinking fund or insurance fund however designated, or otherwise dealt with on behalf of the other person or as the other person directs. 34. The Court was unanimous in characterising the dealings in concentrate as involving the selling the concentrate by the Seller to the Bottler and the Seller receiving the payments as the proceeds of that sale. 35. The Court found the relevant payments were occurring in the course of sales of concentrate between the Seller and the Bottler and the proper construction of the sales agreements was that the proceeds of the concentrate sales were not amounts that the Taxpayers had a pre-existing (antecedent) entitlement to. 36. Accordingly, the nomination of the Seller under the EBA did not amount to a 'direction to pay' the relevant amounts to the Seller for the purposes of subsection 128A(2). The Majority characterised the effect of the nomination of the Seller as the Taxpayers giving the Bottler a 'direction to buy' concentrate from the Seller. 37. Having found that there was no antecedent monetary obligation for the Bottler to pay the Taxpayers, the Court was unanimous in concluding that subsection 128A(2) did not deem the Taxpayers to have been paid the relevant amounts and thus the Court was unanimous that there was no withholding tax liability. | Decision on diverted profits tax – tax benefit?: 38. This case is the first time that the High Court has considered the application of the DPT and also the rules in section 177CB for identifying a 'tax benefit', which were introduced in 2013 and which have general application for Part IVA. Exceptions specific to the DPT (income test, sufficient foreign tax test and sufficient economic substance test) were not in contention, meaning the DPT dispute focused on whether the scheme produced a tax benefit and whether someone had a principal purpose [15] of producing that tax benefit. 39. When considering whether a scheme produces a tax benefit, section 177C frames the test as having 2 limbs – first, what would have happened, and secondly, what might reasonably be expected to have happened. Section 177CB contains statutory directions about the satisfaction of these limbs. 40. Our case was based on the second limb which involves a reconstruction. Subsection 177CB(3) requires that for this limb to be satisfied, there must be a postulate that is a reasonable alternative to the scheme. 41. Subsection 177CB(4) provides that: In determining for the purposes of subsection (3) whether a postulate is such a reasonable alternative: (a) have particular regard to: (i) the substance of the scheme; and (ii) any result or consequence for the taxpayer that is or would be achieved by the scheme (other than a result in relation to the operation of this Act); but (b) disregard any result in relation to the operation of this Act that would be achieved by the postulate for any person (whether or not a party to the scheme). (a) have particular regard to: (i) the substance of the scheme; and (ii) any result or consequence for the taxpayer that is or would be achieved by the scheme (other than a result in relation to the operation of this Act); but (b) disregard any result in relation to the operation of this Act that would be achieved by the postulate for any person (whether or not a party to the scheme). (i) the substance of the scheme; and (ii) any result or consequence for the taxpayer that is or would be achieved by the scheme (other than a result in relation to the operation of this Act); but The parties' arguments 42. The Commissioner argued that the Taxpayers obtained a tax benefit in connection with the scheme by reference to 2 postulates, each of which were reasonable alternatives to the scheme and produced a liability for royalty withholding tax. As an alternative to the scheme, the Commissioner postulated that the Taxpayers might reasonably be expected to have entered into an EBA including terms that: (i) recognised that the relevant payments were being made for all things under the EBA, including the IP, or (ii) expressly recognised a royalty. (i) recognised that the relevant payments were being made for all things under the EBA, including the IP, or (ii) expressly recognised a royalty. 43. The Taxpayers argued that there was no tax benefit because: (i) our postulates were not reasonable because they did not align with the substance, results and consequences of the scheme, and (ii) there was no alternative to the scheme which was reasonable for the purposes of subsection 177CB(4). (i) our postulates were not reasonable because they did not align with the substance, results and consequences of the scheme, and (ii) there was no alternative to the scheme which was reasonable for the purposes of subsection 177CB(4). The decision 44. The Court confirmed that taxpayers bear the onus of proving that they have not obtained a tax benefit in connection with a scheme. 45. The Majority set out that the test of reasonable expectation is a question to be determined objectively on all of the evidence 'including inferences open on the evidence, as well as the apparent logic of events'. [16] 46. In the Majority's view, the EBAs reflected a commercially standard contracting model, which did not involve the payment of royalties for concentrate-based drinks. In their view, the absence of a royalty was not contrived but consistent with global commercial practice. On this basis, they found that the postulates the Commissioner put forward were not reasonable. 47. The Majority found that, on 'critical facts, unique to these appeals' [17] , the Taxpayers fell within the 'unusual' scenario of being able to show that there were no reasonable alternatives to the scheme. These unique facts included that: (i) the commercial and economic substance of the DPT scheme was that the relevant payments were for concentrate alone [18] (ii) the DPT scheme had come about through dealings between unrelated parties dealing at arm's length, and the pricing for the concentrate was not 'disproportionally high', and (iii) the DPT scheme was the implementation of an established 'market standard' business model that, as part of its substance, had no royalty component to the relevant payments. (i) the commercial and economic substance of the DPT scheme was that the relevant payments were for concentrate alone [18] (ii) the DPT scheme had come about through dealings between unrelated parties dealing at arm's length, and the pricing for the concentrate was not 'disproportionally high', and (iii) the DPT scheme was the implementation of an established 'market standard' business model that, as part of its substance, had no royalty component to the relevant payments. 48. Key to the Majority's decision – that the Commissioner's alternative postulates were not reasonable and that there was no alternative that was reasonable – was the finding that the substance of the scheme was that there was no royalty. 49. Having found this to be the substance of the scheme, and noting the requirement in subsection 177CB(4) to have 'particular regard' to the scheme's substance, the Majority concluded that there were no alternative postulates that 'correspond' to this substance of the scheme. It followed from this that it was not reasonable to expect that the Taxpayers would have done anything different. 50. By contrast, the Minority found that the Taxpayers did obtain a tax benefit. The Minority accepted the postulates that the EBAs would have incorporated a basis for recognition of a royalty as reasonable. In the Minority's view, these postulates aligned with the commercial and economic substance of the arrangements, which involved the Bottler obtaining valuable IP rights essential to its operations and the evidence supported the Taxpayers having flexibility when setting terms of the EBAs. | Decision on diverted profits tax – purpose?: 51. Having found that there was no tax benefit, the Majority noted that discussion of purpose was 'unnecessary'. [19] The Majority, however, did make observations in respect of the purpose element. 52. The Majority observed that even if a tax benefit existed, the evidence did not support the inference that the Taxpayers entered the EBAs for a principal purpose of obtaining that benefit. They stressed that the arrangements were negotiated at arm's length and produced a fair price for concentrate. They also noted that the Commissioner's reliance on a reduction in United States tax, while a factor favouring the position put forward, was insufficient to establish the requisite purpose under paragraph 177J(1)(b). [20] 53. In dissent, the Minority did consider that the obtaining of a tax benefit was a principal purpose of the Taxpayers. The Minority emphasised the statutory test was focused on substance rather than form. In their view, the EBAs were structured so that payments were described as for concentrate but in substance facilitated the Bottler's use of IP. 54. The Minority found that this disconnect between form and substance, combined with the resulting reductions in US tax and the absence of detailed evidence explaining why the pricing structure was adopted, supported a conclusion that a principal purpose of the scheme was to obtain a tax benefit.", "ATO_View_of_Decision": "55. Our views on the implications of this decision are set out in paragraphs 56 to 78 of this Decision impact statement. | Identification of royalties | Consideration is not to be given a narrow technical meaning of contract | 56. One issue before the Court was the question of whether the term 'consideration for' in the royalty definition takes on its narrow technical meaning under contract law, or a broader meaning of that which moves the transfer of property developed in the stamp duty cases. The Court [21] endorsed the broader approach and we will continue to apply that principle in determining whether or not there is a royalty in arrangements we are examining. | 57. Notably, the 'central bargain' or 'central transaction' test – where one examines an agreement for whether IP rights are a central item of the agreement for the purposes of characterising what the payment is for [22] – was not endorsed in either of the judgments of the High Court. | It is important to identify the totality of the relevant bargain | 58. This decision also reflects the importance of correctly identifying the 'agreement' that is to be analysed for whether there is a royalty. That the relevant 'agreement' to be analysed can be framed more broadly than a single contract and may be a composite of multiple contracts is a conventional approach, and ultimately a factual question. | 59. Noting the Court's endorsement that the relevant arrangement can extend beyond a single contract, we will continue to seek to obtain documents and information necessary to understand the nature of the arrangements between the parties and their associates where there is a dealing in IP. This could include seeking copies of contracts, details of dealings between relevant parties and details of the negotiations which informed those contracts and dealings. | Embedded royalties | 60. The decision does not disturb our view that, depending on the relevant facts and circumstances, a royalty may be found notwithstanding rights to use IP have been 'embedded' into amounts labelled as consideration for something that is not IP, such as a good or a service. The characterisation of a payment is not determined by the label attached to it by the parties (for example, stating it as being for goods or services, or being 'royalty-free'), or how it is computed. | 61. The decision in PepsiCo does not establish any broad proposition that the characterisation of a payment under a contract – whether involving arm's length parties or related parties – can never be challenged. We continue to examine the arrangements of related parties closely. | 62. The Court's observation in this case as to the 'criticality' of our not contending that the pricing of concentrate was inflated [23] is consistent with the potential for pricing evidence to be relevant for a characterisation analysis. In future cases involving royalty characterisation, we will seek to understand and, if necessary, test, the economic fundamentals of arrangements that involve provision of IP but where no royalty is recognised. This may include, but is not limited to, seeking evidence for the values of IP rights being supplied under an arrangement, as well as the values of other property or things being exchanged. | Payment of royalties | 63. All justices of the High Court found that, on the particular contracts before them, there was no antecedent obligation of the Bottler to make the relevant payments to the Taxpayers. This meant that even if there had been a royalty component to the payment, it could not be said that there had been a constructive payment (and receipt) of a royalty to the Taxpayers and therefore the payments made to the Seller was not a case of the Bottler making a payment on behalf of or at the direction of the Taxpayers. | 64. This conclusion was based on a factual finding of what the parties in this case had agreed under the terms of their bargain. [24] We do not expect a scenario where a royalty is present but that royalty is not being paid to or at the direction of the provider of the relevant IP to be common. If such a scenario were to present in the future, we would seek to understand the commercial context and rationale for the arrangement. | 65. We will examine closely any existing arrangements under which a non-resident IP holder receives compensation for making IP available but the arrangements are changed resulting in there no longer being a payment (actual or constructive) of a royalty to a non-resident. Such altered arrangements are considered high-risk for the purposes of Part IVA and the DPT. | Diverted profits tax generally | 66. The finding that that the DPT did not apply because there was no tax benefit present was based on 'critical facts, unique to these appeals'. [25] These unique facts included that: (i) the substance of the scheme was that there was no royalty component to the relevant payments, (ii) the scheme had come about through dealings between unrelated parties dealing at arm's length, and (iii) the scheme was the implementation of a long-standing 'market standard' business model. | (i) the substance of the scheme was that there was no royalty component to the relevant payments, (ii) the scheme had come about through dealings between unrelated parties dealing at arm's length, and (iii) the scheme was the implementation of a long-standing 'market standard' business model. | 67. We do not expect that this set of 'unique' and 'critical' facts will be common to other cases. Because of this, we consider that the Majority's analysis as to tax benefit in this case has limited implications for the application of the DPT or Part IVA in other cases. | Identification of tax benefits and the taxpayer's onus | Onus | 68. The Court unanimously found that the onus rests on taxpayers in respect of the application of Part IVA. This decision is consistent with a long line of authorities that for taxpayers seeking to discharge their onus it is not enough to find error in the Commissioner's case – for example, showing that our postulates are not reasonable – they need to positively discharge their onus. [26] | 69. The decision clarifies that a taxpayer discharges its onus in respect of tax benefit under subsection177CB(3) if it establishes that there is no reasonable alternative to the scheme, in the sense required by subsection177CB(3). We expect that discharging the onus in this way will be, as the Majority said, 'unusual'. [27] | More than one alternative postulate that is reasonable | 70. It is our view that PepsiCo at [207] raises the possibility that there can be more than one alternative postulate that is reasonable, contrary to the position for Part IVA prior to the 2013 amendments. In our view, the analysis required by section 177CB as to the identification of 'reasonable postulates' can result in the identification of more than one such 'reasonable postulate'. [28] The observation by the High Court in this case, as to it being possible that there could be multiple reasonable postulates, is in tension with the Full Federal Court's decision in Hicks [29] . | 71. A question arises about whether the onus is discharged where there are 2 or more reasonable alternative postulates, where one or more results in the identification of a tax benefit and at least one does not. It is our view that, in such a scenario, a taxpayer does not discharge its onus merely by demonstrating that there is one reasonable alternative that does not result in the obtaining of a tax benefit. | Substance | 72. The Majority's conclusion that there was no tax benefit was reached after having already found on the unique facts of this case that no part of the payment was a royalty and that the absence of a royalty was part of the 'substance of the scheme'. This meant that, in the eyes of the Majority, there was a significant misalignment in economic substance between the scheme and our postulates which did recognise a royalty. This misalignment led to the Majority finding our postulates to be not reasonable having regard to the substance of the scheme as required by subparagraph 177CB(4)(a)(i). | 73. Noting the Majority's view that there was a significant misalignment between the economic substance of the scheme and our postulates, it is our view that this decision does not mean that paragraph 177CB(4)(a) requires postulates to reproduce entirely or replicate the 'substance' or 'consequences' of the scheme to be reasonable alternatives. The idea that paragraph 177CB(4)(a) requires replication is clearly incorrect, requiring replication would neuter Part IVA as postulates replicating a scheme's 'substance' and 'consequences' would also replicate that scheme's tax effects, precluding any ability to identify tax benefits and apply Part IVA. | 74. The decision does not address scenarios where the substance of the scheme is that there is a royalty but the scheme avoids royalty withholding tax or results in other tax benefits. In these scenarios, postulates that include recognition of a royalty will not experience the misalignment to substance which they faced in this case. | Relevance of Peabody test | 75. The Court was unanimous that Commissioner of Taxation v Peabody [30] is still relevant for the consideration under section 177CB on whether a postulate is reasonable, in particular with regard to the propositions that reasonableness requires 'sufficient reliability' and that 'reasonable expectation requires more than a possibility'. [31] Guidance from the courts on what this means in practice in the context of the 2013 amendments will unfold in future cases. | Tax avoidance purpose | 76. Regarding purpose, the Majority had already disposed of the application of the DPT in making their finding as to there being no tax benefit and they described their observations regarding purpose as 'unnecessary'. The Majority also mentioned that submissions placed lesser importance on argument for the fourth, fifth, sixth, seventh and eighth purpose factors. [32] Any consideration of the Majority's observations in respect of the purpose of the scheme should be made with these limitations in mind. | 77. The Majority's observations were also made through the lens of having already found there was no tax benefit for the scheme. This is an inherently unusual scenario in which to be considering whether a scheme had an anti-avoidance purpose. | 78. The Majority's (limited) observations on scheme purpose have reduced relevance where parties are not arm's-length parties acting at arm's length or where the scheme gives rise to a tax benefit.", "Administrative_Treatment": "79. We are reviewing the impact of this decision on Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules, and draft Taxation Ruling TR 2024/D1 Income tax: royalties – character of payments in respect of software and intellectual property rights. | Commissioner of Taxation 19 March 2026 | 4 June 2026 Part Comment More than one alternative postulate that is reasonable Updated to remove further reference to special leave application which did not progress 13 May 2026 Part Comment More than one alternative postulate that is reasonable Updated to remove reference to special leave application which did not progress | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] This includes not just the EBAs but also the agreements outlined in paragraph 13 of this Decision impact statement. | [2] At [162]. | [3] At [173]. | [4] All members of the Court acknowledged that the IP licence was important to the bargain – 'a significant part of the architecture of the entire [Agreement]' per the Majority at [163] and that 'the 'EBAs would be pointless without the intellectual property licences and other interlocking promises', per the Minority at [50]. | [5] Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) [1948] HCA 28. | [6] Chief Commissioner of State Revenue v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3. | [7] Commissioner of State Revenue v Lend Lease Development Pty Ltd and Others [2014] HCA 51. | [8] At [160]. | [9] At [172]. | [10] At [160–161]. | [11] At [168]. See also at [174]. | [12] At [163]. See also at [123] and [216]. | [13] Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW) [1958] HCA 22. | [14] Division 11A of Part III. | [15] Noting that for the application of the DPT, the relevant purpose is a 'principal' purpose per paragraph 177J(1)(b). | [16] At [211]. | [17] At [219]. | [18] See further at paragraph 29 of this Decision impact statement. | [19] At [266]. | [20] At [236]. | [21] At [34] and [160]. | [22] PepsiCo, Inc v Commissioner of Taxation [2024] FCAFC 86 at [36], per Perram and Jackman JJ. | [23] At [167]. | [24] Royalty characterisation being driven by factual findings is consistent with the Full Federal Court's comments in Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145 at [83]. | [25] At [219]. | [26] At [205]. | [27] At [212]. | [28] See Majority at [207] where their Honours refer to ' postulate or postulates ' as a basis for identifying a tax effect for the purposes of paragraph 177C(1)(bc). | [29] Commissioner of Taxation v Hicks [2025] FCAFC 171. | [30] [1994] HCA 43. | [31] At [77] and [224]. | [32] At [233].", "Related_Documents": "2025 ATC 20-969 | ITAA 1936 Pt III DIV 11A | ITAA 1936 128A(2) | ITAA 1936 Pt IVA | ITAA 1936 177C | ITAA 1936 177C(1)(bc) | ITAA 1936 177CB | ITAA 1936 177CB(3) | ITAA 1936 177CB(4) | ITAA 1936 177CB(4)(a) | ITAA 1936 177J(1)(b) | 2024 ATC 20-918 | 77 CLR 143 | 2005 ATC 4052 | 2014 ATC 20-478 | 2025 ATC 20-985 | 94 ATC 4663 | 100 CLR 392 | 2025 ATC 20-975 | TR 2024/D1 | PS LA 2005/24", "Legislative_References": "ITAA 1936 Pt III DIV 11A ITAA 1936 128A(2) ITAA 1936 Pt IVA ITAA 1936 177C ITAA 1936 177C(1)(bc) ITAA 1936 177CB ITAA 1936 177CB(3) ITAA 1936 177CB(4) ITAA 1936 177CB(4)(a) ITAA 1936 177J(1)(b)", "Case_References": "Commissioner of Taxation v PepsiCo Inc [2025] HCA 30 2025 ATC 20-969 PepsiCo, Inc v Commissioner of Taxation [2024] FCAFC 86 303 FCR 1 2024 ATC 20-918 120 ATR 282 Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) [1948] HCA 28 77 CLR 143 Chief Commissioner of State Revenue v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3 221 CLR 496 2005 ATC 4052 58 ATR 241 Commissioner of State Revenue v Lend Lease Development Pty Ltd and Others [2014] HCA 51 254 CLR 142 2014 ATC 20-478 93 ATR 247 Commissioner of Taxation v Hicks [2025] FCAFC 171 2025 ATC 20-985 Commissioner of Taxation v Peabody [1994] HCA 43 181 CLR 359 94 ATC 4663 28 ATR 344 Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW) [1958] HCA 22 100 CLR 392 Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145 2025 ATC 20-975", "Subject_References": "", "Other_References": "TR 2024/D1 PS LA 2005/24", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/m98-2024/00001", "Unmatched_Content": "Implications for affected advice or guidance"}
{"Case_Name": "Geocon Land Holdings No. 5 Pty Ltd v Commissioner of Taxation [2025] FCAFC 172", "Venue_Reference_No": "NSD 49 of 2025 (Full Federal Court)", "Venue": "Full Federal Court of Australia", "Judgment_Date": "1 December 2025", "Date_Published": "27 May 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case, which considered whether an amount of excess goods and services tax (GST) had been 'passed on' for the purposes of section 142-10 of the A New Tax System (Goods and Services Tax) Act 1999. | 2. The Full Federal Court (Court) held that due to insufficient or incomplete facts, it was unable to conclude that the amount of excess GST was passed on and remitted the proceeding to the Administrative Review Tribunal (Tribunal) for redetermination. | 3. All legislative references in this Decision impact statement are to the A New Tax System (Goods and Services Tax) Act 1999, unless otherwise indicated. | 4. All judgment references in this Decision impact statement are to the judgment in Geocon Land Holdings No. 5 Pty Ltd v Commissioner of Taxation [2025] FCAFA 172, unless otherwise indicated.", "Overview_of_Facts": "5. Geocon Land Holdings No. 5 Pty Ltd as trustee for the Geocon Land Holdings No. 5 Unit Trust (Geocon) acquired a Crown Lease in the Australian Capital Territory (ACT) from the ACT Land Development Agency (LDA). Under a Project Delivery Agreement, Geocon agreed to provide development services in connection with the construction of residential units for sale. | 6. Geocon sold the residential units under the margin scheme. Geocon marketed the units using a price list set by reference to market conditions, after ensuring its internal rate of return was met, rather than by reference to underlying costs, including GST. [1] | 7. In calculating the margin under subsection 75-10(2), Geocon did not include the value of the non-monetary consideration provided for the land, despite being entitled to do so under a private ruling issued by the Commissioner of Taxation (Commissioner). [2] As a result, Geocon overstated its GST liability and overpaid GST for the relevant period. | 8. The Commissioner did not refund the overpaid GST on the basis that Geocon had passed on excess GST to the purchasers of residential units. In those circumstances, the Commissioner was not satisfied, for the purposes of section 142-15, that refunding the excess GST would not result in a windfall gain to Geocon. | Issues before the Court | 9. The Commissioner was successful in the Tribunal on all 5 issues raised in the review. [3] The Court allowed Geocon's appeal on one of the 5 grounds (Ground 4) and remitted the matter to the Tribunal for redetermination. | 10. The Commissioner sought special leave to appeal to the High Court of Australia. Special leave was refused on the basis that the application did not raise a question of general principle. [4] | 11. The following 5 issues were before the Court: • whether GST payable on Geocon's supply of the development services was attributable to the tax period ended 30 September 2015 (Ground 1 – 'attribution' issue) • whether there was an amount of excess GST for the purposes of section 142-10 for the tax period ended 30 September 2017 (Ground 2 – 'excess GST' issue) • whether the amount of non-monetary consideration for Geocon's acquisition of the units was $103,145,685 (Ground 3 – 'non-monetary consideration amount' issue) • whether there was an amount of excess GST that was 'passed on' by Geocon under section 142-10 (Ground 4 – 'passing on' issue) • whether applying section 142-10 would be inconsistent with the principle that excess GST is not to be refunded if this would give an entity a 'windfall gain' (Ground 5 – 'windfall gain' issue) | • whether GST payable on Geocon's supply of the development services was attributable to the tax period ended 30 September 2015 (Ground 1 – 'attribution' issue) • whether there was an amount of excess GST for the purposes of section 142-10 for the tax period ended 30 September 2017 (Ground 2 – 'excess GST' issue) • whether the amount of non-monetary consideration for Geocon's acquisition of the units was $103,145,685 (Ground 3 – 'non-monetary consideration amount' issue) • whether there was an amount of excess GST that was 'passed on' by Geocon under section 142-10 (Ground 4 – 'passing on' issue) • whether applying section 142-10 would be inconsistent with the principle that excess GST is not to be refunded if this would give an entity a 'windfall gain' (Ground 5 – 'windfall gain' issue) | Ground 1 – attribution issue | 12. Geocon contended that GST was not attributable to the tax period in which the Crown Lease was granted. Instead, it argued that GST was attributable to the tax period in which the unit plan was registered and the unit titles were created. [5] | 13. This was rejected. [6] The Court agreed with the Tribunal that, on the facts, the Crown Lease was [7] : • capable of constituting consideration for the development services, and • consideration 'for' the supply of those services for the purposes of section 9-5. | • capable of constituting consideration for the development services, and • consideration 'for' the supply of those services for the purposes of section 9-5. | Ground 2 – excess GST issue | 14. Geocon contended that, if it succeeded on the attribution issue, the Tribunal should have found that there was no excess GST for the tax period ended 30 September 2017. [8] Geocon argued that section 142-5 should be interpreted as applying to the total amount of GST attributable to a tax period, rather than to amounts of excess GST arising from individual transactions. [9] | 15. The Court held that, because Geocon failed on the attribution issue, this issue did not arise for consideration. [10] | 16. In any event, the Court explained that section 142-5 applies to 'individual transactions' and is 'not a \"gateway\" provision'. [11] Geocon's aggregation approach to section 142-5 would be 'directly contrary to the statutory objective' and 'would make a nonsense of the operation of s 142-10.' [12] | Ground 3 – non-monetary consideration amount issue | 17. Geocon contended that the non-monetary consideration it provided to obtain the Crown Lease – the development services – included the GST charged on those services. [13] | 18. The Court rejected this argument. [14] It held that the GST payable on the development services was not consideration provided by Geocon to the LDA for the acquisition of the Crown Lease. While subsection 75-10(2) allowed Geocon to reduce the margin by the value of the development services, it did not allow any reduction for the GST payable on those services. [15] | Ground 4 – passing on issue | 19. The passing on issue was the central issue before the Court. Geocon contended that section 142-10 did not apply because excess GST was not passed on to the purchasers of the units. | 20. The Court allowed Geocon's appeal on the passing on issue, concluding that [16] : The Tribunal distorted the factual inquiry required by Div 142 and the question of whether excess GST had been \"passed on\", by employing a form of presumption that Geocon had passed on the overpaid GST because it was profitable overall, which it could only negate by showing something out of the ordinary or unusual. This wrong approach led the Tribunal to treat relevant evidence as not to the point and, as a matter of substance, to give the term \"passed on\" a meaning different to its ordinary meaning. | 21. The Court found that: • the Tribunal had elevated general observations made by the High Court in Avon Products [17] to have the status of legal principle or to create hurdles that are not present in Division 142 [18] • there is to be no assumption that overpaid GST is passed on [19] • Avon Products is not authority for the proposition that a profitable business must be passing on its costs, particularly where overpaid GST was thought not to be payable. [20] | • the Tribunal had elevated general observations made by the High Court in Avon Products [17] to have the status of legal principle or to create hurdles that are not present in Division 142 [18] • there is to be no assumption that overpaid GST is passed on [19] • Avon Products is not authority for the proposition that a profitable business must be passing on its costs, particularly where overpaid GST was thought not to be payable. [20] | Ground 5 – windfall gain issue | 22. Geocon contended that, even if the excess GST had been passed on under section 142-10, the Commissioner should have applied section 142-15. Geocon argued that paying a refund would not have resulted in a 'windfall gain' under Division 142. | 23. The Court found that this issue did not arise because it had not been finally determined whether GST had been passed on. [21] However, it noted that, where a taxpayer has passed on the economic burden of the excess GST to another party, refunding that GST to the taxpayer will generally result in a windfall gain. This is because the taxpayer would have both shifted the cost of the GST and then been refunded that same amount. By contrast, if the taxpayer has not passed on the economic burden of the excess GST, section 142-10 does not apply, and the refund must be paid. [22]", "Issues_Decided": "9. The Commissioner was successful in the Tribunal on all 5 issues raised in the review. [3] The Court allowed Geocon's appeal on one of the 5 grounds (Ground 4) and remitted the matter to the Tribunal for redetermination. 10. The Commissioner sought special leave to appeal to the High Court of Australia. Special leave was refused on the basis that the application did not raise a question of general principle. [4] 11. The following 5 issues were before the Court: • whether GST payable on Geocon's supply of the development services was attributable to the tax period ended 30 September 2015 (Ground 1 – 'attribution' issue) • whether there was an amount of excess GST for the purposes of section 142-10 for the tax period ended 30 September 2017 (Ground 2 – 'excess GST' issue) • whether the amount of non-monetary consideration for Geocon's acquisition of the units was $103,145,685 (Ground 3 – 'non-monetary consideration amount' issue) • whether there was an amount of excess GST that was 'passed on' by Geocon under section 142-10 (Ground 4 – 'passing on' issue) • whether applying section 142-10 would be inconsistent with the principle that excess GST is not to be refunded if this would give an entity a 'windfall gain' (Ground 5 – 'windfall gain' issue) • whether GST payable on Geocon's supply of the development services was attributable to the tax period ended 30 September 2015 (Ground 1 – 'attribution' issue) • whether there was an amount of excess GST for the purposes of section 142-10 for the tax period ended 30 September 2017 (Ground 2 – 'excess GST' issue) • whether the amount of non-monetary consideration for Geocon's acquisition of the units was $103,145,685 (Ground 3 – 'non-monetary consideration amount' issue) • whether there was an amount of excess GST that was 'passed on' by Geocon under section 142-10 (Ground 4 – 'passing on' issue) • whether applying section 142-10 would be inconsistent with the principle that excess GST is not to be refunded if this would give an entity a 'windfall gain' (Ground 5 – 'windfall gain' issue) | Ground 1 – attribution issue: 12. Geocon contended that GST was not attributable to the tax period in which the Crown Lease was granted. Instead, it argued that GST was attributable to the tax period in which the unit plan was registered and the unit titles were created. [5] 13. This was rejected. [6] The Court agreed with the Tribunal that, on the facts, the Crown Lease was [7] : • capable of constituting consideration for the development services, and • consideration 'for' the supply of those services for the purposes of section 9-5. • capable of constituting consideration for the development services, and • consideration 'for' the supply of those services for the purposes of section 9-5. | Ground 2 – excess GST issue: 14. Geocon contended that, if it succeeded on the attribution issue, the Tribunal should have found that there was no excess GST for the tax period ended 30 September 2017. [8] Geocon argued that section 142-5 should be interpreted as applying to the total amount of GST attributable to a tax period, rather than to amounts of excess GST arising from individual transactions. [9] 15. The Court held that, because Geocon failed on the attribution issue, this issue did not arise for consideration. [10] 16. In any event, the Court explained that section 142-5 applies to 'individual transactions' and is 'not a \"gateway\" provision'. [11] Geocon's aggregation approach to section 142-5 would be 'directly contrary to the statutory objective' and 'would make a nonsense of the operation of s 142-10.' [12] | Ground 3 – non-monetary consideration amount issue: 17. Geocon contended that the non-monetary consideration it provided to obtain the Crown Lease – the development services – included the GST charged on those services. [13] 18. The Court rejected this argument. [14] It held that the GST payable on the development services was not consideration provided by Geocon to the LDA for the acquisition of the Crown Lease. While subsection 75-10(2) allowed Geocon to reduce the margin by the value of the development services, it did not allow any reduction for the GST payable on those services. [15] | Ground 4 – passing on issue: 19. The passing on issue was the central issue before the Court. Geocon contended that section 142-10 did not apply because excess GST was not passed on to the purchasers of the units. 20. The Court allowed Geocon's appeal on the passing on issue, concluding that [16] : The Tribunal distorted the factual inquiry required by Div 142 and the question of whether excess GST had been \"passed on\", by employing a form of presumption that Geocon had passed on the overpaid GST because it was profitable overall, which it could only negate by showing something out of the ordinary or unusual. This wrong approach led the Tribunal to treat relevant evidence as not to the point and, as a matter of substance, to give the term \"passed on\" a meaning different to its ordinary meaning. 21. The Court found that: • the Tribunal had elevated general observations made by the High Court in Avon Products [17] to have the status of legal principle or to create hurdles that are not present in Division 142 [18] • there is to be no assumption that overpaid GST is passed on [19] • Avon Products is not authority for the proposition that a profitable business must be passing on its costs, particularly where overpaid GST was thought not to be payable. [20] • the Tribunal had elevated general observations made by the High Court in Avon Products [17] to have the status of legal principle or to create hurdles that are not present in Division 142 [18] • there is to be no assumption that overpaid GST is passed on [19] • Avon Products is not authority for the proposition that a profitable business must be passing on its costs, particularly where overpaid GST was thought not to be payable. [20] | Ground 5 – windfall gain issue: 22. Geocon contended that, even if the excess GST had been passed on under section 142-10, the Commissioner should have applied section 142-15. Geocon argued that paying a refund would not have resulted in a 'windfall gain' under Division 142. 23. The Court found that this issue did not arise because it had not been finally determined whether GST had been passed on. [21] However, it noted that, where a taxpayer has passed on the economic burden of the excess GST to another party, refunding that GST to the taxpayer will generally result in a windfall gain. This is because the taxpayer would have both shifted the cost of the GST and then been refunded that same amount. By contrast, if the taxpayer has not passed on the economic burden of the excess GST, section 142-10 does not apply, and the refund must be paid. [22]", "ATO_View_of_Decision": "24. The decisions [23] on the attribution, excess GST, non-monetary consideration and windfall gain issues, are consistent with the Commissioner's view on each of those issues. | Development services as non-monetary consideration | 25. The Court found in favour of the Commissioner on the attribution of GST on the development services. [24] The parties had proceeded on the basis that the development services constituted non-monetary consideration for Geocon's acquisition of the Crown Lease. [25] The Court accepted that the development services were part of what secured or 'moved' the grant of the Crown Lease. [26] | 26. The Commissioner maintains the view set out in Goods and Services Tax Ruling GSTR 2015/2 Goods and services tax: development lease arrangements with government agencies and Goods and Services Tax Determination GSTD 2021/1 Goods and services tax: development works in the Australian Capital Territory. Our position remains that, in most ACT development lease arrangements, development services are not supplies made to the LDA and do not constitute non-monetary consideration for the acquisition of land in the ACT. | Passing on | 27. The Commissioner accepts the findings regarding passing on under Division 142. Consistent with the Court's reasoning, the Commissioner considers that, whether excess GST has been passed on is a question of fact to be determined on a case-by-case basis. It cannot be resolved by reference to general presumptions about profitability or economic expectations. | 28. The onus is on taxpayers to demonstrate that an amount of excess GST has not been passed on. [27] Accordingly, taxpayers should continue to provide objective evidence of relevant pricing policy and practices in support of contentions that the economic burden of the tax has not been passed on. | 29. Taxpayers who have a decision from the Commissioner that they have passed on excess GST may consider that, in light of the Full Federal Court case, the decision is incorrect. Subject to time limits, those taxpayers may have rights of objection under Part IVC of the Taxation Administration Act 1953 (TAA). [28] Any objections lodged will be considered on their merits, having regard to the statutory framework, the objective evidence as a whole and the Full Federal Court case. | 30. Where it is determined that excess GST has been passed on, taxpayers may request the Commissioner to make a decision under subsection 142-15(1) to refund the excess GST, provided that the refund would not result in a windfall gain. | 31. A decision under subsection 142-15(1) refusing to refund excess GST is a 'reviewable GST decision' for Part IVC of the TAA purposes. [29] A taxpayer dissatisfied with a refusal decision may object to that decision in accordance with the requirements of Part IVC.", "Administrative_Treatment": "32. We are reviewing the impact of this decision on related advice or guidance, including Goods and Services Tax Ruling GSTR 2015/1 Goods and services tax: the meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999.", "Related_Documents": "GSTR 2015/1 | GSTR 2015/2 | GSTR 2021/1 | ANTS(GST)A 1999 75-10(2) | ANTS(GST)A 1999 Div 142 | ANTS(GST)A 1999 142-5 | ANTS(GST)A 1999 142-10 | ANTS(GST)A 1999 142-15 | ANTS(GST)A 1999 142-15(1) | TAA 1953 Pt IVC | TAA 1953 Sch 1 110-50(2) | TAA 1953 Sch 1 155-90 | 2006 ATC 4296 | 2025 ATC 20-984 | 2024 ATC 10-737", "Legislative_References": "ANTS(GST)A 1999 75-10(2) ANTS(GST)A 1999 Div 142 ANTS(GST)A 1999 142-5 ANTS(GST)A 1999 142-10 ANTS(GST)A 1999 142-15 ANTS(GST)A 1999 142-15(1) TAA 1953 Pt IVC TAA 1953 Sch 1 110-50(2) TAA 1953 Sch 1 155-90", "Case_References": "Avon Products Pty Limited v Commissioner of Taxation [2006] HCA 29 230 CLR 356 2006 ATC 4296 62 ATR 399 80 ALJR 1161 Geocon Land Holdings No. 5 Pty Ltd v Commissioner of Taxation [2025] FCAFA 172 313 FCR 531 2025 ATC 20-984 SFQV and Commissioner of Taxation [2024] ARTA 9 2024 ATC 10-737 Commissioner of Taxation v Geocon Land Holdings No. 5 Pty Ltd as trustee for the Geocon Land Holdings No. 5 Unit Trust [2026] HCADisp 47", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD49of2025/00001", "Unmatched_Content": "ATO view of this decision | Implications for affected advice or guidance | elena.stamatovska@ato.gov.au | Commissioner of Taxation 27 May 2026 | [2] The private ruling confirmed that Geocon made a supply of the development services to the LDA and that the development services were non-monetary consideration for Geocon's acquisition of the land. The Commissioner was bound to apply the private ruling. | [3] SFQV and Commissioner of Taxation [2024] ARTA 9 | [4] Commissioner of Taxation v Geocon Land Holdings No. 5 Pty Ltd as trustee for the Geocon Land Holdings No. 5 Unit Trust [2026] HCADisp 47. | [17] Avon Products Pty Limited v Commissioner of Taxation [2006] HCA 29 ( Avon Products ). | [23] Or, where a ground was not actually decided, the Court's comments. | [25] Under Geocon's private ruling, at [44-45]. | [27] At [36], [117], [120], [181] and [186]. | [28] Section 155-90 of Schedule 1 to the TAA. | [29] Table item 53A of subsection 110-50(2) of Schedule 1 to the TAA."}
{"Case_Name": "Hall and Commissioner of Taxation [2025] ARTA 600", "Venue_Reference_No": "2022/8986", "Venue": "Administrative Review Tribunal", "Judgment_Date": "21 May 2025", "Date_Published": "29 April 2026", "Document_Type": "Interim Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Interim decision impact statement outlines the ATO's interim response to Hall and Commissioner of Taxation [2025] ARTA 600, which considered whether an employee sports presenter and producer (taxpayer) was entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for occupancy expenses, and a deduction under section 28-12 of the ITAA 1997 for car expenses claimed in the income year ending 30 June 2021 (relevant income year). | 2. Deputy President Thompson determined that the taxpayer was entitled to a deduction in the relevant income year for both the occupancy expenses and car expenses. | 3. This decision is currently subject to appeal to the Federal Court of Australia. | 4. All decision references in this Interim decision impact statement are to the decision of Hall and Commissioner of Taxation [2025] ARTA 600 unless otherwise indicated. | 5. All legislative references in this Interim decision impact statement are to the ITAA 1997, unless otherwise indicated.", "Overview_of_Facts": "8. During the relevant income year, the taxpayer was employed full time as a sports presenter and producer by the Australian Broadcasting Corporation (ABC) in Melbourne. [2] | 9. On relocating to Melbourne with his wife in June 2020, the taxpayer rented a 2-bedroom apartment in his own name. [3] The second bedroom was to be used as a place for him to work from home. Prior to moving to Melbourne, the taxpayer was advised by his manager that he would need to work from home when he moved there. [4] | 10. During the relevant income year Melbourne was subject to mandatory lockdowns ordered by the Victorian Chief Health Officer due to the COVID-19 pandemic. [5] The taxpayer worked at home for part of his duties due to these lockdowns and subsequent employer directions. [6] | 11. The taxpayer's role with the ABC had 2 quite distinct parts: • ABC Sport Digital Radio station (Digital Role), which comprised 75% of his employment related duties [7] , and • producing ABC live sports broadcasts (Live Role), which comprised the remainder of his employment-related duties – the Live Role could only be undertaken at his employer's premises in Southbank (Southbank Studios). [8] | • ABC Sport Digital Radio station (Digital Role), which comprised 75% of his employment related duties [7] , and • producing ABC live sports broadcasts (Live Role), which comprised the remainder of his employment-related duties – the Live Role could only be undertaken at his employer's premises in Southbank (Southbank Studios). [8] | 12. During the relevant income year, the restrictions imposed by the Victorian Chief Health Officer and his employer prevented [9] him from attending his usual place of employment (Southbank Studios) to perform the Digital Role. He was only allowed to attend the Southbank Studios to undertake the Live Role. [10] | 13. The taxpayer's usual work week was from Thursday to Monday. His general pattern of work was a mix of either [11] : • solely performing his duties at home (Digital Role) • commencing his Digital Role duties at home and then travelling to the Southbank Studios to undertake his Live Role duties, or • a variety of the 2 roles depending on the sporting season. | • solely performing his duties at home (Digital Role) • commencing his Digital Role duties at home and then travelling to the Southbank Studios to undertake his Live Role duties, or • a variety of the 2 roles depending on the sporting season. | 14. The taxpayer asserted that he undertook his Digital Role from a laptop in the second bedroom of his rented apartment. [12] This room was solely used for this purpose as he needed a quiet place to work from. [13] The room was only sparsely furnished, which included a small desk, a dining chair and a bookcase. [14] There was nothing to separate or distinguish that space from the rest of the apartment. | 15. The taxpayer's wife was a yoga instructor who continued her work by doing classes online. The classes were conducted from the main living area of the apartment. [15] | 16. To support his claims for a deduction for occupancy expenses (representing a portion of his rent attributable to the home office space) and car expenses for travel between his home and the employer's premises, the taxpayer contended that: • it was beyond his control where he worked, and he had to do the majority of his work from home [16] , and • he could only perform part of his employee duties at the employer's premises. | • it was beyond his control where he worked, and he had to do the majority of his work from home [16] , and • he could only perform part of his employee duties at the employer's premises. | 17. The taxpayer drove from his home to the Southbank Studios in his private car to undertake his Live Role. [17] | 18. The taxpayer sought to claim a deduction in the relevant income year of: • $5,878.87 for occupancy expenses [18] for his home office, and • $1,148.40 for car expenses [19] for travel for work from his home to the Southbank Studios on the days he undertook both the Digital Role and the Live Role. | • $5,878.87 for occupancy expenses [18] for his home office, and • $1,148.40 for car expenses [19] for travel for work from his home to the Southbank Studios on the days he undertook both the Digital Role and the Live Role. | 19. At audit and at objection, the taxpayer was denied, in full, a deduction for both expenses. | Issues decided by the Tribunal | 20. The Tribunal confirmed that the taxpayer bears the onus of proof that the 'assessment is excessive or otherwise incorrect, and what the assessment should have been' for the relevant income year. [20] | Issue 1 – whether the occupancy expenses were incurred in gaining or producing assessable income | 21. The Tribunal noted that the past cases on claiming occupancy expenses for a home office have only been allowed in very limited circumstances. [21] | 22. Notwithstanding this, the Tribunal formed the view that during the relevant income year as result of the Victorian Government-imposed restrictions and those of his employer [22] , the second bedroom was the taxpayer's main workplace for that year and he was entitled to a deduction for occupancy expenses. [23] | 23. The Deputy President inferred that the taxpayer rented the 2-bedroom apartment with the intention of using the second bedroom for work, stating that it was 'notable' that the taxpayer rented the apartment when he moved to Melbourne with the knowledge that it would be his workplace, at least for the foreseeable future. [24] | 24. The Commissioner's position was that the occupancy expenses sought to be deducted are not deductible as they are: • not outgoings that have a sufficient nexus with the taxpayer's employment income to be deductible under the first (positive) limb of section 8-1, and • outgoings of a 'private or domestic nature' and fail the deductibility test under the second (negative) limb of section 8-1. | • not outgoings that have a sufficient nexus with the taxpayer's employment income to be deductible under the first (positive) limb of section 8-1, and • outgoings of a 'private or domestic nature' and fail the deductibility test under the second (negative) limb of section 8-1. | 25. In reaching its decision, the Tribunal did not agree with the Commissioner and determined that the occupancy expenses were deductible as the evidence established that the taxpayer's main workplace for the entire relevant income year was the second bedroom, it was necessary for him to work there [25] , and the expense was not purely of a private or domestic nature. [26] | 26. The Deputy President was careful in restricting the implications of this decision to the specific facts at hand, by stating that [27] : ... This decision has no impact on what can be claimed by Mr Hall in any later year of income, which would need to be assessed based on the facts which prevailed at that later time. | Issue 2 – whether the car expenses were incurred in gaining or producing assessable income | 27. The Tribunal stated that travelling to work is not enough to be eligible for a deduction for car expenses. [28] A critical factor is whether the employee had commenced their employment duties prior to undertaking the travel for which they are seeking a deduction. [29] | 28. The Tribunal also noted that the taxpayer had some unique aspects to his working arrangements [30] : • he only had one employer but had 2 distinct roles (Digital Role and the Live Role) which were respectively undertaken from his home and the Southbank Studios, sometimes on the same day, and • his employment was not arranged in 2 shifts split between different aspects of his role. | • he only had one employer but had 2 distinct roles (Digital Role and the Live Role) which were respectively undertaken from his home and the Southbank Studios, sometimes on the same day, and • his employment was not arranged in 2 shifts split between different aspects of his role. | 29. The key in reaching a decision was 'whether he had commenced his working day at his primary workplace, his home', on the days that the taxpayer sought to claim a deduction for travel from his home to the Southbank Studios or another venue [31] where he undertook his Live Role. [32] | 30. The Commissioner's position was that the car expenses sought to be claimed were not deductible [33] as the taxpayer did not travel 'business kilometres' 'in the course of' producing his assessable income as required by paragraph 28-25(3)(a). | 31. The Tribunal accepted that the taxpayer: • had kept reasonable records to base his claim on • had commenced his work on the relevant days from his home prior to travelling to the Southbank Studio (or another venue) and back home (that is, all his claimed car expenses were 'on work' [34] ), and • was therefore entitled to claim the car expenses. | • had kept reasonable records to base his claim on • had commenced his work on the relevant days from his home prior to travelling to the Southbank Studio (or another venue) and back home (that is, all his claimed car expenses were 'on work' [34] ), and • was therefore entitled to claim the car expenses.", "Issues_Decided": "20. The Tribunal confirmed that the taxpayer bears the onus of proof that the 'assessment is excessive or otherwise incorrect, and what the assessment should have been' for the relevant income year. [20] | Issue 1 – whether the occupancy expenses were incurred in gaining or producing assessable income: 21. The Tribunal noted that the past cases on claiming occupancy expenses for a home office have only been allowed in very limited circumstances. [21] 22. Notwithstanding this, the Tribunal formed the view that during the relevant income year as result of the Victorian Government-imposed restrictions and those of his employer [22] , the second bedroom was the taxpayer's main workplace for that year and he was entitled to a deduction for occupancy expenses. [23] 23. The Deputy President inferred that the taxpayer rented the 2-bedroom apartment with the intention of using the second bedroom for work, stating that it was 'notable' that the taxpayer rented the apartment when he moved to Melbourne with the knowledge that it would be his workplace, at least for the foreseeable future. [24] 24. The Commissioner's position was that the occupancy expenses sought to be deducted are not deductible as they are: • not outgoings that have a sufficient nexus with the taxpayer's employment income to be deductible under the first (positive) limb of section 8-1, and • outgoings of a 'private or domestic nature' and fail the deductibility test under the second (negative) limb of section 8-1. • not outgoings that have a sufficient nexus with the taxpayer's employment income to be deductible under the first (positive) limb of section 8-1, and • outgoings of a 'private or domestic nature' and fail the deductibility test under the second (negative) limb of section 8-1. 25. In reaching its decision, the Tribunal did not agree with the Commissioner and determined that the occupancy expenses were deductible as the evidence established that the taxpayer's main workplace for the entire relevant income year was the second bedroom, it was necessary for him to work there [25] , and the expense was not purely of a private or domestic nature. [26] 26. The Deputy President was careful in restricting the implications of this decision to the specific facts at hand, by stating that [27] : ... This decision has no impact on what can be claimed by Mr Hall in any later year of income, which would need to be assessed based on the facts which prevailed at that later time. | Issue 2 – whether the car expenses were incurred in gaining or producing assessable income: 27. The Tribunal stated that travelling to work is not enough to be eligible for a deduction for car expenses. [28] A critical factor is whether the employee had commenced their employment duties prior to undertaking the travel for which they are seeking a deduction. [29] 28. The Tribunal also noted that the taxpayer had some unique aspects to his working arrangements [30] : • he only had one employer but had 2 distinct roles (Digital Role and the Live Role) which were respectively undertaken from his home and the Southbank Studios, sometimes on the same day, and • his employment was not arranged in 2 shifts split between different aspects of his role. • he only had one employer but had 2 distinct roles (Digital Role and the Live Role) which were respectively undertaken from his home and the Southbank Studios, sometimes on the same day, and • his employment was not arranged in 2 shifts split between different aspects of his role. 29. The key in reaching a decision was 'whether he had commenced his working day at his primary workplace, his home', on the days that the taxpayer sought to claim a deduction for travel from his home to the Southbank Studios or another venue [31] where he undertook his Live Role. [32] 30. The Commissioner's position was that the car expenses sought to be claimed were not deductible [33] as the taxpayer did not travel 'business kilometres' 'in the course of' producing his assessable income as required by paragraph 28-25(3)(a). 31. The Tribunal accepted that the taxpayer: • had kept reasonable records to base his claim on • had commenced his work on the relevant days from his home prior to travelling to the Southbank Studio (or another venue) and back home (that is, all his claimed car expenses were 'on work' [34] ), and • was therefore entitled to claim the car expenses. • had kept reasonable records to base his claim on • had commenced his work on the relevant days from his home prior to travelling to the Southbank Studio (or another venue) and back home (that is, all his claimed car expenses were 'on work' [34] ), and • was therefore entitled to claim the car expenses.", "ATO_View_of_Decision": "32.This decision was appealed to the Full Federal Court which supports the ATO views in the following public advice and guidance dealing with the deductibility of occupancy expenses and work-related transport expenses: • Taxation Ruling TR 93/30 Income tax: deductions for home office expenses • Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? • Employees guide for work expenses . | • Taxation Ruling TR 93/30 Income tax: deductions for home office expenses • Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? • Employees guide for work expenses . | 33. As a general rule, expenses associated with a taxpayer's home, such as rent, are of a private or domestic nature and do not qualify as deductions for taxation purposes. An exception to this general rule is where part of the home is used for income-producing activities and has the character of a 'place of business', and the expense loses its essential character as private or domestic. Subject to the outcome of the appeal, in our view, the mere fact that a room in the house has been set aside during the circumstances of COVID-19 lockdowns for work purposes is not sufficient to enable a deduction for a portion of the rent. | 34. The cost of travel from home to a regular place of work is not deductible (subject to very limited exceptions). The mere fact that an employee undertakes some work duties at home does not make expenses of travel to their regular place of work deductible. This is because these expenses are not incurred in gaining or producing assessable income as they are a prerequisite to earning assessable income. In our view, this treatment will not change even if the travel occurs during work hours. Subject to the outcome of the appeal, we do not consider that the circumstances of COVID-19 lockdowns requiring some work to be undertaken at home changes this outcome. | Commissioner of Taxation 25 June 2025", "Administrative_Treatment": "6. This decision was appealed to the Full Federal Court. That Court's decision [1] supports the ATO views set out in paragraph 32 of this Interim decision impact statement. Pending the outcome of any appeal process from that decision, we will continue to administer the law in accordance with the Full Court's decision. | 7. Our response to the decision of the Full Federal Court is contained in the Interim decision impact statement for Commissioner of Taxation v Hall [2026] FCAFC 43.", "Related_Documents": "Interim decision impact statement | 2025 ATC 10-758 | TR 93/30 | TR 2021/1 | ITAA 1997 8-1 | ITAA 1997 28-12 | ITAA 1997 28-25 | 2026 ATC 21-010 | Employees guide to work expenses | Interim decision impact statement on Commissioner of Taxation v Hall [2026] FCAFC 43", "Legislative_References": "ITAA 1997 8-1 ITAA 1997 28-12 ITAA 1997 28-25", "Case_References": "Commissioner of Taxation v Hall [2026] FCAFC 43 2026 ATC 21-010", "Subject_References": "", "Other_References": "Employees guide to work expenses Interim decision impact statement on Commissioner of Taxation v Hall [2026] FCAFC 43", "Is_Interim": true, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2022/8986/00001", "Unmatched_Content": "Issue 1 – whether the Occupancy Expenses were incurred by the Taxpayer during the relevant year in gaining or producing his assessable income under section 8-1 | Issue 2 – whether the Car Expenses were incurred by the taxpayer in the relevant year in gaining or producing his assessable income under section 8-1 | Administrative decision and ATO view of this decision | Updated to note favourable decision on appeal to the Full Federal Court. | Footnotes: [1] Commissioner of Taxation v Hall [2026] FCAFC 43. | [9] During the 2021 year, there were no restrictions imposed by the Victorian Chief Health Officer on the taxpayer working at the Southbank Studios between 26 March 2021 and 27 May 2021 [at 28]. Although the ABC permitted some staff to work from their offices between 29 March 2021 and 25 May 2021, the taxpayer was not in the group of permitted staff allowed by the ABC to return to the Southbank Studios on a full-time basis [at 30-31]. | [18] Which represent the portion of the total rent paid during the year which was attributable to the second bedroom on a per square metre basis. | [19] Based on the cents per kilometre method for claiming motor vehicle expenses. | [22] At [27], [28] and [31]. | [31] On one occasion the taxpayer commenced his Digital Role at home prior to travelling to AAMI Park to undertake his Live Role. | [33] Under section 28-12 using the method in section 28-25."}
{"Case_Name": "Shaw and Commissioner of Taxation [2025] ARTA 224", "Venue_Reference_No": "2024/1049", "Venue": "Administrative Review Tribunal", "Judgment_Date": "19 March 2025", "Date_Published": "13 May 2026", "Document_Type": "Interim Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Interim decision impact statement outlines the ATO's interim response to this case, which considered whether an employee long-haul truck driver (taxpayer) was entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for work-related travel expenses claimed in respect of meals. | 2. General Member Dunne of the Administrative Review Tribunal (Tribunal) determined that the taxpayer was entitled to a deduction under section 8-1 of the ITAA 1997 for the expenses claimed in the income year ending 30 June 2021 (relevant income year). | 3. The Commissioner subsequently appealed the Tribunal's decision to the Federal Court of Australia. | 4. All legislative references in this Interim decision impact statement are to the ITAA 1997 unless otherwise indicated. | 5. All judgment references in this Interim decision impact statement are to the judgment of Shaw and Commissioner of Taxation [2025] ARTA 224 unless otherwise indicated.", "Overview_of_Facts": "6. During the relevant income year, the taxpayer worked as an employee long-haul truck driver for his employer in Western Australia. He drove long distances, was away from home for considerable periods each week and slept in his truck. [1] The taxpayer was paid a travel allowance by his employer. [2] | 7. Given the taxpayer drove long distances through remote parts of Australia, there were often no available food outlets or, where there were, the food options were not always healthy. [3] So that he did not have to always rely on these remote food outlets, the taxpayer had a freezer in his truck and a hot plate so he could prepare his own meals. | 8. The taxpayer would transfer funds to his wife (Ms Fisher) to conduct a 'big shop' at the supermarket to ensure his truck was fully stocked with food each week. [4] He did not ask Ms Fisher, and did not know, how his wife spent the funds transferred to her, and there was no evidence before the Tribunal from Ms Fisher. In addition, the taxpayer maintained about $1,500 in cash in his truck, some of which he used to purchase food or drink at outlets while on the road when taking a break from driving as well as to pay for anything such as oil or other items for his truck. [5] | 9. The taxpayer claimed a deduction of $32,782.50 for the cost of the 'big shops' and the cost of food and drink consumed by him at outlets along the routes driven by him as a truck driver. | 10. The taxpayer did not keep receipts for his purchases of food and drink and did not, initially, provide the Commissioner with any written evidence of the deductions said to have been incurred. | 11. The taxpayer relied on the relief from the substantiation provisions in the income tax law on the basis that he was in receipt of a travel allowance. The amounts he claimed for meal expenses were based on the Commissioner's reasonable daily amounts set out in Taxation Determination TD 2020/5 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2020-21 income year? . [6] | 12. At audit, the Commissioner reduced Mr Shaw's claimed deduction to zero and issued a Notice of Amended Assessment to that effect. [7] | 13. At objection, the taxpayer provided his logbook, fatigue diary and some bank statements to the Commissioner. The fatigue diary did not say when meals were taken, just when there were breaks, and that meals were irregular [8] and the logbook stated how many days the taxpayer was away from home. [9] | 14. The Commissioner allowed the taxpayer's objection in part, increasing his allowable deductions for meal expenses to $5,890 based on a review of his logbook, fatigue diary and bank statements. The Commissioner determined that the taxpayer did not provide a methodology to apportion or estimate the expenditure incurred in gaining or producing assessable income. [10] A Notice of Amended Assessment was issued to give effect to the Commissioner's objection decision. [11] | 15. The taxpayer then filed proceedings for a review of the Commissioner's objection decision in the Tribunal [12] on the basis that the meal expenses he claimed should be allowed in full. [13] | 16. The taxpayer said that he spent more than the maximum reasonable daily amount in TD 2020/5 on meals during his trips away, but he claimed less than he spent because of the advice given to him by his tax agent. The tax agent's advice was that if he claimed less, he did not need to keep records to substantiate his expenses. [14] | Issues decided by the Tribunal | Issue 1 – whether the taxpayer incurred the meal expenses in gaining or producing assessable income under section 8-1 | 17. The Tribunal noted that the taxpayer bears the onus of proof that the 'assessment is incorrect and what the assessment should have been'. [15] | 18. The Tribunal decided that as the taxpayer incurred the meal expenses while on trips away from home, it followed that he had incurred the disputed meal expenses in gaining or producing his assessable income under section 8-1. [16] The Tribunal was not sure how the Commissioner thought that anyone would fund 3 meals a day for $19. [17] | 19. The Commissioner's position was that the taxpayer had not been able to demonstrate that his claim was for entirely work-related expenses, as opposed to food acquired for private purposes. [18] Further, the Commissioner was of the view that the taxpayer had not provided clear, contemporaneous or corroborative evidence as to the fact the disputed expenses were actually incurred in gaining or producing assessable income and had dismissed the bank statements as not connecting the disputed meal expenses to the taxpayer with any specificity. The Commissioner suggested that an inference could be drawn from the 'big shops' undertaken by the taxpayer (or Ms Fisher) and that they were also for private purposes. [19] | 20. In reaching its decision, the Tribunal did not agree with the Commissioner that there was an insufficient linkage between the expenditure on bank statements and the taxpayer's work. [20] Rather, the Tribunal found that the taxpayer's evidence was credible and provided that link. The Commissioner had 'a lot of data available and there were available areas for investigation'. [21] The taxpayer's evidence gave a broad mechanism for apportionment and that basis could have covered many of the Commissioner's concerns. [22] | Issue 2 – whether the taxpayer is entitled to rely upon an exception from substantiation under section 900-50 | 21. The Tribunal decided that the exception from substantiation under section 900-50 applied to the taxpayer because: • he was paid a travel allowance by his employer • the Tribunal had determined that the taxpayer had incurred the expenditure in gaining or producing his assessable income • the taxpayer's expenditure fell within the reasonable daily amount limits of TD 2020/5, and • there was no dispute that the meal expenses incurred by the taxpayer were covered by the travel allowance. [23] | • he was paid a travel allowance by his employer • the Tribunal had determined that the taxpayer had incurred the expenditure in gaining or producing his assessable income • the taxpayer's expenditure fell within the reasonable daily amount limits of TD 2020/5, and • there was no dispute that the meal expenses incurred by the taxpayer were covered by the travel allowance. [23] | 22. In reaching this decision, the Tribunal noted that: • from a practical perspective, a well-advised truck driver claiming the maximum reasonable daily amount (or in fact any amount) would maintain full substantiation of meal expenses for a short period in each year when relying upon TD 2020/5 [24] , and • the taxpayer's tax agent's approach was stated to the Commissioner as being equal to the number of days that the taxpayer was away multiplied by the maximum reasonable daily amount in TD 2020/5. [25] | • from a practical perspective, a well-advised truck driver claiming the maximum reasonable daily amount (or in fact any amount) would maintain full substantiation of meal expenses for a short period in each year when relying upon TD 2020/5 [24] , and • the taxpayer's tax agent's approach was stated to the Commissioner as being equal to the number of days that the taxpayer was away multiplied by the maximum reasonable daily amount in TD 2020/5. [25] | 23. The Tribunal found the tax agent's submission that it is not open for the Commissioner to determine a reasonable amount different to the published yearly taxation determinations as reflective of 'an idea that there was some sort of automatic deduction available to truck drivers which is not the position'. [26] TD 2020/5 was about substantiation, did not provide a one-off set deduction for truck drivers and there was no statutory provision providing for that. [27] Instead, the Tribunal found that if a tax agent in Australia took a similar approach to the taxpayer's tax agent in the context of TD 2020/5, they should change their practice as it was not supportable at law. [28] | Issue 3 – in the event that the exception from substantiation under section 900-50 did not apply to the taxpayer, whether section 900-200 applied to relieve the taxpayer from the obligation to substantiate the meal expenses | 24. The Tribunal decided that even if the Tribunal was wrong 'about any aspect' of the analysis in relation to the application of section 8-1, section 900-200 would have applied to relieve the taxpayer from the obligation to substantiate the meal expenses. It found that the taxpayer had a reasonable expectation that TD 2020/5 would apply due to the advice received from his tax agent (being that if he claimed less than the maximum reasonable daily amount, he did not need to keep records to substantiate his expenses). [29]", "Issues_Decided": "Issue 1 – whether the taxpayer incurred the meal expenses in gaining or producing assessable income under section 8-1: 17. The Tribunal noted that the taxpayer bears the onus of proof that the 'assessment is incorrect and what the assessment should have been'. [15] 18. The Tribunal decided that as the taxpayer incurred the meal expenses while on trips away from home, it followed that he had incurred the disputed meal expenses in gaining or producing his assessable income under section 8-1. [16] The Tribunal was not sure how the Commissioner thought that anyone would fund 3 meals a day for $19. [17] 19. The Commissioner's position was that the taxpayer had not been able to demonstrate that his claim was for entirely work-related expenses, as opposed to food acquired for private purposes. [18] Further, the Commissioner was of the view that the taxpayer had not provided clear, contemporaneous or corroborative evidence as to the fact the disputed expenses were actually incurred in gaining or producing assessable income and had dismissed the bank statements as not connecting the disputed meal expenses to the taxpayer with any specificity. The Commissioner suggested that an inference could be drawn from the 'big shops' undertaken by the taxpayer (or Ms Fisher) and that they were also for private purposes. [19] 20. In reaching its decision, the Tribunal did not agree with the Commissioner that there was an insufficient linkage between the expenditure on bank statements and the taxpayer's work. [20] Rather, the Tribunal found that the taxpayer's evidence was credible and provided that link. The Commissioner had 'a lot of data available and there were available areas for investigation'. [21] The taxpayer's evidence gave a broad mechanism for apportionment and that basis could have covered many of the Commissioner's concerns. [22] | Issue 2 – whether the taxpayer is entitled to rely upon an exception from substantiation under section 900-50: 21. The Tribunal decided that the exception from substantiation under section 900-50 applied to the taxpayer because: • he was paid a travel allowance by his employer • the Tribunal had determined that the taxpayer had incurred the expenditure in gaining or producing his assessable income • the taxpayer's expenditure fell within the reasonable daily amount limits of TD 2020/5, and • there was no dispute that the meal expenses incurred by the taxpayer were covered by the travel allowance. [23] • he was paid a travel allowance by his employer • the Tribunal had determined that the taxpayer had incurred the expenditure in gaining or producing his assessable income • the taxpayer's expenditure fell within the reasonable daily amount limits of TD 2020/5, and • there was no dispute that the meal expenses incurred by the taxpayer were covered by the travel allowance. [23] 22. In reaching this decision, the Tribunal noted that: • from a practical perspective, a well-advised truck driver claiming the maximum reasonable daily amount (or in fact any amount) would maintain full substantiation of meal expenses for a short period in each year when relying upon TD 2020/5 [24] , and • the taxpayer's tax agent's approach was stated to the Commissioner as being equal to the number of days that the taxpayer was away multiplied by the maximum reasonable daily amount in TD 2020/5. [25] • from a practical perspective, a well-advised truck driver claiming the maximum reasonable daily amount (or in fact any amount) would maintain full substantiation of meal expenses for a short period in each year when relying upon TD 2020/5 [24] , and • the taxpayer's tax agent's approach was stated to the Commissioner as being equal to the number of days that the taxpayer was away multiplied by the maximum reasonable daily amount in TD 2020/5. [25] 23. The Tribunal found the tax agent's submission that it is not open for the Commissioner to determine a reasonable amount different to the published yearly taxation determinations as reflective of 'an idea that there was some sort of automatic deduction available to truck drivers which is not the position'. [26] TD 2020/5 was about substantiation, did not provide a one-off set deduction for truck drivers and there was no statutory provision providing for that. [27] Instead, the Tribunal found that if a tax agent in Australia took a similar approach to the taxpayer's tax agent in the context of TD 2020/5, they should change their practice as it was not supportable at law. [28] | Issue 3 – in the event that the exception from substantiation under section 900-50 did not apply to the taxpayer, whether section 900-200 applied to relieve the taxpayer from the obligation to substantiate the meal expenses: 24. The Tribunal decided that even if the Tribunal was wrong 'about any aspect' of the analysis in relation to the application of section 8-1, section 900-200 would have applied to relieve the taxpayer from the obligation to substantiate the meal expenses. It found that the taxpayer had a reasonable expectation that TD 2020/5 would apply due to the advice received from his tax agent (being that if he claimed less than the maximum reasonable daily amount, he did not need to keep records to substantiate his expenses). [29]", "ATO_View_of_Decision": "25. The Commissioner appealed the Tribunal's decision to The Federal Court in Commissioner of Taxation v Shaw [2026] FCA 197 dismissed the Commissioner's appeal on the basis that none of the grounds of appeal relied on were established. | 26.Our response to the decision of the Federal Court is contained in the Decision impact statement for Commissioner of Taxation v Shaw [2026] FCA 197.", "Administrative_Treatment": "27. The Commissioner's administration practices concerning deductions for work-related travel expenses and record keeping outlined in this Interim decision impact statement have now been replaced by the administrative treatment outlined in the Decision impact statement for Commissioner of Taxation v Shaw [2026] FCA 197. | 28. Up until the publication date of the Decision impact statement for Commissioner of Taxation v Shaw [2026] FCA 197, the Commissioner's administration practices were as follows: Until the appeal process is finalised, we do not intend to revise the current ATO views contained in the following public rulings dealing with work-related travel expenses and record keeping, including substantiation and the substantiation exception: • Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses • Taxation Ruling TR 95/18 Income tax: employee truck drivers-allowances, reimbursements and work-related deductions • Taxation Ruling TR 97/24 Income tax: relief from the effects of failing to substantiate • Taxation Determination TD 2020/5 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2020-2021 income year? and other Determinations issued annually on reasonable travel and overtime meal allowance expenses amounts. | • Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses • Taxation Ruling TR 95/18 Income tax: employee truck drivers-allowances, reimbursements and work-related deductions • Taxation Ruling TR 97/24 Income tax: relief from the effects of failing to substantiate • Taxation Determination TD 2020/5 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2020-2021 income year? and other Determinations issued annually on reasonable travel and overtime meal allowance expenses amounts. | 29. The impact of the decision in Commissioner of Taxation v Shaw [2026] FCA 197 is no longer being reviewed on: • Taxation Ruling TR 95/18 Income tax: employee truck drivers-allowances, reimbursements and work-related deductions as it was withdrawn with effect from 19 June 2025 • Taxation Ruling TR 97/24 Income tax: relief from the effects of failing to substantiate as it isn't specific to the reasonable travel and overtime meal allowance expenses regime. | • Taxation Ruling TR 95/18 Income tax: employee truck drivers-allowances, reimbursements and work-related deductions as it was withdrawn with effect from 19 June 2025 • Taxation Ruling TR 97/24 Income tax: relief from the effects of failing to substantiate as it isn't specific to the reasonable travel and overtime meal allowance expenses regime. | Commissioner of Taxation 28 May 2025 | 13 May 2026 Part Comment Summary of decision, ATO view of this decision and Administrative treatment Updated to note and refer to the Decision impact statement issued for Commissioner of Taxation v Shaw [2026] FCA 197. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] At [5] and [21a]. | [2] At [6]. | [3] At [21b] and [21c]. | [4] At [21g] and [21h]. | [5] At [21d]. | [6] At [10]. | [7] At [15]. | [8] At [12]. | [9] At [10], [12] and [17]. | [10] At [30]. | [11] At [18]. | [12] At [19]. | [13] At [9]. | [14] At [11] and [21o]. | [15] At [3]. | [16] At [49]. | [17] At [31]. | [18] At [44]. | [19] At [45]. | [20] At [49]. | [21] At [31]. | [22] At [49]. | [23] At [52]. | [24] At [39]. For example, see TD 2020/5 at paragraphs 3, 25, 29 and 30. | [25] At [34]. | [26] At [36]. | [27] At [34]. | [28] At [35]. | [29] At [11] and [54].", "Related_Documents": "Decision impact statement | 2025 ATC 10-750 | TR 95/18 | TR 97/24 | TR 2004/6 | TD 2020/5 | ITAA 1997 8-1 | ITAA 1997 900-50 | ITAA 1997 900-200", "Legislative_References": "ITAA 1997 8-1 ITAA 1997 900-50 ITAA 1997 900-200", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": true, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2024/1049/00001", "Unmatched_Content": ""}
{"Case_Name": "Toowoomba Regional Council v Commissioner of Taxation [2025] FCA 161", "Venue_Reference_No": "QUD 702 of 2024", "Venue": "Federal Court of Australia", "Judgment_Date": "6 February 2025", "Date_Published": "28 March 2025", "Document_Type": "Interim Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Interim decision impact statement outlines the ATO's interim response to this case, which concerns whether a shopping centre car park is a 'commercial parking station' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). | 2. This is relevant when considering whether a car parking benefit is provided to employees in accordance with section 39A of the FBTAA. | 3. Justice Logan determined that the shopping centre car park was not a commercial parking station. | 4. In reaching this conclusion, His Honour considered the: • meaning of the word 'commercial' for the purpose of determining whether the shopping centre car park was a commercial parking station, and • facts of the scheme the subject of the Commissioner's private ruling which was considered by the Court, including whether – certain documents could be considered by the Court in determining whether the Commissioner's decision was correct, and – factual matters constituting part of the scheme could be inferred. | • meaning of the word 'commercial' for the purpose of determining whether the shopping centre car park was a commercial parking station, and • facts of the scheme the subject of the Commissioner's private ruling which was considered by the Court, including whether – certain documents could be considered by the Court in determining whether the Commissioner's decision was correct, and – factual matters constituting part of the scheme could be inferred. | – certain documents could be considered by the Court in determining whether the Commissioner's decision was correct, and – factual matters constituting part of the scheme could be inferred. | 5. The Commissioner has appealed the decision to the Full Federal Court. | 6. All legislative references in this Interim decision impact statement are to the FBTAA, unless otherwise indicated. | 7. All judgment references in this Interim decision impact statement are to the judgment of Toowoomba Regional Council v Commissioner of Taxation [2025] FCA 161, unless otherwise indicated.", "Overview_of_Facts": "8. In November 2023, the Commissioner gave to the Toowoomba Regional Council a private ruling made for the fringe benefits tax (FBT) years ending 31 March 2023 to 31 March 2026 inclusive. In Question 1 of the private ruling application, the Commissioner was asked to rule on whether the Grand Central Shopping Centre car park was a 'commercial parking station' under section 39A on the basis of the material provided by the applicant for the private ruling which formed the scheme specified in the ruling. | 9. The facts of the scheme, in relation to which the Commissioner made the private ruling, can be summarised as follows: • The Grand Central Shopping Centre is located in the Toowoomba central business district in Queensland and has multiple entrances. • On 14 June 2017, the Grand Central Shopping Centre introduced paid car parking to the public. It had previously undergone a redevelopment which doubled the floor area of the shopping centre to 90,000 square metres and the number of car parking spaces to 4,000. • The parking rates introduced at the Grand Central Shopping Centre were listed, noting that up to 3 hours car parking was free, up to 3.5 hours was $2.00 and then steadily rose to $20.00 for over 7 hours parking, which was the maximum daily rate. • In addition to free car parking when a car was parked for less than 3 hours, Grand Central Shopping Centre also offered reduced or free parking to its shoppers and staff in various other scenarios. For example, there was free car parking for shoppers after 6:00 pm, and for disabled shoppers and cinema patrons, and customers that lived outside Toowoomba who shopped at the Grand Central Shopping Centre for more than 3 hours were provided with all-day parking at a flat rate of $7.50. • Other car parking lots around the Toowoomba central business district are operated by the Toowoomba Regional Council. The parking fees at these car parking facilities range from a maximum of $6.00 to $7.50 per day. • For the FBT year ended 31 March 2023, the car parking threshold was $9.72. • Grand Central Shopping Centre has a ticketless parking system that uses licence plate recognition to track parking without the need for a paper ticket. • Upon exiting, a camera scans the licence plate details of a vehicle at the boom gates and calculates the time spent and cost incurred. The boom gates will automatically open if the customer has been parked for under 3 hours, paid at the pay stations or scanned their validation bar code (from Customer Service or the cinema). If payment is required, a credit card can be scanned at the boom gates. • Payment machines are also located at mall entrances within the Grand Central Shopping Centre and credit card payment is accepted at the exit barriers. | • The Grand Central Shopping Centre is located in the Toowoomba central business district in Queensland and has multiple entrances. • On 14 June 2017, the Grand Central Shopping Centre introduced paid car parking to the public. It had previously undergone a redevelopment which doubled the floor area of the shopping centre to 90,000 square metres and the number of car parking spaces to 4,000. • The parking rates introduced at the Grand Central Shopping Centre were listed, noting that up to 3 hours car parking was free, up to 3.5 hours was $2.00 and then steadily rose to $20.00 for over 7 hours parking, which was the maximum daily rate. • In addition to free car parking when a car was parked for less than 3 hours, Grand Central Shopping Centre also offered reduced or free parking to its shoppers and staff in various other scenarios. For example, there was free car parking for shoppers after 6:00 pm, and for disabled shoppers and cinema patrons, and customers that lived outside Toowoomba who shopped at the Grand Central Shopping Centre for more than 3 hours were provided with all-day parking at a flat rate of $7.50. • Other car parking lots around the Toowoomba central business district are operated by the Toowoomba Regional Council. The parking fees at these car parking facilities range from a maximum of $6.00 to $7.50 per day. • For the FBT year ended 31 March 2023, the car parking threshold was $9.72. • Grand Central Shopping Centre has a ticketless parking system that uses licence plate recognition to track parking without the need for a paper ticket. • Upon exiting, a camera scans the licence plate details of a vehicle at the boom gates and calculates the time spent and cost incurred. The boom gates will automatically open if the customer has been parked for under 3 hours, paid at the pay stations or scanned their validation bar code (from Customer Service or the cinema). If payment is required, a credit card can be scanned at the boom gates. • Payment machines are also located at mall entrances within the Grand Central Shopping Centre and credit card payment is accepted at the exit barriers. | The meaning of the word 'commercial' for the purpose of interpreting 'commercial parking station' in subsection 136(1) | 10. His Honour observed that 'there is no one natural and ordinary meaning in respect of the adjective \"commercial\" as used in the definition of \"commercial parking station\"'. [1] Further [2] : [t]hat adjectival word is not to be read in isolation, either from the term of which it forms part \"permanent commercial car parking facility\" or from the wider context of the Act or its purpose. | 11. His Honour noted that the dictionary definition of 'commercial' provides that when used as an adjective, '\"commercial\" can mean \"of or of the nature of commerce\" or \"engaged in commerce\"'. It could also mean 'capable of returning a profit'. [3] | 12. In finding there is no doubt that the Grand Central Shopping Centre car park is deployed in commerce, being a meaning that can be given to 'commercial', His Honour pointed out that this is not the only meaning that can be given to the word. [4] Given the definition of commercial parking station does have some ambiguity about it, His Honour held that it is permissible, as a matter of statutory construction, to have regard to the explanatory memorandum. [5] | 13. In response to the Commissioner's argument that it was appropriate to have regard to the Full Federal Court's judgment in Commissioner of Taxation v Qantas Airways Limited [2014] FCAFC 168 (Qantas Airways) [6] , which found that the 'meaning of 'commercial parking station is … quite clear' [7] , His Honour found that: • It is necessary to read Qantas Airways against the background of an understanding that the controversy in that case concerned the meaning of the word 'public' in the definition of commercial parking station in subsection 136(1). • The Full Federal Court did not have occasion to explore the subject of the question posed to the Commissioner for this private ruling by the applicant. Nor did an earlier Full Federal Court have such occasion in Virgin Blue Airlines Pty Ltd v Commissioner of Taxation [2010] FCAFC 137. [8] | • It is necessary to read Qantas Airways against the background of an understanding that the controversy in that case concerned the meaning of the word 'public' in the definition of commercial parking station in subsection 136(1). • The Full Federal Court did not have occasion to explore the subject of the question posed to the Commissioner for this private ruling by the applicant. Nor did an earlier Full Federal Court have such occasion in Virgin Blue Airlines Pty Ltd v Commissioner of Taxation [2010] FCAFC 137. [8] | 14. Having regard to the explanation of the definition of commercial parking station in the Explanatory Memorandum [9] , His Honour found [10] : [t]hat explanation offers support for a meaning of the adjective \"commercial\" within the statutory definition as derived from an, but not the only, ordinary meaning of the word as used in context, and having regard to purpose. | 15. The Court concluded that the meaning assigned to 'commercial' in 'permanent commercial car parking facility' is 'intended to make' or 'aimed at' or 'having the potential for financial success intended to make a profit'. [11] That is not to say that a profit must be present, only that there may be some profit-making purpose to do with the operation of the car parking station. [12] | The facts of the scheme the subject of the private ruling | 16. His Honour found that the facts were confined to those specified in the scheme stated by the Commissioner in the private ruling. [13] The scheme did not include reference to materials annexed to the private ruling application, nor more particularly, reference to the comments made in newspaper articles. [14] | 17. However, while His Honour decided that the private ruling regime he described in Rosgoe Pty Ltd v Commissioner of Taxation [2015] FCA 1231 [15] and followed by Derrington J in Commissioner of Taxation v Eichmann [2019] FCA 2155 [16] , is substantially unaltered, this was subject to one caveat. [17] That caveat, which was supplied by the Full Federal Court's judgment in Eichmann v Commissioner of Taxation [2020] FCAFC 155 [18] , provided that [19] : … a Tribunal or a Court may draw inferences from ruled facts which are both obvious in nature and where there are no other possible competing inferences that might be drawn. | 18. It was noted by His Honour that there was no finding at all in the facts specified in the scheme that the Grand Central Shopping Centre car park is operated for the purpose of making a profit. [20] | 19. His Honour considered, in particular, the facts in the scheme to the private ruling, which specified the: • schedule of parking rates for the Grand Central Shopping Centre car park [21] , and • various other car parking facilities operated in the Toowoomba central business district. [22] | • schedule of parking rates for the Grand Central Shopping Centre car park [21] , and • various other car parking facilities operated in the Toowoomba central business district. [22] | 20. His Honour concluded that these facts 'make it obvious that the Grand Central [Shopping Centre] car parking facility is being operated to a different end to a commercial car parking facility'. [23] | 21. His Honour found that, while it is obvious from the schedule of parking rates that the Grand Central Shopping Centre car park is being operated to the end of complementing the operation of the shopping centre and it also being an attractive force that brings in business to the shopping centre and its tenants, the [24] : range of free parking is inconsistent with it being operated commercially for profit, as opposed to commercially in the context of a shopping centre, not a standalone car parking facility. | 22. His Honour held that the facts that were specified in the scheme were such as to conclude that the Toowoomba Grand Central shopping centre car parking facility is not a 'commercial parking station' as defined in subsection 136(1) and thus, is not a 'commercial parking station' for the purposes of section 39A.", "Issues_Decided": "", "ATO_View_of_Decision": "23. Until the appeal process is finalised, we do not intend to revise the current ATO view relating to car parking fringe benefits and the meaning of commercial parking station, as set out in Taxation Ruling TR 2021/2 Fringe benefits tax: car parking benefits and Chapter 16 of Fringe benefits tax – a guide for employers (FBT guide). | 24. The ATO view in TR 2021/2 sets out the way we will administer the law as it applies to commercial car parking arrangements and is consistent with the decision in Qantas Airways . This means that even if the car park has a primary purpose other than providing all-day parking and its fee structure discourages all-day parking through charging penalty rates, it can still be a 'commercial parking station' as defined in subsection 136(1).", "Administrative_Treatment": "25. Pending the outcome of the appeal process, we are administering the law in accordance with the current ATO view relating to car parking fringe benefits and the meaning of commercial parking station, as set out in TR 2021/2 and Chapter 16 of the FBT guide. | Lodgment of FBT returns by taxpayers | 26. Taxpayers should continue to lodge their FBT returns in accordance with the ATO view as set out in TR 2021/2 and Chapter 16 of the FBT guide. | Private rulings | 27. If a taxpayer lodges an application for a private ruling before the appeal process in this case is finalised, we will make the private ruling in accordance with the ATO view as set out in TR 2021/2 and Chapter 16 of the FBT guide. | Objections | 28. Until the appeal process in this case is finalised, we do not propose to finalise objection decisions in relation to whether a car parking facility is a commercial parking station. However, if a decision is required to be made (for example, because a taxpayer gives notice requiring the Commissioner to make an objection decision), that objection decision will be made in accordance with the ATO view as set out in TR 2021/2 and Chapter 16 of the FBT guide. | Commissioner of Taxation 28 March 2025 | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] At [26]. | [2] At [26]. | [3] At [28]. | [4] At [29]. | [5] At [34]. | [6] At [14]. | [7] At [14]. | [8] At [22]. | [9] Explanatory Memorandum to the Taxation Laws Amendment (Car Parking) Bill 1992. | [10] At [35]. | [11] At [35]. | [12] At [33]. | [13] At [12]. | [14] At [39]. | [15] Rosgoe Pty Ltd v Commissioner of Taxation [2015] FCA 1231 at [12-15]. | [16] Commissioner of Taxation v Eichmann [2019] FCA 2155 at [22]. | [17] At [6-8]. | [18] Eichmann v Commissioner of Taxation [2020] FCAFC 155 at [16]. | [19] At [9]. | [20] At [38]. | [21] At [41]. | [22] At [42]. | [23] At [43]. | [24] At [43].", "Related_Documents": "Qantas Airways | 2025 ATC 20-950 | TR 2021/2 | FBTAA 39A | FBTAA 136(1) | 2019 ATC 20-728 | 2014 ATC 20-477 | 2020 ATC 20-762 | 2015 ATC 20-539 | 2010 ATC 20-226 | Explanatory Memorandum", "Legislative_References": "FBTAA 39A FBTAA 136(1)", "Case_References": "Commissioner of Taxation v Eichmann [2019] FCA 2155 2019 ATC 20-728 Commissioner of Taxation v Qantas Airways Limited [2014] FCAFC 168 227 FCR 554 2014 ATC 20-477 100 ATR 97 Eichmann v Commissioner of Taxation [2020] FCAFC 155 280 FCR 10 2020 ATC 20-762 112 ATR 246 Rosgoe Pty Ltd v Commissioner of Taxation [2015] FCA 1231 2015 ATC 20-539 Virgin Blue Airlines Pty Ltd v Commissioner of Taxation [2010] FCAFC 137 190 FCR 150 2010 ATC 20-226 81 ATR 85", "Subject_References": "", "Other_References": "Explanatory Memorandum to Taxation Laws Amendment (Car Parking) Bill 1992 Fringe benefits tax – a guide for employers, Chapter 16", "Is_Interim": true, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD702of2024/00001", "Unmatched_Content": ""}
{"Case_Name": "A. AG v Federal Tax Administration", "Venue_Reference_No": "2C_219/2024", "Venue": "Federal Supreme Court of Switzerland", "Judgment_Date": "8 May 2024", "Date_Published": "25 March 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the Commissioner's response to a decision of the Federal Supreme Court of Switzerland (Court). In its decision, the Court dismissed a Swiss company's appeal against a lower Swiss court's earlier decision to uphold the fulfillment of a request for information relevant to a transfer pricing audit that the ATO made to the Swiss Federal Tax Administration (SFTA) under Article 25 of the Convention between Australia and the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income, with Protocol [2014] ATS 33 (Swiss Convention). | 2. All judgment references in this Decision impact statement are to the judgment of A. AG v Federal Tax Administration , unless otherwise indicated.", "Overview_of_Facts": "3. The ATO commenced an audit on an income tax consolidated group that operated franchises in Australia. The audit examined whether the group's Australian resident head company obtained a transfer pricing benefit under Australia's transfer pricing laws in Subdivision 815-B of the Income Tax Assessment Act 1997 (ITAA 1997). [1] | 4. The audit's scope included considering if a difference existed between the actual conditions and the arm's length conditions of the head company's commercial or financial relations with the Swiss company that supplied the head company's trading stock (Swiss supplier). [2] In its decision, the Court referred to the head company as B, and to the Swiss supplier as A. AG. | 5. Under Article 25 of the Swiss Convention, the ATO requested the SFTA to provide information concerning the Swiss supplier's dealings with the head company and the head company's Australian subsidiaries (Australian companies). [3] In its request, the ATO informed the SFTA that the Australian transfer pricing laws at issue in the audit (Subdivision 815-B of the ITAA 1997) applied the arm's length principle to transactions between affiliated and non-affiliated companies. [4] | 6. Article 25 of the Swiss Convention concerns the provision of administrative assistance by competent authorities of the SFTA and the ATO. Under Article 25, administrative assistance involves the exchange of information (EOI) between competent authorities that is foreseeably relevant to administering or enforcing domestic laws concerning taxes imposed in Switzerland or Australia, provided that taxation under such laws is not contrary to the Swiss Convention. | 7. The Swiss supplier objected to the SFTA providing the ATO with the requested information. [5] The Swiss Federal Administrative Court rejected the Swiss supplier's challenge [6] , finding that the requested information would serve the ATO in the application of Australia's transfer pricing laws. [7] The Swiss supplier then appealed to the Court. [8] | 8. On appeal, the Swiss supplier contended that the ATO should be refused the information, because it was requested for an audit that contemplated making adjustments contrary to Article 9 of the Swiss Convention, which deals with the arm's length allocation of profits between associated enterprises. [9] The Swiss supplier contended that the audit adjustments contemplated by the ATO were contrary to Article 9, because they concerned prices charged by the Swiss supplier to the head company in circumstances where the Swiss supplier and the head company had no affiliation in terms of capital, and therefore no association, for the purposes of Article 9.", "Issues_Decided": "9. The Court dismissed the Swiss supplier's appeal [10] , having regard to the foreseeable relevance of the request and the trust principle under international law. [11] | Foreseeable relevance: 10. The Court held that: • For administrative assistance to be provided by EOI under Article 25 of the Swiss Convention, the request for information had to have likely relevance to a transfer pricing review. [12] • It was well settled that the requested information will satisfy this requirement, if it relates to the application of the domestic transfer pricing laws in the jurisdiction of the tax administration that makes the request, or if the requested information otherwise appears to be potentially suitable for use in proceedings in that jurisdiction concerning such laws. [13] • To succeed in its appeal, the Swiss supplier had to demonstrate the existence of a legal question of fundamental importance. [14] As the Swiss supplier did not argue that the requested information was unsuitable for use in connection with Australia's domestic transfer pricing laws, there was no legal question of fundamental importance underlying the appeal. [15] • For administrative assistance to be provided by EOI under Article 25 of the Swiss Convention, the request for information had to have likely relevance to a transfer pricing review. [12] • It was well settled that the requested information will satisfy this requirement, if it relates to the application of the domestic transfer pricing laws in the jurisdiction of the tax administration that makes the request, or if the requested information otherwise appears to be potentially suitable for use in proceedings in that jurisdiction concerning such laws. [13] • To succeed in its appeal, the Swiss supplier had to demonstrate the existence of a legal question of fundamental importance. [14] As the Swiss supplier did not argue that the requested information was unsuitable for use in connection with Australia's domestic transfer pricing laws, there was no legal question of fundamental importance underlying the appeal. [15] 11. Notably, the Court also held that the Swiss supplier's contention that it was not affiliated by capital with the Australian companies, did not assist its appeal against fulfillment of the information request, and was a matter to be raised with the ATO for consideration in relation to the application of the transfer pricing laws in Australia. [16] | Trust principle: 12. The Court held that the principle of trust under international law requires the state from which the information is requested to rely on the information provided to it by the requesting state. [17] 13. The Court noted and did not express any concern with the Swiss Federal Administrative Court's view that an intention for taxation contrary to the Swiss Convention could not be inferred from the ATO's disclosure to the SFTA, which explained that Australian transfer pricing laws can apply to transactions between affiliated and non-affiliated entities. [18] 14. The Court considered that any taxation contrary to the Swiss Convention was a matter to be clarified directly between the contracting states and not an issue for resolution as part of the EOI framework. [19]", "ATO_View_of_Decision": "15. This decision demonstrates that the application of Australia's transfer pricing laws in Subdivision 815-B of the ITAA 1997 to the commercial or financial relations of cross-border entities – whether or not they are associated enterprises for tax treaty purposes – should not limit our ability to request information under tax treaties, where that information is foreseeably relevant to ensuring compliance with those laws. | 16. We welcome this decision. It supports our use, in appropriate cases, of EOI powers under Australia's income tax treaties, to request information from foreign jurisdictions which we consider relevant to administering or enforcing Australia's transfer pricing laws.", "Administrative_Treatment": "17. We have reviewed the impact of this decision on related advice or guidance and no changes have been made. | Commissioner of Taxation 10 October 2025 | 25 March 2026 Part Comment Implications for impacted advice or guidance Updated to advise that advice and guidance products have been reviewed and no action required. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] At [A]. | [2] At [A]. | [3] At [A]. | [4] At [1.4.2]. | [5] At [B]. | [6] At [B]. | [7] At [1.4.1]. | [8] At [C]. | [9] At [1.2]. | [10] At [2]. | [11] At [1.4]. | [12] At [1.4.1]. | [13] At [1.4.1]. | [14] At [1.1]. | [15] At [1.4.1]. | [16] At [1.4.2] and [1.5]. | [17] At [1.4.2]. | [18] At [1.4.2]. | [19] At [1.5].", "Related_Documents": "ITAA 1997 Subdiv 815-B | 2C_219/2024 | Convention between Australia and the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income, with Protocol [2014] ATS 33 Article 9 | Convention between Australia and the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income, with Protocol [2014] ATS 33 Article 25", "Legislative_References": "ITAA 1997 Subdiv 815-B", "Case_References": "A. AG v Federal Tax Administration 2C_219/2024", "Subject_References": "", "Other_References": "Convention between Australia and the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income, with Protocol [2014] ATS 33 Article 9 Convention between Australia and the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income, with Protocol [2014] ATS 33 Article 25", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2C-219/2024/00001", "Unmatched_Content": "ATO view of this decision | Implications for affected advice or guidance"}
{"Case_Name": "Automotive Invest Pty Limited v Commissioner of Taxation [2024] HCA 36", "Venue_Reference_No": "S170/2023", "Venue": "High Court of Australia", "Judgment_Date": "16 October 2024", "Date_Published": "11 December 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case, which considered whether the use of luxury cars as trading stock and for public display in a museum was solely for a 'quotable purpose' under the A New Tax System (Luxury Car Tax) Act 1999 . | 2. If the cars were used as trading stock and for an 'other purpose', the entity would have a luxury car tax liability, and its input tax credits under section 69-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) would be limited. | 3. All legislative references in this Decision impact statement are to the A New Tax System (Luxury Car Tax) Act 1999 , unless otherwise indicated. | 4. All judgment references in this Decision impact statement are to the judgment of Automotive Invest Pty Limited v Commissioner of Taxation [2024] HCA 36, unless otherwise indicated.", "Overview_of_Facts": "5. The taxpayer operated the 'Gosford Classic Car Museum'. The museum held collectable and vintage cars for public display. Some of those cars were luxury cars. The museum had all the expected attributes of a museum and was marketed as a tourist attraction. Outside the building, it had signage on the front displaying 'Gosford Classic Car Museum' and ample guest parking. | 6. Inside the building: • admission fees were charged before entering the one-way entry gates • the cars were lined up behind ropes • there was a gift shop • there was a ticket shop • there was a diner serving breakfast and lunch and tables and chairs to eat at, and • there was often a queue to get into the museum area of the building. | • admission fees were charged before entering the one-way entry gates • the cars were lined up behind ropes • there was a gift shop • there was a ticket shop • there was a diner serving breakfast and lunch and tables and chairs to eat at, and • there was often a queue to get into the museum area of the building. | 7. Admission fee revenue was $1.32 million in the first year of operation. | 8. It was not in dispute that, at the same time, the taxpayer also held the cars as trading stock for sale. Over a 4-year period, 800 vehicles were sold with a gross revenue of $114 million. | 9. At the time of acquiring or importing the luxury cars in dispute, the taxpayer indicated they were only to be used as trading stock, and for no other purpose. The taxpayer 'quoted' its Australian business number (ABN) to the supplier of the car (or Australian Border Force on importation), and no luxury car tax was payable. | 10. Following an audit, the Commissioner formed the view that 'increasing luxury car tax adjustments' applied to the relevant luxury cars under subsections 15-30(3) and 15-35(3), and that luxury car tax was therefore payable. The adjustments were applied on the basis that the taxpayer used each of the cars for a purpose other than a 'quotable purpose', by displaying them as exhibits in the museum. | 11. The same 'quotable purpose' test was also applied to reduce the input tax credits on the purchase and import of some cars under section 69-10 of the GST Act. | 12. At first instance, in the Federal Court [1] , the controlling mind of the taxpayer (Mr Anthony Denny) gave evidence that the 'museum concept' was no more than a marketing strategy. The primary judge (Thawley J) accepted that Mr Denny wanted to profit from the sale of cars, and that Mr Denny considered that the museum concept would be the best way to achieve that objective. [2] | 13. While the primary judge recognised that subjective evidence was not to be ignored, it was concluded that, when objectively assessed, display of the cars in the museum involved a separate and additional purpose. It followed that the cars were not used solely for a quotable purpose. [3] The Full Federal Court, by majority, upheld this decision, agreeing that whether there was a separate purpose was determined by objective consideration of the facts and circumstances. [4] | 14. On 16 October 2024, the High Court, by majority, (Edelman, Steward and Gleeson JJ, with Gageler CJ and Jagot J dissenting) allowed the taxpayer's appeal.", "Issues_Decided": "15. The primary issue in this case involved the luxury car tax concept of 'quotable purpose' in subsection 9-5(1). If the luxury cars displayed at the museum were used solely for the purpose of holding them as trading stock, they were used for a quotable purpose. If they were also used for an 'other purpose', in this case for public display, they were not. 16. The High Court majority accepted that holding cars as trading stock and for public display in the museum were both capable of being separate uses. [5] The next step was to determine the intended purpose of those respective uses. [6] | Application of section 9-5 'quotable purpose': 17. Having explained the need to understand the difference between 'motive', 'means' and 'purpose' [7] , the majority made several general observations: • Purposes (like intentions) are the purposes or intentions of a person whether of a natural person, an artificial legal person, or a construct. [8] • A natural person's purpose 'can only be proved by the person's direct evidence, or by inference from the circumstances, or both'. [9] • The most common means of identifying the purpose of an artificial person is via identification of a person whose purposes are to be attributed to the legal person. [10] • Where the law is concerned with the purpose of a construct, there is no natural person who can give direct evidence for the construct. Purpose in these situations can only be established by inference from the facts and circumstances. [11] • Purposes (like intentions) are the purposes or intentions of a person whether of a natural person, an artificial legal person, or a construct. [8] • A natural person's purpose 'can only be proved by the person's direct evidence, or by inference from the circumstances, or both'. [9] • The most common means of identifying the purpose of an artificial person is via identification of a person whose purposes are to be attributed to the legal person. [10] • Where the law is concerned with the purpose of a construct, there is no natural person who can give direct evidence for the construct. Purpose in these situations can only be established by inference from the facts and circumstances. [11] 18. Against that background, the majority held that 'purpose' in subsection 9-5(1) is used in the 'sense of the purpose of the taxpayer, not some purpose that a reasonable person in the taxpayer's position might hold'. That is, the focus of the enquiry is on the subjective purpose of the taxpayer in question. [12] 19. The majority explained that this conclusion reflects the specific statutory context of section 9-5. This was so for 2 reasons. First, the focus of section 9-5 is on the 'intention' of an actual taxpayer to use a car for a purpose before use commences. Second, the term 'you' within the provision refers to the actual taxpayer, 'not an objective construct or reasonable person'. The majority found that the provision assumes that the taxpayer has an actual intention of using a car for purpose or purposes. [13] 20. There was no dispute that the intention of the taxpayer was the intention of its controlling mind, Mr Denny. [14] The majority emphasised that the evidence of Mr Denny's intention and subjective purpose was 'uncontradicted', and materially accepted by the primary judge. [15] The majority observed that Mr Denny's evidence was also 'supported by substantial objective evidence'. [16] 21. The majority concluded that the effect of the primary judge 'finding that the museum concept was chosen by Mr Denny only as the way for [the taxpayer] to achieve its objective of selling cars' was that the taxpayer intended to trade cars through the museum and '... considered the museum would assist in maximising the number of sales and the sale price.' [17] The majority concluded [18] : ... The museum concept never ceased to be subjugated to, or the means of achieving, the goal of selling cars. For the \"museum concept\" to be effective, the museum had to be as real as possible. The signage, the presentation of the cars, the gift shop, the diner, the marketing and the available staff were all dedicated to those means. But this activity, large as it was to be, was not intended by Mr Denny to be an \"independent\" purpose, end or object. It was an elaborate and extensive marketing exercise designed to promote the appellant's business of being a car dealer ... 22. In addition, the majority observed that it was for Mr Denny to decide how to run his business [19] : ... Unless Mr Denny was not to be believed, it was for him to delineate, as the controlling mind of the appellant, the four walls of that business. The substance and reality [of the arrangements], applying a common sense and commercial approach, is that ultimately the [taxpayer's] business was just to sell cars. 23. The display of cars in the museum was simply a means of achieving an end – that is, of selling cars. It was not a separate purpose, nor was it an ultimate end itself. [20] This was the case, even though the means chosen and applied were substantial. [21] | Application of subsection 15-30(3) 'increasing luxury car tax adjustments': 24. As with section 9-5, subsection 15-30(3) is also concerned with the taxpayer ('you') and with the taxpayer's use of the car or cars in question. And, as with section 9-5, the focus is on the purpose of the taxpayer. The majority observed it would be a remarkable and surprising interpretation of subsection 15-30(3) to conclude otherwise. In this regard, subsection 15-30(3) was characterised as an 'allied provision' of section 9-5. [22] 25. Compared with section 9-5, the difference with section 15-30 is that [23] : ... recourse can now be had to everything which has happened since acquisition in determining the purpose of the actual use of a car rather than the purpose of the intended use. While section 9-5 is concerned with the intended purpose of use, subsection 15-30(3) is concerned with the actual purpose of that use. [24] 26. The majority observed that evidence of the circumstances in which actual use occurred 'is not necessarily more probative than the sworn or affirmed testimony of a witness in inferring actual purpose' – it all depends on the facts and circumstances of a given case. [25] 27. The majority observed that Mr Denny's uncontradicted evidence was that there was never a change to his initial intended purpose of selling cars. The museum concept was simply a means of achieving that purpose until the museum ceased operations. 28. No facts or circumstances cast doubt on the veracity of Mr Denny's evidence. [26] The majority said that [27] : ... the primary judge was ... correct to conclude that Mr Denny's \"subjective evidence\" of his goals \"might properly inform an assessment of purpose\" ... but incorrect to assume that it was possible to accept Mr Denny's subjective evidence but still reach a different conclusion of purpose. The cars in question were used for a quotable purpose (trading stock) and were used for no other purpose. Accordingly, the taxpayer did not have 'increasing luxury car tax adjustments' and the assessments were excessive to that extent. 29. For the same reasons, the majority held that the taxpayer's input tax credits on acquiring or importing the cars were not limited by section 69-10 of the GST Act. 30. The High Court minority concluded that the cars were not used solely for a quotable purpose. They agreed that 'intention' in subsection 9-5(1) is subjective. [28] The inference to be drawn from the primary judge's findings was that Mr Denny subjectively intended to use the museum concept not only to attract potential buyers, but also to attract people to the museum more generally. [29] In contrast, subsections 15-30(3) and 15-35(3) required an objective characterisation of purpose viewed from the perspective of an independent observer. [30]", "ATO_View_of_Decision": "Section 9-5 quoting | 31. When an entity quotes in relation to the supply or importation of a luxury car, the supplier or the Comptroller-General of Customs (Australian Border Force) [31] must determine if the quotation is effective under section 9-25. If the quote is effective, no luxury car tax will be payable on the supply or importation. | 32. If the supplier or Australian Border Force have reasonable grounds for believing that the quoting entity is not entitled to quote under section 9-5 [32] , the quote will not be effective. In these circumstances, the conclusion regarding the entity's quotable purpose will be based on the quoting entity's intended use of the car for a purpose. That purpose will be the quoting entity's subjective purpose, rather than some objective purpose. [33] The supplier or Australian Border Force will reach that conclusion on the information available to them at the time the quote is made. At this point, they will not have the benefit of any later evidence about how the car was actually used. [34] | Division 15 change of use adjustments | 33. While the majority only considered subsections 9-5(1) and 15-30(3) in detail, it is considered that their conclusions will apply equally to the determination of 'quotable purpose' for other change of use adjustments under Division 15. | 34. Where the Division 15 adjustment provisions require 'quotable purpose' to be determined, the intended or actual use for a 'purpose' will be determined by the taxpayer's subjective purpose. [35] Determining subjective purpose where the taxpayer is not an individual, however, is not limited to the purpose of the controlling mind of the taxpayer. [36] Depending on the circumstances, the intention and purpose of the taxpayer's directors, officers and employees may be relevant to attributing a purpose to the taxpayer. [37] | 35. The following information may be relevant when determining if a car has only been used for a 'quotable purpose' under the Division 15 adjustment provisions: • direct evidence of the taxpayer about the purpose for which the car is actually used, rather than the purpose of the intended use, noting that in situations where we need to test the subjective purpose of the identified use of a car, this may include interviews with various relevant persons • contemporaneous evidence of the taxpayer's intended purpose at the time of acquiring or importing the cars [38] , as well as the taxpayer's purpose after the acquisition or importation of the car, which may include board papers, business plans, financial plans, budgets, and communications with third parties [39] • any other relevant evidence, including how the car has actually been used [40] , which may be available to draw inferences about purpose. | • direct evidence of the taxpayer about the purpose for which the car is actually used, rather than the purpose of the intended use, noting that in situations where we need to test the subjective purpose of the identified use of a car, this may include interviews with various relevant persons • contemporaneous evidence of the taxpayer's intended purpose at the time of acquiring or importing the cars [38] , as well as the taxpayer's purpose after the acquisition or importation of the car, which may include board papers, business plans, financial plans, budgets, and communications with third parties [39] • any other relevant evidence, including how the car has actually been used [40] , which may be available to draw inferences about purpose. | 36. To determine the use for a purpose of a car under Division 15, the information noted in paragraph 35 of this Decision impact statement will be taken into account to determine if and to what extent the taxpayer's direct evidence about their purpose should be accepted. [41] Whether evidence of actual use is more or less probative than the direct evidence of the taxpayer in determining actual purpose, depends on the particular facts and circumstances of each case. [42] | 37. We will apply the quotable purpose provisions in subsection 9-5(1) on the basis that, if a car is held for one or more of the 3 allowable purposes, it will cease to be held solely for a quotable purpose if the car is used for an alternative or additional purpose. [43] | GST input tax credits – car limit | 38. Section 69-10 of the GST Act will apply the ascertained subsection 9-5(1) 'quotable purpose' based on the taxpayer's intention about their subjective purpose at the time of acquisition or importation of the car, to determine if input tax credits are limited.", "Administrative_Treatment": "42. We are reviewing the impact of this decision on related luxury car tax and GST advice and guidance, including guidance published about: • Quoting an ABN and Keeping accurate LCT records for luxury car tax purposes • entitlement to input tax credits when purchasing a motor vehicle that exceeds the car limit. | • Quoting an ABN and Keeping accurate LCT records for luxury car tax purposes • entitlement to input tax credits when purchasing a motor vehicle that exceeds the car limit.", "Related_Documents": "2024 ATC 20-929 | ANTS(LCT)A 1999 9-5(1) | ANTS(LCT)A 1999 9-25 | ANTS(LCT)A 1999 Div 15 | ANTS(LCT)A 1999 15-30 | ANTS(LCT)A 1999 15-30(1)(d) | ANTS(LCT)A 1999 15-30(3) | ANTS(LCT)A 1999 15-35(1)(d) | ANTS(LCT)A 1999 15-35(3) | ANTS(GST)A 1999 69-10 | ANTS(GST)A 1999 Div 165 | ITAA 1936 177D | 2022 ATC 20-823 | 2023 ATC 20-875 | 2024 ATC 20-914 | 80 ATC 4542", "Legislative_References": "ANTS(LCT)A 1999 9-5(1) ANTS(LCT)A 1999 9-25 ANTS(LCT)A 1999 Div 15 ANTS(LCT)A 1999 15-30 ANTS(LCT)A 1999 15-30(1)(d) ANTS(LCT)A 1999 15-30(3) ANTS(LCT)A 1999 15-35(1)(d) ANTS(LCT)A 1999 15-35(3) ANTS(GST)A 1999 69-10 ANTS(GST)A 1999 Div 165 ITAA 1936 177D", "Case_References": "Automotive Invest Pty Limited v Commissioner of Taxation [2022] FCA 281 2022 ATC 20-823 114 ATR 569 [2023] ALMD 979 Automotive Invest Pty Limited v Commissioner of Taxation [2023] FCAFC 129 299 FCR 288 2023 ATC 20-875 117 ATR 151 [2023] ALMD 2534 Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2024] HCA 20 2024 ATC 20-914 98 ALJR 808 Magna Alloys & Research Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 180 80 ATC 4542 11 ATR 276 49 FLR 183 Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/s170-2023/00001", "Unmatched_Content": "ATO view of this decision | Other legislation administered by the Commissioner | Implications for affected advice or guidance | Other legislation administered by the Commissioner: 39. The conclusion of the majority that subsection 9-5(1) does not involve objective purpose turned on the particular terms, context and construction of that provision. This is also evident from the comparison the majority made between this provision and the land tax provisions considered in Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2024] HCA 20. [44] | 40. In particular, subsection 9-5(1) uses the second person 'you' and 'your' with the words 'intention' and 'purpose'. This feature was important in the majority's construction of the provision as adopting a subjective purpose test in this specific statutory context. Our position is that the mere fact that a provision is framed by reference to 'purpose' and employs use of the second person 'you' or 'your' will not for that reason alone mean that 'purpose' is to be taken to be a reference to subjective purpose. | 41. Other provisions that have tests based on 'purpose' need to be construed by reference to their own statutory context, and in accordance with relevant case law. For example, the general anti-avoidance rules provisions in section 177D of the Income Tax Assessment Act 1936 and Division 165 of the GST Act have a purpose test that is determined by objective criteria. | Commissioner of Taxation 11 December 2024 | Footnotes: [1] Automotive Invest Pty Limited v Commissioner of Taxation [2022] FCA 281 ( Automotive Invest FCA ). | [2] Automotive Invest FCA at [84]. | [3] Automotive Invest FCA at [79] and [84]. | [4] Automotive Invest Pty Limited v Commissioner of Taxation [2023] FCAFC 129 at [110]. | [7] 'Purpose' being usually 'the ultimate end, object or goal that the person seeks to achieve', 'motive' being 'the reason that the person seeks to achieve that purpose or end', and 'means' being 'the way in which the purpose is to be achieved' (at [110]). | [15] At [58], [91], [96] and [141]. | [16] At [58]. The majority sets out the evidence at [73-81] and 5 matters that reinforced Mr Denny's evidence at [82-86]. | [31] The Australian Border Force (ABF) Commissioner is designated as the Comptroller-General of Customs. ABF is a portfolio agency within the Department of Home Affairs. | [32] There are 2 other factors that must be considered under section 9-25. These are that the quote is not made in approved form, or that the quote is false and misleading in a material particular (either because of something stated in the quote or something which is left out). | [35] The change of use decreasing adjustment provisions require that intended use for a purpose is determined. Intended use under paragraphs 15-30(1)(d) and 15-35(1)(d) will be determined on the same basis as intention is determined in section 9-5. | [36] At [114] referring to Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at [507]. | [37] Consistent with Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 and with Deane & Fisher JJ in Magna Alloys & Research Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 180. | [38] This will be particularly relevant for decreasing adjustments which require determining intended use - see footnote 39 of this Decision impact statement. | [41] At [129], [130], and [132-133]. | [43] Majority at [144], minority at [19] indicating that 'other purpose' is not limited to an 'alternative purpose'. | [44] In Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2024] HCA 20 at [127-128] where the relevant question under the NSW land tax statute was whether the dominant use of the land is for certain designated primary production activities and the focus of the statutory language was upon the use of the land that actually occurred 'abstracted from the person who was using the land' (at [125])."}
{"Case_Name": "Commissioner of Taxation v Hannover Life Re of Australasia Ltd", "Venue_Reference_No": "NSD 816/2023 (Full Federal Court)", "Venue": "Full Federal Court of Australia", "Judgment_Date": "4 March 2024", "Date_Published": "30 October 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this decision, which concerns the extent to which the taxpayer, a life insurer, is entitled to goods and services tax (GST) input tax credits for its acquisitions, when they make input taxed supplies of life insurance, as well as GST-free supplies of acquiring reinsurance. | All legislative references in this Decision impact statement are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), unless otherwise indicated.", "Overview_of_Facts": "Hannover Life Re of Australasia Ltd (Hannover) is a registered life insurance company. It is a wholly owned subsidiary of Hannover Rück SE (Hannover Rück), a non-resident company that operates a global reinsurance business. | Hannover's business consists of 3 categories (with each category allocated to a separate statutory fund for Life Insurance Act 1995 purposes), all of which are financial supplies for GST purposes: (1) supplying life insurance policies to policyholders resident in Australia (input taxed supplies) (2) supplying reinsurance for life insurance policies issued by other Australian life insurers (input taxed supplies), and (3) supplying reinsurance for life insurance policies issued by non-resident New Zealand life insurers (GST-free supplies). | Hannover and Hannover Rück entered into numerous quota-share reinsurance agreements (reinsuring the risk of life insurance) for Category 1 above. They also entered into retrocession agreements (reinsuring the risk of reinsurance) for Categories 2 and 3 above. In both cases Hannover Rück accepted a specified percentage of the risk and reward of the relevant life insurance policies or reinsurance issued by Hannover. | An example of such a reinsurance agreement arose in the 'Greenstone arrangement'. A third party, Greenstone, distributed and administered certain life insurance policies (Greenstone life insurance policies) supplied by Hannover to resident policyholders. Hannover acquired reinsurance from Hannover Rück relating to these Greenstone life insurance policies. Under the terms of that reinsurance, Hannover Rück received a reinsurance premium equal to 75% of Hannover's premium income and was liable to Hannover for 75% of the claims liabilities and general expenses for the Greenstone life insurance policies. | It was not in dispute that, for GST purposes, the acquisition of reinsurance and retrocession from Hannover Rück was a financial supply (at the relevant time under subregulation 40.05.09(1) of the A New Tax System (Goods and Services Tax) Regulations 1999) made by Hannover (an 'acquisition-supply'), and that supply was GST-free (and therefore not input taxed under subsection 9-30(3) of the GST Act). These reinsurance and retrocession supplies will be referred to as 'GST-free reinsurance supplies'. | An entity is only entitled to input tax credits to the extent it acquires things for a creditable purpose under section 11-15. Acquisitions are not acquired for a creditable purpose to the extent that they relate to making input taxed supplies – paragraph 11-15(2)(a). If an acquisition is partly creditable the amount of the input tax credit is calculated under section 11-30. | The issue in dispute was the extent of creditable purpose for 2 categories of acquisitions: • 'Greenstone' acquisitions, which were acquisitions of distribution and administration services supplied by Greenstone to assist Hannover in the supply of the Greenstone life insurance policies. • 'Overhead' acquisitions, consisting of acquisitions such as rent, which Hannover had apportioned across all 3 of its statutory funds, rather than treating them as only relating to a particular life insurance or reinsurance product line or activity. This allocation of costs to its statutory funds was carried out by Hannover in the annual expense apportionment required under the Life Insurance Act 1995. The creditable purpose of overheads relating to New Zealand Category 3 supplies was not in dispute. | The Commissioner contended that the acquisitions related to input taxed supplies. Hannover contended that they partly related to the GST-free reinsurance supplies. | Hannover's proposed revenue-based apportionment method for the purposes of section 11-30 for the overhead acquisitions meant that those acquisitions were acquired for a creditable purpose, to the extent that risk was ceded to Hannover Rück under the GST-free reinsurance supplies.", "Issues_Decided": "Creditable purpose of distribution and administrative services: At first instance in Hannover Life Re of Australasia Ltd v Commissioner of Taxation [2023] FCA 680 (Hannover FCA), Stewart J concluded that the Greenstone acquisitions were wholly related to making input taxed supplies of life insurance to Hannover's Australian policyholders, and the Greenstone acquisitions did not have a relevant relationship to the GST-free reinsurance supply for the purposes of paragraph 11-15(2)(a). [1] The relevant factors in reaching this conclusion were that the services supplied by Greenstone were specifically referable to the Greenstone life insurance policies. The cessation of risk arose under the reinsurance agreement (not under the agreement with Greenstone), and the reinsurance effected no change in the relationship between Hannover and its policyholders. [2] That conclusion was not affected by the fact that, but for the GST-free reinsurance supplies entered into with Hannover Rück, the relevant input taxed supplies could not have been made. Consequently, Hannover was not entitled to input tax credits for the Greenstone acquisitions. [3] While Hannover did not cross-appeal in relation to the Greenstone acquisitions, the Full Court observed that the primary judge's conclusions that those acquisitions related solely to the making of supplies that would be input taxed, and related in no real way to the GST-free reinsurance supplies were 'not contentious'. [4] | Creditable purpose of overhead acquisitions: At first instance, the Commissioner was unsuccessful in respect of the application of paragraph 11-15(2)(a) to the overhead acquisitions. Stewart J held that those acquisitions related indifferently to all activities of the enterprise [5] , and had a relevant relationship to the GST-free reinsurance supplies. [6] Subject to one modification not presently relevant, Hannover's proposed apportionment method under section 11-30 was held to be fair and reasonable. [7] The Commissioner appealed the first instance decision in relation to the overhead acquisitions. The Full Court considered that the primary judge had to undertake an evaluative exercise, to make a judgment about the application of paragraph 11-15(2)(a) to the overhead acquisitions. [8] The Full Court considered that determining the extent to which an acquisition relates to making input taxed supplies under paragraph 11-15(2)(a) also requires an assessment of whether there is real and substantial connection between that acquisition and any GST-free [or taxable] supplies. [9] In addition to Stewart J's point at first instance that Hannover's unchallenged evidence that the overheads were not directly attributable to particular activities or product lines [10] must be accepted, the Full Court found that there was evidence that indicated that various administrative, legal and financial resources were applied to the various GST-free reinsurance supplies during Hannover's operations. [11] The Full Court concluded that the overhead acquisitions related to both input taxed and GST-free supplies, as the Commissioner had not identified any error in the primary judge's findings [12] , that the acquisitions were undifferentiated, or related indifferently to all supplies made by the enterprise. [13] The Full Court noted that the 'wholly by and through' expression used in Rio Tinto Services Limited v Commissioner of Taxation [2015] FCAFC 117 (Rio Tinto) was an expression of a factual conclusion, and the statute requires a judgment about the relationship between an acquisition and the making of supplies. [14] In relation to the apportionment method under section 11-30, the Full Court did not consider it relevant to assess if the method was fair and reasonable based on a hypothetical scenario where 100% of the risk was reinsured. The Full Court confirmed the primary judge's conclusion that the apportionment method was only to apply to this specific known case, where there was 75% of the risk reinsured. [15]", "ATO_View_of_Decision": "The Commissioner accepts the decision regarding the taxpayer's input tax credit entitlement for the overhead acquisitions was open to the Full Court, based on the primary judge's factual evaluation of the evidence before the Court at first instance. | Determining extent of creditable purpose | The Commissioner's approach to section 11-15 is consistent with the Full Court's observations on the statutory operation of section 11-15. [16] | These decisions confirm that the application of section 11-15 is focused on the precise nature of the relationship between an acquisition and the supplies made by the entity. [17] The fact that an input taxed supply is interdependent, and cannot be made without a GST-free or taxable supply also being made [18] , or that other supplies may arise automatically as a result of the making of an input taxed supply, will not in itself determine the creditable purpose of the relevant acquisition. [19] | In relation to acquisitions that do not relate solely to input taxed supplies, the Full Court confirmed the Commissioner's position, consistent with Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 and Rio Tinto, that it is an error to assume that because an acquisition does not relate specifically to one supply it must therefore relate indifferently to all supplies. [20] Further, as observed by the Full Court, where an acquisition relates to more than one type of supply, the extent of the relationship between the different classes of supplies is a question of fact. [21] | Creditable purpose of overhead acquisitions | The Commissioner considers that the primary judge's conclusions in relation to the 'overhead' acquisitions consisted of an evaluative factual judgment of Hannover's unchallenged evidence before the Court, relating to the nature of the overhead acquisitions, and how Hannover had allocated those acquisitions across its 3 categories of life insurance and reinsurance products. [22] | When applying section 11-15 to their own circumstances, the Commissioner expects taxpayers to evidence that they have precisely identified the relevant acquisition [23] , and undertaken a factual enquiry into the connection between their own specific acquisitions and supplies, to determine if, and the extent to which, an acquisition relates to one or more different classes of supplies. Taxpayers should not assume that the same outcome will follow merely because their circumstances have some similarities to this case. | The mere fact that an acquisition may be labelled an 'overhead' or has a description or label similar to the individual overhead acquisitions in this case, does not necessarily mean that the acquisition relates to all supplies made by an entity, nor that it is undifferentiated such that it relates indifferently to all supplies. For example, it will be a question of fact whether something described as an 'advertising expense' relates only to specific supplies or relates to all supplies made by an enterprise. [24] | The Commissioner's views on identifying acquisitions that do not directly relate to a specific type of supply (being overheads or enterprise costs) are set out in paragraphs 136 to 148 of Goods and Services Tax Ruling GSTR 2008/1 Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose? | Apportionment methods for the purposes of section 11-30 | The Commissioner considers that the primary judge's observations in relation to the impacts where a life insurer can be seen as a 'mere conduit' for its reinsurer [25] , in a hypothetical example where 100% of the risk is reinsured, are obiter. These observations were not necessary to decide the matter [26] , and the Full Court did not confirm these particular observations. [27] In circumstances where the facts and evidence support a conclusion that particular acquisitions are partly creditable under section 11-15, the Commissioner considers that the application of an apportionment method for the purposes of section 11-30 must also be consistent and produce a partly creditable extent of creditable purpose for those acquisitions. | While the Commissioner accepts that there may be more than one methodology that is fair and reasonable in any given factual circumstance, the Commissioner does not consider that the fact a specific apportionment method was allowed in this case represents an endorsement of the method as fair and reasonable in other circumstances. | The Commissioner's views on when apportionment methods, including revenue-based methods, are fair and reasonable are set out in: • Goods and Services Tax Ruling GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies, and • Goods and Services Tax Ruling GSTR 2006/4 Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose.", "Administrative_Treatment": "", "Related_Documents": "None | Full Federal Court | 2024 ATC 20-895 | Federal Court | 2023 ATC 20-870 | GSTR 2006/3 | GSTR 2006/4 | GSTR 2008/1 | ANTS(GST)A 1999 9-30(3) | ANTS(GST)A 1999 11-5 | ANTS(GST)A 1999 11-5(2) | ANTS(GST)A 1999 11-15(2)(a) | ANTS(GST)A 1999 11-30 | ANTS(GST)R 1999 40-05.09(1) | 2015 ATC 20-525 | 2015 ATC 20-489 | [1949] HCA 15 | 78 CLR 47 | [1949] ALR 785 | 8 ATD 431", "Legislative_References": "ANTS(GST)A 1999 9-30(3) ANTS(GST)A 1999 11-5 ANTS(GST)A 1999 11-5(2) ANTS(GST)A 1999 11-15(2)(a) ANTS(GST)A 1999 11-30 ANTS(GST)R 1999 40-05.09(1) Life Insurance Act 1995", "Case_References": "Commissioner of Taxation v Hannover Life Re of Australasia Ltd [2024] FCAFC 23 2024 ATC 20-895 Hannover Life Re of Australasia Ltd v Commissioner of Taxation [2023] FCA 680 117 ATR 1 2023 ATC 20-870 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCAFC 117 235 FCR 159 2015 ATC 20-525 Rio Tinto Services Ltd v Commissioner of Taxation [2015] FCA 94 98 ATR 390 2015 ATC 20-489 Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 78 CLR 47 [1949] ALR 785 8 ATD 431", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD816of2023/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | Footnotes: [1] Hannover FCA at [70]. | [2] Hannover FCA at [70]. | [3] Hannover FCA at [71]. | [4] Commissioner of Taxation v Hannover Life Re of Australasia Ltd [2024] FCAFC 23 ( Hannover FCAFC ) at [8]. | [5] Hannover FCA at [89]. | [6] Hannover FCA at [82]. | [7] Hannover FCA at [101]. | [8] Hannover FCAFC at [30]. | [9] Hannover FCAFC at [23]. | [10] Hannover FCA at [87] and [89]. | [11] Hannover FCAFC at [31]. | [12] Hannover FCAFC at [32]. | [13] Hannover FCA at [76], [79] and [89]. | [14] Hannover FCAFC at [28]. | [15] Hannover FCAFC at [39]; Hannover FCA at [96]. | [16] Hannover FCAFC at [19]. | [17] Hannover FCAFC at [28]. | [18] Hannover FCA at [70-71]. | [19] Hannover FCA at [70] and [86]; Hannover FCAFC at [25]. | [20] Hannover FCAFC at [31]. | [21] Hannover FCAFC at [19]. | [22] Hannover FCA [87] and [89]. | [23] Hannover FCA at [67]. | [24] Hannover FCA at [89]. | [25] Hannover FCA at [95]. | [26] Hannover FCA at [96]. | [27] Hannover FCAFC at [36-39]."}
{"Case_Name": "GQHC and Commissioner of Taxation", "Venue_Reference_No": "2020/0826", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "16 February 2024", "Date_Published": "12 April 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which was concerned with whether: • the Commissioner has the power to assess or make decisions as to whether an R&D entity's registered activities are eligible 'R&D activities' as defined in Division 355 of the Income Tax Assessment Act 1997 in circumstances where no findings about an R&D entity's registration that bind the Commissioner were made (Finding) by Innovation and Science Australia (the Board) (the jurisdictional issue) • the Applicant's registered activities in the relevant year were research and development (R&D) activities, and if so, were the activities in fact conducted in the relevant income year (the eligibility issue), and • expenditure incurred by the Applicant in acquiring or producing both 'day old' chickens and poultry feed were feedstock input expenditure which requires a feedstock adjustment (the feedstock adjustment issue). | All decision paragraph references in this Decision impact statement are to the decision of GQHC and Commissioner of Taxation [2024] AATA 409, unless otherwise indicated. | All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1997 (ITAA 1997), unless otherwise indicated.", "Overview_of_Facts": "The Applicant is a company that conducted poultry farming operations. For several income years, including the 2013 year, the Applicant had self-assessed and registered with the Board multiple activities for incubation and hatchery processes, water quality, shed cleaning, and broiler improvement. The Board did not make any Findings under the relevant sections of the Industry Research and Development Act 1986 (the IR&D Act) as to whether these activities were 'core R&D activities' or 'supporting R&D activities'. | The Applicant claimed an R&D tax offset in its 2013 tax return for notional R&D deductions which included expenditure it incurred to acquire 'day old' chickens and poultry feed that were purportedly incurred on 'R&D activities' as defined. The Applicant's assessable income included a feedstock adjustment with respect to that expenditure. | The Applicant subsequently objected to its 2013 notice of assessment on the basis that they had included in their assessable income an incorrect feedstock adjustment. The Commissioner disallowed the Applicant's objection.", "Issues_Decided": "The Applicant needed to succeed on the feedstock adjustment issue, and on either of the jurisdictional or eligibility issues. The Applicant was unsuccessful on each issue. | Jurisdiction to decide eligibility of registered activities: In circumstances where a Board makes a Finding under any of sections 27B, 27J and 28E of the IR&D Act in relation to an R&D entity's registered activities, the Commissioner is bound by that Finding pursuant to section 355-705, provided the Finding is made within 4 years after the end of relevant income year. The Tribunal referred to the comments made by Thawley J in the Full Federal Court decision of Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 before holding at [157], consistent with Auctus, that: (a) \"findings\" made by the Board are clearly a pre-condition to the Commissioner being bound. There is no statutory impediment on the Commissioner's ordinary duties in these circumstances (b) the Commissioner has the power to assess or make decisions as to whether [the Applicant's] Registered Activities consisted of eligible R&D activities as defined in Division 355 of the ITAA 1997, in circumstances where no such findings have been made by the Board. This is consistent with the Commissioner's general administrative power and duty to assess the taxpayers' liability according to law; and, (c) the Tribunal has jurisdiction in the Proceeding to assess or make decisions as to whether [the Applicant's] Registered Activities consisted of eligible R&D activities as defined in Division 355 of the ITAA 1997. | Registered activities were not eligible R&D activities: In making its decision, the Tribunal considered [1] the scientific method (including hypothesis and experimentation) and the new knowledge requirements for the purposes of determining whether a registered activity is an eligible 'core R&D activity' as defined in subsection 355-25(1). The Tribunal confirmed that: • There must be sufficient evidence of scientific observation and evaluation to support a conclusion that activities are eligible R&D activities. [2] • While the R&D tax incentive contemplates research being undertaken by private industry and not just institutions such as universities or other research organisations, paragraph 355-25(1)(a) requires a baseline threshold for quality and that the work must be based on principles of established science. [3] • The circumstances of the Applicant were different to those addressed in the Full Federal Court decision in Moreton Resources Ltd v Innovation and Science Australia [2019] FCAFC 120 ( Moreton ). Moreton was concerned with, among other things, the application of existing technology to a new environment and whether that might satisfy the new knowledge requirement in paragraph 355-25(1)(b). The Tribunal agreed with the Commissioner's submissions that the application of existing technology to a new environment does not always satisfy the new knowledge requirement and was not the case in the Applicant's circumstances. [4] As 'supporting R&D activities' must directly relate to one or more 'core R&D activities', the claimed supporting R&D activities failed the requirements to be supporting R&D activities under section 355-30. | Feedstock adjustment: Assuming the Applicant had engaged in R&D activities, pursuant to former section 355-465 [5] , an adjustment to the Applicant's assessable income is required where, among other things, goods or materials (feedstock inputs) are ' transformed or processed during R&D activities' that produce tangible products. Broadly speaking, the feedstock adjustment is intended to reduce the effect of an R&D entity obtaining a tax offset having incurred feedstock input expenditure, to the extent it produced valuable tangible products from those inputs. As a matter of statutory construction, the Tribunal decided the text and context of former subsection 355-465(1) do not indicate that a narrow view should be adopted as to the meaning of the words 'transformed or processed' which would limit the words to things that relate to manufacturing, fabrication or some involvement of an external agent (force or effect) being applied to an object, or that tangible products cannot be biological or agricultural. It follows that the feedstock provisions can apply to basic farming activities of growing and raising livestock and crops. [6] The Tribunal found that the: • 'day-old' broiler chickens • feed that is fed to day-old broiler chickens through to their slaughter age, and • feed that is fed to a laying broiler breeder were each transformed or processed in producing marketable feedstock outputs (broilers or fertilised eggs) during the Applicant's registered activities. [7] Further, when calculating the feedstock adjustment, as to the meaning of 'reasonably attributable to the production of the feedstock output' for the purposes of former paragraph 355-465(2)(b), the Tribunal rejected the Applicant's alternative argument that only a portion of the poultry feed was transformed or processed to produce broilers or fertilised eggs. [8] In making its decision, the Tribunal considered that the decision in GHP 104 160 689 Pty Ltd and Commissioner of Taxation [2014] AATA 869 ( GHP ) was concerned with the interpretation of a provision with significantly different wording [9] , and therefore had no bearing on the interpretation of former subsection 355-465(1). [10]", "ATO_View_of_Decision": "Jurisdiction to decide eligibility of registered activities | The decision confirms the Commissioner's view that where the Board has not made a Finding, the Commissioner has the power to make decisions about the eligibility of an R&D entity's registered activities. | Although the Commissioner has that power, where as part of ATO audit or review there are concerns about the eligibility of an R&D entity's registered activities, it has been the Commissioner's practice to refer matters to the Board for them to conduct an examination of the entity's registered activities towards making Findings. This practice will continue in the ordinary course of the Commissioner undertaking compliance work on R&D tax offset claims. | Where the Board has not made a Finding and it is not practical or possible for the Board to examine an R&D entity's registered activities and then make a Finding which binds the Commissioner within the section 355-705 time limits, there may be circumstances where it is appropriate for the Commissioner to make a decision about the eligibility of an R&D entity's registered activities, or to put the R&D entity to proof as to the eligibility of its registered activities before the Tribunal or Courts. | Registered activities were not eligible R&D activities | The Tribunal's decision is consistent with the Commissioner's view as to the requirements for an activity to be a core R&D activity under section 355-25. This will assist the Commissioner in conducting compliance work and making referrals to the Board. | Feedstock adjustment | The Tribunal's decision is consistent with the Commissioner's view as to the statutory construction of former subsection 355-465(1) and former paragraph 355-465(2)(b). The Commissioner considers that this interpretation applies equally to subsection 355-445(1) and paragraph 355-445(2)(b), the current feedstock adjustment provisions which retain identical wording.", "Administrative_Treatment": "The Commissioner is considering whether any changes are required to Taxation Ruling TR 2013/3 Income tax: research and development tax offsets: feedstock adjustments in order to provide further guidance in relation to industrial agricultural activities, and to clarify certain aspects of that Ruling which refer to the Tribunal's decision in GHP .", "Related_Documents": "[2024] AATA 409 | TR 2013/3 | ITAA 1997 Div 355 | ITAA 1997 355-25(1) | ITAA 1997 355-25(1)(a) | ITAA 1997 355-25(1)(b) | ITAA 1997 355-30 | ITAA 1997 355-445(1) | ITAA 1997 355-445(2)(b) | ITAA 1997 former 355-465 | ITAA 1997 former 355-465(1) | ITAA 1997 former 355-465(2)(b) | ITAA 1997 355-705 | IR | D Act 27B | D Act 27J | D Act 28E | 2021 ATC 20-782 | [2014] AATA 869 | 2019 ATC 20-700", "Legislative_References": "ITAA 1997 Div 355 ITAA 1997 355-25(1) ITAA 1997 355-25(1)(a) ITAA 1997 355-25(1)(b) ITAA 1997 355-30 ITAA 1997 355-445(1) ITAA 1997 355-445(2)(b) ITAA 1997 former 355-465 ITAA 1997 former 355-465(1) ITAA 1997 former 355-465(2)(b) ITAA 1997 355-705 ITAA 1936 former 73B(1) IR & D Act 27B IR & D Act 27J IR & D Act 28E", "Case_References": "GQHC and Commissioner of Taxation [2024] AATA 409 Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 2021 ATC 20-782 112 ATR 859 284 FCR 294 GHP 104 160 689 Pty Ltd and Commissioner of Taxation [2014] AATA 869 99 ATR 955 Moreton Resources Ltd v Innovation and Science Australia [2019] FCAFC 120 2019 ATC 20-700 110 ATR 248 271 FCR 211", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2020/0826/00001", "Unmatched_Content": "ATO references ISSN: 2653-5424 NO: 1-11IKOBM2 | [5] And the current section 355-445. | [6] At [755-757], [764], [771-773]. | [9] That is, former section 73B(1) of the Income Tax Assessment Act 1936 ."}
{"Case_Name": "Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation", "Venue_Reference_No": "VID 253 of 2023 (Full Federal Court)", "Venue": "Full Federal Court", "Judgment_Date": "20 March 2024", "Date_Published": "21 August 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case on whether creditable acquisitions were made in carrying on any enterprise and, if so, whether input tax credits can be claimed. | All legislative references in this Decision impact statement are to the A New Tax System (Goods and Services Tax) Act 1999, unless otherwise indicated.", "Overview_of_Facts": "This case considered the availability of input tax credits on invoices paid by Konebada Pty Ltd as trustee for the William Lewski Family Trust (Konebada) on legal services provided to members of the Lewski family and related entities (Lewski Family Group) as beneficiaries of the trust. | Konebada had entered into litigation funding agreements with lawyers providing the legal services to pay litigation costs incurred and, in return, to receive any litigation proceeds. Konebada paid the invoices issued by the lawyers. | Amended assessments were issued to Konebada denying input tax credits on the basis that Konebada was a third-party payer and did not make any creditable acquisitions (acquisition issue). Those assessments were made on the basis that no acquisition of legal services, or anything else, was made by Konebada from the lawyers. In the alternative, Konebada made no acquisitions in this regard in carrying on any relevant enterprise (enterprise issue).", "Issues_Decided": "At first instance in the Federal Court, Hespe J ruled against Konebada on the enterprise issue and for Konebada on the acquisition issue. Konebada appealed to the Full Federal Court on the enterprise issue and the Commissioner filed a notice of contention on the acquisition issue. [1] The notice contended that Konebada made no relevant acquisitions or, failing that, that Konebada provided no consideration 'for' those acquisitions. The Full Federal Court dismissed the appeal on the enterprise issue and declined to consider the notice of contention. Accordingly, Konebada was not entitled to input tax credits, as the acquisitions from the lawyers were not made in the course or furtherance of any relevant enterprise carried on by Konebada. [2] | Creditable acquisition: At first instance in the Federal Court, Hespe J found that Konebada acquired '... a right to require the legal advisor to provide legal services to the Beneficiaries' and '... a service – the provision of legal advice or services to the Beneficiaries'. [3] Hespe J held that Konebada was more than simply a third-party payer of legal services provided to the Lewski Family Group [4] and that Konebada had made an 'acquisition' under section 11-10. As the acquisition issue was decided favourably to Konebada by Hespe J, it was not a ground of appeal raised by Konebada before the Full Federal Court. | Enterprise: It was an agreed fact that Konebada was carrying on an enterprise. [5] At first instance, Hespe J held, however, that the scope of the enterprise carried on by Konebada did not include managing litigation, tax, legal and regulatory compliance, and commercial matters for the Lewski Family Group. [6] The acquisitions of legal services by Konebada were not made in the course or furtherance of any enterprise carried on by that entity. [7] The Full Federal Court dismissed the appeal by Konebada on the enterprise issue. It followed that Konebada made no creditable acquisitions of legal services from the lawyers and was not entitled to input tax credits for those acquisitions. As the Full Federal Court declined to consider the notice of contention filed by the Commissioner on the acquisition issue, the findings of Hespe J at first instance on that issue stand.", "ATO_View_of_Decision": "Creditable acquisition | Input tax credits are not claimable on the facts of this case and in materially similar situations. Whether or not the payment of invoices issued by lawyers in litigation funding situations gives rise to any acquisition for GST purposes will depend on the facts and evidence of the particular case. | We do not consider as a general proposition that a 'litigation funder' necessarily makes an acquisition when it pays invoices issued by lawyers. Nor do we consider that, where acquisitions are made, they necessarily give rise to creditable acquisitions. Nexus and enterprise requirements must also be satisfied for input tax credits to be lawfully claimed. | Further, we do not consider that the present case broadens the principles established in the Department of Transport litigation relevant to tripartite arrangements. [8] In particular, we do not consider that any 'pre-existing framework' [9] in the Department of Transport sense will necessarily exist in litigation funding situations, or in other contexts where one entity merely pays for acquisitions made by another entity. | Given the Full Federal Court in the present case declined to consider the notice of contention, we will seek to clarify, by way of further judicial guidance, the scope and application of the Department of Transport principles to litigation funding arrangements and tripartite arrangements when a suitable case presents itself. | Consideration | In the notice of contention, the Commissioner argued that any supplies to Konebada made by the lawyers were not made 'for' consideration, as required by paragraph 11-5(c). [10] Our view was that payments made by Konebada to the lawyers were consideration solely for the supply of legal services by the lawyers to members of the Lewski Family Group. | Enterprise | The decision regarding 'enterprise' in the present case [11] is consistent with our view in Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number. [12]", "Administrative_Treatment": "The ATO is reviewing the impact of this decision on GSTR 2006/9.", "Related_Documents": "Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies | Full Federal Court | 2024 ATC 20-899 | Federal Court | 2023 ATC 20-857 | GSTR 2006/9 | MT 2006/1 | ANTS(GST)A 1999 11-5(c) | ANTS(GST)A 1999 11-10 | 2013 ATC 20-424 | 2009 ATC 20-140 | 2010 ATC 20-196", "Legislative_References": "ANTS(GST)A 1999 11-5(c) ANTS(GST)A 1999 11-10", "Case_References": "Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2023] FCA 257 2023 ATC 20-857 115 ATR 542 Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2024] FCAFC 42 302 FCR 1 2024 ATC 20-899 Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123 2013 ATC 20-424 94 ATR 445 Secretary to the Department of Transport (Victoria) v Commissioner of Taxation [2009] FCA 1209 2009 ATC 20-140 73 ATR 690 [2010] ALMD 6765 261 ALR 39 Commissioner of Taxation v Secretary to the Department of Transport (Victoria) [2010] FCAFC 84 188 FCR 167 2010 ATC 20-196 76 ATR 306 [2010] ALMD 7496", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID253of2023/00001", "Unmatched_Content": "ATO references NO: 1-128CXJFI BSL: ISP ISSN: 2653-5424 | Footnotes: [1] Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2024] FCAFC 42 at [38]. | [2] Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2023] FCA 257 ( Konebada – first instance ) at [132]. | [3] Konebada – first instance at [112]. | [4] Compare Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123. | [5] Involving provision of management-related services to members of the Lewski Family Group – Konebada – first instance at [116]. | [6] Konebada – first instance at [125]. | [7] Konebada – first instance at [123]. | [8] Secretary to the Department of Transport (Victoria) v Commissioner of Taxation [2009] FCA 1209; Commissioner of Taxation v Secretary to the Department of Transport (Victoria) [2010] FCAFC 84. See also, Konebada – first instance at [108-111] and paragraphs 221A to 221G of GSTR 2006/9. | [9] Konebada – first instance at [105]; compare Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123 at [48]. | [10] Hespe J did not specifically consider whether payments by Konebada were consideration 'for' the acquisitions in question. As the Full Federal Court declined to consider the notice of contention, there is no express judicial finding on whether nexus requirements were in fact satisfied. | [11] The principles in Konebada – first instance were confirmed by the Full Federal Court in Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2024] FCAFC 42 at [72-77]. | [12] See paragraphs 170 to 179 of MT 2006/1."}
{"Case_Name": "Merchant and Commissioner of Taxation [2024] AATA 1102", "Venue_Reference_No": "2020/6932", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "16 May 2024", "Date_Published": "15 January 2025", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case, which concerns a review by the Tribunal of the Commissioner's decision to disqualify Mr Merchant (the Applicant) under subsection 126A(2) of the Superannuation Industry (Supervision) Act 1993 (SISA) from acting as a trustee or responsible officer of corporate trustees of superannuation entities. | 2. All legislative references in this Decision impact statement are to the SISA, unless otherwise indicated. | 3. All judgment references in this Decision impact statement are to the judgment of Merchant and Commissioner of Taxation [2024] AATA 1102, unless otherwise indicated.", "Overview_of_Facts": "4. The Applicant co-founded a business that eventually became Billabong Limited (BBG), a listed company on the Australian Securities Exchange. [1] | 5. Gordon Merchant No 2 Pty Ltd as trustee for the Merchant Family Trust (MFT), held various assets that included BBG shares and all shares in Plantic Technologies Ltd (Plantic). MFT is one entity in the Merchant Group [2] of entities and the Applicant was a beneficiary of the trust. [3] | 6. Due to Plantic's ongoing funding requirements, from May 2014, if not earlier, the Applicant was considering selling Plantic. In June 2014, sale negotiations commenced with a third party, Sealed Air Corporation (Sealed Air). [4] | 7. Ernst & Young (EY) was consulted about the structure of the sale. A substantial capital gain was anticipated in respect of the sale of Plantic. EY's advice as to the preferable structure of a future sale of Plantic was for [5] : • MFT to sell its shares in Plantic, rather than Plantic selling its assets • related entities in the Merchant Group to forgive loans they have made to Plantic to the sum of about $55 million (Plantic Loans), and • GSM Superannuation Pty Ltd (GSMS) as trustee for the Gordon Merchant Superannuation Fund (GMSF) to acquire from the MFT a substantial number of the MFT's high cost shares in BBG with the result that the MFT would crystallise a significant capital loss. | • MFT to sell its shares in Plantic, rather than Plantic selling its assets • related entities in the Merchant Group to forgive loans they have made to Plantic to the sum of about $55 million (Plantic Loans), and • GSM Superannuation Pty Ltd (GSMS) as trustee for the Gordon Merchant Superannuation Fund (GMSF) to acquire from the MFT a substantial number of the MFT's high cost shares in BBG with the result that the MFT would crystallise a significant capital loss. | 8. The Applicant was, at relevant times, a director of GSMS and thereby a responsible officer of the corporate trustee of GMSF. [6] | 9. On 15 March 2012, a resolution titled 'Investment Objectives & Strategy' (2012 ISD) was made by GSMS as trustee for the GMSF. Relevantly, the 2012 ISD provided that, to achieve the investment objectives of GMSF, the GSMF holdings in shares in listed companies was to comprise a range of 0-40% of GMSF's assets under management. [7] | 10. For the year ended 30 June 2013, GMSF paid an annual pension of $470,500 to the Applicant. [8] | 11. On 4 September 2014, the MFT sold 10,344,828 BBG shares to the GMSF for $5,844,827.82 (BBG Share Sale). The result was that the MFT crystallised a capital loss of $56,561,940. [9] This transaction reduced the cash reserves of GMSF to $1,868,241.18. [10] | 12. The sale to Sealed Air did not eventuate [11] but on 15 October 2014, another third party, Kuraray Co Ltd (Kuraray) began steps to acquire Plantic. Negotiations with Kuraray were successful, and a Share Sale Agreement was entered into on 31 March 2015 (SSA) resulting in MFT selling all of its shares in Plantic to Kuraray. [12] | 13. On 2 April 2015, as a condition precedent to completion of the SSA, the Plantic Loans were forgiven by the Merchant Group lenders. Completion of the SSA occurred later that same day. [13] | 14. The MFT's capital gain on the sale of its shares in Plantic to Kuraray was approximately $85 million. By reason of the BBG Share Sale, the MFT had capital losses sufficient to absorb the whole capital gain. [14] | 15. At a meeting of the Merchant Group on 30 April 2015, cash flow issues in GMSF were discussed, including consideration as to whether a contribution would be made in the 2014–15 income year to fund the Applicant's pension and to cease the pension from 1 July 2015 to preserve cash reserves. [15] Minutes of a meeting of the directors of GSMS, held on 25 June 2015, record that the Applicant requested that GMSF, with effect from 1 July 2015, commute his existing account-based pension income stream and roll his account balance into accumulation mode. [16] Further, the financial statements and reports for GMSF for the year ended 30 June 2015 showed that the Applicant made a non-concessional contribution of $180,000 to GMSF. It was accepted by the Tribunal that, without the contribution, expenses would have exceeded the income of the GMSF in that year. The Tribunal also noted that the predominant expense in that year was payment of the Applicant's pension of $523,500. [17] | 16. The BBG shares acquired by GMSF had ceased paying fully franked dividends after 24 October 2008 and no dividends had been declared since April 2012. [18] | 17. The arrangements undertaken were considered by the Commissioner and as a result, determinations under Part IVA of the Income Tax Assessment Act 1936 were issued by the Commissioner. See Merchant v Commissioner of Taxation [2024] FCA 498. | 18. The Commissioner considered that the arrangements gave rise to contraventions under: • subsection 34(1) for failing to ensure that the prescribed standards applicable to the operation of GMSF were complied with – in particular the investment strategy obligations outlined in regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994 (SISR) • subsection 62(1), as GMSF was not maintained for the sole purpose of providing retirement benefits, and • subsection 65(1) as GMSF provided financial assistance to MFT that ultimately flowed to the Applicant. | • subsection 34(1) for failing to ensure that the prescribed standards applicable to the operation of GMSF were complied with – in particular the investment strategy obligations outlined in regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994 (SISR) • subsection 62(1), as GMSF was not maintained for the sole purpose of providing retirement benefits, and • subsection 65(1) as GMSF provided financial assistance to MFT that ultimately flowed to the Applicant. | 19. As a result, the Commissioner as regulator made the decision to disqualify the Applicant from being a trustee of a superannuation fund under: • subsection 126A(2), having formed the view that the nature or seriousness of these contraventions provided grounds for the Applicant's disqualification, and • subsection 126A(3), on the basis that the Applicant was not a fit and proper person to be a trustee, or responsible officer of a body corporate that is a trustee, of a superannuation fund. | • subsection 126A(2), having formed the view that the nature or seriousness of these contraventions provided grounds for the Applicant's disqualification, and • subsection 126A(3), on the basis that the Applicant was not a fit and proper person to be a trustee, or responsible officer of a body corporate that is a trustee, of a superannuation fund. | 20. At objection, the decision to disqualify the Applicant under subsection 126A(3) was set aside by the Commissioner.", "Issues_Decided": "21. The following issues were decided by the Tribunal. | 1. Subsection 34(1) – investment strategy: 22. The Tribunal confirmed that the SISA and SISR do not impose a direct requirement that a trustee must consider or reconsider each of the matters in paragraphs 4.09(2)(a) to (e) of the SISR when making a particular investment decision. Rather, in making each investment decision, the trustee must 'give effect' to the investment strategy which has been formulated having regard to the circumstances of the entity, including the matters in paragraphs 4.09(2)(a) to (e), and review that strategy regularly. [19] 23. GSMS breached subsection 34(1) as it did not 'give effect to' the relevant investment strategy [20] for the following reasons: • The predominant reason for GMSF's acquisition of the BBG shares was to crystallise a capital loss in the MFT (which was expected to make significant capital gains) and the Applicant had no genuine purpose of investing for the GMSF. [21] • The Applicant did not turn his mind to any of the required relevant matters when making an investment, including the marketability of the asset, risks, liquidity requirements, GMSF's ability to discharge its liabilities, and whether GMSF should hold a contract of insurance. [22] • The BBG Share Sale resulted in the 0-40% listed company holding limit in the 2012 ISD being exceeded and a lack of diversification. [23] • The material before the Tribunal did not establish that financial advisers were consulted about the BBG Share Sale. [24] • The predominant reason for GMSF's acquisition of the BBG shares was to crystallise a capital loss in the MFT (which was expected to make significant capital gains) and the Applicant had no genuine purpose of investing for the GMSF. [21] • The Applicant did not turn his mind to any of the required relevant matters when making an investment, including the marketability of the asset, risks, liquidity requirements, GMSF's ability to discharge its liabilities, and whether GMSF should hold a contract of insurance. [22] • The BBG Share Sale resulted in the 0-40% listed company holding limit in the 2012 ISD being exceeded and a lack of diversification. [23] • The material before the Tribunal did not establish that financial advisers were consulted about the BBG Share Sale. [24] | 2. Subsection 62(1) – sole purpose test: 24. GSMS did not '\"ensure that the fund [was] maintained solely\" for one of the purposes in s 62(1)'. [25] 25. The predominant reason the Applicant, as director of GSMS, agreed to enter into the BBG Share Sale transaction was to crystallise a capital loss in the MFT which was expected to make significant capital gains from selling the Plantic shares. A substantial purpose (but not the predominant purpose) of GSMS was to keep ultimate beneficial or economic ownership of the BBG shares within the Merchant Group. Neither of these purposes was a core purpose within the meaning of subsection 62(1). [26] | 3. Subsection 65(1) – financial assistance: 26. There was a breach of subsection 65(1) as financial assistance was given to the Applicant, who was a discretionary object of the MFT. The BBG Share Sale was entered into for the predominant and immediate purpose of crystallising a capital loss in the MFT for the purpose of increasing the financial resources of the MFT for the benefit of the discretionary objects of the MFT, specifically the Applicant. [27] 27. The Tribunal confirmed that paragraph 65(1)(b) is not limited to financial assistance of a direct nature. It prohibits financial assistance via an intermediary, including via a discretionary trust. [28] | 4. Subsection 126A(2) – disqualification of the Applicant: 28. In the specific circumstances of this case, the Tribunal decided that the Commissioner's decision to disqualify the Applicant under subsection 126A(2) should be set aside. [29] 29. The Tribunal came to the conclusion that a risk of future non-compliance by the Applicant was unlikely [30] for the following reasons: • The Tribunal agreed with the Commissioner that the Applicant was a fit and proper person. [31] • The Applicant had given undertakings to the Tribunal [32] which were accepted as appropriate and reasonable, and mitigated the risk of future non-compliance. [33] • Although the Tribunal formed the view that the breaches of the SISA were serious, they all arose from a single course of conduct, being the BBG Share Sale. This was not a case of multiple breaches by the Applicant on multiple occasions. [34] • The Tribunal did not place significant weight on protecting the investing public against the risk of re-offending. The Tribunal noted that the Applicant was only ever likely to be a director of the trustee of his own superannuation fund and did not believe that he required protecting from himself. Where he did, the Applicant's compliance with his undertakings would offer sufficient protection. [35] • Although the breaches were serious, the circumstance that the offending transaction was one put forward by EY, which had acted both in the capacity of the Merchant Group's tax agent and also was GMSF's auditor, was a significant mitigating factor. EY had put forward the arrangement without raising an issue from a superannuation compliance perspective. While it was acknowledged by the Tribunal that EY advised that there were tax risks, that was a different issue to the issue of superannuation compliance. In those circumstances, the Tribunal accepted that the Applicant would have fairly thought that the transaction was lawful from a superannuation compliance perspective. [36] • The Tribunal agreed with the Commissioner that the Applicant was a fit and proper person. [31] • The Applicant had given undertakings to the Tribunal [32] which were accepted as appropriate and reasonable, and mitigated the risk of future non-compliance. [33] • Although the Tribunal formed the view that the breaches of the SISA were serious, they all arose from a single course of conduct, being the BBG Share Sale. This was not a case of multiple breaches by the Applicant on multiple occasions. [34] • The Tribunal did not place significant weight on protecting the investing public against the risk of re-offending. The Tribunal noted that the Applicant was only ever likely to be a director of the trustee of his own superannuation fund and did not believe that he required protecting from himself. Where he did, the Applicant's compliance with his undertakings would offer sufficient protection. [35] • Although the breaches were serious, the circumstance that the offending transaction was one put forward by EY, which had acted both in the capacity of the Merchant Group's tax agent and also was GMSF's auditor, was a significant mitigating factor. EY had put forward the arrangement without raising an issue from a superannuation compliance perspective. While it was acknowledged by the Tribunal that EY advised that there were tax risks, that was a different issue to the issue of superannuation compliance. In those circumstances, the Tribunal accepted that the Applicant would have fairly thought that the transaction was lawful from a superannuation compliance perspective. [36]", "ATO_View_of_Decision": "30. The Tribunal's decision that there were serious breaches of subsections 34(1), 62(1) and 65(1) is consistent with our position. [37] | 31. When considering all of the specific facts of this case, being the combination of each of the findings at paragraphs [183] to [187] of the decision, the Tribunal concluded that there was an unlikely risk of future non-compliance by the Applicant. This holistic consideration by the Tribunal of all of those particular facts is consistent with the Commissioner's approach as outlined in Law Administration Practice Statement PS LA 2006/17 Self-managed superannuation funds – disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund. | 32. That is, the Commissioner, when considering disqualification under subsection 126A(2), should consider: • the acts of the individual • all the facts of the case, and • whether there is a future compliance risk. | • the acts of the individual • all the facts of the case, and • whether there is a future compliance risk. | 33. The nature, number and seriousness of contraventions are questions of fact and degree, and it is not possible to apply prescriptive rules to the decision to disqualify. | 34. An individual may be considered to be a future compliance risk if it is reasonable to draw that conclusion from their compliance history. This includes considering matters in relation to the management of their superannuation fund as well as their own personal tax affairs, or that of any other entity in which they have been in a position of responsibility. | 35. Each case must be considered by us on its own individual circumstances. In doing so, we accept that mistakes can be made by trustees in the management of a fund's affairs. What is important is that the trustee demonstrates a willingness to comply with their obligations. | 36. In this matter, the Commissioner had maintained that the nature, number and seriousness of contraventions by the Applicant were sufficient grounds for disqualification under subsection 126A(2). Further, as disqualification is designed to protect the investing public against the risk that people with a history of non-compliance will re-offend, the Commissioner had considered it reasonable to conclude that the Applicant posed a future compliance risk given the serious contraventions of the SISA. | 37. However, we accept that, when considering the Tribunal's holistic consideration of all the particular facts as they applied to the Applicant, the decision that the Applicant was unlikely to be a future compliance risk and setting aside the disqualification of the Applicant, was reasonably available to the Tribunal on the facts before it. | 38. As each case must be decided on its particular circumstances, we take the view that this decision has limited broader application beyond the 'peculiar circumstances of this case'. [38] As noted in paragraph 31 of this Decision impact statement, the approach taken by the Tribunal to the issues in this matter is consistent with the principles outlined in PS LA 2006/17. Furthermore, the decision does not displace the long-standing principle that the primary responsibility for operating a self-managed super fund rests with the individual trustees or the directors of the corporate trustee [39] nor restricts other consequences of contravening a civil penalty provision. [40] | 39. We also note the decision in Coronica and Commissioner of Taxation [2024] AATA 2592 which was handed down by the Tribunal on 19 July 2024. In that decision, the Tribunal applied the same factors considered in this case to Mr Coronica's circumstances. Contrasting significant differences between the facts of this case and those of Mr Coronica, the Tribunal arrived at a different outcome, affirming the Commissioner's original trustee disqualification decision.", "Administrative_Treatment": "", "Related_Documents": "[2024] AATA 1102 | SISA 1993 34(1) | SISA 1993 62(1) | SISA 1993 65(1) | SISA 1993 126A(2) | SISA 1993 126A(3) | SISR 1994 4.09 | ITAA 1936 Pt IVA | [2024] AATA 2592 | 2007 ATC 5105 | 2024 ATC 20-909 | PS LA 2006/17 | SMSFR 2008/1 | SMSFR 2008/2", "Legislative_References": "SISA 1993 34(1) SISA 1993 62(1) SISA 1993 65(1) SISA 1993 126A(2) SISA 1993 126A(3) SISR 1994 4.09 ITAA 1936 Pt IVA", "Case_References": "Coronica and Commissioner of Taxation [2024] AATA 2592 Raelene Vivian, suing in her capacity as the Deputy Commissioner of Taxation (Superannuation) v Fitzgeralds [2007] FCA 1602 2007 ATC 5105 69 ATR 834 Merchant v Commissioner of Taxation [2024] FCA 498 2024 ATC 20-909 Fitzmaurice and Commissioner of Taxation [2019] AATA 2217 110 ATR 440 165 ALD 400 [2021] ALMD 2120 [2021] ALMD 2119", "Subject_References": "", "Other_References": "PS LA 2006/17 SMSFR 2008/1 SMSFR 2008/2", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2020-6932/00001", "Unmatched_Content": "ATO view of this decision | Commissioner of Taxation 4 September 2024 | [2] The group of Australian corporate entities forming the Merchant Group are diagrammatically depicted at [8]. | [6] At [12]. The Applicant was also the sole shareholder of GSMS. | [31] At [183]. The Commissioner's reasons for his conclusion that the Applicant was a fit and proper person for the purposes of subsection 126A(3) are summarised at [33]. | [37] As outlined in the Commissioner's public advice and guidance, including principles outlined in SMSFR 2008/1 Self Managed Superannuation Funds: giving financial assistance using the resources of a self managed superannuation fund to a member or relative of a member that is prohibited for the purposes of paragraph 65(1)(b) of the Superannuation Industry (Supervision) Act 1993 and SMSFR 2008/2 Self Managed Superannuation Funds: the application of the sole purpose test in section 62 of the Superannuation Industry (Supervision) Act 1993 to the provision of benefits other than retirement, employment termination or death benefits . | [38] See Raelene Vivian, suing in her capacity as the Deputy Commissioner of Taxation (Superannuation) v Fitzgeralds [2007] FCA 1602 at [21] per Logan J; Fitzmaurice and Commissioner of Taxation [2019] AATA 2217 at [36] per Deputy President Britten-Jones. | [39] See, for example, sections 196 and 202."}
{"Case_Name": "Minerva Financial Group Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 662/2022 (Full Federal Court)", "Venue": "Full Federal Court of Australia", "Judgment_Date": "8 March 2024", "Date_Published": "29 May 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this decision, which concerns whether the general anti-avoidance rules contained in Part IVA of the Income Tax Assessment Act 1936 applied to a 'second scheme' and a 'third scheme' under which Minerva Financial Group Pty Ltd (Minerva) had received a tax benefit. The tax benefit was income that would otherwise have been assessable to Minerva but was instead distributed to its non-resident parent. | As the Full Court commented, the 'true gist' of the 2 schemes to which Part IVA was found to apply at first instance was Minerva's failure to exercise its discretion as trustee of a unit trust to make distributions to the holder of special units in the unit trust. | All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1936.", "Overview_of_Facts": "Minerva is a member of a group of companies and trusts known as the Liberty Group that carries on business as a non-bank lender. | The Liberty Group raised funds for its lending business through a process called securitisation, which involved the establishment of special purpose 'securitisation trusts'. The trustee of the securitisation trusts issued notes to third-party investors (noteholders) and issued units to a Liberty Group entity in the form of a residual income unit (RIU) and a residual capital unit (RCU). | Prior to 2007, Liberty Financial Pty Ltd (LF), the main operating entity of the Liberty Group, was the holder of the RIUs and RCUs in the securitisation trusts. Accordingly, LF was entitled to receive the 'residual income' of each securitisation trust. This was the income left after interest was paid to noteholders and other expenses were paid. | In 2007, in anticipation of conducting an initial public offering (IPO) of 'stapled securities', the Liberty Group restructured itself into what the primary judge referred to as a 'trust silo' and a 'corporate silo'. The stapled securities were to consist of a share in Minerva, which would hold the group's active assets (the corporate silo) and a unit in the Minerva Financial Group Trust (MFGT), which would hold the group's passive financial assets (the trust silo). | Although the IPO did not proceed at the time, the Liberty Group implemented a restructure broadly consistent with its plan for an IPO. From 15 April 2008, the RIUs and RCUs in any new special purpose trust established as part of the securitisation process were issued to a newly settled holding trust, Minerva Holding Trust (MHT). As a result, residual income derived from these new securitisation trusts were distributed to MHT, and not to LF. | MHT, in turn, made distributions to its unit holders. Most of MHT's distributions were made to MFGT, which was the ordinary unit holder. MHT made nominal distributions to LF, which was a special unit holder. | The holder of all units in MFGT was the parent of the Liberty Group, being Jupiter Holdings BV (Jupiter) up to 12 April 2013 and, thereafter, Vesta Funding BV (Vesta), both incorporated in, and tax residents of, the Netherlands. | The taxation consequence of the distributions from the trust silo going to MFGT's non-resident unitholder, rather than to LF, was that the distributions were subject to a withholding tax of 10% rather than the corporate tax rate of 30%. | The Commissioner made Part IVA determinations to include in Minerva's assessable income in each of the relevant years an amount equal to the income distributed to MFGT, being income that would have been included in Minerva's assessable income if the income had been distributed to LF, a subsidiary member of the tax consolidated group of which Minerva was the head company. | This case was Minerva's appeal to the Full Federal Court against O'Callaghan J's decision in Minerva Financial Group Pty Ltd v Commissioner of Taxation [2022] FCA 1092.", "Issues_Decided": "Whether Part IVA applied to the schemes identified by the Commissioner: The Full Federal Court held that Part IVA did not apply to the schemes identified by the Commissioner. The key points from the Full Federal Court's decision are as follows. | Tax benefit: It was not disputed that Minerva obtained a tax benefit as defined in section 177C in each of the relevant years in respect of each of the schemes. | Dominant purpose: The dispute centred on whether it would be concluded, having regard to the 8 factors set out in section 177D, that a person or any one of the persons who entered into or carried out the scheme, or any part of it, did so for the dominant purpose of securing the tax benefit. The Commissioner relied on 3 alternative schemes in support of the Part IVA determinations. The first scheme related to the establishment of the trust silo in April 2008 with MHT being nominated as the RIU holder and the distribution of residual income from the securitisation trusts to MHT. At first instance, the primary judge held that Part IVA did not apply to the first scheme and concluded on the evidence that the restructure was undertaken for the dominant purpose of facilitating an IPO of stapled securities. The Commissioner did not appeal this finding. Minerva's appeal concerned whether Part IVA applied to the second and third schemes under which Minerva had received a tax benefit. At first instance, the primary judge found that because the trustee did not proffer a commercial reason why MHT only distributed nominal amounts of income to the special unitholders, both the manner in which the schemes were carried out and the timing of the schemes were indicative of the dominant purpose of obtaining a tax benefit. The remaining factors were considered by the primary judge to be neutral. On appeal, the Full Court decided that the finding of objective purpose required by section 177D could not be reached. A person's subjective understanding of a commercial reason or motive does not answer the question posited by Part IVA. The default position under the terms of the MHT constitution was for distributable income to be distributed to the ordinary unitholders such that there was nothing extraordinary about distributions flowing in accordance with the terms of the trust constitution. The objective facts were that special unitholders had no entitlement to the income of MHT absent the exercise of the discretion available under the trust constitution. This conclusion was also supported by the commercial context of the restructured business, and in particular the changes to LF's role in that business. The Full Court found that the same commercial outcome for the parties would not have been achieved had distributions been made instead to LF. The distribution of income to Jupiter and Vesta had real economic and financial consequences to them that would not have flowed had the income been distributed to LF. The Full Court relied upon these facts in finding that the fourth factor was neutral and that the sixth factor pointed away from a party having the requisite dominant purpose.", "ATO_View_of_Decision": "While the Full Court found that Part IVA did not apply, it did so on the basis of a conclusion of the particular facts in this case of a non-bank lender with an 'IPO ready' business structure. Accordingly, we do not consider this decision as having any impact on the Commissioner's current advice and guidance. | The decision does not disturb the Commissioner's long-held view that schemes which include a trustee's exercise of discretion to distribute income can attract the operation of Part IVA. Further, whether Part IVA will apply to such a scheme will not be answered by the trustee's evidence of their purpose. It will depend on a consideration of the 8 factors collectively applied to the objective facts, to ascertain whether a party to the scheme had the requisite objective purpose that the taxpayer would obtain a tax benefit.", "Administrative_Treatment": "", "Related_Documents": "Full Federal Court | 2024 ATC 20-896 | Federal Court | 2022 ATC 20-839 | ITAA 1936 177C | ITAA 1936 177D | ITAA 1936 Part IVA", "Legislative_References": "ITAA 1936 177C ITAA 1936 177D ITAA 1936 Part IVA", "Case_References": "Minerva Financial Group Pty Ltd v Commissioner of Taxation [2024] FCAFC 28 2024 ATC 20-896 Minerva Financial Group Pty Ltd v Commissioner of Taxation [2022] FCA 1092 2022 ATC 20-839", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID662of2022/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | ATO references ISSN: 2653-5424"}
{"Case_Name": "Mylan Australia Holding Pty Ltd v Commissioner of Taxation (No 2) [2024] FCA 253", "Venue_Reference_No": "VID 770/2021", "Venue": "Federal Court of Australia", "Judgment_Date": "20 March 2024", "Date_Published": "9 May 2025", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case. It concerned the application of the general anti-avoidance rules in Part IVA of the Income Tax Assessment Act 1936 to a scheme under which Mylan Australia Holding Pty Ltd (MAHPL) claimed deductions for interest incurred on intra-group debt and for consequential carry forward losses. That debt was used to acquire an Australian subsidiary of Merck KgaA (Merck) as part of the Mylan group's acquisition of a pharmaceutical business from Merck. While a tax benefit was identified as having been obtained in connection with a scheme, Part IVA was found not to apply as MAHPL had discharged its onus of proving that it could not objectively be concluded that the scheme was entered into by a person for the dominant purpose of obtaining a tax benefit. | 2. All legislative references in this decision impact statement are to the Income Tax Assessment Act 1936, unless otherwise indicated. | 3. All judgment references in this Decision impact statement are to the decision of Button J in Mylan Australia Holding Pty Ltd v Commissioner of Taxation (No 2) [2024] FCA 253, unless otherwise indicated.", "Overview_of_Facts": "4. Mylan Inc (Mylan) was the ultimate holding company of the Mylan Group, of which MAHPL, the Applicant in the proceeding, was a member. The Mylan Group carries on a business of pharmaceutical manufacturing. | 5. In October 2007, the Mylan Group acquired at a cost of US$7 billion various operating subsidiaries of Merck KgaA which carried on a generics pharmaceutical business (Merck Generics). The acquisition of Merck Generics was pursuant to a share purchase agreement (SPA) which was executed on 12 May 2007. The SPA allowed for Mylan to substitute one of its affiliates to directly acquire the interests in any of Merck's subsidiaries. | 6. In September and October 2007, Mylan entered into a Senior Credit Agreement (SCA) with a syndicate of lenders to fund the acquisition. At around the same time, the SPA was amended. These amendments enabled the sale of Merck Generics' subsidiaries in Australia, Canada and France in exchange for promissory notes from members of the Mylan Group prior to Mylan's global acquisition of Merck Generics. The separate sales of the Australian, Canadian and French subsidiaries did not alter the purchase price for the global acquisition. | 7. As part of that acquisition, MAHPL and its subsidiary, Mylan Australia Pty Ltd (MAPL), were incorporated, with MAHPL as the head of an Australian tax consolidated group. MAPL purchased the Australian arm of Merck Generics, Alphapharm Pty Ltd (Alphapharm), through a mixture of intragroup interest-bearing debt and equity at a ratio of 3:1. The debt instrument used to fund the purchase of Alphapharm was a promissory note (PN A2) issued by MAPL to a Luxembourg company in the Mylan Group ultimately held by Mylan Bermuda Limited for a principal amount equivalent to 502.5 million euros (approximately A$785 million), with the principal amount to be adjusted to 75% of the value of Alphapharm retroactively applied to the date of the instrument, being 2 October 2007. PN A2 also contemplated that the interest rate attaching to the debt would be determined within 90 days of 2 October 2007. PN A2 was formally amended on 8 January 2010, with the principal increased to A$923,205,336 and the interest rate fixed at 10.15% with retrospective effect from 2 October 2007. | 8. The tax consequence of the debt arrangements put in place to fund the acquisition by MAPL of Alphapharm was to entitle MAHPL to interest deductions for the interest paid on PN A2 with the interest payments attracting withholding tax of 10%. | 9. The Commissioner made Part IVA determinations denying MAHPL deductions for the interest incurred on the promissory note and consequential carry forward losses. MAHPL appealed to the Court following the disallowance by the Commissioner of its objection to the amended Notices of Assessment for the income years ending 31 December 2009 to 31 December 2020.", "Issues_Decided": "10. The Court (Button J) decided that Part IVA did not apply to either of the schemes identified by the Commissioner. 11. The key points from Button J's decision as to the topics of scheme, tax benefit and dominant purpose are discussed in the following paragraphs of this Decision impact statement. | Scheme: 12. The Commissioner identified a wider scheme which involved the incorporation of MAHPL and MAPL (that is, the local Australian holding company structure). Had that scheme not been entered into or carried out, the Commissioner contended that Alphapharm would have been acquired as part of the global acquisition and not by MAPL (primary counterfactual). [1] As such, at the Australian level, no debt would have been taken on in connection with the Mylan group's purchase of Alphapharm, and therefore no liability to pay interest would have been incurred in Australia. [2] 13. The Commissioner also identified a narrower scheme focusing instead on the way in which MAPL was financed to acquire Alphapharm. The Commissioner contended that, but for the scheme, while MAPL and MAHPL would still have been incorporated and MAPL would still have borrowed moneys on terms consistent with the SCA to acquire Alphapharm, MAPL would have borrowed a lesser sum, funding the investment instead 54.6% debt and 45.4% equity. The borrowing would have been external (secondary counterfactual) or from a member of the Mylan group (tertiary counterfactual). [3] 14. The debt to equity ratio of 54.6% to 45.4% was the group-wide ratio that was derived at year end in December 2007. [4] 15. There was no dispute that the wider and narrower schemes were 'schemes' for the purposes of Part IVA. [5] | Tax benefit: 16. At hearing, MAHPL contended that a 'tax benefit' could only be identified if MAHPL could have foreseen, at the time of entering into the scheme, that the scheme would be more advantageous from a tax perspective than an alternative course of action. MAHPL argued that whether a deduction might be expected not to have been allowable requires assessment of the expectation at the time of entry into the scheme. [6] The Court did not accept this submission finding that subsection 177C(1) did not require 'the specific advantage gained through entry into the scheme … be anticipated and expected at the time of entry into the scheme' rather the reference to reasonable expectation in subsection 177C(1) 'directs attention to the qualitative likelihood of the prediction put forward as a counterfactual'. [7] 17. The Court rejected the Commissioner's primary counterfactual as not being a reasonable prediction of the events that may have taken place. The Court reached this conclusion for what it described as 'two principal reasons'. [8] The Court considered that equity funding the acquisition of Alphapharm would have inflexibly 'tied up funds … when debt is significantly more flexible than equity and a mix of debt and equity is generally the preferred means of funding subsidiaries'. [9] Furthermore, due to Mylan's expected overall foreign loss (OFL) position in the United States of America (US), it would have been unable to claim any foreign tax credits for income tax paid in Australia, which would have exposed it to a worldwide tax rate of 65% on Australian-generated income. [10] 18. Her Honour rejected the debt to equity split of 54.6% to 45.4% postulated by the Commissioner observing the group gearing after the equity raising could not have been anticipated in October 2007 [11] and Mylan's anticipated aggregate acquisition funding mix for the acquisition as a whole, as projected by the MAHPL's experts, was a debt to equity split of 74.8% to 25.2% which was consistent with the funding mix for the Alphapharm acquisition's being a 75% to 25% debt to equity split. [12] 19. The Court observed that [13] : … it is open to the court to consider counterfactuals that depart from the precise bounds of the counterfactuals put up by the parties (subject to procedural fairness being afforded to the parties to address any further counterfactual). 20. That is, the Court is not bound by the counterfactuals put forward by the parties. [14] In the event, the Court adopted its own counterfactual as a sufficiently reliable prediction of what would have occurred but for the scheme such as to be reasonable (the 'preferred counterfactual') which was similar to the Commissioner's secondary counterfactual. [15] 21. The preferred counterfactual was for an external borrowing in which MAPL would become an additional borrower under the SCA. [16] The features of that counterfactual were [17] : (i) MAPL would have borrowed [approximately A$785 million (the face value of PN A2) [18] ] on 7 year terms under the SCA … at a floating rate consistent with the rates specified in the SCA; (ii) MAPL would otherwise have been equity funded to the extent necessary to fund the initial purchase of Alphapharm and to stay within the thin capitalisation safe harbour ratio from time to time; (iii) Mylan would have guaranteed MAPL's borrowing under the SCA; (iv) Mylan would not have charged MAPL a guarantee fee; (v) interest on the borrowing would not have been capitalised; (vi) MAPL would have been required to pay down the principal on a schedule consistent with that specified in the SCA and would have made voluntary repayments to reduce its debt if necessary to stay within the thin capitalisation safe harbour, from time to time; (vii) MAPL would not have taken out hedges to fix some or all of its interest rate expense; (viii) MAPL would have taken out cross-currency swaps into AUD at an annual cost of 3.81% per annum over AUD 3 month BBSW [bank bill swap rate]; and (ix) if MAPL's cashflow was insufficient to meet its interest or principal repayment obligations, Mylan would have had another group company loan MAPL the funds necessary to avoid it defaulting on its obligations, resulting in MAPL owing those funds to that related company lender by way of an intercompany loan, accruing interest at an arm's length rate; (i) MAPL would have borrowed [approximately A$785 million (the face value of PN A2) [18] ] on 7 year terms under the SCA … at a floating rate consistent with the rates specified in the SCA; (ii) MAPL would otherwise have been equity funded to the extent necessary to fund the initial purchase of Alphapharm and to stay within the thin capitalisation safe harbour ratio from time to time; (iii) Mylan would have guaranteed MAPL's borrowing under the SCA; (iv) Mylan would not have charged MAPL a guarantee fee; (v) interest on the borrowing would not have been capitalised; (vi) MAPL would have been required to pay down the principal on a schedule consistent with that specified in the SCA and would have made voluntary repayments to reduce its debt if necessary to stay within the thin capitalisation safe harbour, from time to time; (vii) MAPL would not have taken out hedges to fix some or all of its interest rate expense; (viii) MAPL would have taken out cross-currency swaps into AUD at an annual cost of 3.81% per annum over AUD 3 month BBSW [bank bill swap rate]; and (ix) if MAPL's cashflow was insufficient to meet its interest or principal repayment obligations, Mylan would have had another group company loan MAPL the funds necessary to avoid it defaulting on its obligations, resulting in MAPL owing those funds to that related company lender by way of an intercompany loan, accruing interest at an arm's length rate; 22. Under the preferred counterfactual, the interest rate would not have been fixed, providing the benefit of changed economic conditions that resulted in lower interest rates following the global financial crisis. The debt to equity ratio would remain 3:1, though without a retrospective adjustment to the principal once the final value of Alphapharm was determined. In reaching this conclusion, her Honour took into account the desirability of having as much debt funding as possible within thin capitalisation limits, noting the adverse impacts of the Mylan's OFL position on being able to claim foreign tax credits in respect of any dividends paid. [19] Her Honour also observed that '[t]here was ample evidence to support MAHPL's contention that Mylan's target level of debt related to the acquisition was approximately 75%' [20] and further that [21] : The 3:1 gearing ratio that Mylan implemented for MAPL was also supported by the expert evidence [adduced by MAHPL from a financial markets expert and expert in corporate treasury functions] that the funding structure, and the level of debt, were not excessive from a group treasury perspective, and constituted a reasonable funding mix that was broadly consistent with Mylan's anticipated funding mix for the Acquisition as a whole, reflecting Mylan's overall risk appetite. 23. In articulating the preferred counterfactual, her Honour observed that while the posited counterfactual for the purposes of Part IVA cannot be the same as the scheme, it can share features in common with the scheme and identified the amount of debt as one such feature in the present case. [22] Importantly, her Honour also observed that she could see no basis on which it could be concluded the preferred counterfactual was itself a Part IVA scheme. [23] 24. Under the preferred counterfactual, MAHPL received a tax benefit in the form of increased deductions of an unquantified amount. [24] | Dominant purpose: 25. The Court concluded that MAHPL had discharged its onus of demonstrating that it could not be objectively concluded, having regard to the 8 identified matters in section 177D, that a person had entered into the scheme for the dominant purpose of obtaining a tax benefit. [25] 26. Her Honour explained that [26] : The case [had not been] run on the basis that there was any need to examine the conclusions that would be drawn as to the purpose of MAPL, MAHPL or Lux 1 (being the lending entity under PN A2) as distinct from the purpose of Mylan. It was not disputed that the financing and structuring arrangements were decided at the parent company level. 27. Her Honour's reasons therefore focused on the purpose of Mylan. 28. The Court found that MAPL's decision not to refinance to take advantage of falling interest rates weighed in favour of finding that there was a dominant purpose to obtain a tax benefit when considering the manner in which the scheme was carried out. [27] The Court specifically rejected MAHPL's contention that the decision not to refinance was a commercial judgment that is not relevant to Part IVA. [28] However, the Court found that overall, the considerations relevant to the manner in which the scheme was carried out supported finding that there was no requisite dominant tax purpose. [29] The Court notably found that the commercial reasons for funding the acquisition through debt meant that the tracking of the thin capitalisation limits in Australia did not support a finding that there was a dominant purpose to obtain a tax benefit. [30] 29. Of the remaining 7 factors, the Court was satisfied that these were either neutral or weighed against a finding that there was a dominant purpose to obtain a tax benefit. [31] | Observations concerning the operation of Part IVA: 30. Having decided the case in the taxpayer's favour, there was no need for the Court to conclude a view on various matters that were raised during the proceeding. Nevertheless, the Court made some observations. Need to amend determinations or assessments to give effect to Court's decision on a Part IVA matter 31. The issue was raised during the hearing as to what the Commissioner would have needed to do to give effect to the Court's decision, if the Court were to have found that Part IVA applied but by reference to the secondary or tertiary counterfactuals identified by the Commissioner. Submissions were made as to the effectiveness of the Part IVA determinations made by the Commissioner to cancel the tax benefit. The context in which the issue arose was explained by her Honour [32] : Nothing was said in any determination regarding the conceptual basis upon which the Commissioner had determined a tax benefit capable of being disallowed by the exercise of the Commissioner's powers under s 177F(1)(b). Nothing was required to be said about such matters (in particular, the \"scheme\" identified by the Commissioner, and the counterfactual that was applied in calculating the tax benefit for the determinations). Nevertheless, as it was common ground that the Commissioner's secondary and tertiary counterfactuals were only developed after MAHPL put forward alternatives to the Commissioner's primary counterfactual when the Commissioner was determining MAHPL's objections to the amended assessments, it is clear enough that the Commissioner issued those determinations having devised the primary scheme and having calculated the tax benefit by reference to the primary counterfactual. 32. The question was whether, in that eventuality, the matter would have needed to be remitted to the Commissioner to amend the Part IVA determinations, and indeed whether the Commissioner would have the power to so amend. Her Honour noted that she did not need to decide the issue given her ultimate conclusion that Part IVA was not engaged. Nonetheless, her Honour remarked that it was not 'immediately apparent' to her why section 14ZZQ of the Taxation Administration Act 1953 would not allow the Commissioner to amend the determinations to give effect to the Court's decision but also added 'if amendment be necessary at all'. [33] Channel Pastoral issue 33. A further argument emerged in respect of the proposition that Part IVA determinations must be 'consistent, in all material respects, with the postulate upon which that determination is predicated' as per Channel Pastoral Holdings Pty Ltd v Commissioner of Taxation [2015] FCAFC 57 (Channel Pastoral) at [81]. [34] Button J explained that MAHPL had sought to argue that the Part IVA determinations made by the Commissioner failed on this account from the perspective of all of the counterfactuals advanced by the Commissioner. 34. While noting that she did not need to reach a concluded view on this argument, her Honour made 2 observations. The first was that whereas the primary counterfactual postulated that neither MAPL nor MAHPL would have been incorporated, that is not so with the secondary and tertiary counterfactuals. [35] 35. Secondly, the Court observed that [36] : … to the extent that the determinations were issued on the basis of calculations of the tax benefit which assumed no debt financing of the acquisition of Alphapharm, whereas the secondary and tertiary counterfactuals assumed significant debt financing, it is not obvious that that is an issue of the kind referred to in Channel Pastoral, cf being a matter of detail or calculation within the ambit of Trail Bros [Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd [2010] FCAFC 94]. 36. Consistent with the decision in Singapore Telecom Australia Investments Pty Ltd v Commissioner of Taxation [2024] FCAFC 29 at [292], her Honour observed that Channel Pastoral does not have the effect of binding the Commissioner to the approach taken in calculating the relevant tax benefit in the determination. Rather, the determinations only disallow deductions in the stated amounts. The determinations themselves do not incorporate by reference the detail of the analytical path taken by which those amounts have been identified by the Commissioner as tax benefits liable to be disallowed in accordance with Part IVA. [37] 37. Her Honour concluded this aspect of her reasons with the remark that [38] : While there are cases — Channel Pastoral is one such case — where the assessment has no coherent relationship with the anterior determination, I am not persuaded that this is such a case, insofar as the secondary and tertiary counterfactuals (and any variations of them) are concerned.", "ATO_View_of_Decision": "38. We observe that the scheme in this case predates the introduction of section 177CB (that is, this matter was determined under the old Part IVA [39] ). This case was thus decided against the background of the case law that determined that identification of an alternative postulate of what would have happened but for a scheme invites an enquiry into what is the most probable counterfactual, rather than simply what is a reasonable counterfactual. [40] Further, paragraph 177CB(4)(b) now requires the Court to disregard the tax implications under Australian income tax law when determining a reasonable counterfactual. Whether the same result would have followed had this case fallen for consideration under the new Part IVA [41] is an open question. | 39. This decision does not disturb our view that, depending on the relevant facts and circumstances, Part IVA may apply to 'debt push-down' schemes. [41A] | 40. While the Court found that Part IVA did not apply, that conclusion was reached against the background of important findings of fact on a variety of issues including those highlighted in the following points. • The arrangement was part of a global acquisition by the Mylan group notable for its size. As observed by her Honour [42] : I accept that, as MAHPL submitted, the acquisition of the Merck Generics group was an \"enormous and highly geared global acquisition for the Mylan Group\". … the Mylan group pre-acquisition was dwarfed by the scale of the Mylan group post-acquisition. • There was a demonstrated need to be able to repatriate funds from Australia to the US to allow the overseas parent to satisfy its own financial obligations. [43] • The tax consequences of an inability of the Mylan group to offset foreign tax credits for tax paid in Australia against US tax as a function of the US OFL rules was 'so extreme as to be intolerable'. [44] While accepting that the 100% equity counterfactual was straightforward and simple, her Honour remarked it was 'inconceivable that Mylan would have been willing to accept the significant downsides of the 100% equity scenario for the acquisition of Alphapharm for the sake of simplicity'. [45] Put differently, given Mylan's OFL position 'the effects of 100% equity funding would have been unacceptable to Mylan'. [46] • As her Honour observed, it was [47] : … clear from the evidence that, when Mylan considered having local acquisition entities take on debt to acquire relevant Merck subsidiaries, the debt level it projected tracked the applicable thin capitalisation limits in various jurisdictions Further [48] : … given the inability to claim foreign tax credits given its OFL position, there is no reason to think that, had it not proceeded with either of the secondary or tertiary schemes, Mylan would have had MAPL take on less debt than in fact it did take on. • As her Honour additionally observed [49] : … It is not surprising that Mylan, as the parent company of a group with global treasury functions, would not be concerned to closely analyse the debt carrying capacity of a holding company subsidiary such as MAPL. | • The arrangement was part of a global acquisition by the Mylan group notable for its size. As observed by her Honour [42] : I accept that, as MAHPL submitted, the acquisition of the Merck Generics group was an \"enormous and highly geared global acquisition for the Mylan Group\". … the Mylan group pre-acquisition was dwarfed by the scale of the Mylan group post-acquisition. • There was a demonstrated need to be able to repatriate funds from Australia to the US to allow the overseas parent to satisfy its own financial obligations. [43] • The tax consequences of an inability of the Mylan group to offset foreign tax credits for tax paid in Australia against US tax as a function of the US OFL rules was 'so extreme as to be intolerable'. [44] While accepting that the 100% equity counterfactual was straightforward and simple, her Honour remarked it was 'inconceivable that Mylan would have been willing to accept the significant downsides of the 100% equity scenario for the acquisition of Alphapharm for the sake of simplicity'. [45] Put differently, given Mylan's OFL position 'the effects of 100% equity funding would have been unacceptable to Mylan'. [46] • As her Honour observed, it was [47] : … clear from the evidence that, when Mylan considered having local acquisition entities take on debt to acquire relevant Merck subsidiaries, the debt level it projected tracked the applicable thin capitalisation limits in various jurisdictions Further [48] : … given the inability to claim foreign tax credits given its OFL position, there is no reason to think that, had it not proceeded with either of the secondary or tertiary schemes, Mylan would have had MAPL take on less debt than in fact it did take on. • As her Honour additionally observed [49] : … It is not surprising that Mylan, as the parent company of a group with global treasury functions, would not be concerned to closely analyse the debt carrying capacity of a holding company subsidiary such as MAPL. | 41. While it was the case that the original SPA provided for Mylan as purchaser to acquire 5 target entities including Merck Generics Group B.V. (MGGBV), her Honour found that [50] : … the evidence is overwhelming that there was no intention for the final acquisition structure to be simply constituted by Mylan acquiring [those] entities. … The structure provided for by the original SPA is readily explained by the fact that Mylan's advisers recognised that there would be \"no time to come up with a fully agreed upon acquisition structure\" by the time the original SPA was signed … … it was always on the cards that the acquisition structure would be settled after the original SPA was signed. | 42. Also critical to the decision of the Court was the evidence of the various experts adduced by the parties and their agreement on key points [50A] , in particular that: • Mylan subsidiaries were expected to distribute available cash to Mylan and that such cash distributions were essential to Mylan meeting its debt service obligations. [51] • What was actually done was a far superior outcome for Mylan when compared with all of the 3 counterfactuals proposed by the Commissioner. [52] • An international company such as Mylan would commonly manage its currency risk in a centralised manner at the group or treasury level (and not at the level of operating subsidiaries). [53] • If MAPL were to borrow externally, its borrowing would be supported by a guarantee from Mylan, such that MAPL could borrow at an interest rate reflecting Mylan's credit rating. [54] • Intra-group financing brings with it attendant flexibility contrasting with equity financing. [55] | • Mylan subsidiaries were expected to distribute available cash to Mylan and that such cash distributions were essential to Mylan meeting its debt service obligations. [51] • What was actually done was a far superior outcome for Mylan when compared with all of the 3 counterfactuals proposed by the Commissioner. [52] • An international company such as Mylan would commonly manage its currency risk in a centralised manner at the group or treasury level (and not at the level of operating subsidiaries). [53] • If MAPL were to borrow externally, its borrowing would be supported by a guarantee from Mylan, such that MAPL could borrow at an interest rate reflecting Mylan's credit rating. [54] • Intra-group financing brings with it attendant flexibility contrasting with equity financing. [55] | Part IVA and transfer pricing | 43. The Court confirmed that whether or not the Commissioner pursues a transfer pricing case in a particular matter, the Commissioner is not precluded, where appropriate, from making submissions about an interest rate being excessive as part of a case under Part IVA. This is because the excessiveness of an interest rate can be a factor that falls into the consideration when assessing purpose under section 177D. [56] An excessive interest rate may also be relevant when considering whether there is a reasonable alternative postulate to the scheme under section 177CB. | 44. We will consider on a case by case basis whether to pursue either, or both, a transfer pricing case and Part IVA case in challenging a debt push-down scheme. The considerations relevant to the application of the transfer pricing provisions in Subdivision 815-B of the Income Tax Assessment Act 1997 are economically-based and invite different considerations to the analysis demanded by Part IVA. | Other matters | 45. Her Honour remarked at [410] that: It is accepted on the authorities that tax is a cost and it is rational for a taxpayer to take into account total costs (including taxation costs) in deciding how to proceed … | 46. We observe that under the new Part IVA, the Australian income tax law consequences of a counterfactual for any person are to be ignored in considering the reasonableness of that counterfactual. [57] Her Honour also remarked that it follows that 'where a particular commercial transaction is chosen from a number of alternative courses of action because of the tax benefit associated with its adoption' [58] that will not 'of itself' expose a dominant tax purpose. The Commissioner agrees this is a correct formulation of the test. [58A] Whether there is something more that bespeaks a dominant tax purpose requires a close and careful examination of the facts. | 47. We also note the remarks by the Court regarding the administrative complexity associated with the payment of dividends to shareholders that is magnified where dividends flow through a multi-level structure. [59] We observe that the significance to be attached to this observation in any particular case will vary from case to case and, in particular cases, may assume little weight. | 48. Having regard to the facts and circumstances of the case, we will continue to present arguments as to the appropriate split between debt and equity in identification of a reasonable alternative postulate of what might be expected to have been done but for the scheme.", "Administrative_Treatment": "49. We are reviewing the impact of this decision on related advice or guidance, including Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules which provides guidance to tax officers who are contemplating the application of Part IVA or other general anti-avoidance rules to an arrangement.", "Related_Documents": "2024 ATC 20-900 | scheme | ITAA 1997 Subdiv 815-B | ITAA 1936 Pt IVA | ITAA 1936 177C(1) | ITAA 1936 177CB | ITAA 1936 177CB(4) | ITAA 1936 177CB(4)(b) | ITAA 1936 177D | ITAA 1936 177F(1)(b) | TAA 1953 14ZZQ | Tax Laws Amendment (Countering Tax Avoidance and Multinational Profits Shifting) Act 2013 | 2015 ATC 20-503 | 2004 ATC 4599 | 2010 ATC 20-198 | 2011 ATC 20-275 | 2024 ATC 20-897 | PS LA 2005/24 | Explanatory Memorandum", "Legislative_References": "ITAA 1997 Subdiv 815-B ITAA 1936 Pt IVA ITAA 1936 177C(1) ITAA 1936 177CB ITAA 1936 177CB(4) ITAA 1936 177CB(4)(b) ITAA 1936 177D ITAA 1936 177F(1)(b) TAA 1953 14ZZQ Tax Laws Amendment (Countering Tax Avoidance and Multinational Profits Shifting) Act 2013", "Case_References": "Channel Pastoral Holdings Pty Ltd v Commissioner of Taxation [2015] FCAFC 57 232 FCR 162 2015 ATC 20-503 321 ALR 261 Commissioner of Taxation v Hart [2004] HCA 26 206 ALR 207 217 CLR 216 55 ATR 712 2004 ATC 4599 Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd [2010] FCAFC 94 186 FCR 410 2010 ATC 20-198 79 ATR 780 Mylan Australia Holding Pty Ltd v Commissioner of Taxation (No 2) [2024] FCA 253 2024 ATC 20-900 118 ATR 460 RCI Pty Limited v Commissioner of Taxation [2011] FCAFC 104 2011 ATC 20-275 84 ATR 785 Singapore Telecom Australia Investments Pty Ltd v Commissioner of Taxation [2024] FCAFC 29 302 FCR 192 2024 ATC 20-897 118 ATR 323", "Subject_References": "", "Other_References": "PS LA 2005/24 Explanatory Memorandum to the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profits Shifting) Bill 2013", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/770-2021/00001", "Unmatched_Content": "ATO view of this decision | Implications for affected advice or guidance | Commissioner of Taxation 28 February 2025 | Paragraphs 8, 10, 13, 16, 18, 20, 21, 23, 30, 32, 38, 43, 46 and 48 | Additions made to footnotes to provide additional context. | Footnote 41A, 50A and 58A | Case citations added to support positions stated. | Footnotes: [1] Specifically, Alphapharm would have come into the Mylan group by way of the group's acquisition of Merck Generics Group B.V. (MGGBV, the then Netherlands resident parent company of Alphapharm) via a Mylan company in Luxembourg. Note: consistent with the authorities, her Honour also refers to a counterfactual as an 'alternative postulate'. | [2] At [6] and [222–223]. | [3] At [7] and [224–225]. While the secondary and tertiary counterfactuals advanced by the Commissioner initially contemplated that non-interest-bearing loans may have been used rather than equity, this point was not pressed. | [9] At [252]. Later in her reasons, her Honour remarked on the 'flexibility attendant upon intra-group financing' and how such financing facilitated the evidenced objective of repatriation of cash: at [438-439]. | [10] At [252]. See also [264] and [290]. As explained by her Honour at [158], OFL is a US tax law concept that limits the availability of foreign tax credits to be applied against taxable US income. Her Honour also noted at [467] that she did 'not accept that seeking to avoid suffering the consequences of Mylan's substantial OFL is properly to be characterised as a strategy to reduce Australian tax'. See also [560-561]. | [14] At [299] leading to the Court adopting the preferred counterfactual at [394-396]. | … I do not consider that the primary counterfactual advanced by the Commissioner is a satisfactory counterfactual. There are also elements of the other counterfactuals advanced by the parties that I reject. However, in addressing the principal elements that must be addressed in any counterfactual - debt to equity ratio, and the amount and terms of any borrowing, as well as the identity of the lender - I have arrived at a counterfactual that departs in some respects from the specifics of the counterfactuals put forward by the parties, but does not go beyond the elements that were debated by the parties during the trial. | [22] At [314]. See also [316]. | … if it were necessary to decide the point, I would conclude that the fact that the precise amount of a tax benefit has to be calculated once the Court has determined the relevant counterfactual to be used, does not mean that the taxpayer, for that reason alone, has succeeded in showing that the assessments are excessive and its appeals against the objection decisions should be allowed in full. | [33] At [592]. Note: there is no suggestion that the Commissioner would not have the power to amend assessments as necessary to give effect to the Court's decision. | [39] Part IVA as it was prior to the amendments effected by the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profits Shifting) Act 2013 . | A decision that a tax effect 'might reasonably be expected to have' occurred if a scheme had not been entered into or carried out must be made on the basis of a postulate that is a reasonable alternative to the scheme. | Thus, subsection 177CB(3) now specifies that a 'decision that a tax effect might reasonably be expected to have occurred if the scheme had not been entered into or carried out must be based on a postulate that is a reasonable alternative to entering into or carrying out the scheme'. In determining whether a postulate is a reasonable alternative, paragraph 177CB(4)(a) requires 'particular regard' to be had to the substance of the scheme. The amendments made by the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profits Shifting) Act 2013 apply to all schemes except schemes that were entered into, or that were commenced to be carried out, on or before 15 November 2012 (see Item 10 of Schedule 1 to that Act). | [41] Part IVA as it is after the amendments effected by the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profits Shifting) Act 2013 . | [41A] As described by her Honour at [39], the Commissioner had characterised the scheme in this case as involving a debt pushdown, namely creation of intercompany debt at the MAPL level. | The terms of the SCA, and the terms sheets that preceded execution of the formal agreement, support a conclusion that Mylan did in fact intend to remit substantial free cash flow to service its debt and reduce its leverage. | [50] At [258–260] and [442]. | [50A] Only limited lay evidence was led by MAHPL; the factual dimensions of the case were entirely documentary: at [12] and [34]. | [54] As her Honour observed at [307], this point was assumed by the relevant experts in giving their evidence on the quantum of the debt. | [57] Refer paragraph 177CB(4)(b). | [58A] See also Commissioner of Taxation v Hart [2004] HCA 26 at [3] and [15], per Gleeson CJ and McHugh J. | [59] At [438] and [524]. These comments were made in this case in the context of contrasting the scheme entered into, which contained significant debt funding, with a possible counterfactual involving only equity funding."}
{"Case_Name": "Bains and Commissioner of Taxation", "Venue_Reference_No": "2021/5828", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "11 August 2023", "Date_Published": "25 January 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case. The Tribunal has determined, based on the facts and circumstances of the case, that a payment received by the Applicant from the Victorian Taxi Reform Fairness Fund is not income according to ordinary concepts. | All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1997. | Unless otherwise indicated, all judgment paragraph references in this Decision impact statement are to the judgment of Bains and Commissioner of Taxation [2023] AATA 2477.", "Overview_of_Facts": "In 2001, the Applicant and his wife entered the Victorian taxi industry when they acquired their first taxi licence at a cost of $280,000. The licence was funded by a bank loan secured against their family home. The Applicant himself did not operate this taxi licence, but instead provided vehicles for other drivers to operate under this licence. | In 2006, the Applicant and his wife acquired their second taxi licence at a cost of $385,000. This licence was also funded by another bank loan secured against their family home. This second taxi licence was operated by third-party drivers until 2013, when the Applicant commenced operating the licence (by driving the vehicle himself). | In 2010, the Applicant acquired a third taxi licence at a cost of $180,000 funded by a further bank loan secured against the family home. The Applicant himself operated this taxi licence. | Between 2013 and 2017, the Victorian Government introduced a series of reforms affecting the taxi and hire car industry in Victoria. Due to the reforms, with effect from 1 July 2018, existing taxi licences were revoked and replaced with a new type of non-tradeable licence. | In recognition of the adverse effects of the reforms on industry participants, the Victorian Government introduced 3 types of financial assistance payments: (1) a Victorian Taxi Reform Hardship Fund payment (2) a Victorian Transition Assistance payment (3) a Victorian Taxi Reform Fairness Fund payment. | The Applicant applied for, and received, all 3 types of financial assistance payments. The appeal to the Tribunal only relates to the Victorian Taxi Reform Fairness Fund (Fund) payment. | The Applicant received notification of approval of the Fund payment by letter dated 25 February 2018 from the Department of Economic Development, Jobs, Transport and Resources. The letter provided no reasons for the decision relating to how the eligibility criteria was satisfied or how the amount of $250,000 was calculated. | Relevantly, on 6 March 2018, the Applicant received a single lump sum payment of $250,000 from the Fund. The Fund was established to provide financial relief to taxi licence holders who had experienced significant financial hardship as a consequence of the Victorian taxi industry reforms. | In about June 2018, the Applicant had exited the Victorian taxi industry. | The Commissioner considered the Fund payment of $250,000 to be income according to ordinary concepts under section 6-5 and issued an amended assessment to the Applicant. The Applicant objected to this assessment and the objection was disallowed.", "Issues_Decided": "The Tribunal considered whether the payment of $250,000 received by the Applicant from the Fund was income according to ordinary concepts under section 6-5. | Eligibility for a payment: The Tribunal considered that an applicant's eligibility for a payment appeared to be assessed through an eligibility framework set by the Victorian Government comprising an asset test, an indebtedness test and a mortgage test. The Tribunal concluded that the payment of $250,000 aligns with the asset test and was calculated in accordance with the Applicant's income and indebtedness (at [28]). The Tribunal noted that the eligibility framework was not strictly applied and 'there were a number of applications where judgement had to be applied based on the eligibility criteria principles and not just the financial assessment process' (at [31]). The use of discretion and judgment, and the approval of applications that were outside the framework, was considered by the Tribunal to be consistent with the eligibility guidelines (at [31]). | Income according to ordinary concepts: The Tribunal drew upon principles in case law to establish whether the payment was income according to ordinary concepts. Reliance was placed on The Commissioner of Taxation of the Commonwealth of Australia v Harris, G.O. [1980] FCA 74; (1980) 43 FLR 36 at [13], noting that in resolving the question of whether a payment is income according to ordinary concepts 'turns on questions of emphasis and degree'. Relevant considerations from [14–16] in The Commissioner of Taxation of the Commonwealth of Australia v Harris, G.O. were applied by the Tribunal (at [33]). Further, the Tribunal referred at [35] to the High Court decision in Commissioner of Taxation (Cth) v Rowe [1997] HCA 16 where the Court stated that the first question for a voluntary payment is to identify what it is for. In considering what the payment was for, the Tribunal noted the purpose of the Fund 'was to provide relief for those \"who [were] facing significant financial hardship as a result of the proposed reforms'' (at [44]). The Tribunal, in analysing whether the payment was income according to ordinary concepts at [49], [52] and [59], had regard to the following factors: • the Fund payment was a one-off discretionary payment • the Fund payment was designed to provide relief arising from the financial hardship suffered resulting from the Victorian taxi industry reforms • the Fund payment was not a substitute for income forgone or future revenue that was lost. After considering the above factors, the Tribunal held that the payment was not income according to ordinary concepts (at [61]).", "ATO_View_of_Decision": "The Commissioner accepts the Tribunal's decision that payments from the Fund are not income according to ordinary concepts and will administer the law in accordance with the Tribunal's decision. | The Tribunal did not consider payments from the Victorian Taxi Reform Hardship Fund or the Victorian Transition Assistance payments. The Tribunal also did not consider other payments made as a result of the taxi industry reforms in the other Australian States. | The Commissioner considers that the decision does not impact the ATO's position on the other types of financial assistance payments made to Victorian taxi licence holders. | The Commissioner acknowledges that there are entities who might be impacted by the Tribunal's decision and is currently identifying those taxpayers. The Commissioner will provide remediation pathways to these entities as a matter of importance. | Further information about the steps being taken by the Commissioner and what you need to do if you or your entity has been impacted, will be published in due course at: Taxi licence holders – industry assistance payments and passenger movement levies .", "Administrative_Treatment": "The ATO has reviewed the impact of this decision, if any, on related advice and guidance products, including: • Fact sheet Victorian taxi industry Fairness Fund payments • Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business", "Related_Documents": "Fact sheet Victorian taxi industry Fairness Fund payments. | TR 2006/3 | 2023 ATC 10-681 | 6-5 | 80 ATC 4238 | 97 ATC 4317", "Legislative_References": "Income Tax Assessment Act 1997 6-5", "Case_References": "The Commissioner of Taxation of the Commonwealth of Australia v Harris, G.O. [1980] FCA 74 (1980) 43 FLR 36 80 ATC 4238 10 ATR 869 30 ALR 10 Commissioner of Taxation (Cth) v Rowe [1997] HCA 16 187 CLR 266 97 ATC 4317 35 ATR 432 143 ALR 406", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2021/5828/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products. | ATO references ISSN: 2653-5424 NO: 1-QWEHA1O"}
{"Case_Name": "Bendel and Commissioner of Taxation", "Venue_Reference_No": "2021/3330-3331 and 2021/3324-3327", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 September 2023", "Date_Published": "19 March 2025", "Document_Type": "Interim Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Interim decision impact statement outlines the ATO's response to this case which concerns whether a private company's failure to call for payment of entitlements to income of an associated trust was the provision of 'financial accommodation' and, therefore, a loan for the purposes of section 109D of the Income Tax Assessment Act 1936. | All legislative references in this Interim decision impact statement are to the Income Tax Assessment Act 1936, unless otherwise indicated.", "Overview_of_Facts": "The Steven Bendel 2005 Discretionary Trust (Trust) was a discretionary trust. Its trustee was Gleewin Pty Ltd (the Trustee). | The beneficiaries of the Trust included Mr Bendel and Gleewin Investments Pty Ltd (Gleewin) (together, the Applicants). | Mr Bendel was the sole shareholder and director of the Trustee and Gleewin. | Mr Bendel and Gleewin were made presently entitled to income of the Trust for each of the 2013 to 2016 income years. | In each of the 2013 to 2017 income years, the Trust made some payments for, or on behalf of, Gleewin that had the effect of reducing Gleewin's entitlements to trust income. However, those entitlements remained substantially unpaid by Gleewin's lodgment day [1] for each of its 2013 to 2016 income year tax returns. | The accounting records of the Trust also showed that in the 2014 to 2017 income years, it made significant payments to Mr Bendel, recorded as an amount owing to the Trust in its accounts. | The Commissioner issued amended assessments to the Applicants for each of the 2014 to 2017 income years. Those assessments reflected additional amounts included in their assessable income under section 97, on the basis that: • the outstanding amounts represented loans from Gleewin to the Trust within the meaning of subsection 109D(3) that were taken to be dividends paid to the Trust under subsection 109D(1), and • the beneficiaries entitled to the Trust's income had a corresponding proportion of each deemed dividend included in their assessable income by section 97.", "Issues_Decided": "The issues before the Tribunal are set out below. | Issue 1: did Gleewin make a loan within the meaning of subsection 109D(3) to the Trust during each of the 2014 to 2017 years on account of Gleewin's unpaid present entitlements to trust income of the previous year? (the Primary Issue)?: The Tribunal decided that Gleewin did not make a loan to the trustee of the Trust within the meaning of subsection 109D(3). There was therefore no deemed dividend paid by Gleewin to the Trust under subsection 109D(1). In reaching its decision, the Tribunal reasoned that a loan within the meaning of subsection 109D(3) did not reach so far as to embrace the rights in equity created when entitlements to trust income (or capital) were created but not satisfied and remained unpaid. The balance of an outstanding or unpaid entitlement of a corporate beneficiary of a trust, whether held on a separate trust or otherwise, was not a loan to the trustee of the trust. | Issue 2: does section 6-25 of the Income Tax Assessment Act 1997 prevent a deemed dividend from being included in the Trust's assessable income or, alternatively, the Applicant's assessable incomes on the basis that the same amount has already been included in assessable income?: Consistent with its conclusion for the Primary Issue (that is, section 109D was not engaged by the circumstances of Gleewin and the Trust), the Tribunal found it unnecessary to decide this issue. Nonetheless, it observed that any deemed dividend would not be the 'same amount' as the amount previously included in Gleewin's assessable income in respect of the unpaid present entitlement (UPE). | Issue 3: will the Tribunal exercise the section 109RB discretion (subject to the answers to the preceding issues)?: The Tribunal found that, for the years in issue, loans (within the ordinary meaning of that term) of $41,252 and $9,431 had been made by Gleewin to the Trust [2] . It considered no basis had been advanced for the exercise of the section 109RB discretion in respect of those amounts. | Issue 4: have penalties been imposed correctly and, if so, will the Tribunal remit them?: Based on the Tribunal's decision regarding the application of section 109D to the UPEs, this issue was only relevant to the $41,252 and $9,431 ordinary loans. In that regard, the Tribunal observed that 'Mr Bendel is a registered tax agent to whom the outcome of retaining amounts belonging to a company should have been obvious'. It therefore considered penalties in respect of those amounts should be recalculated at the same rate and not remitted.", "ATO_View_of_Decision": "The Commissioner appealed the Tribunal's decision in respect of the primary issue. | Our response to the decision of the Full Federal Court is contained in the Interim decision impact statement for Commissioner of Taxation v Bendel [2025] FCAFC 15.", "Administrative_Treatment": "The Commissioner's administration practices concerning the application of section 109D to UPEs outlined in this Interim decision impact statement have now been replaced by the administrative treatment outlined in the Interim decision impact statement for Commissioner of Taxation v Bendel [2025] FCAFC 15. | Up until the publication date of the Interim decision impact statement for Commissioner of Taxation v Bendel [2025] FCAFC 15, the Commissioner's administration practices were as follows: • Pending the outcome of the appeal process, the ATO is administering the law in accordance with the published views relating to private company entitlements and trust income in TD 2022/11. • Until the appeal process is finalised, the Commissioner does not propose to finalise objection decisions in relation to objections to past year assessments (for which no settlement was reached) where the decision turns on whether or not a UPE was a subsection 109D(3) loan. However, if a decision is required to be made (for example, because a taxpayer gives notice requiring the Commissioner to make an objection decision), any objection decisions made will be based on the existing ATO view of the law.", "Related_Documents": "Taxation Ruling TR 2022/4 | Income tax: section 100A reimbursement agreements | Taxation Ruling TR 2015/4 | Income tax: CGT small business concessions: unpaid present entitlements and the maximum net asset value test | Taxation Ruling TR 2010/3 | Income tax: Division 7A loans: trust entitlements | (Withdrawn) | Taxation Determination TD 2022/11 | Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'? | Taxation Determination TD 2015/20 | Income tax: Division 7A: is a release by a private company of its unpaid present entitlement a 'payment' within the meaning of Division 7A of Part III of the Income Tax Assessment Act 1936? | Taxation Determination TD 2011/15 | Income tax: Division 7A – unpaid present entitlements – factors the Commissioner will take into account in determining the amount of any deemed entitlement arising under section 109XI of the Income Tax Assessment Act 1936 | Practical Compliance Guideline PCG 2022/2 | Section 100A reimbursement agreements – ATO compliance approach | Practical Compliance Guideline PCG 2017/13 | Division 7A – PS LA 2010/4 sub-trust arrangements maturing in or after the 2016-17 income year | Law Administration Practice Statement PS LA 2010/4 | Division 7A: trust entitlements | Interim decision impact statement | 2023 ATC 10-687 | ITAA 1936 97 | ITAA 1936 100A | ITAA 1936 109D | ITAA 1936 109D(1) | ITAA 1936 109D(3) | ITAA 1936 109D(6) | ITAA 1936 109RB | ITAA 1997 6-25", "Legislative_References": "Income Tax Assessment Act 1936 ITAA 1936 97 ITAA 1936 100A ITAA 1936 109D ITAA 1936 109D(1) ITAA 1936 109D(3) ITAA 1936 109D(6) ITAA 1936 109RB Income Tax Assessment Act 1997 ITAA 1997 6-25", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": true, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/20231/3330-3331and2021/3324-3327/00001", "Unmatched_Content": "Law Administration Practice Statement PS LA 2010/4 Division 7A: trust entitlements (Withdrawn) | Date issued: 15 November 2023 | Updated to note and refer to the Interim decision impact statement issued for Commissioner of Taxation v Bendel [2025] FCAFC 15. | Footnotes: [1] As defined in subsection 109D(6), being the earlier of the due date for lodgment of the private company's income tax return or the date on which that return is lodged. | [2] In respect of tax refunds due to Gleewin that were deposited to the Trust's bank account."}
{"Case_Name": "Bowerman and Commissioner of Taxation", "Venue_Reference_No": "2022/3436", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 October 2023", "Date_Published": "2 July 2025", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, about the deductibility under section 8-1 of the Income Tax Assessment Act 1997 of a loss incurred by an individual on the sale of her home, which she acquired with the purpose of making a profit in a commercial manner. | All judgment paragraph references in this Decision impact statement are to the judgment of Bowerman and Commissioner of Taxation [2023] AATA 3547, unless otherwise indicated. | All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1997 (ITAA 1997).", "Overview_of_Facts": "The facts of the case are unusual, and are as follows: • The Applicant was a retiree who, with her husband, spent her career running successful businesses and investing in property. She lived in a large water-front matrimonial home which she described as 'inconvenient'. [1] • In July 2015, within weeks of her husband's passing, the Applicant entered into a contract to purchase an apartment (the Foreshore Boulevard apartment) that was under development in a new complex located near her matrimonial home. The Applicant bought the Foreshore Boulevard apartment intending simpler living and planned to sell her matrimonial home to fund the acquisition of the apartment once built. Construction of the Foreshore Boulevard apartment was expected to be completed in June 2019. [2] • In November 2017, after being advised that construction of the Foreshore Boulevard apartment would now extend into 2020, the Applicant acquired a similar off-the-plan apartment to be built at an earlier stage in the same development (the Dune Walk apartment). [3] • In May 2018, when construction of the Dune Walk apartment was completed, the Applicant sold her matrimonial home and moved into the Dune Walk apartment. [4] She resided there for approximately 2 years. [5] • The Applicant considered, due to the attractiveness of the new development, that she could make a profit on the acquisition and resale of the Dune Walk apartment when it was time to move into her ultimate residence. [6] • In July 2020, when construction of the Foreshore Boulevard apartment was completed, the Applicant sold the Dune Walk apartment, incurred a loss on the sale, and moved into the Foreshore Boulevard apartment, where she still resides. [7] The Applicant needed to sell the Dune Walk apartment because she required the proceeds of sale to complete the purchase of the Foreshore Boulevard apartment. • The Applicant objected to the Notice of Assessment in respect of the year ended 30 June 2020, claiming she had an allowable deduction for the loss (of $265,936) on the sale of the Dune Walk apartment. The Commissioner disallowed the objection on the basis that the sale of the Dune Walk apartment was a mere realisation of a capital asset, and the loss was to be disregarded as a capital loss as the Dune Walk apartment was the Applicant's main residence. The Applicant subsequently filed an application for review with the AAT.", "Issues_Decided": "The decision involved 3 issues. | Issue 1: The Applicant contended that the Dune Walk apartment was held on revenue account given that she acquired it for a profit-making purpose in a business operation or commercial transaction. The Applicant's argument relied upon the principles established in Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18 ( Myer Emporium ). Accordingly, she asserted that the loss was incurred in gaining or producing assessable income and should thereby be deductible under paragraph 8-1(1)(a). [8] The Commissioner contended that it was a capital loss as it did not satisfy the principles enunciated in Myer Emporium. Consequently, the Commissioner argued that the loss should be disregarded under the capital gains tax (CGT) main residence exemption within section 118-100. [9] | Issue 2: The Commissioner also submitted that the loss was of a private or domestic nature such that a deduction was prevented by paragraph 8-1(2)(b). | Issue 3: The Commissioner did not agree with the Applicant's contention that the loss was 'incurred' in the 2020 income year when the contract for the sale of the Dune Walk apartment became unconditional. The Commissioner instead submitted that the loss was incurred in the 2021 income year upon the completion of the conveyance. Each of the 3 issues were decided against the Commissioner. | Tribunal's findings: While the AAT accepted that one of the Applicant's purposes for acquiring the Dune Walk apartment was to live in it, this was considered to be secondary to her more significant profit-making purpose. [10] This profit-making purpose was dispositive of the first requirement of the test established by Myer Emporium. In finding that the Applicant satisfied the second requirement established by Myer Emporium, the AAT found that she had demonstrated that she was a businessperson and was opportunistic in the purchase of the Dune Walk apartment. [11] The acquisition and sale of the apartment was considered to be a 'commercial transaction'. [12] The AAT's finding that the Applicant's acquisition and sale of the apartment was the sort of thing a business person would do was based on Steward J's consideration of that concept in Greig v Commissioner of Taxation. [13] Issue 1 was resolved in favour of the Applicant on this basis. Regarding Issue 2, the AAT reasoned that paragraph 8-1(2)(b) did not apply to prevent the Applicant from claiming a deduction given that the loss had not lost its connection with her profit-making intention. The reasoning turned on the finding that the Applicant's profit-making purpose was more significant than her intention to live in the apartment. [14] The loss was found not to be essentially private or domestic in nature, having regard to the High Court's decision in Commissioner of Taxation v Anstis. [15] In relation to Issue 3, the AAT accepted the legal basis of the Commissioner's submission that a loss was not 'incurred' until the settlement of the conveyance was completed in 2021. [16] However, it found that the Commissioner was required to assess the loss as having been incurred in 2020 [17] because the Commissioner was bound to do so by a statement in TR 97/7 on which the Applicant had relied.", "ATO_View_of_Decision": "The Commissioner notes that, consistent with the AAT's observation, both the facts of the case, and the result, were 'unusual'. [18] The Commissioner acknowledges that the AAT's factual findings were open on the evidence. | The Commissioner's view is that the AAT's finely balanced conclusion in respect to Issue 1 was open on the particular facts of this case and was an available application of the established Myer Emporium principles. The decision must be read in the context of the clear statements of principle from the courts that a profit-making purpose alone is insufficient to engage the Myer Emporium principle. [19] The decision applies the approach of Steward J in Greig v Commissioner of Taxation [20] , which remains the most authoritative explanation of the concept of a 'business operation or commercial transaction' within the meaning of the principle established in Myer Emporium. | The Commissioner observes that cases concerning the application of the principles in Myer Emporium always turn on the facts of the particular case, and that the unusual factual findings in this case will limit the application of the AAT's decision in future cases. | In circumstances where the principles in Myer Emporium (that is, a profit-making purpose and a commercial element to the transaction) do not apply, the Commissioner will continue to apply the CGT rules to gains and losses on the sale of real property including a person's main residence. Accordingly, the Commissioner considers that this decision does not represent a departure from established principles concerning the sale of real property. Nor will it change how the ATO applies the CGT main residence exemption under section 118-100 where the principles in Myer Emporium do not apply. | The Commissioner reads the AAT's commentary regarding the non-operation of paragraph 8-1(2)(b) as having been informed by its finding that the Applicant's most significant reason for acquiring and selling the Dune Walk apartment was her profit-making purpose. | Regarding Issue 3, the Commissioner agrees with the AAT's observation that existing authority supports the conclusion that the Applicant did not 'incur' the loss until the contract of sale of the Dune Walk apartment had completed [21] and that her loss was necessarily only realised [22] upon the receipt of proceeds of settlement. The Commissioner takes a different view to the AAT as to the interpretation of TR 97/7, and has subsequently updated TR 97/7 to remove any perceived ambiguity or uncertainty as to its interpretation.", "Administrative_Treatment": "Following this decision, we have updated TR 97/7 to clarify when a loss is incurred, and to draw the distinction between losses and outgoings.", "Related_Documents": "Taxation Ruling TR 97/7 Income tax: section 8-1 - meaning of 'incurred' - timing of deductions | 2023 ATC 10-693 | ITAA 1997 8-1 | ITAA 1997 8-1(1)(a) | ITAA 1997 8-1(2)(b) | ITAA 1997 118-100 | 87 ATC 4363 | 2020 ATC 20-733 | 2019 ATC 20-703", "Legislative_References": "ITAA 1997 8-1 ITAA 1997 8-1(1)(a) ITAA 1997 8-1(2)(b) ITAA 1997 118-100", "Case_References": "Bowerman and Commissioner of Taxation [2023] AATA 3547 2023 ATC 10-693 Commissioner of Taxation v Anstis [2010] HCA 40 241 CLR 443 85 ALJR 122 272 ALR 1 Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18 163 CLR 199 61 ALJR 270 71 ALR 28 18 ATR 693 87 ATC 4363 Greig v Commissioner of Taxation [2020] FCAFC 25 275 FCR 445 2020 ATC 20-733 111 ATR 342 Sole Luna Pty Ltd as trustee for the PA Wade No 2 Settlement Trust v Commissioner of Taxation [2019] FCA 1195 2019 ATC 20-703 110 ATR 307", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2022/3436/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products. | ATO references ISSN: 2653-5424 NO: 1-TCSKJYW | Updated to note that TR 97/7 was updated following this decision. | Implications for impacted advice and guidance | [6] At [32], [34], [37-38] and [86]. The Administrative Appeals Tribunal (AAT) found that was her primary purpose in acquiring the Dune Walk apartment. She was found to have acted in the same manner as a businessperson would have in relation to that transaction. | [9] At [56], [66-68] and [81-84]. | [13] At [85], citing Greig v Commissioner of Taxation [2020] FCAFC 25 at [235]. | [15] [2010] HCA 40 at [32-38]. | [19] See Greig v Commissioner of Taxation [2020] FCAFC 25 at [31], [141] and [225]. | [20] See Greig v Commissioner of Taxation [2020] FCAFC 25 at [186-253]. | [22] Being a precondition identified in Sole Luna Pty Ltd as trustee for the PA Wade No 2 Settlement Trust v Commissioner of Taxation [2019] FCA 1195 at [65]."}
{"Case_Name": "BPFN and Commissioner of Taxation", "Venue_Reference_No": "2021/8256, 2021/8257 and 2021/8258", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 July 2023", "Date_Published": "10 April 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns whether under subsection 295-550(5) of the Income Tax Assessment Act 1997 , the income derived by a self-managed superannuation fund was non-arm's length income (NALI). | All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1997 (ITAA 1997). | All judgment paragraph references in this Decision impact statement are to the judgment of BPFN and Commissioner of Taxation [2023] AATA 2330, unless otherwise indicated.", "Overview_of_Facts": "The applicant, BPFN, was the trustee of a self-managed superannuation fund. At all relevant times, BPFN was the sole unit holder of JJUT, a unit trust, having a fixed entitlement to distributions under the JJUT trust deed. | Through a series of loan agreements, JJUT lent funds to entity, ABC. ABC then lent funds to DEF and DEF then on lent to unrelated third parties. | BPFN, JJUT, ABC and DEF were related parties. The directing mind of each entity in relation to these dealings, was Mr J. [1] This structure was determined by Mr J on advice from Mr B's firm (advisor and accountant for Mr J and his associated entities since 2000), with documents drafted by Mr C's firm (solicitor for Mr J). | DEF entered into a number of loan agreements with unrelated third parties. It was not in contest in the proceedings that these loan agreements were on arm's length terms. | For each advance that DEF made to unrelated third parties, JJUT, ABC and DEF executed a funding resolution. The funding resolutions detailed: • the loan amount, which was initially drawn down by ABC from JJUT, and subsequently by DEF from ABC • the interest rate to be applied on the loan to the third party, and thereby the minimum interest payable under the loans between DEF and ABC, and ABC and JJUT • the term of the loan, and • the security provided by the third party. | The funding resolutions also set out the fees or other consideration payable to ABC and DEF. | The terms of the loan agreements, through the funding resolutions, required each of JJUT, ABC and DEF to agree to the terms of the third-party loan (including the sharing of risk, the interest rate and fees charged) before any funds were advanced to the third party under the on-lending arrangement. ABC only drew down on the loan from JJUT at the same time that DEF drew down on its loan from ABC.", "Issues_Decided": "The Tribunal considered whether income derived by BPFN during the 2015, 2016 and 2017 income years was NALI pursuant to subsection 295-550(5). [2] Income derived by BPFN as a beneficiary of JJUT, through holding a fixed entitlement in the income of the trust, is NALI if it is shown that: (a) BPFN acquired the fixed entitlement under a scheme, or the income was derived under a scheme, the parties to which were not dealing with each other at arm's length, and (b) the amount of the income is more than the amount that the entity might have been expected to derive if those parties had been dealing with each other at arm's length. In determining whether subsection 295-550(5) applied, the Tribunal considered 3 issues: 1. What was the scheme? 2. Were the parties dealing with each other on an arm's-length basis? 3. Did BPFN derive more income under the scheme than if the parties were dealing with each other on an arm's-length basis? | What was the scheme?: BPFN contended that, in determining whether the income derived under the scheme was more than might have been expected, a comparison to the hypothetical position where the scheme had not been entered into, was required. Under that hypothetical situation, BPFN asserted that JJUT would have dealt directly with the third-party borrowers on the same terms as DEF ultimately lent to those borrowers. Accordingly, BPFN contended that ABC and DEF did not need to feature at all in considering that hypothetical comparison. BPFN, relying on the observations of Allsop J in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62 at [90] advanced an argument that 'The form of that transaction may, to a degree, be altered if it is necessary to do so to permit the transaction to be analysed through the lens of mutually independent parties'. In rejecting BPFN's argument, the Tribunal decided that: • The hypothetical position proposed by BPFN was a substantial restructure of the scheme which was not necessary to permit the transactions to be analysed. • To accept BPFN's hypothetical position would fail to give effect to the wording and intent of paragraph 295-550(5)(b), which requires consideration as to the amount of income that might have been expected to be derived if all the parties, including ABC and DEF, had been dealing with each other on arm's-length terms. [3] The Tribunal confirmed that the scheme was the totality of the arrangement between JJUT, ABC, DEF and the third-party borrowers. [4] | Were the parties dealing at arm's length?: The Tribunal determined that JJUT, ABC and DEF were not dealing with each other at arm's length. [5] As Mr J controlled all the parties and was involved in all decision-making, it could not be said that the dealings between the related parties were as a result of real bargaining between them. [6] | Was the income derived under the scheme more than if the parties were dealing with each other on an arm's-length basis in relation to the scheme?: While deciding that there was no real bargaining, the Tribunal concluded that BPFN had derived no more income than it would have derived had the parties been dealing with each other at arm's length. The Tribunal determined that the evidence established that: (a) The fees ABC charged were consistent with market rate fees charged by parties dealing at arm's length. [7] (b) The scheme established under the private lending facility did not differ from what might be expected between independent parties dealing independently with one another in the private lending market at the time of the transactions. [8] , (c) The income derived was not 'more than the amount that the entity might have been expected to derive ... when dealing at arm's length' and, accordingly, that the interest income received by BPFN in the income years ended 30 June 2015, 2016 and 2017 was not NALI. [9]", "ATO_View_of_Decision": "The Tribunal's conclusion regarding the identification of the 'scheme' for the purposes of subsection 295-550(5) is consistent with the ATO's view of the meaning of the term. [10] When considering whether the income derived under this scheme was more than if the parties were dealing with each other at arm's length in relation to the scheme, the same steps and parties, without the exclusion of ABC or DEF from that scheme, is required. [11] As the Commissioner outlines in paragraph 2 of Taxation Determination TD 2016/16 Income tax: will the ordinary or statutory income of a self-managed superannuation fund be non-arm's length income under subsection 295-550(1) of the Income Tax Assessment Act 1997 (ITAA 1997) when the parties to a scheme have entered into a limited recourse borrowing arrangement on terms which are not at arm's length?: ...it is necessary to identify both the steps of the relevant scheme and the parties that deal with each other under those steps of the scheme. Having identified the steps and parties to the scheme, ... the ITAA 1997 requires a determination of the amount of ordinary or statutory income that the SMSF might have been expected to derive if the same parties to the scheme had been dealing with each other on an arm's length basis under each identified step of the scheme. | Similarly, the Tribunal's conclusion that the parties to the scheme in question were not dealing at arm's length is also consistent with the ATO's view of the scheme. | While noting the Tribunal's conclusion at [95], that JJUT (and presumably BPFN as sole unit holder) did not derive more income under this particular scheme based on the evidential findings made by the Tribunal, we would question whether this decision can be extrapolated to arrangements involving private lending arrangements more broadly. | When considering the application of subsections 295-550(1) or (5) to a scheme involving private lending arrangements, it is necessary in each case to consider whether the terms, rates of return and other remuneration of the parties dealing with each other in relation to each step of the scheme are consistent with that which arm's length parties bargaining in their own self-interest would expect.", "Administrative_Treatment": "None.", "Related_Documents": "n/a | 2023 ATC 10-679 | ITAA 1997 295-550(1) | ITAA 1997 295-550(5) | ITAA 1997 295-550(5)(b) | 2017 ATC 20-615 | LCR 2021/2 | TD 2023/D1", "Legislative_References": "ITAA 1997 295-550(1) ITAA 1997 295-550(5) ITAA 1997 295-550(5)(b)", "Case_References": "BPFN and Commissioner of Taxation [2023] AATA 2330 2023 ATC 10-679 Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62 (2017) 251 FCR 40 105 ATR 599 2017 ATC 20-615", "Subject_References": "", "Other_References": "LCR 2021/2 TD 2023/D1", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2021/8256-8258/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | ATO references ISSN: 2653-5424 NO: 1-ZFJR9M0 | [2] This matter concerned subsection 295-550(5) in the form it was before the amendments made to the legislation for non-arm's length expenditure. | [10] See also Law Companion Ruling LCR 2021/2 Non-arm's length income – expenditure incurred under a non-arm's length arrangement and Draft Taxation Determination TD 2023/D1 Income tax: how the non-arm's length income and capital gains tax provisions interact to determine the amount of statutory income that is non-arm's length income ."}
{"Case_Name": "Came and Commissioner of Taxation [2023] AATA 3951", "Venue_Reference_No": "2022/7426", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 November 2023", "Date_Published": "13 March 2025", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case, which concerns when a taxpayer is able to make a choice to have applicable fund earnings (AFE) with respect to a payment from a foreign superannuation fund assessed to an Australian complying superannuation fund rather than themselves. | 2. All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1997 . | 3. All decision references in this Decision impact statement are to the decision in the Administrative Appeals Tribunal (Tribunal) for Came and Commissioner of Taxation [2023] AATA 3951.", "Overview_of_Facts": "4. The Applicant lived and worked in South Africa, accumulating amounts in South African retirement funds. | 5. The Applicant became a resident of Australia on 7 July 2004. | 6. The Applicant transferred amounts in their South African retirement funds to Australia in the 2019–20 income year. | 7. Due to the application of certain foreign currency exchange regulation restrictions in South African law, such amounts were required to be firstly paid into an Emigrant Capital Account (ECA). | 8. The Applicant instructed their South African retirement funds to make lump sum payments to the ECA. The amounts remained in the ECA for a brief period before they were paid to the Applicant's complying superannuation fund in Australia. | 9. The Applicant prepared a choice under subsection 305-80(2) to have an amount of AFE in relation to the lump sum amounts included in the assessable income of their complying superannuation fund in Australia. Consistent with that choice, the Applicant did not include such AFE as assessable income in their lodged 2019–20 income year individual tax return. | 10. We undertook an audit of the Applicant and issued an Amended Notice of Assessment for the 2019–20 income year, increasing the Applicant's assessable income in relation to AFE. We decided that the Applicant was not entitled to make the choice under subsection 305-80(2). We also disagreed with the approach to foreign currency translation used by the Applicant to calculate the amount of AFE. | 11. The Applicant objected to their Amended Notice of Assessment. Their objection was disallowed. | 12. The Applicant filed an application for review with the Tribunal.", "Issues_Decided": "13. The issues before the Tribunal were the: • Applicant's eligibility to make a choice under subsection 305-80(2), and • proper foreign currency translation to be used to calculate the AFE reflected in the Applicant's Amended Notice of Assessment. • Applicant's eligibility to make a choice under subsection 305-80(2), and • proper foreign currency translation to be used to calculate the AFE reflected in the Applicant's Amended Notice of Assessment. | Choice requirements under section 305-80: 14. The Tribunal decided that the Applicant was eligible to make a choice under subsection 305-80(2) to have an amount of AFE included in the assessable income of their complying superannuation fund in Australia in relation to the lump sum amounts that it received. 15. The Tribunal considered that the payment of the superannuation lump sums into the ECA satisfied the requirement in paragraph 305-80(1)(b) that the Applicant must be taken to have received the lump sum under section 307-15. [1] That is, this requirement was satisfied in the particular factual circumstances under consideration where the Applicant received the lump sums into the ECA in a personal capacity. 16. The Tribunal was satisfied that all of the lump sum was paid into a complying superannuation fund, as required by paragraph 305-80(1)(c). In doing so, the Tribunal factually resolved that these lump sum amounts were kept intact and whole, with no interim use of the funds; before the transferring of the entirety of each lump sum promptly to the Applicant's complying superannuation fund in Australia. [2] 17. The Tribunal decided that the Applicant ceased to have an interest in the foreign superannuation fund immediately after the lump sum was paid into a complying superannuation fund in Australia, as required by paragraph 305-80(1)(d). [3] 18. Accordingly, the Tribunal decided the first issue in favour of the Applicant [4] , and they were eligible to make a choice under subsection 305-80(2). | Calculating applicable fund earnings and translating foreign currency amounts: 19. As the Tribunal decided the first issue in favour of the Applicant, the Tribunal decided that it did not need to consider the foreign currency translation issue. This was because no amount of AFE in respect of the lump sum amounts should be included in the Applicant's assessable income for the 2019–20 income year. [5]", "ATO_View_of_Decision": "20. We consider that, based on the Tribunal's factual findings, the conclusions drawn were reasonably available. | 21. We accept that the requirement in paragraph 305-80(1)(b) for the Applicant to be taken to have received a lump sum was satisfied in the particular factual circumstances found by the Tribunal. | 22. Having found that the lump sum remained whole and intact, with no interim use of the funds, from the time of its payment from the foreign superannuation fund, to the ECA, and then to the complying superannuation fund, it was reasonably open for the Tribunal to conclude that the requirement in paragraph 305-80(1)(c) that all of the lump sum is paid into a complying superannuation fund was satisfied. Whether that can be demonstrated is a question of fact, to be determined on a case-by-case basis. | 23. While contrary to the position advanced by us at hearing, we accept that the requirement in paragraph 305-80(1)(d), that 'immediately after the payment into the complying superannuation fund, you [the taxpayer] no longer have a superannuation interest in the foreign superannuation fund', was satisfied on the facts of this case. As noted by the Tribunal [6] : ... paragraph (d) does not impose a positive requirement that the taxpayer still have an interest in the foreign superannuation fund until the lump sum is paid into the complying superannuation fund. | 24. However, further considerations arise where the requirements in subsection 305-80(1) are satisfied but there has been a time delay between when an individual received the superannuation lump sum from their foreign superannuation fund and its subsequent payment into the complying superannuation fund in Australia. We consider that the choice under subsection 305-80(2) is only available in these circumstances if the payment of the superannuation lump sum from the foreign fund is received by the taxpayer and paid into their complying superannuation fund in Australia in the same income year. This is because: • A choice under subsection 305-80(2) can only be made if all the requirements in subsection 305-80(1) are met. Accordingly, a choice cannot occur before the lump sum is paid to the complying superannuation fund as required by paragraph 305-80(1)(c). • Subsection 305-70(2) requires a taxpayer to include in their assessable income for a year so much of the lump sum they receive as equals their AFE less any amount covered by the choice under section 305-80. Where the choice cannot be made for a particular income year because all of the requirements of subsection 305-80(1) have not been met in that income year, the taxpayer must include the AFE relating to the lump sum in their own assessable income. | • A choice under subsection 305-80(2) can only be made if all the requirements in subsection 305-80(1) are met. Accordingly, a choice cannot occur before the lump sum is paid to the complying superannuation fund as required by paragraph 305-80(1)(c). • Subsection 305-70(2) requires a taxpayer to include in their assessable income for a year so much of the lump sum they receive as equals their AFE less any amount covered by the choice under section 305-80. Where the choice cannot be made for a particular income year because all of the requirements of subsection 305-80(1) have not been met in that income year, the taxpayer must include the AFE relating to the lump sum in their own assessable income. | 25. As the Tribunal did not determine the second issue, we consider that when calculating AFE, all amounts denoted in foreign currency are translated at the exchange rate applicable at the time of receipt of the relevant superannuation lump sum. That approach is broadly outlined in ATO Interpretative Decision ATO ID 2015/7 Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997 .", "Administrative_Treatment": "", "Related_Documents": "2023 ATC 10-699 | ITAA 1997 305-70(2) | ITAA 1997 305-75 | ITAA 1997 305-80 | ITAA 1997 305-80(1) | ITAA 1997 305-80(1)(b) | ITAA 1997 305-80(1)(c) | ITAA 1997 305-80(1)(d) | ITAA 1997 305-80(2) | ITAA 1997 307-15 | ATO ID 2015/7", "Legislative_References": "ITAA 1997 305-70(2) ITAA 1997 305-75 ITAA 1997 305-80 ITAA 1997 305-80(1) ITAA 1997 305-80(1)(b) ITAA 1997 305-80(1)(c) ITAA 1997 305-80(1)(d) ITAA 1997 305-80(2) ITAA 1997 307-15", "Case_References": "", "Subject_References": "", "Other_References": "ATO ID 2015/7", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2022-7426/00001", "Unmatched_Content": "ATO view of this decision | Commissioner of Taxation 4 December 2024"}
{"Case_Name": "Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust", "Venue_Reference_No": "NSD 1089 of 2021 (Full Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "23 February 2023", "Date_Published": "20 July 2023", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case. The substantive issue clarified in the Full Federal Court's decision concerns the application of the dominant purpose test and the principal effect test under the general anti-avoidance provisions in Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | All legislative references in this Decision impact statement are to the GST Act.", "Overview_of_Facts": "At issue was the entitlement of Complete Success Solutions Pty Ltd as trustee for Complete Success Solutions Trust (CSS) to input tax credits (ITCs) under the GST Act in 2 periods: 1. From 1 August 2016 to 30 November 2016 (First Period), CSS claimed to have made GST-free supplies of precious metal (gold bullion) and to be entitled to ITCs in respect of the scrap gold (gold that was not in investment form) which it had acquired and caused to be refined into gold bullion. 2. From 1 December 2016 to 31 January 2017 (Second Period), CSS claimed to have made GST-free export sales of scrap gold and to be entitled to ITCs in respect of its acquisition of that scrap gold. | In the First Period, CSS was a party to a series of back-to-back transactions, a representative of which can be summarised as follows. [1] An entity known as Manila Exchange acquired gold bullion under a GST-free supply. It purportedly defaced or adulterated the gold bullion such that it became scrap gold. It then sold the scrap gold to an entity known as GB Refiners as a taxable supply. Although the scrap gold had a lower value than the gold bullion, the supply of scrap gold attracted GST. Manila Exchange was able to profit from its value-lowering operations only because of its fraud, constituted by charging and not remitting GST. GB Refiners then on-sold the scrap gold as a taxable supply to PM Melt Service Pty Ltd (PMMS). The scrap gold was then sold by PMMS to CSS as a taxable supply. At the end of the transactions, CSS caused the gold to be delivered to and refined by either ABC Refinery (Australia) Pty Ltd (ABCRA) or La Gajjar Pty Ltd (La Gajjar) and claimed that GST-free supplies of gold bullion were made to these entities. La Gajjar conducted CSS's transactions on behalf of CSS. [2] | In the Second Period, CSS was a party to a series of back-to-back transactions, a representative of which can be summarised as follows. [3] Manila Exchange acquired gold bullion under a GST-free supply and purportedly adulterated the gold bullion thereby producing scrap gold. Manila Exchange sold the scrap gold to GB Traders Pty Ltd (GB Traders) as a taxable supply in respect of which GST was payable. The price charged to GB Traders was a GST-inclusive price. GB Traders claimed an ITC for the GST it paid. Manila Exchange did not remit the GST it collected on these taxable supplies. GB Traders sold the scrap gold to PMMS as a taxable supply. PMMS sold the scrap gold to CSS as a taxable supply. The series of transactions ended with CSS causing the export of the scrap gold to Emirates Gold in Dubai, claiming that GST-free export supplies of scrap gold were made. PMMS negotiated and arranged the export sales of scrap gold on behalf of and in the name of CSS. [4] | In respect of the First Period: 1. The Commissioner issued notices of assessment of net amounts to CSS on the basis that [5] : (i) CSS made taxable supplies to La Gajjar on which CSS understated the GST payable on its supplies and was entitled to ITCs on its acquisitions, and (ii) CSS was not entitled to ITCs on its acquisitions used to make its supplies to ABCRA on the basis that those supplies were input taxed supplies, or alternatively, CSS was not carrying on an enterprise, or in the further alternative, Division 165 applied to negate the benefit of the ITCs. 2. The Commissioner assessed CSS to an administrative penalty of 75%. [6] | In respect of the Second Period [7] : 1. The Commissioner issued notices of assessment of net amounts to CSS on the basis that CSS was not entitled to ITCs in respect of its acquisition of scrap gold for 2 alternative reasons (i) CSS was not carrying on an enterprise (ii) Division 165 applied to negate the benefit of the ITCs. 2. The Commissioner assessed CSS to an administrative penalty of 50%. [8] 3. CSS objected to the assessments of net amounts and administrative penalties. The Commissioner disallowed the objections. CSS applied to the Administrative Appeals Tribunal (AAT) for review of the objection decisions. | The AAT decided the issues before it as follows: 1. In relation to the issues [9] concerning the First Period [10] , the supplies made by CSS were taxable supplies and not GST-free supplies because the requirements of section 38-385 were not satisfied. CSS was entitled to ITCs on its acquisitions of scrap gold. Division 165 was not applicable as CSS did not obtain a GST benefit. The penalty was reduced from 75% to 50% based on recklessness. 2. In relation to the issues concerning the Second Period [11] , the supplies made by CSS were GST-free supplies under subsection 35-185(1). Division 165 did not apply as it could not be concluded that any entity had a dominant purpose of securing CSS's entitlement to ITCs. Further, the principal effect of the scheme was the non-payment of GST by Manila Exchange and not CSS obtaining ITCs. No penalty arose as there was no shortfall. | The Commissioner appealed the AAT's decision in respect of the Second Period in relation to the findings on the dominant purpose test and the principal effect test under subsection 165-5(1). | CSS cross-appealed the AAT's decision in respect of the First Period.", "Issues_Decided": "The Full Federal Court considered the following issues: 1. Whether Division 165 applies with respect to the supplies made in the Second Period (Second Period Division 165 issues), and 2. In respect of CSS's cross-appeal, whether CSS made GST-free supplies in the First Period and accordingly whether any penalty should have been imposed (First Period issues). | Second Period Division 165 issues: The Full Federal Court made the following observations about the Second Period Division 165 issues: 1. The task required by paragraph 165-5(1)(c) requires the drawing of conclusions of fact by reference to each of the matters set out in section 165-15 and an ultimate conclusion about dominant purpose and principal effect, also being a conclusion of fact. [12] 2. Where CSS got a GST benefit from a scheme, Division 165 applies if, taking account of the matters described in section 165-15, it is reasonable to conclude that either [13] (i) an entity that (whether alone or with others) entered into or carried out the scheme, or part of the scheme, did so with the sole or dominant purpose of that entity or another entity getting a GST benefit from the scheme (subparagraph 165-5(1)(c)(i)), or (ii) the principal effect of the scheme, or part of the scheme, is that the avoider gets the GST benefit from the scheme directly or indirectly (subparagraph 165-5(1)(c)(ii)). 3. In determining the dominant purpose test under subparagraph 165-5(1)(c)(i) [14] (i) it is the purpose of each entity identified under the scheme that must be analysed. Different entities may, and often will, have different dominant purposes (ii) further, subsection 165-15(1) applies in relation to the consideration of each entity's purpose in entering into a part of the scheme as if that part were the scheme itself (subsection 165-15(2)). 4. In determining the principal effect test under subparagraph 165-5(1)(c)(ii) [15] (i) It is not only the principal effect of the scheme as a whole which will engage the operation of Division 165. If the principal effect of a part of the scheme is that the avoider gets the GST benefit from the scheme directly or indirectly, then Division 165 is engaged. Different parts of the scheme may, and often will, have different principal effects. (ii) Subsection 165-15(1) applies in relation to the consideration of the effect of a part of the scheme as if that part of the scheme were the scheme itself (subsection 165-15(2)). 5. There is no question that Manila Exchange's involvement in the scheme was an important aspect of the scheme as a whole. It participated in the scheme to benefit from receiving and not remitting GST. There is little doubt, therefore, that it was a central purpose of Manila Exchange to create a taxable supply by adulterating the bullion that it had purchased. That does not mean that other parties had that purpose or that the principal effect of various parts of the scheme could be put to one side. [16] 6. It would be an error to assume that, because Manila Exchange wanted to obtain (and not remit) the GST embedded in its supplies of scrap gold, it was not possible that its purpose, ascertained in accordance with Division 165, was to ensure that CSS could obtain ITCs on a GST-free sale. Indeed, it would be open to conclude that the purpose of obtaining (and not remitting) GST and the purpose of obtaining ITCs for CSS were one purpose if the facts showed them to be inextricably linked. Such a conclusion might be open, for example, if it were concluded that it was important to Manila Exchange that the scheme end with a GST-free supply by an entity which would be refunded ITCs, so that the scheme as a whole would work by being sufficiently funded. [17] 7. In a case where there is no express or clear finding that each of the participants in the scheme acted in concert or were commonly controlled, it cannot be assumed that every participant had the same dominant purpose. [18] 8. Division 165 requires the analysis of the purposes of each participant in the scheme and does not require the identification of which of the several different purposes of several different participants is the more significant. [19] 9. The mere fact that CSS is entitled to obtain an ITC on its acquisition of adulterated gold is not necessarily inconsistent with the object or purpose of the GST Act in circumstances where CSS was not a party to, and had no involvement with or knowledge of, the deliberate adulteration of the gold and the fraud perpetuated by Manila Exchange. However, CSS's entitlement to ITCs may not be consistent with the object and purpose of the GST Act if its supplier and the arranger of CSS's export sales - namely, PMMS - was a party to, had knowledge of, or was wilfully blind to that deliberate adulteration and fraud. [20] 10. The AAT's reasoning that GB Traders and PMMS could have made the same profit or obtained the same benefit by selling to a refiner or export customer rather than CSS was not sound. Division 165 does not cease to apply because the same scheme might have been entered into with another entity. Section 165-5 requires a conclusion to be drawn in respect of the actual participants in the scheme and section 165-15 requires an examination of factors that relate to the scheme that was in fact entered into or carried out. Whether the same benefit might have been obtained by entering into a different scheme is not a matter to be considered under section 165-15. [21] The Full Federal Court held that the AAT made 2 errors in respect of its decision on the Second Period Division 165 issues concerning the application of paragraph 165-5(1)(c) in not: 1. separately examining and reaching a conclusion about each entity's purpose, whether by focusing on each entity's participation in the scheme as a whole or in relation to particular parts of the scheme [22] , or 2. examining and reaching a conclusion about the principal effect of the various parts of the scheme. [23] The Full Federal Court observed that, on the evidence before the AAT and if the AAT had considered the purpose and involvement of PMMS in entering into the scheme or parts of it in the manner contemplated by Division 165, the AAT may have concluded that PMMS had the requisite dominant purpose of enabling CSS to obtain a GST benefit [24] , and that the principal effect of the part of the scheme in which PMMS was involved was to secure ITCs for CSS. [25] The Full Federal Court held that the Commissioner's appeal be allowed and the Second Period Division 165 issues be remitted to the AAT for reconsideration. [26] | First Period issues: CSS cross-appealed the AAT's decision in respect of the First Period on the contention that it was denied procedural fairness in respect of the AAT's finding that it had not discharged its burden of proving that each of ABCRA and La Gajjar was a dealer in precious metal in circumstances where certain documents were not produced. [27] CSS also contended that the AAT made an error of law in its conclusion concerning penalties. [28] The Commissioner did not accept that there was a denial of procedural fairness in relation to the AAT's finding, but having reviewed the material before him on appeal, the Commissioner accepted that ABCRA was a dealer in precious metal, that the supplies by CSS to ABCRA were of precious metals, and therefore that the issues concerning the First Period had to be remitted to the AAT for reconsideration. [29] The Commissioner denied that the AAT had made any errors in addressing the issue of penalties but accepted that because the matter had to be remitted to the AAT for reconsideration of the assessments of net amount, it was appropriate for the penalties also to be remitted for reconsideration. [30] The Full Federal Court held that the issues concerning the First Period be remitted to the AAT for reconsideration. [31]", "ATO_View_of_Decision": "Second Period Division 165 issues | The Commissioner considers that the Full Federal Court's decision supports the proposition that the cancellation of the avoider's GST benefit under Division 165 is not foreclosed by the absence of the avoider's knowledge about or wilful blindness to the actions of parties involved in entering into or carrying out the scheme as a whole, or various parts of it. Further, Division 165 will operate to cancel the avoider's GST benefit where the relevant matters in section 165-15 demonstrate that any one or more of the scheme participants, or a part of the scheme, had the dominant purpose or the principal effect of the avoider obtaining that GST benefit. | First Period issues | The Commissioner observes that the Full Federal Court's decision to remit the matter back to the AAT was consistent with the Commissioner's submissions.", "Administrative_Treatment": "The ATO is reviewing the impact of this decision on related advice and guidance products, including PS LA 2005/24.", "Related_Documents": "Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules | Full Federal Court | 2023 ATC 20-852 | Administrative Appeals Tribunal | 2021 ATC 10-591 | Div 165 | 165-5(1)(c) | 165-5(1)(c)(i) | 165-5(1)(c)(ii) | 165-15", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 Div 165 165-5(1)(c) 165-5(1)(c)(i) 165-5(1)(c)(ii) 165-15", "Case_References": "STNK and Commissioner of Taxation [2021] AATA 3399 2021 ATC 10-591 113 ATR 966", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1089of2021/00001", "Unmatched_Content": "Footnotes: [1] Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust [2023] FCAFC 19 (Full Federal Court decision) at [7]. | [2] Full Federal Court decision at [5]. | [3] Full Federal Court decision at [13]. | [4] Full Federal Court decision at [14]. | [5] Full Federal Court decision at [20]. | [6] Full Federal Court decision at [21]. | [7] Full Federal Court decision at [22]. | [8] Full Federal Court decision at [23]. | [9] Before the AAT, the Commissioner abandoned the contention that CSS was not carrying on an enterprise: Full Federal Court decision at [42]. | [10] Full Federal Court decision at [43]. | [11] Full Federal Court decision at [56]. | [12] Full Federal Court decision at [67] and [96]. | [13] Full Federal Court decision at [75]. | [14] Full Federal Court decision at [78(1)]. | [15] Full Federal Court decision at [78(2)]. | [16] Full Federal Court decision at [82]. | [17] Full Federal Court decision at [85]. | [18] Full Federal Court decision at [96]. | [19] Full Federal Court decision at [102]. | [20] Full Federal Court decision at [104]. | [21] Full Federal Court decision at [108-109]. | [22] Full Federal Court decision at [80] and [96]. | [23] Full Federal Court decision at [124]. | [24] Full Federal Court decision at [99], [115] and [122]. | [25] Full Federal Court decision at [125]. | [26] Full Federal Court decision at [126]. | [27] Full Federal Court decision at [44-45]. | [28] Full Federal Court decision at [51]. | [29] Full Federal Court decision at [46]. | [30] Full Federal Court decision at [52]. | [31] Full Federal Court decision at [47] and [126]."}
{"Case_Name": "Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust", "Venue_Reference_No": "QUD 36 of 2022", "Venue": "Federal Court of Australia", "Judgment_Date": "24 January 2023", "Date_Published": "24 April 2023", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns the application of the anti-avoidance provisions in section 100A and Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936). | All legislative references in this Decision impact statement are to the ITAA 1936.", "Overview_of_Facts": "Mr Springer had conducted several business ventures in Australia through various entities, collectively known as the Springer Group. The Springer Group included the Australian Investment Trust (AIT), the trustee of which in relevant years was Guardian AIT Pty Ltd (Guardian). [1] | Mr Springer was a member of the eligible class of beneficiaries of the AIT and a non-resident for tax purposes during the 2012, 2013 and 2014 income years. In June 2012, AIT Corporate Services Pty Ltd (AITCS) was incorporated (with Guardian holding 100% of the issued shares) and became a member of the eligible class of beneficiaries of the AIT. During the relevant income years, Mr Springer exercised control over the AIT, Guardian and AITCS, and received professional advice from an accounting firm. | Following the incorporation of AITCS, the following series of steps occurred, starting in the 2012 income year: 1. Guardian appointed income that was not in the form of franked dividends to AITCS. The distribution was not paid to AITCS, creating an unpaid present entitlement (2012 UPE). 2. In the 2013 income year (i) AITCS drew on the 2012 UPE (which represented its only retained earnings) to discharge its liability to tax for the 2012 income year (ii) AITCS declared a fully franked dividend to the AIT which was an amount equal to the remaining 2012 UPE. The dividend was paid by way of set-off, reducing the balance of the 2012 UPE to nil (iii) Guardian appointed so much of the income of the AIT in the 2013 income year as was attributable to franked dividends (including the fully franked dividend paid by AITCS) to Mr Springer. No additional Australian tax was payable on this amount. (Collectively the 2012 scheme). | 1. Guardian appointed income that was not in the form of franked dividends to AITCS. The distribution was not paid to AITCS, creating an unpaid present entitlement (2012 UPE). 2. In the 2013 income year (i) AITCS drew on the 2012 UPE (which represented its only retained earnings) to discharge its liability to tax for the 2012 income year (ii) AITCS declared a fully franked dividend to the AIT which was an amount equal to the remaining 2012 UPE. The dividend was paid by way of set-off, reducing the balance of the 2012 UPE to nil (iii) Guardian appointed so much of the income of the AIT in the 2013 income year as was attributable to franked dividends (including the fully franked dividend paid by AITCS) to Mr Springer. No additional Australian tax was payable on this amount. (Collectively the 2012 scheme). | (i) AITCS drew on the 2012 UPE (which represented its only retained earnings) to discharge its liability to tax for the 2012 income year (ii) AITCS declared a fully franked dividend to the AIT which was an amount equal to the remaining 2012 UPE. The dividend was paid by way of set-off, reducing the balance of the 2012 UPE to nil (iii) Guardian appointed so much of the income of the AIT in the 2013 income year as was attributable to franked dividends (including the fully franked dividend paid by AITCS) to Mr Springer. No additional Australian tax was payable on this amount. | Steps 1 and 2 were repeated in relation to the 2013 distribution from Guardian (the 2013 scheme). | A series of steps starting in the 2014 income year also had some similarities to Steps 1 to 2(ii) but instead of declaring a fully franked dividend at Step 2(ii), AITCS lent the funds representing the remaining UPE back to Guardian on loan terms complying with section 109N (a 'Division 7A loan'). | Federal Court proceedings | On 21 December 2021 [2] , Logan J allowed the taxpayer's appeals against assessments made by the Commissioner based on section 100A and Part IVA (in the alternative) in each of the 2012 to 2014 income years. | Section 100A | His Honour concluded that based on the contemporaneous evidence, including the testimony of witnesses, section 100A did not apply, as the agreements contended for by the Commissioner did not exist (including for the reason that on that evidence, his Honour took the view that the 'requisite temporal sequence' between the steps was lacking, such that there was no 'relevant connection'). [3] | Part IVA | His Honour further held that Part IVA did not apply, as neither Mr Springer nor anyone else had obtained a 'tax benefit' from the arrangements [4] and the arrangements were not entered into for the dominant purpose of obtaining a tax benefit. [5] | His Honour did not expressly consider whether the amendments to Part IVA (principally concerning the insertion of section 177CB), required any different application of Part IVA to the schemes argued by the Commissioner. [6] | Issues decided by the Full Federal Court | The decision of Logan J was appealed to the Full Federal Court (the Court). [7] | The case on appeal considered: 1. whether section 100A applied in the 2013 income year 2. whether Part IVA applied to enable the Commissioner to make a determination in either the 2012 income year or the 2013 income year. | 1. whether section 100A applied in the 2013 income year 2. whether Part IVA applied to enable the Commissioner to make a determination in either the 2012 income year or the 2013 income year. | Section 100A | In determining whether section 100A applied to the 2013 income year [8] , the Court found, based on the factual findings by Logan J, that there was no reimbursement agreement within the meaning of section 100A at the time the present entitlement arose. [9] | The Court observed that, in order for a relevant arrangement or understanding to exist, it must be adopted in the sense that it must be assented to, whether expressly or impliedly. [10] This could not be established on the evidence (which included the testimony of witnesses), given the absence of a finding that Mr Springer's advisers had communicated a plan or recommendation to him for the payment of a dividend or that they were otherwise acting on his behalf at the relevant time. [11] | Having decided on the facts that there was no reimbursement agreement, the Court found it unnecessary to consider the issues of purpose and the scope of the phrase 'ordinary commercial or family dealing'. [12] | Part IVA | The Commissioner argued that if the 2012 and 2013 schemes had not been entered into, Mr Springer would, or might reasonably be expected to have had included in his assessable income, the amounts of AIT income appointed to AITCS in each of those years. | The Court held that Part IVA applied to Mr Springer in the 2013 income year. The Court found that a party entering into or carrying out the 2013 scheme did so for the dominant purpose of enabling Mr Springer to obtain a tax benefit in the year ended 30 June 2013. | Tax benefit | The Court found that Mr Springer received a tax benefit in each of the 2012 and 2013 income years. [13] Mr Springer had not discharged his onus on appeal of showing that, absent the scheme, the income would have been received and retained by AITCS, or alternatively loaned to Guardian on Division 7A terms. [14] | In respect of the 2013 income year, this conclusion was strengthened by the application of subsection 177CB(4), which the Court observed prevented the Court having regard to [15] : ...the higher Australian income tax cost that would have applied had the income been distributed directly to Mr Springer in determining what might reasonably be expected to have happened had the 2013 ... scheme not been entered into or carried out. | Dominant purpose | The Court concluded that a party entered into or carried out the 2013 scheme for the dominant purpose of enabling Mr Springer to obtain a tax benefit. [16] In contrast to its finding that there was no such purpose in respect of the 2012 scheme, the Court considered that 'the form of the 2013 ... scheme was not the product of an evolving set of circumstances'; rather, it was a further implementation of a strategy that had already been developed. [17]", "Issues_Decided": "The decision of Logan J was appealed to the Full Federal Court (the Court). [7] The case on appeal considered: 1. whether section 100A applied in the 2013 income year 2. whether Part IVA applied to enable the Commissioner to make a determination in either the 2012 income year or the 2013 income year. 1. whether section 100A applied in the 2013 income year 2. whether Part IVA applied to enable the Commissioner to make a determination in either the 2012 income year or the 2013 income year. | Section 100A: In determining whether section 100A applied to the 2013 income year [8] , the Court found, based on the factual findings by Logan J, that there was no reimbursement agreement within the meaning of section 100A at the time the present entitlement arose. [9] The Court observed that, in order for a relevant arrangement or understanding to exist, it must be adopted in the sense that it must be assented to, whether expressly or impliedly. [10] This could not be established on the evidence (which included the testimony of witnesses), given the absence of a finding that Mr Springer's advisers had communicated a plan or recommendation to him for the payment of a dividend or that they were otherwise acting on his behalf at the relevant time. [11] Having decided on the facts that there was no reimbursement agreement, the Court found it unnecessary to consider the issues of purpose and the scope of the phrase 'ordinary commercial or family dealing'. [12] | Part IVA: The Commissioner argued that if the 2012 and 2013 schemes had not been entered into, Mr Springer would, or might reasonably be expected to have had included in his assessable income, the amounts of AIT income appointed to AITCS in each of those years. The Court held that Part IVA applied to Mr Springer in the 2013 income year. The Court found that a party entering into or carrying out the 2013 scheme did so for the dominant purpose of enabling Mr Springer to obtain a tax benefit in the year ended 30 June 2013. | Tax benefit: The Court found that Mr Springer received a tax benefit in each of the 2012 and 2013 income years. [13] Mr Springer had not discharged his onus on appeal of showing that, absent the scheme, the income would have been received and retained by AITCS, or alternatively loaned to Guardian on Division 7A terms. [14] In respect of the 2013 income year, this conclusion was strengthened by the application of subsection 177CB(4), which the Court observed prevented the Court having regard to [15] : ...the higher Australian income tax cost that would have applied had the income been distributed directly to Mr Springer in determining what might reasonably be expected to have happened had the 2013 ... scheme not been entered into or carried out. | Dominant purpose: The Court concluded that a party entered into or carried out the 2013 scheme for the dominant purpose of enabling Mr Springer to obtain a tax benefit. [16] In contrast to its finding that there was no such purpose in respect of the 2012 scheme, the Court considered that 'the form of the 2013 ... scheme was not the product of an evolving set of circumstances'; rather, it was a further implementation of a strategy that had already been developed. [17]", "ATO_View_of_Decision": "Part IVA | The Court's decision illustrates that an arrangement which does not satisfy the requirements of section 100A may nonetheless be subject to Part IVA. | The Court's observations in relation to the 2013 income year confirm that, in identifying an alternative postulate for post-15 November 2012 schemes [18] : • particular regard must be had to the substance of the scheme and its result or consequence, and • the income tax result of the alternative postulate must be disregarded. | • particular regard must be had to the substance of the scheme and its result or consequence, and • the income tax result of the alternative postulate must be disregarded. | Section 100A | The Commissioner considers that a number of observations of the Court confirm the views in Taxation Ruling TR 2022/4 Income tax: section 100A reimbursement agreements (TR 2022/4), including that: • Section 100A requires a reimbursement agreement to exist at, or prior to, the time by which a beneficiary is made presently entitled to income of the trust. [19] • An arrangement that constitutes an agreement may be both informal and unenforceable, and the parties may be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it. [20] • There needs to be a common intention, or consensus existing between at least two parties. [21] | • Section 100A requires a reimbursement agreement to exist at, or prior to, the time by which a beneficiary is made presently entitled to income of the trust. [19] • An arrangement that constitutes an agreement may be both informal and unenforceable, and the parties may be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it. [20] • There needs to be a common intention, or consensus existing between at least two parties. [21] | Beyond this, the Court's decision on section 100A largely turned on the particular facts of this case (including no finding of a relevant 'agreement' at the time the present entitlement arose). | Existence of the reimbursement agreement at the relevant time | As illustrated by the decision at first instance and on appeal, the concept of 'agreement' is broadly defined in section 100A; and the question of whether an agreement exists at a particular time entails a fact-finding exercise which may require the examination of evidence from a range of sources. | In administering the law, the Commissioner will evaluate the reliability of particular assertions regarding the existence or otherwise of an agreement in light of all of the surrounding circumstances. This approach recognises that an agreement may comprise or include understandings which are informal or unwritten. In some cases, it will be necessary to interview participants in the transactions under consideration, or those with knowledge of those transactions. | Requirement of consensus or adoption where advisers involved | The Commissioner notes the Court's conclusion that, in circumstances where the advisers were not parties to the agreement, the advisers' plan or recommendation could not form part of a reimbursement agreement without a finding that they had communicated it to the participants or were otherwise authorised to act on their behalf. [22] | The Court did not elaborate on the nature of the authorisation required in this context. The Commissioner accepts that a mere 'general practice' of following advice will be insufficient. However, the Commissioner considers that the requisite authorisation may exist in other cases where the evidence establishes that the relevant parties have agreed in advance to follow an adviser's plans or recommendations. [23] | We will update TR 2022/4 to take into account the Court's observations on the adoption of plans or recommendations from advisers. | Necessary parties to the agreement | The Commissioner notes the Court's observation that, ordinarily, a beneficiary will need to be a party to the reimbursement agreement where the payment of moneys is proposed to be made to the trustee by a beneficiary. [24] | This is consistent with our understanding of the law [25] ; though we will make a minor update to TR 2022/4 to make this clear.", "Administrative_Treatment": "We will make minor updates to TR 2022/4 to reflect aspects of the Court's decision in accordance with the comments made in this Decision impact statement. | We will also update Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules to reflect the views expressed by the Court with respect to the application of the Part IVA provisions post-amendments in 2013.", "Related_Documents": "TR 2022/4 | PS LA 2005/24 | 2023 ATC 20-850 | Div 7A | 99A | 100A | 109N | 177CB | Part IVA | 2021 ATC 20-813 | [2017] HCA 2 | 340 ALR 368 | 91 ALJR 262", "Legislative_References": "Income Tax Assessment Act 1936 Div 7A 99A 100A 109N 177CB Part IVA", "Case_References": "Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619 2021 ATC 20-813 114 ATR 136 Re Day [2017] HCA 2 340 ALR 368 91 ALJR 262", "Subject_References": "", "Other_References": "TR 2022/4 PS LA 2005/24", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD36of2022/00001", "Unmatched_Content": "Footnotes: [1] In this Decision impact statement, all references to Guardian will be in its capacity as trustee for the AIT. | [2] Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619 ( Guardian FCA ). | [3] Guardian FCA at [132]. | [4] Guardian FCA at [190] and [198]. | [5] Guardian FCA at [191] and [198]. | [6] Guardian FCA at [177]. | [7] Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust [2023] FCAFC 3 ( Guardian FCAFC ). | [8] The 2012 and 2014 income years were not appealed for section 100A. | [9] Guardian FCAFC at [125]. | [10] Guardian FCAFC at [111(3)]. | [11] Guardian FCAFC at [124]. | [12] Guardian FCAFC at [126]. | [13] Guardian FCAFC at [171]. | [14] Guardian FCAFC at [160-164] and [170]. | [15] Guardian FCAFC at [174]. | [16] Guardian FCAFC at [223]. | [17] Guardian FCA at [222-223]. | [19] Guardian FCAFC at [108]; paragraph 16 of TR 2022/4. | [20] Guardian FCAFC at [110] citing Re Day [2017] HCA 2; paragraph 69 (second dot point) of TR 2022/4. | [21] Guardian FCAFC at [111(1)], paragraphs 68 and 69 (second dot point) of TR 2022/4. | [22] Guardian FCAFC at [124]. | [23] Guardian FCAFC at [111(4)]. | [24] Guardian FCAFC at [111(2)]. | [25] Paragraph 16 of TR 2022/4."}
{"Case_Name": "Commissioner of Taxation v Wood", "Venue_Reference_No": "NSD 1162 of 2022 (Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "2 June 2023", "Date_Published": "21 February 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns whether a payment made by the taxpayer to settle litigation after his relevant employment ended was deductible under section 8-1 of the Income Tax Assessment Act 1997 because it was incurred in gaining or producing assessable income and not capital or of a capital nature. | All judgment paragraph references in this Decision impact statement are to the judgment of Commissioner of Taxation v Wood [2023] FCA 574. | All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1997.", "Overview_of_Facts": "From 1998 to 2011, the taxpayer was employed by Carina Finance & Investments Pty Ltd (Carina). Carina was owned by the taxpayer and his wife. Carina provided consultancy services to Alleasing Pty Ltd (Alleasing) which paid fees to Carina which in turn paid a salary to the taxpayer. [1] | The consultancy arrangement between the taxpayer, Carina and Alleasing was governed by a consultancy agreement. The consultancy agreement provided that the consultancy services to be provided by Carina would be performed 'through' the taxpayer. [2] | When the consultancy arrangement came to an end, Carina, the taxpayer, Alleasing and Alleasing's holding company, Headleasing Holdco Pty Ltd (Headleasing), entered a Separation Deed. | The taxpayer then took up new employment with an unrelated company. [3] | After the separation, Alleasing and Headleasing alleged that the taxpayer had negotiated unauthorised transactions when performing consultancy services for Alleasing in 2006 or 2007. Alleasing and Headleasing commenced proceedings against the taxpayer and Carina, seeking damages of some $2.4 million (the Proceedings). The claims included that the taxpayer had engaged in misleading or deceptive conduct that breached the consultancy agreement. [4] The taxpayer and Carina defended the Proceedings and filed a cross claim against Alleasing and Headleasing for performance of the Separation Deed as well as a claim for statutory leave entitlements based on the contention that the taxpayer was Alleasing's employee. | Separately from the Proceedings, the taxpayer threatened a defamation claim against Alleasing on the basis that one of its officers had made defamatory statements about him to his new employer concerning the allegations about the unauthorised transactions. [5] | In April 2013, Carina went into liquidation and the Proceedings against it were stayed. [6] | On 6 December 2013, the remaining parties settled the Proceedings in a Settlement Deed on the basis that the taxpayer pay Alleasing $200,000 (Settlement Sum). The settlement was expressed to be 'without admission of liability'. [7] | On the same day, the taxpayer and Alleasing entered into a Deed of Release concerning the threatened defamation proceeding. The terms included that Alleasing not publish or republish allegations concerning the taxpayer's conduct and character, and that Alleasing pay the taxpayer $180,000 with mutual releases. [8] | On 29 January 2014, the taxpayer and Alleasing concluded an acknowledgment of settlement which provided for the set-off of the amounts payable under the Settlement Deed and the Deed of Release, resulting in an obligation on the taxpayer to pay Alleasing $20,000. [9] | The taxpayer claimed a deduction in the 2013–14 tax year for the Settlement Sum. The Commissioner disallowed the deduction and issued a notice of assessment. The taxpayer objected to the Commissioner's notice of assessment. The Commissioner disallowed the taxpayer's objection, as a consequence of which the taxpayer brought a review in the Administrative Appeals Tribunal (AAT).", "Issues_Decided": "Administrative Appeals Tribunal decision: The Federal Court referred to the decision of the AAT which held that section 8-1 operated to allow the taxpayer a deduction in respect of the Settlement Sum. The reasoning of the AAT as summarised by the Federal Court was along the following [10] : 18 ... (2) From a \"practical business point of view\" the Settlement Sum bore the essential character of a payment related directly to the activities that the [taxpayer] performed in the work that he did for Alleasing, which work produced assessable income for him by reason of his position with Carina. ... 21 The Tribunal nevertheless held ... that the Settlement Sum does not have the feature of a capital payment in the sense that it was not made from the standpoint of producing some longer-term benefit that might endure. ... | Appeal: The Federal Court's decision, following the Commissioner's appeal against the AAT's decision, involved 2 issues. | Issue 1 – whether the Settlement Sum is deductible under paragraph 8-1(1)(a) as being a loss or outgoing incurred in gaining or producing the taxpayer's assessable income: Justice Stewart found that the Settlement Sum was properly characterised as having been incurred in gaining or producing the taxpayer's assessable income under paragraph 8-1(1)(a). [11] His Honour observed that the Settlement Sum and releases under the Settlement Deed were to bring to an end the litigation in which some $2.4 million was claimed – avoiding the risk of a judgment, which would have amounted to a very considerable reduction in income gained in the 2006 and 2007 tax years. [12] It is also not to the point that at the time of the Settlement Sum the taxpayer was no longer employed by Carina or through Carina by Alleasing. [13] The outgoing was calculated to bring to an end a litigation risk which had as its source the taxpayer's employment with Carina and the Consultancy Agreement with Alleasing – this is a closer and more immediate connection than mere factual causation on a 'but for' basis. [14] | Issue 2 – whether the Settlement Sum cannot be deducted under paragraph 8-1(2)(a) as being a loss or outgoing of capital, or of a capital nature: Justice Stewart rejected the Commissioner's characterisation of the Settlement Sum as a loss or outgoing of capital or of a capital nature contending that it was a payment to protect the taxpayer's reputation in the finance industry. His Honour observed that it was the Deed of Release 'that was primarily aimed at protecting the [taxpayer's] reputation in the future, and to compensate him for any defamation in the past' rather than the Settlement Sum and releases under the Settlement Deed. [15] To otherwise characterise the Settlement Sum as capital or of a capital nature would 'elide the different nature and purposes behind the Settlement Deed and the Deed of Release' when '[t]hey were legitimately directed to different ends'. [16]", "ATO_View_of_Decision": "The Commissioner accepts on the facts found by the AAT that this conclusion was available to the Court. | It is also the Commissioner's view that this decision has limited application beyond its own factual circumstances. | The decision does not represent a departure from established principles concerning section 8-1, and cases concerning the application of these principles always turn on the facts of the particular case.", "Administrative_Treatment": "None.", "Related_Documents": "n/a | Federal Court | [2023] FCA 574 | Administrative Appeals Tribunal | 2022 ATC 10-658 | 8-1 | 8-1(1)(a) | 8-1(2)(a)", "Legislative_References": "Income Tax Assessment Act 1997 8-1 8-1(1)(a) 8-1(2)(a)", "Case_References": "Commissioner of Taxation v Wood [2023] FCA 574 116 ATR 34 XPTC and Commissioner of Taxation [2022] AATA 4147 2022 ATC 10-658 115 ATR 419", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1162of2022/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | ATO references ISSN: 2653-5424 NO: 1-WB9MB11"}
{"Case_Name": "Fidge and Commissioner of Taxation", "Venue_Reference_No": "2021/10317", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "22 December 2023", "Date_Published": "21 August 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which was concerned with whether the termination payment made to the Applicant, who was a colonel in the Australian Regular Army, was a genuine redundancy payment under section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997). | Under subsection 83-175(1) of the ITAA 1997, a genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employee's position is made genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the dismissal. | All legislative references in this Decision impact statement are to the ITAA 1997, unless otherwise indicated. | All judgment references in this Decision impact statement are to the judgment of Fidge and Commissioner of Taxation [2023] AATA 4245, unless otherwise indicated.", "Overview_of_Facts": "The Applicant was a member of the Permanent Forces [1] (Regular Army) of the Australian Army (a division of the Australian Defence Force [2] (Defence Force)). He commenced this position on 16 January 1987. [3] In his capacity as a member of the Regular Army, the Applicant was bound to \"render continuous full-time service\". [4] | The Applicant rendered continuous full-time service over the course of his career with the Regular Army and was eventually promoted to the rank of colonel in 2010. [5] | In March 2016, the Applicant commenced a posting as Defence Attaché-Ankara, International Policy. [6] | On 31 July 2018, the Chief of Army wrote to the Applicant, advising the Applicant that he was being considered for Command Initiated Transfer to the Reserves (CITR), should another full-time position not be found. [7] | The 31 July 2018 letter went on to say [8] : You have provided exemplary service to the Australian Regular Army throughout your service, which has spanned 31 years, with seven years as a colonel. Every effort is being made to find you further employment; however, it is unlikely there will be a full-time position for you following your appointment as Defence Attaché-Ankara, International Policy. | A CITR is the ability, under section 16 of the Defence Regulation 2016 (the Regulations), to transfer a member from the Permanent Forces to the Reserves if the transfer is in the interests of the Defence Force. Relevantly, paragraph 6(2)(d) of the Regulations provides that 'workforce planning' is a reason as to why something would be in the interests of the Defence Force. | The Applicant completed his assignment as Defence Attaché-Ankara in February 2019. [9] Between February 2019 and 6 June 2019, the Applicant continued to render, and was remunerated for, full-time service with the Regular Army. During this period he was posted to Canberra to a position designated as 'senior officer awaiting repost'. [10] | On 5 June 2019, the Chief of Army wrote to the Applicant advising [11] : All efforts have been made to identify further employment, however, continued workforce planning deliberations have confirmed there will not be a full-time position available for you following your current role. As a result, and in accordance with Section 16 of the Defence Regulation 2016, I have determined that transfer to SERCAT 3 [the Reserves] will occur on 07 June 2019. | The 5 June 2019 letter went on to say [12] : As you will be compulsorily transferred from the Permanent Force to the Reserves for reasons of workforce planning within 30 days of receipt of this decision, I advise that you are eligible for a special benefit payment pursuant to a determination under section 58B of the Defence Act 1903.", "Issues_Decided": "The Tribunal considered that the sole issue for determination in this case was whether the Applicant was dismissed because his position was made genuinely redundant. If answered in the affirmative, the special benefit payment received by the Applicant as a result of his being compulsorily transferred to the Reserves would be a genuine redundancy payment under section 83-175 and would attract concessional income tax treatment. [13] | The position in which the Applicant was engaged: The Tribunal accepted that the Applicant was not an employee but the holder of an office [14] under the relevant legislation governing military service. However, the Tribunal further accepted that through the application of section 80-5, which treats a person as if they were an employee for the purposes of Part 2-40 if they hold an office, that subsection 83-175(1) was applicable. [15] The Tribunal found that the Applicant's position was as a 'colonel in the Regular Army'. [16] In doing so, the Tribunal stated that in military service, it is somewhat unrealistic to search for a specified set of specific duties and responsibilities. The Tribunal acknowledged this position differed from ordinary civilian employment, where it is commonplace for an employee to have a designated role in which the duties and responsibilities are clearly set out in a duty statement or similar document, or at least clearly understood by employer and employee. [17] The Tribunal concluded that the duties of the Applicant's role were characterised as a collection of duties for a colonel required to render full-time service as and where directed. [18] | Characterisation of the compulsory transfer: The Tribunal concluded that it was this position, as a colonel in the Regular Army, from which the Applicant was dismissed when the CITR was effected. [19] Specifically, the Tribunal concluded that the CITR was engaged because the Applicant's position was excess to the requirements of the Regular Army, in that there was no longer a collection of duties to be carried out in that position. [20] The Tribunal did not consider that in forming its conclusion, it was conflating the Applicant's redundancy with the redundancy of his position. The Tribunal found no evidence that another officer had taken over the Applicant's position as a colonel of the Regular Army and concluded the position formerly held by Mr Fidge was excess to the Army's requirements. [21] | Application of relevant authorities: In making their submission, the Applicant argued that subsection 83-175(1) was intended to have the same effect as former section 27F of the Income Tax Assessment Act 1936 (ITAA 1936). In doing so, the Applicant relied upon the judgment of the Full Federal Court in Dibb v Commissioner of Taxation [2004] FCAFC 126 (Dibb), which concerned former section 27F of the ITAA 1936. [22] Specifically, the Applicant sought to draw upon comments in Dibb, that former section 27F of the ITAA 1936 applied if the employee's job was no longer to be performed by any employee or there was no available job for which the employee was suited so that the employee was surplus to the employer's needs, to establish that the Applicant was made genuinely redundant under subsection 83-175(1). In Dibb, the Court observed at [43] that: The difficulty in this case has been caused by the aphorism which appears in both pars 12 and 42 of TD 94/12 to the effect that the job, not the employee, becomes redundant. However s 27F speaks of the 'bona fide redundancy of the taxpayer'. We consider that it is more accurate to say that an employee becomes redundant when his or her job (described by reference to the duties attached to it) is no longer to be performed by any employee of the employer, though this may not be the only circumstance where it could be said that the employee becomes redundant. Re-allocation of duties within an organization will often lead the employer to consider whether an employee, previously employed to perform specific functions assigned to a particular \"job\", will be able to perform any available \"job\" existing after such re-allocation. Even if the employee's job, defined by reference to its duties, has disappeared, he or she may be able to perform some other available job to the satisfaction of the employer. In that case, no question of redundancy arises. It is only if the employer considers that there is no available job for which the employee is suited, and that he or she must therefore be dismissed, that the question of redundancy arises. If, in good faith, the employer: • has re-allocated duties; • considers that the employee is not suitable to perform any available job, defined by reference to those re-allocated duties, existing after the re-allocation; and; • for that reason, dismisses the employee, then, for the purposes of s 27F, the employee is dismissed by reason of his or her bona fide redundancy. As an alternative submission, the Applicant sought to establish that he was entitled to protection from liability on the basis that he had relied upon Taxation Ruling TR 2009/2 Income tax: genuine redundancy payments, for the proposition that the treatment of genuine redundancy payments under the ITAA 1997 to be identical to the treatment of bona fide redundancy payments under the ITAA 1936. [23] The Commissioner's submissions, however, focused on the requirement in subsection 83-175(1) for the employee's position to be redundant, not the employee him or herself, relying on the judgment of the Full Federal Court in Weeks v Commissioner of Taxation [2013] FCAFC 2 (Weeks). [24] In the matter of Weeks, the Court specifically rejected the proposition that, if a person is made redundant, it necessarily follows that the 'employee's position is genuinely redundant'. [25] Subsection 83-175(1) applies, the Court said in Weeks, 'only to a limited type of redundancy, being where dismissal from employment is because the employee's position is genuinely redundant'. [26] The Tribunal noted that while it was not necessary to determine the submissions on this matter because of the conclusion it reached on the treatment of the payment [27] , that: • TR 2009/2 invites reliance on the ruling when applying former section 27F of the ITAA 1936, not subsection 83-175(1). [28] • The operation of subsection 83-175(1) is different to former section 27F of the ITAA 1936, highlighting the explicit reference to the employee's position being redundant in subsection 83-175(1). The Tribunal noted that this aligned with the decision in Weeks. [29] • It would not accept that the Applicant was protected from liability on the basis of reliance on reliance on TR 2009/2. [30] Further, the Tribunal noted that with respect to the decision in Dibb, the Full Court did not rely on Mr Dibb being surplus to the employer's requirements as a stand-alone alternative basis for the conclusion that former section 27F of the ITAA 1936 applied. [31] The Full Court's observations in that regard were in the context of explaining that the question of redundancy would only arise if there were no other suitable duties for the employee to carry out such that the employee would be surplus to requirements. [32] It was because the employer no longer wished to have his job performed by anybody that Mr Dibb was redundant. [33] As such, the Tribunal considered the Full Court's reasoning in Dibb is not binding authority for any broader principle. [34]", "ATO_View_of_Decision": "This case was conducted on an agreed set of facts between the parties, rather than through the production of evidence to establish the precise position or roles undertaken by the Applicant in the Army. | We accept this decision was open to the Tribunal on the agreed set of facts. However we do not agree that there is a distinction between Army and civilian occupations in the application of section 83-175. Specifically, we do not agree that it is unrealistic to search for or identify a specified set of specific duties and responsibilities in Army occupations. We consider that the roles and functions related to a position can be identified through the production of evidence. | It is our view that this decision is heavily dependent on the particular agreed facts in this case, and therefore has limited application beyond its own factual circumstances. | It is also our view that this decision does not disturb the fundamental principles set out in the decisions in Weeks and Dibb, or the ATO view in TR 2009/2, as outlined in the section on the application of these authorities. We will continue to apply subsection 83-175(1) consistent with these authorities, with reference to the specific facts of each case.", "Administrative_Treatment": "", "Related_Documents": "2023 ATC 10-705 | TR 2009/2 | TD 94/12 | Pt 2-40 | section 80-5 | section 83-175 | subsection 83-175(1) | 2004 ATC 4555 | 2013 ATC 20-366", "Legislative_References": "ITAA 1997 Pt 2-40 section 80-5 section 83-175 subsection 83-175(1) ITAA 1936 former section 27F Defence Act 1903 section 4 section 17 section 58B Defence Regulation 2016 paragraph 6(2)(d) section 16", "Case_References": "Dibb v Commissioner of Taxation [2004] FCAFC 126 136 FCR 388 2004 ATC 4555 55 ATR 786 207 ALR 151 Weeks v Commissioner of Taxation [2013] FCAFC 2 209 FCR 264 2013 ATC 20-366 88 ATR 368 [2013] ALMD 1798", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2021-10317/00001", "Unmatched_Content": "ATO references NO: N/A BSL: SEO ISSN: 2653-5424 | Footnotes: [1] Section 4 of the Defence Act 1903 . | [2] Section 17 of the Defence Act 1903 . | [13] At [2]. The other statutory eligibility criteria for concessional treatment of the payment under section 83-175 were not considered by the Tribunal in this decision. | [14] Section 4 of the Defence Act 1903 . | [23] At [12]. See also paragraph 4 of TR 2009/2."}
{"Case_Name": "Jamsek v ZG Operations Australia Pty Ltd (No 3)", "Venue_Reference_No": "NSD 332 of 2022", "Venue": "Full Federal Court", "Judgment_Date": "24 March 2023", "Date_Published": "15 May 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns whether the appellants, Mr Jamsek and Mr Whitby (collectively the Drivers), were employees of the first and second respondents, ZG Operations Australia Pty Ltd and its predecessors (collectively, ZG), pursuant to subsection 12(3) of the Superannuation Guarantee (Administration) Act 1992 (SGAA). Under subsection 12(3) of the SGAA an individual will be an employee of an engaging entity where they work under a contract that is wholly or principally for their labour. | This proceeding was remitted to the Full Federal Court by the High Court in ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2. The Commissioner was joined as the third respondent to the remitted Full Federal Court proceedings. | All legislative references in this Decision impact statement are to the SGAA, unless otherwise indicated.", "Overview_of_Facts": "From 1977 until late 1985 or early 1986, the Drivers were employed by ZG to drive its trucks. Subsequently, ZG insisted it would no longer employ the Drivers and would continue to use their services only if they became contractors and provided their own trucks. The Drivers agreed to this new arrangement and set up partnerships with their respective wives. The partnerships then entered into written contracts with ZG for the provision of delivery services. | The partnerships invoiced ZG for the delivery services provided and were paid by ZG for those services. Part of the revenue earned was used to meet the partnerships' costs of maintaining and operating the trucks. | In 2012, Mr Whitby's partnership was dissolved but he continued to supply his services to ZG as a sole trader. | In 2017, the Drivers commenced proceedings in the Federal Court seeking declarations in respect of statutory entitlements alleged to be owed to them as employees of ZG, including under the Fair Work Act 2009 and the SGAA. | At first instance, Thawley J held that the Drivers were not employees of ZG, either according to the common law meaning of the term under subsection 12(1) or pursuant to the extended meaning of the word under subsection 12(3). Specifically in respect of subsection 12(3) [1] , His Honour concluded in summary that: • the relevant contracts were with the Drivers' partnerships (although in the case of Mr Whitby, only until 2012) and the individual Drivers were not parties to the contracts [2] , and • the contracts were not wholly or principally for the labour of the person and instead were for equipment (delivery vehicles) and labour. [3] | The Drivers appealed the decision of Thawley J to the Full Federal Court. | The Full Federal Court set aside the orders of Thawley J and held that the Drivers were employees within the common law meaning of that term, having regard to the substance and reality of the relationship. [4] Having come to this conclusion, the Full Federal Court considered it unnecessary to deal with the Drivers' argument in respect of subsection 12(3) in order to dispose of the appeal. [5] | ZG sought special leave to appeal the decision of the Full Federal Court to the High Court. The Drivers also sought special leave to cross-appeal, contending that they fell within the extended definition of employee under subsection 12(3). [6] The High Court agreed to hear the appeal and cross-appeal. | Having regard to the contracting relationship between the Drivers' partnerships and ZG, the High Court unanimously held that the relationship was not one of employment within the ordinary meaning of that term. [7] The High Court came to this conclusion applying its findings with respect to the operation of the common law test of employment outlined and discussed in its decision in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting). [8] With respect to the cross-appeal, the High Court remitted this issue back to the Full Federal Court for determination. [9]", "Issues_Decided": "The issue before the Full Federal Court on remittal was whether the primary judge was correct to find that the Drivers did not fall within the extended definition of employee under subsection 12(3). The Court unanimously held that they did not. [10] In summary, the Full Federal Court concluded that: • The Drivers were not parties to the contracts, rather the partnerships were the relevant parties. Section 12(3) only applies where the party providing the services is a natural person who was a party to the contract in his or her individual capacity and not in any other capacity such as a trustee of a personal services trust, or as in this case, a partner in a partnership. [11] • The Drivers did not discharge their onus of proving that the contracts were wholly or principally for the labour of the Drivers. [12]", "ATO_View_of_Decision": "The Full Federal Court's conclusion on remittal that the Drivers were not employees under subsection 12(3) was consistent with the Commissioner's submissions in the proceedings. | The Full Federal Court affirmed the test set out in Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118 in administering subsection 12(3). [13] | The Full Federal Court's decision has clarified aspects concerning the application of subsection 12(3), particularly with respect to the following propositions: • Applying subsection 12(3) requires analysing the content of a bilateral exchange of promises (regardless of the number of parties on each side of the contract). [14] • The superannuation regime cannot be circumvented by the simple device of forming a contract which names more than 2 parties. [15] • Only a natural person who enters into a contract in that capacity can be deemed to be an employee for the purposes of subsection 12(3). [16] Subsection 72(1) does not operate to deem a partnership or other entity to be a natural person for the purposes of being treated as an employee under subsection 12(3). [17] • Assessing whether a contract is for labour involves an evaluation of the terms of the relevant contract or contracts. [18] Consistent with previous authority, it is assessed by reference to the benefit that the engaging entity receives out of the bargain. [19] With respect to such a process the following considerations apply. - A contract for the provision of a result (per Neale v Atlas Products (Vic) Pty Ltd [1955] HCA 18) is not one which is for labour. [20] - Remuneration calculated on a per hour basis points against a contract being characterised as stipulating a given result. Further, remuneration calculated by reference to a set number of hours being worked per day, even though it is possible that less work will be required in that day, is inconsistent with a contract being for a result. [21] - Where a provision of the contracted service requires the use of a substantial capital asset, this is a factor supporting the characterisation of the contract as not being wholly or principally for labour. [22] - If a contract contains a right which permits the individual engaged to provide the services to delegate the performance of those services to another, regardless of whether the consent of the engaging entity is required to exercise the right, its existence means that the performance of the contract is not personal to the individual engaged to provide the services. [23] - Where a contract is properly characterised as being for a single integrated benefit (for example, a delivery service), it may not be appropriate to divide the contract into separate components (for example, between labour and equipment) in determining whether the character of the contract is or is not wholly or principally for labour. [24] | Quantitative v qualitative analysis of the contract | The Commissioner observes that Perram and Anderson JJ on remittal found that the Drivers failed to adduce evidence, at trial, of the market value of the various components of the delivery service. Such a quantitative valuation was regarded by the Full Federal Court as required if the Drivers were to establish that they fell within the scope of subsection 12(3), on the basis that the contracts were at least principally for their labour. Perram and Anderson JJ further commented on the type of evidence that would be relevant to such an analysis which included the market value of hiring similar trucks on similarly favourable terms and the market cost of the labour involved in providing the delivery services during the relevant period. [25] | While noting the conclusion reached by their Honours in this regard, the Commissioner considers that there may be some scenarios where a qualitative analysis of the components of a supply of services may also be relevant in determining whether a contract is principally for labour under subsection 12(3). | The Commissioner accepts Perram and Anderson JJ's conclusion that a quantitative analysis of the components of delivery services would have been the most appropriate valuation methodology in the circumstances of this case. However, in the Commissioner's view, it remains open to apply a qualitative analysis for the purpose of testing whether a contract is principally for labour under subsection 12(3) where the factual circumstances of a case warrant that approach.", "Administrative_Treatment": "The Commissioner is considering whether any changes are required to SGR 2005/1, SGR 2005/2, SGR 2009/1, ATO ID 2014/28 and other relevant guidance products. These will be reviewed and updated as necessary.", "Related_Documents": "Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee | Superannuation Guarantee Ruling SGR 2005/2 Superannuation guarantee: work arranged by intermediaries | Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons | ATO Interpretative Decision ATO ID 2014/28 Superannuation Guarantee Status of the Worker: Pizza delivery drivers as employees | Full Federal Court | 2023 ATC 20-858 | High Court | [2022] HCA 2 | 96 ALJR 144 | 312 IR 74 | Federal Court | [2018] FCA 1934 | SGR 2005/1 | SGR 2005/2 | SGR 2009/1 | SGAA 12(1) | SGAA 12(3) | SGAA 72(1) | [2022] HCA 1 | [2020] FCAFC 118 | 2023 ATC 20-861 | 94 CLR 419 | ATO ID 2014/28", "Legislative_References": "SGAA 12(1) SGAA 12(3) SGAA 72(1) Fair Work Act 2009", "Case_References": "Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 275 CLR 165 398 ALR 404 96 ALJR 89 (2022) 312 IR 1 Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118 278 FCR 502 297 IR 183 Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119 279 FCR 114 297 IR 210 JMC Pty Limited v Commissioner of Taxation [2023] FCAFC 76 2023 ATC 20-861 116 ATR 309 297 FCR 600 Neale v Atlas Products (Vic) Pty Ltd [1955] HCA 18 94 CLR 419 10 ATD 460 Whitby v ZG Operations Australia Pty Ltd [2018] FCA 1934 ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 275 CLR 254 96 ALJR 144 312 IR 74", "Subject_References": "", "Other_References": "ATO ID 2014/28", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S332of2022/00001", "Unmatched_Content": "ATO references ISSN: 2653-5424 | Footnotes: [1] Whitby v ZG Operations Australia Pty Ltd [2018] FCA 1934 ( Jamsek - first instance ) at [218]. | [2] Jamsek - first instance at [219]. | [3] Jamsek - first instance at [220]. | [4] Jamsek v ZG Operations Australia Pty Ltd [2020] FCAFC 119 ( Jamsek - FFC ) at [12], [14] and [253]. | [5] Jamsek - FFC at [255], Perram and Wigney JJ do not specifically address subsection 12(3). | [6] ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 ( Jamsek - High Court ) at [71]. | [7] Jamsek - High Court at [60-70], [87-91] and [107-111]. | [8] Jamsek - High Court at [8] and [95]. | [9] Jamsek - High Court at [76-77], [91] and [111]. | [10] Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48 ( Jamsek - FFC remittal ) at [65] and [78]. | [11] Jamsek - FFC remittal at [42]. | [12] Jamsek - FFC remittal at [49-63]. | [13] Jamsek - FFC remittal at [29] and [70]. | [14] Jamsek - FFC remittal at [32] and [71]. | [15] Jamsek - FFC remittal at [32]. | [16] Jamsek - FFC remittal at [33-43] and [71]. | [17] Jamsek - FFC remittal at [44-48] and [73-74]. | [18] Jamsek - FFC remittal at [50]. | [19] Jamsek - FFC remittal at [49]. | [20] Jamsek - FFC remittal at [52]. | [21] Jamsek - FFC remittal at [56]. | [22] Jamsek - FFC remittal at [75], per Perram and Anderson JJ (see also [75], per Wigney J in applying the 'principally' test). | [23] Jamsek - FFC remittal at [58], per Perram and Anderson JJ. | [24] Jamsek - FFC remittal at [59], per Perram | [25] Jamsek - FFC remittal at [62]."}
{"Case_Name": "JMC Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 562 of 2022 (Full Federal Court)", "Venue": "Full Federal Court", "Judgment_Date": "23 May 2023", "Date_Published": "15 May 2024", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerned whether a contract lecturer of a higher education provider was engaged as an employee or an independent contractor pursuant to the common law meaning of the term 'employee' under subsection 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) or alternatively, was an employee under the extended meaning of the word contained in subsection 12(3) of the SGAA. Under subsection 12(3) of the SGAA, an individual is an employee of an engaging entity where they work under a contract that is wholly or principally for their labour. | All legislative references in this Decision impact statement are to the SGAA, unless otherwise indicated. | All judgment paragraph references in this Decision impact statement are to the judgment of JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76, unless otherwise indicated.", "Overview_of_Facts": "JMC Pty Ltd (JMC) is the provider of higher education programs. | For the periods 1 April 2013 to 30 June 2016 and 1 July 2017 to 31 March 2018 (collectively, the Relevant Period) JMC engaged Mr Nicholas Harrison, a qualified sound technician, to provide teaching services by way of delivering lectures and marking student exams and assignments in courses for a Bachelor of Creative Technology (Audio Engineering and Sound Production). | The terms and conditions upon which Mr Harrison was engaged to provide teaching services were recorded in writing contained within numerous contracts executed during the Relevant Period. The terms and conditions of each contract included that: • Mr Harrison was obliged to provide JMC with documentary evidence establishing that there was no legislative impediment to him providing the teaching services to children or young persons. • Mr Harrison would provide JMC with original documents which established that he was qualified, capable and suitably experienced to provide the teaching services. • JMC would pay Mr Harrison an hourly rate for delivering lectures and marking. • Mr Harrison was required to submit invoices to JMC which specified the particulars of the teaching services he had provided. Those invoices were required to be accompanied by time sheets and signed weekly lesson plans. Mr Harrison was also required to provide his Australian business number. • Any intellectual property brought into existence by Mr Harrison while providing the teaching services vested in JMC. • Mr Harrison would carry out the teaching services personally. • Mr Harrison could subcontract or assign the teaching services he was engaged to provide to another but only with JMC's written consent. | JMC was, throughout the Relevant Period, registered with the Tertiary Education Quality and Standards Agency. Courses of study offered by JMC were also accredited by the Tertiary Education Quality and Standards Agency. | JMC paid Mr Harrison for the work he performed during the Relevant Period without withholding and remitting superannuation contributions, upon the basis that he was an independent contractor. | On 25 March 2019, the Commissioner issued to JMC notices of assessment for superannuation guarantee charges for the Relevant Period, premised on Mr Harrison being an employee, either within: • subsection 12(1), which takes on the common law meaning of employee in accordance with general law principles, or • the extended definition of employee contained in subsection 12(3), which deems as an employee a person who works under a contract that is wholly or principally for the labour of the person. | JMC objected to the notices of assessment but the Commissioner disallowed the objection. JMC appealed that decision to the Federal Court. [1] | On 29 June 2022, Wigney J, at first instance, handed down a favourable decision for the Commissioner, dismissing the appeal and finding that Mr Harrison was an employee of JMC under both subsection 12(1) (that is, within the common law meaning of the word) and the extended definition as contained in subsection 12(3). [2] | JMC appealed Wigney J's decision to the Full Federal Court. [3]", "Issues_Decided": "Full Federal Court: The Full Federal Court considered the same 2 issues as the Federal Court, that is: • Was Mr Harrison an employee of JMC during the Relevant Period pursuant to subsection 12(1)? (Subsection 12(1) issue) • Alternatively, was Mr Harrison an employee of JMC during the Relevant Period pursuant to subsection 12(3)? (Subsection 12(3) issue) The Full Federal Court constituted by Bromwich, Thawley and Hespe JJ, in a unanimous decision, allowed the appeal, overturning the decision of Wigney J. The Full Federal Court found that Mr Harrison was an independent contractor and not an employee of JMC under either subsection 12(1) or subsection 12(3) for the Relevant Period. [4] | Subsection 12(1) issue: Consistent with the High Court's decision in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1, the Full Federal Court held that it is the contractual terms of the arrangement (and not the performance of them) which were relevant to a determination of the nature of the relationship between the parties. [5] Taking such an approach the Full Federal Court found, among other things, the following: • The existence of a right which allows a worker to delegate, subcontract or assign their work to another, qualified [6] or otherwise, is generally to be viewed as inherently inconsistent with an employee relationship. [7] • Where a worker has an entirely unfettered right to delegate, subcontract or assign their work to others, in the absence of countervailing considerations (for example, where the right is a sham or is legally incapable of exercise), the existence of this right will be 'almost conclusive' against the worker being an employee. [8] Where the right is fettered [9] , the degree of inconsistency between it and the other terms of the contractual relationship between the parties will reveal the degree to which the fettered right to delegate, subcontract or assign tends against a finding of employment. [10] • It is the existence of the right to delegate, subcontract, or assign the work that is important, not whether it is likely to be or has been in fact exercised. The Court observed that the question of whether a right is likely to be exercised in the future or is a hollow or empty right would be relevant to an argument about sham. However, in the absence of an argument about sham, it is necessary to consider the contractual terms. [11] The right bestowed upon Mr Harrison to subcontract or assign the performance of his teaching services, subject to JMC's written consent, was a real and substantial right which was inconsistent with an employment relationship between him and JMC. [12] • The evidence did not support a finding that JMC had a sufficient contractual right to control the work of Mr Harrison, to indicate their relationship was one of employment. [13] • The mode of Mr Harrison's remuneration, being payment of an hourly rate, while not pointing strongly either way inclined towards an independent contractor relationship. [14] • The manner in which Mr Harrison charged for his services, including the provision of an Australian business number and invoices was not consistent with an employment relationship. [15] • The fact that intellectual property brought into existence by Mr Harrison vested in JMC, was neutral or perhaps slightly favoured an independent contracting relationship. [16] • Contractual terms concerning the trading relationship of the parties, that is, taxation, insurance, sick leave, holiday pay, and the requirements relating to invoicing, were operative contractual provisions regulating the parties' rights, duties and obligations. They were not considered determinative in characterising the nature of the relationship between the parties. [17] The Full Federal Court decided that, taken as a whole, the contracts did not provide the sort of controls over how, when or where Mr Harrison was required to deliver the lectures such as to amount to indicia that he was an employee rather than an independent contractor. [18] | Subsection 12(3) issue: The Full Federal Court held that [19] : • Subsection 12(3) requires attention to the rights under the contract not to the actual performance of the contract. • The right to subcontract or assign the work provided in the contracts indicated that the contracts were not wholly or principally for the labour of Mr Harrison, as he could perform the contracts personally; but equally he could have subcontracted or assigned his work under the contracts to another. • The contracts were for the provision of teaching services and not principally for the labour of Mr Harrison. | The High Court: On 20 June 2023, the Commissioner filed an application for special leave to appeal the decision of the Full Federal Court only in respect of the conclusion reached in regard to subsection 12(3). On 12 October 2023, the High Court dismissed the Commissioner's special leave application on the basis that the application did not identify any reason to doubt the correctness of the decision of the Full Federal Court. [20]", "ATO_View_of_Decision": "The ATO has set out its view on the ordinary meaning of the term 'employee' in Taxation Ruling TR 2023/4 Income tax: pay as you go withholding - who is an employee? which references the Full Federal Court decision. The Ruling aids in understanding the meaning of an 'employee' for the purposes of subsection 12(1). | The existence of a contractual right within a contract that allows a worker to delegate, subcontract or assign their work to another, whether subject to the consent of an engaging entity or not, will result in the contract not being either wholly or principally for the labour of the worker. Where this occurs, the worker will not fall within the extended definition of 'employee' under subsection 12(3). This position is subject to the contractual right not being challenged as being a sham, having been varied by the parties or unenforceable. | There may be circumstances where the contractual terms of the arrangement do not make it clear whether the worker does have a contractual right to delegate, subcontract or assign their work to another. In these circumstances, the ATO will form its position as to the application of subsection 12(3) based on the available evidence of the contractual arrangement.", "Administrative_Treatment": "TR 2023/4, published on 6 December 2023, references the findings of the Full Federal Court in respect of subsection 12(1). The following other relevant guidance will be reviewed and updated as necessary in accordance with the Full Federal Court decision: • TR 2013/1 Income tax: the identification of 'employer' for the purposes of the short-term visit exception under the Income from Employment Article, or its equivalent, of Australia's tax treaties • SGR 2005/1 Superannuation guarantee: who is an employee? • SGR 2009/1 Superannuation guarantee: payments made to sportspersons • SGR 2005/2 Superannuation guarantee: work arranged by intermediaries, and • ATO ID 2014/28 Superannuation Guarantee Status of the Worker: Pizza delivery drivers as employees.", "Related_Documents": "Taxation Ruling TR 2013/1 Income tax: the identification of 'employer' for the purposes of the short-term visit exception under the Income from Employment Article, or its equivalent, of Australia's tax treaties | Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee | Superannuation Guarantee Ruling SGR 2005/2 Superannuation guarantee: work arranged by intermediaries | Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons | ATO Interpretative Decision ATO ID 2014/28 Superannuation Guarantee Status of the Worker: Pizza delivery drivers as employees | Full Federal Court | 2023 ATC 20-861 | Special leave application | [2023] HCASL 155 | Federal Court | 2022 ATC 20-832 | TR 2013/1 | TR 2023/4 | PCG 2023/2 | SGR 2005/1 | SGR 2005/2 | SGR 2009/1 | SGAA 12(1) | SGAA 12(3) | [2022] HCA 1 | ATO ID 2014/28", "Legislative_References": "SGAA 12(1) SGAA 12(3)", "Case_References": "Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 275 CLR 165 398 ALR 404 96 ALJR 89 312 IR 1 JMC Pty Ltd v Commissioner of Taxation [2023] FCAFC 76 297 FCR 600 2023 ATC 20-861 116 ATR 309 325 IR 159 JMC Pty Ltd v Commissioner of Taxation ACN 003 572 012 [2023] HCASL 155 2023 ATC 20-861", "Subject_References": "", "Other_References": "ATO ID 2014/28", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S69of2023/00001", "Unmatched_Content": "ATO references ISSN: 2653-5424 | Footnotes: [1] JMC Pty Limited v Commissioner of Taxation [2022] FCA 750. | [2] JMC Pty Limited v Commissioner of Taxation [2022] FCA 750 at [200]. | [3] JMC Pty Limited v Commissioner of Taxation [2023] FCAFC 76. | [4] At [7] and [105-107]. | [6] An example of a qualified right of delegation, subcontracting or assignment of work is such a right which requires the consent of the engaging entity to be exercised (at [79]). | [9] For example, the right to delegate, subcontract or assign is limited in scope. That is, the worker can only delegate, subcontract or assign a discrete task (at [76]). | [20] See Commissioner of Taxation v JMC Pty Ltd ACN 003 572 012 [2023] HCASL 155 at [1]."}
{"Case_Name": "Mandalinic v Stone (Liquidator) [2023] FCAFC 146", "Venue_Reference_No": "NSD 1022 of 2022 - Full Federal Court", "Venue": "Federal of Australia", "Judgment_Date": "11 November 2022", "Date_Published": "19 February 2025", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this decision of the Full Federal Court. At its core, the Court considered whether a company director could file an affidavit under table item 2 of subsection 268-40(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) to effect a revocation or reduction of an estimate. That estimate was made under Division 268 in respect of pay as you go (PAYG) withholding liability of the company. | 2. The context in which the director sought to file the affidavit was a proceeding brought by the Deputy Commissioner of Taxation (DCT) to recover a penalty under Division 269 for the director's failure to cause the company to comply with its obligations in respect of this estimate of PAYG withholding liability (penalty proceeding). [1] | 3. The Full Federal Court concluded that: • A penalty proceeding is not a proceeding 'that relate[s] to the recovery of the unpaid amount of the estimate' within the meaning of table item 2 of subsection 268-40(1) of Schedule 1 to the TAA. • The entity who may file an affidavit for the purposes of table item 2 of subsection 268-40(1) of Schedule 1 to the TAA is the person or entity that is the subject of the estimate notice. | • A penalty proceeding is not a proceeding 'that relate[s] to the recovery of the unpaid amount of the estimate' within the meaning of table item 2 of subsection 268-40(1) of Schedule 1 to the TAA. • The entity who may file an affidavit for the purposes of table item 2 of subsection 268-40(1) of Schedule 1 to the TAA is the person or entity that is the subject of the estimate notice. | 4. All judgment references in this Decision impact statement are to the judgment of Mandalinic v Stone (Liquidator) [2023] FCAFC 146, unless otherwise indicated. | 5. All legislative references in this Decision impact statement are to Schedule 1 to the TAA, unless otherwise indicated.", "Overview_of_Facts": "6. Mr Mandalinic was at all material times a director of RIC Admin Pty Ltd (RICA). On 2 April 2019, RICA was given a notice of Division 268 estimates made by the Commissioner of unpaid PAYG withholding for each month during the period 1 September to 31 December 2017 in the amount of $2,033,381 (Estimates). [2] | 7. RICA failed to pay the Estimates and the Commissioner gave Mr Mandalinic a Director Penalty Notice under section 269-25 on 9 May 2019, for a penalty in respect of his failure to cause RICA to comply with its obligations in relation to the Estimates, that penalty being equal to the unpaid amount of the Estimate (director's penalties). | 8. The DCT served on RICA a creditor's statutory demand on 6 June 2019 for the amount of $1,941,101, which it failed to pay. RICA was wound up on 13 November 2019. RICA took no steps to contest the Estimates, resist the winding up, or to make payment of its liability for the Estimates, but for an amount of $373,704 paid by a third party under a garnishee notice given pursuant to section 260-5. | 9. On 3 September 2020, the liquidator of RICA commenced proceedings against Mr Mandalinic in the Federal Court for insolvent trading and unreasonable director-related transactions. The liquidator's proceedings substantially relied upon RICA's liability to the Estimates (insolvent trading proceedings). | 10. The DCT commenced recovery proceedings in the Supreme Court of New South Wales against Mr Mandalinic on 8 June 2021 for the unpaid amounts of the director's penalties (Supreme Court proceedings). | 11. Mr Mandalinic deposed and filed an affidavit (revocation affidavit) in the Supreme Court Proceedings on 29 October 2021 challenging the Estimates. The intended result was to revoke the Estimates on the asserted basis the underlying withholding liability of RICA never existed. The intent was that the affidavit satisfied the requirements of section 268-40. Relevantly, 2 questions then arose. First, whether Mr Mandalinic could make such an affidavit to that effect in the Supreme Court proceedings, and second, and more specifically, whether he could make such an affidavit where a liquidator had been appointed to RICA. | 12. Mr Mandalinic also filed an interlocutory application in the insolvent trading proceedings seeking an order pursuant to paragraph 198G(3)(b) of the Corporations Act 2001 that he be given approval, retrospectively (Latin nunc pro tunc [now for then] is used in the judgment) to file the revocation affidavit in the Supreme Court proceedings. The application was filed against the background of an issue having arisen as to whether, by filing the revocation affidavit, Mr Mandalinic had contravened subsection 198G of the Corporations Act 2001 which makes it an offence for an officer of a company to perform or exercise a function or power of that office while the company is under external administration (subject to various exceptions including the obtaining of written approval of the Court). That application was heard by Halley J. [3] | 13. The DCT sought, and was granted, leave to make oral and written submissions in the insolvent trading proceedings concerning the effect of section 198G of the Corporations Act 2001 on the revocation affidavit. The DCT undertook, subject to any appeal, to be bound by Halley J's decision on the section 198G issue in the Supreme Court proceedings and the parties had agreed that the effect of section 198G on the revocation affidavit should be determined by Halley J before his Honour considered the substantive relief sought by the plaintiffs in respect of the alleged insolvent trading. [4]", "Issues_Decided": "Issues and decision at first instance: 14. Table item 2 of subsection 268-40(1) provides that the section applies where 'you are a party to proceedings before a court that relate to the recovery of the unpaid amount of the estimate' and 'you file an affidavit for the purposes of [the] section ... ' within the specified time period. Section 268-90 contains requirements that apply to statutory declarations given or affidavits filed for the purposes of section 268-40. Specifically, subsection 268-90(3) specifies who the statutory declaration or affidavit 'must be made, sworn or affirmed by'. 15. Mr Mandalinic submitted that the Supreme Court proceedings to recover the director's penalty, based on the Estimates, was a proceeding related 'to the recovery of the unpaid amount of the estimate' [5] and therefore within the scope of section 268-40. It was contended that the Commissioner had conceded this point of law in Lee v Deputy Commissioner of Taxation; Silverbrook v Deputy Commissioner of Taxation [2020] NSWCA 95 (Lee) and the observations made by Payne JA in Lee that a director could file such an affidavit in proceedings to recover an amount of director's penalties demonstrated the correctness of this concession. [6] 16. With agreement of the parties, Halley J considered 4 issues, the first 2 being relevant to the Full Federal Court appeal: (1) Can an affidavit filed by a director of a company in a proceeding brought by the Commissioner against the director for recovery of a liability to a penalty the subject of a director penalty notice arising by reason of a portion of an estimate made by the Commissioner of the company's indebtedness remaining unpaid constitute an affidavit for the purposes of table item 2 of subsection 268-40(1)? [7] (2) If yes to (1), can an affidavit filed by a director in such proceedings constitute an affidavit for the purposes of section 268-40 where the company is in liquidation? (1) Can an affidavit filed by a director of a company in a proceeding brought by the Commissioner against the director for recovery of a liability to a penalty the subject of a director penalty notice arising by reason of a portion of an estimate made by the Commissioner of the company's indebtedness remaining unpaid constitute an affidavit for the purposes of table item 2 of subsection 268-40(1)? [7] (2) If yes to (1), can an affidavit filed by a director in such proceedings constitute an affidavit for the purposes of section 268-40 where the company is in liquidation? 17. The third and fourth issues considered by Halley J concerned the implications under section 198G of the Corporations Act 2001 of Mr Mandalinic having filed the revocation affidavit in the Supreme Court proceedings. Halley J held that the filing of the affidavit did not involve a contravention of section 198G. [8] (If he was wrong in that conclusion, his Honour decided leave to file the affidavit should not be given nunc pro tunc.) [9] While the DCT filed a notice of contention, raising for the Full Federal Court's consideration the correctness of Halley J's approach to the third and fourth issues, the Full Court did not need to deal with section 198G given the conclusions it reached on the first 2 issues. [10] 18. In answering the first 2 issues in the negative, Halley J concluded that only the recipient of an estimates notice (in this case RICA) could file an affidavit for the purposes of section 268-40. That is, the reference to 'you' in table item 2 of subsection 268-40(1) did not extend to a director of a company where the relevant proceedings were for the recovery of a director's penalty. [11] Halley J also decided that, once in liquidation, a director of a company was not entitled to depose an affidavit under subsection 268-90(3). [12] 19. As to the concession made by the Commissioner in the Lee litigation, Halley J noted that Payne JA's observations on the concession were obiter dicta and his Honour did not have the benefit of a contradictor. Halley J also noted that the factual circumstances in Lee had not required the correctness of the Commissioner's concession to be resolved – indeed no affidavit had been filed in that case, nor an application for extension of time to file one. [13] 20. Mr Mandalinic sought leave to appeal the decision of Halley J. | Issues decided by the Full Federal Court: 21. The Full Federal Court granted Mr Mandalinic leave to appeal accepting that the issues raised important questions concerning the interpretation and administration of the TAA, upon which there is no direct authority. [14] The Full Court dismissed Mr Mandalinic's appeal, albeit for different reasons: • The joint judgment of Stewart and Button JJ disposed of the appeal by reference to issue 1 identified by Halley J, focusing on who was the relevant person and what was a relevant proceeding for the purposes of table item 2 of subsection 268-40(1). • Justice McElwaine considered issue 2 identified by Halley J was determinative and the only issue that needed to be resolved to determine the appeal, that is, who may make an affidavit for the purposes of Division 268 where a company is in liquidation. [15] As this was the basis on which McElwaine J would have determined the appeal, the majority concluded that while it was not necessary, it was appropriate that they express views on issue 2. [16] The majority disagreed with aspects of McElwaine J's reasoning while agreeing with the ultimate conclusion reached by his Honour (that issue 2 should be answered in the negative). • The joint judgment of Stewart and Button JJ disposed of the appeal by reference to issue 1 identified by Halley J, focusing on who was the relevant person and what was a relevant proceeding for the purposes of table item 2 of subsection 268-40(1). • Justice McElwaine considered issue 2 identified by Halley J was determinative and the only issue that needed to be resolved to determine the appeal, that is, who may make an affidavit for the purposes of Division 268 where a company is in liquidation. [15] As this was the basis on which McElwaine J would have determined the appeal, the majority concluded that while it was not necessary, it was appropriate that they express views on issue 2. [16] The majority disagreed with aspects of McElwaine J's reasoning while agreeing with the ultimate conclusion reached by his Honour (that issue 2 should be answered in the negative). | Issue 1 – whether a director could file an affidavit under table item 2 of subsection 268-40(1) in a proceeding to recover a director's penalty: 22. As noted, Stewart and Button JJ considered that only issue 1 needed to be addressed to dispose of the appeal; if the answer to issue 1 was no, a negative answer to issue 2 would be immediate. [17] Agreeing with Halley J on his Honour's conclusions on issue 1 [18] , their Honours considered that 'you' referred to the recipient of the notice of the estimate (in this case, RICA). Their Honours arrived at this conclusion having regard to a number of considerations, including the historical context of the provisions and the affidavit requirements in section 268-90, including that subsection 268-90(2) requires the affidavit set out amounts you withheld . [19] 23. Their Honours also considered that the nexus required between the proceeding and the recovery of an amount of an unpaid estimate as stipulated by table item 2 of subsection 268-40(1) was not broad enough to include a proceeding to recover a director's penalty: in short, '[a] proceeding against a director for recovery of a penalty is not a proceeding that can be said to relate to recovery of the unpaid amount of an estimate'. [20] The penalty is a separate and distinct amount from the estimate and borne by a different legal entity. [21] 24. Justice McElwaine would seem to have agreed with these conclusions, noting among other matters that [22] : Accepting that the rewriting of the provisions was not intended to enact any change in taxation policy, the reference to \"you\" at item 2 of the table at s 268-40 is a reference to the person liable, which is the Company and not the appellant. 25. The majority also emphasised that there were specific defences available to a director in Division 269 in respect of proceedings brought by the Commissioner seeking to recover penalty amounts equal to unpaid amounts of estimates issued to the company. As such the construction of section 268-40 confirmed by the Full Court did not leave a director without recourse. [23] 26. As to the concession made by the Commissioner in Lee , the majority observed that no particular consideration was given in that case to the question of whether in a penalty notice proceeding, a director can file an affidavit under table item 2 of section 268-40(1) which can have the effect of revoking or reducing the estimate. As such the decision in Lee is not authority for the correctness of the Commissioner's concession in that case. [24] McElwaine J also observed at [94] that the facts of Lee meant that the case had not given rise to any need to determine that question. | Issue 2 – whether a director of a company in liquidation could make an affidavit under subsection 268-90(3): 27. As noted, Justice McElwaine considered the resolution of issue 2, whether such an affidavit could be filed by a director of a company in liquidation, was determinative of the appeal. [25] 28. In his reasoning on this issue, his Honour focused on the construction of subsection 268-90(3) and the permitted deponent of an affidavit or statutory declaration. His Honour concluded that the statutory scheme operated harmoniously: subsection 268-90(3) when read with section 268-95 had the clear meaning that the affidavit 'must be' sworn or affirmed by 'your' liquidator (designated as a 'supervising entity' in section 268-95). As such, only the relevant supervising entity may unilaterally reduce or revoke the estimate. In support of this construction, his Honour observed section 268-45 permits a supervising entity, in response to the Commissioner lodging a proof of debt relating to the unpaid amount of an estimate, to give the Commissioner a statutory declaration to the effect that the underlying liability has been discharged in full, or the unpaid amount of the underlying liability is a specified lesser amount, or the underlying liability never existed. On that basis, the supervising entity may reject the proof of debt in whole or in part, thereby reducing or revoking the estimate, subject to any appeal or review of the rejection of the proof of debt. [26] 29. Their Honours Stewart and Button JJ, finding against the Appellant on issue 1, in effect, answered issue 2 in the negative. However, in obiter , their Honours disagreed with McElwaine J's pathway of reasoning to the same ultimate conclusion, observing a distinction between who can file an affidavit (that is, the control of the taxation affairs, for example, by an administrator of a company), and the person who may be permitted to make a declaration or swear an affidavit, under subsection 268-90(3) for the purposes of section 268-40. [27] Their Honours noted that section 268-45 sets up another, separate, mechanism to section 268-40 whereby estimates may be reduced or revoked [28] and that section 268-90 specifies the required contents of, and the permissible maker or deponent of, the statutory declarations and affidavits required to invoke either of the mechanisms in section 268-40 or 268-45. [29] Importantly, their Honours observed at [49] that '[i]t should also be noted that, where there is a supervising entity, the mechanism for unilateral revocation or reduction under s 268-40 is still available'. [30] Their Honours considered a practical element of someone being in control of a corporation [31] and the tight timeframes for compliance [32] contributed to their conclusion. | Perceived harsh consequences: 30. Mr Mandalinic argued that the outcome ultimately arrived at by both the Federal Court and the Full Court on appeal manifested a harsh or unjust outcome. McElwaine J [33] , with whom Stewart and Button JJ agreed [34] considered that '[t]he claimed harsh consequences are the result of inaction by the appellant rather than the general operation of the provisions'. [35]", "ATO_View_of_Decision": "31. Prior to this decision, the ATO maintained a practice accepting that a director may file an affidavit pursuant to table item 2 of subsection 268-40(1), in a proceeding to recover an amount of director's penalty for a failure to cause the company to comply with its obligations in relation to an unpaid amount of an estimate. Such an affidavit, if it otherwise met the statutory requirements, could be sufficient to reduce or revoke the estimates, as the case may be. This concession was advanced before the NSW Supreme Court in Lee and in written submissions to the High Court on an application for special leave from the decision of the Court of Appeal. [36] The matter was not authoritatively decided in Lee and both Halley J, and the Full Federal Court have now concluded that the Commissioner's concession was incorrect. | 32. The Commissioner accepts the majority decision of the Full Court of the Federal Court has now settled the proper construction of section 268-40. | 33. Accordingly, the Commissioner accepts that: • In table item 2 of subsection 268-40(1), 'you' refers to the entity in receipt of estimate notice and liable to pay the estimate, and no other entity. [37] • A proceeding against a director for recovery of a director's penalty is not a proceeding that can be said to relate to recovery of the unpaid amount of an estimate (as stated in table item 2 of subsection 268-40(1)) [38] and therefore such an affidavit cannot be filed in those proceedings. | • In table item 2 of subsection 268-40(1), 'you' refers to the entity in receipt of estimate notice and liable to pay the estimate, and no other entity. [37] • A proceeding against a director for recovery of a director's penalty is not a proceeding that can be said to relate to recovery of the unpaid amount of an estimate (as stated in table item 2 of subsection 268-40(1)) [38] and therefore such an affidavit cannot be filed in those proceedings. | 34. The decision of the Full Federal Court shows that there are limits to the opportunity for taxpayers, in this case a director of a company in liquidation, to dispute an estimate under Division 268. It shows that a director seeking to defend a director penalty proceeding cannot seek to rely on subsection 268-40(1) as the company, being the liable entity in receipt of the notice of an estimate, was not a party to a relevant proceeding 'related to' recovery of the estimate. | 35. Importantly, the decision does not limit administrative discretions or powers in the Commissioner in relation to estimates under Division 268 or any underlying liability. For example, the Commissioner retains a non-compellable discretion to reduce or revoke an estimate unilaterally pursuant to section 268-35. [39] The Commissioner also retains a discretion in table item 1 of subsection 268-40(1), to permit the giving of a statutory declaration at a later time by the recipient of an estimate notice made under Division 268 (that is, supplanting the usual rule under this item requiring that the statutory declaration be given within 7 days after the Commissioner gives the notice of estimate). [40] | 36. A director who is liable for a director's penalty may also seek to rely on defences under section 269-35 (for example, the 'illness or some other good reason' and 'all reasonable steps' defences) being the defences specifically provided by parliament in relation to director's obligations under Division 269. | 37. This decision highlights the need for taxpayers, particularly directors of corporate entities, to maintain up-to-date records and engage with the Commissioner in relation to their taxation affairs including by reason of their role as directors.", "Administrative_Treatment": "38. We are reviewing the impact of this decision on related advice or guidance, including: • Director penalties • Annexure B of Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts • Practical Compliance Guideline PCG 2020/2 Expansion of estimates regime to GST, LET and WET | • Director penalties • Annexure B of Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts • Practical Compliance Guideline PCG 2020/2 Expansion of estimates regime to GST, LET and WET", "Related_Documents": "2023 ATC 20-879 | TAA 1953 260-5 | TAA 1953 Div 268 | TAA 1953 268-10(1) | TAA 1953 268-10(2) | TAA 1953 268-10(3) | TAA 1953 268-15(1) | TAA 1953 268-20(1) | TAA 1953 268-25 | TAA 1953 Subdiv 268-D | TAA 1953 268-35 | TAA 1953 268-35(1) | TAA 1953 268-35(3) | TAA 1953 268-40 | TAA 1953 268-40(1) | TAA 1953 268-45 | TAA 1953 268-90 | TAA 1953 268-90(2) | TAA 1953 268-90(3) | TAA 1953 268-95 | TAA 1953 Div 269 | TAA 1953 269-25 | TAA 1953 269-35 | Corporations Act 2001 198G | Corporations Act 2001 198G(3)(b) | [2022] FCA 1346 | PCG 2020/2 | PS LA 2011/18", "Legislative_References": "TAA 1953 260-5 TAA 1953 Div 268 TAA 1953 268-10(1) TAA 1953 268-10(2) TAA 1953 268-10(3) TAA 1953 268-15(1) TAA 1953 268-20(1) TAA 1953 268-25 TAA 1953 Subdiv 268-D TAA 1953 268-35 TAA 1953 268-35(1) TAA 1953 268-35(3) TAA 1953 268-40 TAA 1953 268-40(1) TAA 1953 268-45 TAA 1953 268-90 TAA 1953 268-90(2) TAA 1953 268-90(3) TAA 1953 268-95 TAA 1953 Div 269 TAA 1953 269-25 TAA 1953 269-35 Corporations Act 2001 198G Corporations Act 2001 198G(3)(b)", "Case_References": "Lee v Deputy Commissioner of Taxation; Silverbrook v Deputy Commissioner of Taxation [2020] NSWCA 95 Mandalinic v Stone (Liquidator) [2023] FCAFC 146 299 FCR 374 Mandalinic v Stone (Liquidator) (No 2) [2023] FCAFC 176 Re: Priority Matters v Deputy Commissioner of Taxation [2022] NSWSC 208 Stone (Liquidator) in the matter of RIC Admin Pty Ltd (in liq) v Mandalinic [2022] FCA 1346 Stone (Liquidator), in the matter of RIC Admin Pty Ltd (in liq) v Mandalinic (No 2) [2024] FCA 164 Re: Priority Matters Pty Ltd [2022] NSWSC 3 Transtar Linehaul Pty Ltd v Deputy Commissioner of Taxation [2011] FCA 856", "Subject_References": "", "Other_References": "PCG 2020/2 PS LA 2011/18", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/nsd1022of2022/00001", "Unmatched_Content": "Issue 1 – whether a director could file an affidavit under subsection 268-40(1), table item 2 in a proceeding to recover a director's penalty | ATO view of this decision | Implications for affected advice or guidance | Commissioner of Taxation 19 February 2025 | Footnotes: [1] At the time the affidavit was filed, the company was in liquidation and a liquidator had been appointed. | [2] Subsections 268-10(1), (2) and (3) empower the Commissioner to estimate the unpaid and overdue amounts of certain liabilities including PAYG withholding, with the estimate being the amount the Commissioner thinks is reasonable having regard to anything the Commissioner thinks is relevant. The Commissioner must give written notice of the estimate, and the amount of the estimate becomes a liability due and payable when notice is given: subsections 268-15(1) and 268-20(1). Subject to the mechanisms provided in Subdivision 268-D to reduce or revoke the estimate, the statutory scheme is that the accuracy of the estimate is irrelevant to the liability to pay; so much is made clear by section 268-25. Section 268-40 is one of these mechanisms. It permits statutory declarations to be given to the Commissioner or affidavits to be filed in specific circumstances with the effect of reducing or revoking estimates made by the Commissioner. | [3] Stone (Liquidator), in the matter of RIC Admin Pty Ltd (in liq) v Mandalinic [2022] FCA 1346 ( Mandalinic ). | [4] Those issues were the focus of a February 2024 judgment of Halley J: Stone (Liquidator), in the matter of RIC Admin Pty Ltd (in liq) v Mandalinic (No 2) [2024] FCA 164. | [6] The other members of that Court, McCallum JA and Simpson AJA, writing separately, simply agreed with Payne JA's written reasons. | [7] This is based on the Full Court's rephrasing at [3] of Halley J's expression of the first question at Mandalinic at [14(a)] of that case. | [9] Mandalinic at [154-155]. | [10] At [1] and [104]. See also the related judgment dealing with the questions of costs: Mandalinic v Stone (Liquidator) (No 2) [2023] FCAFC 176 at [2]. | [11] Mandalinic at [83-85]. | [12] Mandalinic at [100-109]. | [13] Mandalinic at [63-68]. | [14] See [66] and also Mandalinic v Stone (Liquidator) (No 2) [2023] FCAFC 176 at [4]: 'Here the intervention of the Commissioner was in our view necessary. At issue was an important question of construction of a statute administered by the Commissioner'. | ... if neither a proceeding by a taxpayer who is the recipient of the estimate notice for a declaration that the estimate notice is revoked ( Transtar ), nor a proceeding by a taxpayer seeking to set aside a statutory demand ( Priority Matters ), is a proceeding that \"relates to\" the recovery of the unpaid amount of the estimate, it is difficult to conceive how the proceeding against Mr Mandalinic for recovery of a director penalty might fall within the bounds of that relationship - it is surely even further removed because the taxpayer (the company) is not even a party and the relevant debt that is the subject of the proceeding is not the estimate. | [27] At [38-39] and [53-54]. | [30] Their Honours reasoned at [50] that 'just because a company that has received an estimate is in, or goes into, liquidation does not mean that the only mechanism by which the estimate may be reduced or revoked is the rejection of proof procedure under s 268-45. Sections 268-40 and 268-90 must be construed on the basis that they apply (inter alia) where the company receiving an estimate is in liquidation'. | [36] See Mandalinic at [56], for Halley J's decision containing extracts from the Commissioner's written submissions in the special leave application. | [39] Subsections 268-35(1) and (3) empower the Commissioner at any time to reduce the amount of a Division 268 estimate or revoke the estimate but specifically provide that the Commissioner 'is not obliged to consider whether or not to do so'. | [40] For completeness, table items 2 and 3 to section 268-40 provide the Court with a similar discretion to extend the time to file a relevant affidavit. (Table item 3 is concerned with the case of a winding up application having been made following the service on a company of a statutory demand relating to the company's liability to pay an estimate.)"}
{"Case_Name": "Simplot Australia Pty Limited v Commissioner of Taxation", "Venue_Reference_No": "VID 59 of 2022", "Venue": "Federal Court of Australia", "Judgment_Date": "22 September 2023", "Date_Published": "23 July 2025", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerned whether 6 frozen food products were 'food of a kind marketed as a prepared meal'. | A supply of food is taxable under paragraph 38-3(1)(c) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if it is food of a kind specified in the third column of table item 4 of clause 1 of Schedule 1 to the GST Act. | All legislative references in this Decision impact statement are to the GST Act, unless otherwise indicated. Unless otherwise indicated, all judgment paragraph references are to the judgment of Simplot Australia Pty Limited v Commissioner of Taxation [2023] FCA 1115 ( Simplot ).", "Overview_of_Facts": "The case concerned the GST classification of certain frozen food products supplied or imported by Simplot Australia Pty Limited (Simplot Australia). The products each contained a mix of vegetables along with spices or seasonings (some included grains). Some products were labelled as 'sides', while others provided serving suggestions, including through pictures that displayed the products served with added protein (for example, chicken or pork). | The Commissioner issued assessments to Simplot Australia on the basis that the supply or importation of the products were subject to GST because they were 'food of a kind marketed as a prepared meal'. Simplot Australia objected to the assessments, the Commissioner disallowed the objections and Simplot Australia appealed to the Federal Court.", "Issues_Decided": "The Court held the statutory question to be a single composite question – that being, is the product 'food of a kind marketed as a prepared meal'? The Court said the words 'of a kind' in paragraph 38-3(1)(c) are words of expansion rather than limitation. They have the effect that the third column of Schedule 1 refers to a class or genus of food rather than an identification of a specific item of food. [1] The statutory question is not how the product itself was marketed, but whether the product is a member of a class of foods that are marketed as prepared meals. [2] While the actual marketing of the product in question may be of some relevance, it is not determinative. What is required is consideration of the marketing generally of products of the same kind as the product in question – that is, by other sellers. [3] The Court noted that there is no necessary dichotomy between a meal component or side dish and a meal. [4] The legislation draws no distinction between the two. Food can be of a kind marketed as a prepared meal despite it being a meal component. The Court stated that the attributes of a 'prepared meal' are to be discerned from common experience and include [5] : (a) quantity – a meal connotes a quantity of substance, even if it may be termed a small meal; (b) composition – a prepared meal connotes food consisting of more than one ingredient or element. Whether a combination of foods constitutes a meal is a question of fact and degree. A dish comprised solely of vegetables can be a meal. However a serving of a mix of vegetables (e.g. peas and corn) may not be a meal; (c) presentation – a prepared meal connotes a combination of foods that is complete. Matters such as seasoning, sauces and flavourings may all be relevant in determining whether foods are of a kind marketed as a prepared meal. In concluding that all the products in question were 'food of a kind marketed as a prepared meal', the Court said [6] : Foods of a kind marketed as a prepared meal therefore refers to foods of a sufficient quantity, mix and seasonings as to be regarded by the ordinary person as being of a kind that are marketed as a prepared meal.", "ATO_View_of_Decision": "This decision confirms the Commissioner's classification of these particular products. | A product is taxable as 'food of a kind marketed as a prepared meal' if it is within a class or genus of food marketed generally as having the attributes of a prepared meal (including quantity, composition and presentation). The Court has left open that a prepared meal may have attributes additional to the 3 stated. | As the concepts of 'meal' and 'meal component' are not mutually exclusive, a product which is regarded as a 'meal component' may yet be taxable as 'food of a kind marketed as a prepared meal' in some situations. | This does not mean that everything which is a meal component or any particular meal component will be taxable. Whether or not a meal component is taxable will depend on application of the statutory test as a 'single composite question'. | In practice, it will be the facts, circumstances and evidence which determine whether a meal component is 'food of a kind marketed as a prepared meal'. | The Commissioner considers that it will be rare that, as a result of the decision in Simplot, a meal component not previously understood to be taxable will now be understood to come within a class or genus of food marketed generally as having the attributes of a prepared meal (including quantity, composition and presentation). | For example, many prepared meals include peas, but the supply of only frozen peas is not 'food of a kind marketed as a prepared meal'. The decision in Simplot does not now make a supply of frozen peas taxable. Frozen peas are not a mix of ingredients, and are not seasoned, flavoured or presented as a complete meal. They do not have the attributes necessary to make them 'food of a kind marketed as a prepared meal'. The same will apply for products like frozen mixed vegetables, frozen crumbed chicken pieces, and frozen fish pieces. | Taxpayers should review food products to ensure they are classifying them consistently with the decision in Simplot. If taxpayers are uncertain about the GST treatment of any products, we encourage them to seek ATO advice while we develop further public guidance.", "Administrative_Treatment": "We have reviewed the impact of the decision in Simplot on related advice and guidance products, including Goods and Services Tax Industry Issue GSTII FL1 Detailed Food List (DFL), the GST issues register Food industry partnership (including Goods and Services Tax Industry Issue GSTII FI3 Prepared food) and ATO Interpretative Decisions. | In July 2025, we published: • Goods and Services Tax Determination GSTD 2025/1 Goods and services tax: supplies of food of a kind marketed as a prepared meal • an addendum to the DFL • the withdrawal of Goods and Services Tax Industry Issue GSTII FI3 Prepared food . | GSTD 2025/1 explains the implications of the Simplot decision and how the principles from this decision apply to other products. | The addendum to the DFL ensures the DFL entries align to the principles in GSTD 2025/1.", "Related_Documents": "Goods and Services Tax Industry Issue GSTII FL1 Detailed Food List | Goods and Services Tax Industry Issue GSTII FI3 Prepared food | GST issues register Food industry partnership | 2023 ATC 20-881 | 38-3(1)(c) | Schedule 1 | 2006 ATC 4339 | 2011 ATC 20-239", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 38-3(1)(c) Schedule 1", "Case_References": "Cascade Brewery v Commissioner of Taxation [2006] FCA 821 (2006) 153 FCR 11 2006 ATC 4339 64 ATR 28 [2006] ALMD 7073 Lansell House Pty Ltd v Commissioner of Taxation (2011) 190 FCR 354 [2011] FCAFC 6 2011 ATC 20-239 [2011] ALMD 2353 (2011) 79 ATR 22", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID59of2022/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products. | Implications for impacted advice or guidance | Updated to reflect Goods and Services Tax Determination GSTD 2025/1 Goods and services tax: supplies of food of a kind marketed as a prepared meal and an addendum to Goods and Services Tax Industry Issue GSTII FL1 Detailed Food List was published and Goods and Services Tax Industry Issue GSTII FI3 Prepared food was withdrawn. | Footnotes: [1] At [98–99], applying Cascade Brewery Company Pty Limited v Commissioner of Taxation [2006] FCA 821 at [16] and Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6 at [30]."}
{"Case_Name": "Aurizon Holdings Limited v Commissioner of Taxation", "Venue_Reference_No": "NSD 1278 of 2020", "Venue": "Federal Court of Australia", "Judgment_Date": "8 April 2022", "Date_Published": "25 August 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case. The primary issue in this case concerned whether an amount contributed to a company, which was not in exchange for an issue of shares, qualifies as 'share capital' for the purposes of section 975-300 of the Income Tax Assessment Act 1997. | A secondary issue concerned whether the Court should decline to exercise its discretion to make a declaration under section 21 of the Federal Court of Australia Act 1976 and section 39B of the Judiciary Act 1903 because the private ruling process provided an alternative and more appropriate remedy for the applicant.", "Overview_of_Facts": "Aurizon Operations Limited (formerly known as QR Limited) was the parent company of a group of companies now known as the QR Group, which carried on a large transport and logistics business throughout Australia. All the shares in Aurizon Operations Limited were held for, and on behalf of, the State of Queensland (Queensland) by Queensland Ministers. | As was set out in the reasons for decision, on 8 December 2009 the Queensland Premier and Treasurer announced the public float and listing on the Australian Securities Exchange initial public offering (IPO) of Aurizon Operations Limited's coal and freight network under the name of 'QR National Limited', which later became known as Aurizon Holdings Limited (Aurizon). | In anticipation of the IPO, Queensland hired the services of professional firms to advise on the restructure of the QR Group and the IPO. The original advice contemplated that the 'State Contribution' would be made in exchange for shares. | The QR Group, together with Queensland, undertook the following steps in preparing for the IPO: • On 14 September 2010, Aurizon was incorporated with 2 fully-paid ordinary shares issued to Queensland Ministers. • On 21 September 2010, Queensland transferred its 100% interest in Aurizon Operations Limited to Aurizon in consideration for the issue by Aurizon of 98 fully-paid ordinary shares to Queensland Ministers. • On 6 October 2010, the 100 ordinary shares held by Queensland Ministers were split into 2.44 billion ordinary shares which would become the shares offered under the IPO. • In accordance with the Transfer Notice - Project Direction issued on 15 November 2010 (November Direction), Queensland effectively forgave a $4.3 billion receivable owed to it by Aurizon Operations Limited (Aurizon's subsidiary), by transferring the receivable to Aurizon. This transaction was referred to by the parties as the 'State Contribution'. • The November Direction issued by the Queensland Treasurer provided that the State Contribution was provided for nil consideration and designated that the contribution was to be adjusted against the contributed equity of Aurizon. | • On 14 September 2010, Aurizon was incorporated with 2 fully-paid ordinary shares issued to Queensland Ministers. • On 21 September 2010, Queensland transferred its 100% interest in Aurizon Operations Limited to Aurizon in consideration for the issue by Aurizon of 98 fully-paid ordinary shares to Queensland Ministers. • On 6 October 2010, the 100 ordinary shares held by Queensland Ministers were split into 2.44 billion ordinary shares which would become the shares offered under the IPO. • In accordance with the Transfer Notice - Project Direction issued on 15 November 2010 (November Direction), Queensland effectively forgave a $4.3 billion receivable owed to it by Aurizon Operations Limited (Aurizon's subsidiary), by transferring the receivable to Aurizon. This transaction was referred to by the parties as the 'State Contribution'. • The November Direction issued by the Queensland Treasurer provided that the State Contribution was provided for nil consideration and designated that the contribution was to be adjusted against the contributed equity of Aurizon. | In Aurizon's financial accounts, the $4.3 billion State Contribution was credited to a newly-created equity account labelled the 'Capital Distribution' account, which was a distinct and separate account from the existing 'Authorised Capital' account of Aurizon, which the Commissioner had accepted as being a share capital account. | Aurizon did not apply for a private ruling regarding the characterisation of the State Contribution but instead, on 27 November 2020, filed an application in the Federal Court seeking a declaration pursuant to section 21 of the Federal Court of Australia Act 1976 and section 39B of the Judiciary Act 1903 that the State Contribution was share capital for the purposes of section 975-300 of the Income Tax Assessment Act 1997. | Issues decided by the Court | Aurizon contended that the State Contribution was share capital on 2 grounds: • any contribution by a member that is not a loan or gift is share capital, and • the State Contribution could be regarded as being sufficiently connected to, or being regarded as, consideration for an earlier issue of shares. | • any contribution by a member that is not a loan or gift is share capital, and • the State Contribution could be regarded as being sufficiently connected to, or being regarded as, consideration for an earlier issue of shares. | The Commissioner contended that the State Contribution was not share capital because it was not made in exchange for shares, and instead that it was another form of contributed capital. | The Commissioner also contended that the Court should decline to provide declaratory relief as the appropriate remedy for Aurizon was to seek a private ruling and, in the event that it did not agree with the ruling, to commence proceedings under Part IVC of the Taxation Administration Act 1953. | Thawley J found that cases such as Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) [1] , Re the Swan Brewery Co Ltd [2] , Cable & Wireless Australia & Pacific Holding BV (in liquidatie) v Commissioner of Taxation [3] , Kellar v Williams [4] and The Commissioners for HM Revenue and Customs v Alan Blackburn Sports Limited [5] did not support Aurizon's contention that any money or property contributed by a member, in that capacity, to a company is share capital, except if it is made by way of loan or gift. | Instead, His Honour noted that these cases actually reaffirmed the Commissioner's position that members may make contributions of equity that are not share capital. That said, His Honour also observed that the cases [6] do not eliminate the possibility of share capital existing in a scenario such as this where the contemporaneous evidence suggests the contribution was, in fact, for share capital despite shares not being issued. | His Honour stated at [7] that: [t]he term \"share capital\" almost invariably refers to the capital contributed to a company in exchange for shares. However, as this case demonstrates, this does not supply an exhaustive definition of share capital. | His Honour also noted at [67] that while the cases such as Archibald Howie do consider what typically constitutes share capital, the cases do not consider the precise issue raised in this case: ... namely the classification of an amount paid to a company by its sole shareholder, expressed to be for \"nil consideration\" and not in exchange for a new issue of shares, but which was to be adjusted to the contributed equity of the company, that contributed equity at the time being constituted only by share capital. | His Honour then applied the principles discussed in the earlier part of the reasons to the facts and circumstance of the case. His Honour noted at [56] that '[t]he Commissioner contended that the character of the State Contribution was to be determined primarily from the plain language of ...' the formal legal documents and at [97] that '[u]nderstandably, the Commissioner emphasised that paragraph 6 of the November Direction expressly stated that the consideration for the State Contribution was \"nil\".' | However, His Honour pointed out at [97] that the plain language of nil consideration needs to be 'read in the context of the whole document' and 'must also be read in the context of the known background leading to the ...' production of the formal legal documents. His Honour observed at [98] that when the plain words are considered with the background context in mind, the words 'nil consideration' merely meant that the State Contribution was '... not a loan and that it was a contribution in respect of which further shares would not be issued'. It did not mean the State Contribution was not in respect of share capital. | His Honour also considered paragraph 7 of the November Direction, where he held at [99] that '... the November Direction confirms that the State Contribution was intended to augment the existing contributed equity'. His Honour considered at [99] '... that the word \"designate\" was used in paragraph 7 by reason of the terms of [AASB] Interpretation 1038' and that: [t]he \"designation\" makes [it] clear that the contribution was not intended as a gift; it was intended to be redeemable despite no new equity instruments in fact being issued in exchange ... | His Honour went on to note at [99] that as the 'contribution was to be \"adjusted against the contributed equity\" ...', which at the time only constituted of share capital, this '...suggests that the contribution was intended to be to share capital despite no new shares being issued'. | Assessed objectively against the known background events and earlier transactions, Thawley J concluded that the State Contribution was a contribution of share capital. | On the secondary issue, His Honour held that declaratory relief was available having regard to the specific circumstances in this case.", "Issues_Decided": "Aurizon contended that the State Contribution was share capital on 2 grounds: • any contribution by a member that is not a loan or gift is share capital, and • the State Contribution could be regarded as being sufficiently connected to, or being regarded as, consideration for an earlier issue of shares. • any contribution by a member that is not a loan or gift is share capital, and • the State Contribution could be regarded as being sufficiently connected to, or being regarded as, consideration for an earlier issue of shares. The Commissioner contended that the State Contribution was not share capital because it was not made in exchange for shares, and instead that it was another form of contributed capital. The Commissioner also contended that the Court should decline to provide declaratory relief as the appropriate remedy for Aurizon was to seek a private ruling and, in the event that it did not agree with the ruling, to commence proceedings under Part IVC of the Taxation Administration Act 1953. Thawley J found that cases such as Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) [1] , Re the Swan Brewery Co Ltd [2] , Cable & Wireless Australia & Pacific Holding BV (in liquidatie) v Commissioner of Taxation [3] , Kellar v Williams [4] and The Commissioners for HM Revenue and Customs v Alan Blackburn Sports Limited [5] did not support Aurizon's contention that any money or property contributed by a member, in that capacity, to a company is share capital, except if it is made by way of loan or gift. Instead, His Honour noted that these cases actually reaffirmed the Commissioner's position that members may make contributions of equity that are not share capital. That said, His Honour also observed that the cases [6] do not eliminate the possibility of share capital existing in a scenario such as this where the contemporaneous evidence suggests the contribution was, in fact, for share capital despite shares not being issued. His Honour stated at [7] that: [t]he term \"share capital\" almost invariably refers to the capital contributed to a company in exchange for shares. However, as this case demonstrates, this does not supply an exhaustive definition of share capital. His Honour also noted at [67] that while the cases such as Archibald Howie do consider what typically constitutes share capital, the cases do not consider the precise issue raised in this case: ... namely the classification of an amount paid to a company by its sole shareholder, expressed to be for \"nil consideration\" and not in exchange for a new issue of shares, but which was to be adjusted to the contributed equity of the company, that contributed equity at the time being constituted only by share capital. His Honour then applied the principles discussed in the earlier part of the reasons to the facts and circumstance of the case. His Honour noted at [56] that '[t]he Commissioner contended that the character of the State Contribution was to be determined primarily from the plain language of ...' the formal legal documents and at [97] that '[u]nderstandably, the Commissioner emphasised that paragraph 6 of the November Direction expressly stated that the consideration for the State Contribution was \"nil\".' However, His Honour pointed out at [97] that the plain language of nil consideration needs to be 'read in the context of the whole document' and 'must also be read in the context of the known background leading to the ...' production of the formal legal documents. His Honour observed at [98] that when the plain words are considered with the background context in mind, the words 'nil consideration' merely meant that the State Contribution was '... not a loan and that it was a contribution in respect of which further shares would not be issued'. It did not mean the State Contribution was not in respect of share capital. His Honour also considered paragraph 7 of the November Direction, where he held at [99] that '... the November Direction confirms that the State Contribution was intended to augment the existing contributed equity'. His Honour considered at [99] '... that the word \"designate\" was used in paragraph 7 by reason of the terms of [AASB] Interpretation 1038' and that: [t]he \"designation\" makes [it] clear that the contribution was not intended as a gift; it was intended to be redeemable despite no new equity instruments in fact being issued in exchange ... His Honour went on to note at [99] that as the 'contribution was to be \"adjusted against the contributed equity\" ...', which at the time only constituted of share capital, this '...suggests that the contribution was intended to be to share capital despite no new shares being issued'. Assessed objectively against the known background events and earlier transactions, Thawley J concluded that the State Contribution was a contribution of share capital. On the secondary issue, His Honour held that declaratory relief was available having regard to the specific circumstances in this case.", "ATO_View_of_Decision": "It is the ATO's view that this decision has very limited application beyond its own factual circumstances. His Honour makes it clear that ultimately it was a case that turned on its own particular facts and circumstances. Noting the unusual circumstances of this particular matter, it is the Commissioner's view that the decision reaffirms the pre-existing view as to what generally is to be treated as share capital, with His Honour stating at [7] that '...[t]he term \"share capital\" almost invariably refers to the capital contributed to a company in exchange for shares.' | The Commissioner considers that the approach in this case as to what constitutes share capital will only be relevant in the unusual circumstance where there is clear contemporaneous evidence that the objective intention was that the relevant amount was always meant to be a contribution to share capital. | In respect to the issue of declaratory relief [7] , His Honour at [108] accepted the utility of the private ruling regime as a way for taxpayers to obtain certainty on the Commissioner's view about how particular laws administered by the Commissioner apply to specific circumstances of the taxpayer. His Honour observed at [108] that the ruling regime was not particularly well-suited to dealing with the present case. His Honour observed that: • it would have been difficult to agree on a number of relevant facts • any appeal against the ruling would be restricted to the facts set out in the ruling, some of which would have been wrong in some respect, and • shareholders would not have the benefit of the ruling. | • it would have been difficult to agree on a number of relevant facts • any appeal against the ruling would be restricted to the facts set out in the ruling, some of which would have been wrong in some respect, and • shareholders would not have the benefit of the ruling. | The Commissioner acknowledges that this was an unusual case. Nevertheless, the Commissioner considers that the private binding ruling process is capable of dealing with complicated factual circumstances.", "Administrative_Treatment": "It is the ATO's view that the Aurizon decision is considered to have very limited application as it turned on its own facts. | The Commissioner does not intend to alter ATO precedential documents or Law administration practice statements. It is the Commissioner's view that the decision reaffirms the pre-existing ATO view as to what generally is to be treated as contributed share capital.", "Related_Documents": "None | 2022 ATC 20-824 | 975-300 | Pt IVC | 77 CLR 143 | 2016 ATC 20-555 | 2017 ATC 20-617 | PS LA 2009/9", "Legislative_References": "ITAA 1997 975-300 TAA 1953 Pt IVC Federal Court of Australia Act 1976 21 Judiciary Act 1903 39B", "Case_References": "Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) [1948] HCA 28 77 CLR 143 [1948] 2 ALR 489 49 SR (NSW) 112 66 WN (NSW) 51 22 ALJ 331 Cable & Wireless Australia & Pacific Holding BV (in liquidatie) v Commissioner of Taxation [2016] FCA 78 2016 ATC 20-555 102 ATR 542 110 ACSR 616 Cable & Wireless Australia & Pacific Holding BV (in liquidatie) v Commissioner of Taxation [2017] FCAFC 71 251 FCR 483 2017 ATC 20-617 346 ALR 202 Kellar v Williams [2000] 2 BCLC 390 Re The Swan Brewery Co Ltd (1976) 3 ACLR 164 The Commissioners for HM Revenue and Customs v Alan Blackburn Sports Limited [2008] EWCA Civ 1454", "Subject_References": "", "Other_References": "PS LA 2009/9", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1278of2020/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products. | [3] [2016] FCA 78 and [2017] FCAFC 71. | [4] [2000] 2 BCLC 390 at [395]; [2000] UKPC 4. | [5] [2008] EWCA Civ 1454. | [7] Law Administration Practice Statement PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution."}
{"Case_Name": "Commissioner of Taxation v Carter", "Venue_Reference_No": "S62/2021", "Venue": "High Court", "Judgment_Date": "6 April 2022", "Date_Published": "10 June 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to Commissioner of Taxation v Carter [2022] HCA 10. | The main issue in this case was the taxation of gains from the sale of properties held in a trust. The question for the High Court was whether the default beneficiaries who were entitled to those gains under the deed remained liable to tax despite validly disclaiming their right to those gains after year end. | All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1936.", "Overview_of_Facts": "The Commissioner had determined that in each of the years in issue (2010-11 to 2013-14), the Whitby Trust had earned income from the development and sale of certain property. | By the end of each of the relevant income years, some or all of the income of the Whitby Trust was not subject to an effective determination by the trustee (Whitby Land Company Pty Ltd). Under the trust deed, any such income was to be held on trust in equal shares for the 5 children of Mr Caratti (the default beneficiaries). | The assessments | The core trust taxation rules are contained in Division 6 of Pt III. Key provisions within that Division are sections 97 and 99A. Under section 97, a beneficiary who is presently entitled to a share of the income of a trust for a particular year includes in their assessable income that share of the trust's net (taxable) income for that year. Where a share of the income of a trust is income to which no beneficiary is presently entitled, the trustee is assessed on that share of the trust's net (taxable) income under section 99A. | The Commissioner raised alternative assessments against: • Whitby Land Company Pty Ltd as trustee of the Whitby Trust; these were section 99A assessments, and • the default beneficiaries; of the 5 takers in default (Christina Caratti, Natalie Carter, Alisha Caratti, Nicole Caratti and Benjamin Caratti), Benjamin was a minor at the relevant time and the trustee was assessed on his behalf in a representative capacity under section 98 on his 20% share of the net income. The other default beneficiaries were assessed on their respective shares under section 97. | • Whitby Land Company Pty Ltd as trustee of the Whitby Trust; these were section 99A assessments, and • the default beneficiaries; of the 5 takers in default (Christina Caratti, Natalie Carter, Alisha Caratti, Nicole Caratti and Benjamin Caratti), Benjamin was a minor at the relevant time and the trustee was assessed on his behalf in a representative capacity under section 98 on his 20% share of the net income. The other default beneficiaries were assessed on their respective shares under section 97. | The default beneficiaries subsequently executed a series of disclaimers in respect of their default entitlements. In particular, the third (and final) disclaimers were expressed broadly to disclaim any and all rights and interests conferred by the deed to any income. [1] | Administrative Appeals Tribunal proceedings | The trustee and the 4 default beneficiaries of age challenged the Commissioner's decision to disallow objections against the assessments for the 2010-11 to 2012-13 years (for the trustee) and the 2013-14 year (for those default beneficiaries). [2] | The quantum of the income being brought to tax in the relevant years was not disputed by the litigants; rather, they disputed who was properly assessable on that income. [3] | In a decision handed down on 23 December 2019, the Tribunal (constituted by DP O'Loughlin) affirmed each of the Commissioner's relevant objection decisions. As to the default beneficiaries of age, the Tribunal concluded that none of the disclaimers executed were effective at general law. On that basis, the Tribunal did not need to express views on whether the disclaimers would have worked to disapply section 97 had they been effective. | Federal Court proceedings | Three of the 4 default beneficiaries of age (but not Christina Caratti, nor the trustee of the Whitby Trust) appealed the Tribunal's decision to the Federal Court. The appeal was heard by the Full Court. [4] | In a decision handed down on 17 August 2020, the Court concluded (contrary to the Tribunal's decision) that the third disclaimers executed by the Caratti daughters were effective at general law to disclaim the entirety of their default interests, Further, the Court concluded that for section 97 purposes, the daughters were (as a result of the disclaimers) not presently entitled to income within the meaning of section 97 as at 30 June 2014 - in other words, that the disclaimers were retrospectively effective for tax purposes. Therefore, section 97 did not apply to assess the Caratti daughters on any share of the trust's net (taxable) income. | High Court proceedings | On 23 April 2021, the High Court (Gageler, Edelman and Gleeson JJ) granted the Commissioner special leave to appeal. The grounds of appeal solely concerned the discrete issue of whether a valid (legally effective) disclaimer executed by a default beneficiary has the effect of retrospectively avoiding the application of section 97. | The High Court, constituted by Gageler, Gordon, Edelman, Steward and Gleeson JJ, heard the appeal on 9 November 2021. | On 6 April 2022, the High Court unanimously allowed the Commissioner's appeal with Gageler, Gordon, Steward and Gleeson JJ delivering a joint judgment in favour of the Commissioner and Edelman J, in agreement, writing separately. | Issues decided by the High Court | The High Court emphasised that the resolution of this case turned on the proper construction of Division 6 and, in particular, the time at which a beneficiary must be presently entitled to income of a trust to engage section 97. | The statutory construction of section 97 | The High Court observed that the criterion for liability in Division 6 turns on the right to receive an amount of distributable income, not its receipt. [5] | The High Court accepted the Commissioner's submission that a beneficiary's liability is based on 'present entitlement', which turns on the facts existing at the time immediately before the end of the income year. [6] In line with the well-known authorities of Bamford [7] , Harmer [8] and Zeta Force [9] , the High Court confirmed that beneficiaries are to be assessed on their share of the trust's net (taxable) income based on their present entitlement to a share of the trust income immediately before the end of the relevant income year. | The High Court emphatically rejected the respondents' contention that the phrase 'presently entitled' should have regard to later events that would disentitle the beneficiary. | The majority decision concluded that [10] : ... the question of the \"present entitlement\" of a beneficiary to income of a trust must be tested and examined \"at the close of the taxation year\" ..., not some reasonable period of time after the end of the taxation year. | This was similarly expressed by Edelman J [11] : A \"present entitlement\" to a share of the income of the trust estate in s 97(1) is an entitlement at the \"present\" time of the determination, being the end of the relevant financial year, whether or not that entitlement is later the subject of defeasance by a disclaimer. | The High Court observed that the competing construction (put by the respondents) was '... contrary to the text of s 97(1) and the object and purpose of Div 6', adding [12] : It would give rise to uncertainty in the identification of the beneficiaries presently entitled to a share of the income of a trust estate and the subsequent assessment of those beneficiaries. ... The uncertainties that would arise, and which would apply with equal force to the Commissioner, trustees, beneficiaries and perhaps even settlors, would also not be fair, convenient or efficient. | While the majority did acknowledge that unfairness can arise where a beneficiary is not aware of its entitlement to trust income, their Honours noted that this is a function of the operation of Division 6 and the fact that subsection 97(1) is drafted to tax a beneficiary by reference to present entitlement not receipt. The High Court noted that this is similar to the apparent unfairness identified in Bamford, the High Court in that case recognising that this arises because subsection 97(1) taxes a beneficiary on a share of the trust's net income, not the distributable income to which they are entitled, and does so regardless of whether distributable income is received. [13]", "Issues_Decided": "The High Court emphasised that the resolution of this case turned on the proper construction of Division 6 and, in particular, the time at which a beneficiary must be presently entitled to income of a trust to engage section 97. | The statutory construction of section 97: The High Court observed that the criterion for liability in Division 6 turns on the right to receive an amount of distributable income, not its receipt. [5] The High Court accepted the Commissioner's submission that a beneficiary's liability is based on 'present entitlement', which turns on the facts existing at the time immediately before the end of the income year. [6] In line with the well-known authorities of Bamford [7] , Harmer [8] and Zeta Force [9] , the High Court confirmed that beneficiaries are to be assessed on their share of the trust's net (taxable) income based on their present entitlement to a share of the trust income immediately before the end of the relevant income year. The High Court emphatically rejected the respondents' contention that the phrase 'presently entitled' should have regard to later events that would disentitle the beneficiary. The majority decision concluded that [10] : ... the question of the \"present entitlement\" of a beneficiary to income of a trust must be tested and examined \"at the close of the taxation year\" ..., not some reasonable period of time after the end of the taxation year. This was similarly expressed by Edelman J [11] : A \"present entitlement\" to a share of the income of the trust estate in s 97(1) is an entitlement at the \"present\" time of the determination, being the end of the relevant financial year, whether or not that entitlement is later the subject of defeasance by a disclaimer. The High Court observed that the competing construction (put by the respondents) was '... contrary to the text of s 97(1) and the object and purpose of Div 6', adding [12] : It would give rise to uncertainty in the identification of the beneficiaries presently entitled to a share of the income of a trust estate and the subsequent assessment of those beneficiaries. ... The uncertainties that would arise, and which would apply with equal force to the Commissioner, trustees, beneficiaries and perhaps even settlors, would also not be fair, convenient or efficient. While the majority did acknowledge that unfairness can arise where a beneficiary is not aware of its entitlement to trust income, their Honours noted that this is a function of the operation of Division 6 and the fact that subsection 97(1) is drafted to tax a beneficiary by reference to present entitlement not receipt. The High Court noted that this is similar to the apparent unfairness identified in Bamford, the High Court in that case recognising that this arises because subsection 97(1) taxes a beneficiary on a share of the trust's net income, not the distributable income to which they are entitled, and does so regardless of whether distributable income is received. [13]", "ATO_View_of_Decision": "The High Court decision settles an important practical question as to how trust income is to be brought to tax when relevant trust entitlements are disclaimed in a legally effective manner [14] sometime after financial year end. | It tells us that such disclaimers do not disturb what would otherwise be the tax result. Beneficiaries who have an interest in, or entitlement to, trust income should now take this into account if they were otherwise considering not accepting that interest or entitlement and instead looking to disclaim it.", "Administrative_Treatment": "ATO Interpretative Decision ATO ID 2010/85 Trust income: disclaimer of an entitlement to trust income expressed the view derived from earlier authority that a beneficiary who has validly disclaimed an entitlement to trust income is not presently entitled to a share of the income of the trust estate for the purposes of section 97. | The Commissioner has withdrawn this ATO ID and will also update relevant website guidance to reflect the view of the High Court.", "Related_Documents": "ATO ID 2010/85 | [2022] HCA 10 | 2022 ATC 20-822 | ITAA 1936 Pt III Div 6 | 95A | 96 | 97 | 98 | 99 | 99A | 2020 ATC 20-760 | 2010 ATC 20-170 | 2005 ATC 4136 | 91 ATC 5000 | 2017 ATC 20-630 | 98 ATC 4681 | ATO ID 2010/85 (withdrawn)", "Legislative_References": "Income Tax Assessment Act 1936 ITAA 1936 Pt III Div 6 95A 96 97 98 99 99A", "Case_References": "Carter v Commissioner of Taxation [2020] FCAFC 150 279 FCR 83 2020 ATC 20-760 112 ATR 493 Commissioner of Taxation v Bamford [2010] HCA 10 240 CLR 481 84 ALJR 266 75 ATR 1 2010 ATC 20-170 Commissioner of Taxation of the Commonwealth of Australia v Ramsden [2005] FCAFC 39 2005 ATC 4136 58 ATR 485 Harmer v Commissioner of Taxation [1991] HCA 51 173 CLR 264 22 ATR 725 91 ATC 5000 66 ALJR 89 Lewski v Federal Commissioner of Taxation [2017] FCAFC 171 254 FCR 14 106 ATR 566 2017 ATC 20-630 The Trustee for the Whitby Trust v Commissioner of Taxation [2019] AATA 5637 111 ATR 177 Zeta Force Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia [1998] FCA 728 84 FCR 70 98 ATC 4681 39 ATR 277", "Subject_References": "", "Other_References": "ATO ID 2010/85 (withdrawn)", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S62/2021/00001", "Unmatched_Content": "Footnotes: [1] The first disclaimers were expressed to relate specifically to the income derived in the 2010-11 to 2012-13 income years and the second specifically to the income derived in the 2013-14 income year. | [2] The Commissioner had earlier, in error, allowed the daughters' objections against their 2010-11 to 2012-13 year assessments on the basis of a view that they had effectively disclaimed their entitlements to the income of the trust estate in those years. Before the Tribunal, the Commissioner acknowledged his error and, while accepting he was bound by the error for the 2010-11 to 2012-13 years, maintained that the error could not also bind his approach to the 2013-14 year. | [3] The Trustee for the Whitby Trust and Commissioner of Taxation [2019] AATA 5637 at [2]. | [4] Carter v Commissioner of Taxation [2020] FCAFC 150. | [5] Commissioner of Taxation v Carter [2022] HCA 10 ( Carter - High Court ) at [20]. | [6] Carter - High Court at [17], [19], [25] and [33]. | [7] Commissioner of Taxation v Bamford [2010] HCA 10. | [8] Harmer v Commissioner of Taxation [1991] HCA 51. | [9] Zeta Force Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia [1998] FCA 728. | [10] Carter - High Court at [25]. | [11] Carter - High Court at [33]. | [12] Carter - High Court at [24]. | [13] Carter - High Court at [26]. | [14] Whether a disclaimer is effective turns on the general law. An effective disclaimer requires repudiation of the entirety of the gift, the repudiation must be done within a reasonable period of the donee becoming aware of the gift and without the benefit of the gift already having been accepted (see Commissioner of Taxation of the Commonwealth of Australia v Ramsden [2005] FCAFC 39 and Lewski v Commissioner of Taxation [2017] FCAFC 145)."}
{"Case_Name": "Commissioner of Taxation v Landcom", "Venue_Reference_No": "VID 315 of 2022", "Venue": "Full Federal Court of Australia", "Judgment_Date": "22 December 2022", "Date_Published": "27 August 2025", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerned: • whether Landcom was entitled to object to the Commissioner's response to its private ruling request and to appeal against the Commissioner's decision on this objection to the Federal Court, and • how the margin scheme applied to a supply of land comprising multiple freehold interests. | • whether Landcom was entitled to object to the Commissioner's response to its private ruling request and to appeal against the Commissioner's decision on this objection to the Federal Court, and • how the margin scheme applied to a supply of land comprising multiple freehold interests. | All legislative references in this Decision impact statement are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), unless otherwise indicated.", "Overview_of_Facts": "Landcom, a New South Wales (NSW) state-owned corporation that develops and sells real property, held the freehold interests in a number of lots of land which it intended to sell in a single transaction. | As part of the state of NSW, Landcom was not liable for goods and services tax (GST) on this supply of land because of section 114 of the Constitution. Under section 114, the Commonwealth cannot impose tax on State property. As a result, GST is not imposed on supplies of State land (see, for example, section 5 of the A New Tax System (Goods and Services Tax Imposition-General) Act 1999). | However, under the Intergovernmental Agreement on Federal Financial Relations [1] the Commonwealth, States and Territories, including NSW, agreed that they and their entities would operate as if they were subject to the GST legislation and, in circumstances where other entities would be required to pay GST, would pay an equivalent amount (referred to as notional GST). | Consistent with this agreement, Landcom conducted the sale as if GST applied. Landcom and the purchaser agreed to apply the margin scheme in Division 75 to the sale of the land. | Landcom requested a private ruling from the Commissioner on the application of the margin scheme to the sale. Specifically, Landcom sought the Commissioner's view on whether the sale of multiple freehold interests was a single supply for the purposes of working out if table item 4 of subsection 75-10(3) (Item 4) applied. | The effect of Item 4 is, broadly, that if the Commonwealth, a State or a Territory supplies improved land that contained no improvements at the time of the introduction of the GST and that it held since that time, the margin on which GST will be payable is equal to the difference between the sale price and the value of the land on the day of sale, disregarding any improvements. [2] | The Commissioner ruled that, for the purposes of Item 4, Landcom's supply of multiple freehold interests was a single supply of land. This ruling did not address the question of whether the land or any part of the land in question contained improvements. | Landcom objected to the ruling it had received and the Commissioner disallowed the objection. | Issues decided by the Court | Two issues were considered by Thawley J in the Federal Court at first instance [3] : • First issue: did the case involve a matter that was within the jurisdiction of the Federal Court, given the issue in dispute related solely to the calculation of notional GST for which Landcom could not be liable under the GST law? • Second issue: when considering if Item 4 applied to Landcom's sale of land comprising multiple interests, was the sale one supply of the land as a whole or individual supplies of each individual interest? | • First issue: did the case involve a matter that was within the jurisdiction of the Federal Court, given the issue in dispute related solely to the calculation of notional GST for which Landcom could not be liable under the GST law? • Second issue: when considering if Item 4 applied to Landcom's sale of land comprising multiple interests, was the sale one supply of the land as a whole or individual supplies of each individual interest? | Thawley J found for Landcom on both issues. [4] | On the question of jurisdiction, Thawley J concluded [5] that Landcom had a real and not hypothetical interest in determining the amount of its notional GST liability and had validly sought a ruling on provisions that applied to Landcom and were administered by the Commissioner. On this basis, Thawley J decided [6] that Landcom did have appeal rights under Part IVC of the Taxation Administration Act 1953 and there was a matter on which the Court had jurisdiction. | On the question of the operation of the margin scheme, Thawley J concluded [7] that the better construction of Division 75 when viewed in light of its objects was that the provisions should apply separately to each individual interest that was supplied. This was the case even if supply of the interest formed part of a larger supply of land as occurred in the present case. | The Commissioner appealed to the Full Federal Court in relation to the second issue relating to the operation of the margin scheme. | The Full Federal Court agreed [8] with the conclusions of Thawley J. The Full Court considered that the structure of the GST Act and the statutory language of Division 75 better supported the view that Division 75 applied separately to each individual interest supplied. [9]", "Issues_Decided": "Two issues were considered by Thawley J in the Federal Court at first instance [3] : • First issue: did the case involve a matter that was within the jurisdiction of the Federal Court, given the issue in dispute related solely to the calculation of notional GST for which Landcom could not be liable under the GST law? • Second issue: when considering if Item 4 applied to Landcom's sale of land comprising multiple interests, was the sale one supply of the land as a whole or individual supplies of each individual interest? • First issue: did the case involve a matter that was within the jurisdiction of the Federal Court, given the issue in dispute related solely to the calculation of notional GST for which Landcom could not be liable under the GST law? • Second issue: when considering if Item 4 applied to Landcom's sale of land comprising multiple interests, was the sale one supply of the land as a whole or individual supplies of each individual interest? Thawley J found for Landcom on both issues. [4] On the question of jurisdiction, Thawley J concluded [5] that Landcom had a real and not hypothetical interest in determining the amount of its notional GST liability and had validly sought a ruling on provisions that applied to Landcom and were administered by the Commissioner. On this basis, Thawley J decided [6] that Landcom did have appeal rights under Part IVC of the Taxation Administration Act 1953 and there was a matter on which the Court had jurisdiction. On the question of the operation of the margin scheme, Thawley J concluded [7] that the better construction of Division 75 when viewed in light of its objects was that the provisions should apply separately to each individual interest that was supplied. This was the case even if supply of the interest formed part of a larger supply of land as occurred in the present case. The Commissioner appealed to the Full Federal Court in relation to the second issue relating to the operation of the margin scheme. The Full Federal Court agreed [8] with the conclusions of Thawley J. The Full Court considered that the structure of the GST Act and the statutory language of Division 75 better supported the view that Division 75 applied separately to each individual interest supplied. [9]", "ATO_View_of_Decision": "The Commissioner will administer the law in accordance with Thawley J's conclusion that government entities are entitled to obtain private rulings on matters relating to their notional GST liabilities and have the same review rights in relation to such rulings as non-government entities do for other rulings relating to GST. | The reasoning of Thawley J concerning the jurisdiction issue does not specifically consider the scenario where a government entity objects to an assessment that includes notional GST where the entity is dissatisfied with the amount of notional tax. The Commissioner is considering whether and how Part IVC of the Taxation Administration Act 1953 applies to disputes relating to such assessments and intends to issue further guidance on this matter. | The Commissioner will administer the law in accordance with the conclusions of the Full Federal Court and Thawley J about the application of the margin scheme to supplies of land consisting of multiple interests. | In many cases, this will not change the overall outcome for non-government taxpayers as the final GST outcome will be largely the same whether liabilities and entitlements are determined collectively or individually for each interest. However, this will not necessarily be the case for government entities. For supplies by such entities, each interest supplied will need to be considered separately when determining whether the supply is a supply of unimproved land to which section 38-445 may apply or a supply of land that contained no improvements at the time of the introduction of GST to which table item 4 of subsection 75-10(3) may apply. | We note that the part of the decision dealing with supplies of land consisting of multiple interests is based specifically on the wording of the provisions in Subdivision 38-N and Division 75. While it provides valuable guidance on the importance of considering terms in their context, we do not consider that it will have broader relevance to the meaning of 'supply' in other contexts in the GST Act.", "Administrative_Treatment": "We have reviewed impacted products to ensure they are consistent with the Federal Court's views in this case. An addendum to Goods and Services Tax Ruling GSTR 2006/6 Goods and services tax: improvements on the land for the purposes of Subdivision 38-N and Division 75 was published on 19 March 2025. | Future updates to the notional GST dispute resolution process will reflect the Federal Court's views in this case on the issue of jurisdiction as well as any changes to the law which may occur in the meantime.", "Related_Documents": "Goods and Services Tax Ruling GSTR 2006/6 Goods and services tax: improvements on the land for the purposes of Subdivision 38-N and Division 75 | Goods and Services Tax Ruling GSTR 2006/7 Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000 | Goods and Services Tax Ruling GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 | 2022 ATC 20-846 | 2022 ATC 20-827 | ANTS(GST)A 1999 Subdiv 38-N | ANTS(GST)A 1999 38-445 | ANTS(GST)A 1999 Div 75 | ANTS(GST)A 1999 75-10(3) | ANTS(GST)A 1999 75-10(3A) | A New Tax System (Goods and Services Tax Imposition - General) Act 1999 5 | TAA 1953 Pt IVC", "Legislative_References": "ANTS(GST)A 1999 Subdiv 38-N ANTS(GST)A 1999 38-445 ANTS(GST)A 1999 Div 75 ANTS(GST)A 1999 75-10(3) ANTS(GST)A 1999 75-10(3A) A New Tax System (Goods and Services Tax Imposition - General) Act 1999 5 TAA 1953 Pt IVC", "Case_References": "Landcom v Commissioner of Taxation [2022] FCA 510 114 ATR 639 2022 ATC 20-827", "Subject_References": "", "Other_References": "Australian Constitution 114 Intergovernmental Agreement on Federal Financial Relations, clause A28 of Schedule 1 Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, clause 17", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID315of2022/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products. | Update to change text from current to past tense. | Implications for impacted advice or guidance | Update to note action taken and proposed. | Update to fourth paragraph. | Footnotes: [1] See clause A28 of Schedule 1 to the Intergovernmental Agreement on Federal Financial Relations . An equivalent commitment was found in clause 17 of its precursor, the Intergovernmental Agreement on the Reform of Commonwealth - State Financial Relations . | [2] See subsection 75-10(3A). | [3] Landcom v Commissioner of Taxation [2022] FCA 510. | [4] Landcom v Commissioner of Taxation [2022] FCA 510 at [6]. | [5] Landcom v Commissioner of Taxation [2022] FCA 510 at [174-179]. | [6] Landcom v Commissioner of Taxation [2022] FCA 510 at [184-185]. | [7] Landcom v Commissioner of Taxation [2022] FCA 510 at [194]. | [8] Commissioner of Taxation v Landcom [2022] FCAFC 204 at [24]. | [9] Commissioner of Taxation v Landcom [2022] FCAFC 204 at [30-32]."}
{"Case_Name": "Commissioner of Taxation v Shell Energy Holdings Australia Limited", "Venue_Reference_No": "P4 of 2022 (special leave application)", "Venue": "High Court of Australia (special leave application)", "Judgment_Date": "9 September 2022", "Date_Published": "31 January 2023", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerned whether the amount of the deduction available under section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) for the decline in value of a depreciating asset acquired by Shell Energy Holdings Australia Limited (Shell) was the cost of that asset by virtue of the operation of section 40-80 of the ITAA 1997. | All legislative references in this Decision impact statement are to the ITAA 1997, unless otherwise indicated.", "Overview_of_Facts": "In 2012, Shell and Chevron Australia Pty Ltd (Chevron) were both participants, with other parties, in a petroleum venture known as the Browse Project. Relevantly, the participants in the Browse Project were together the legal holders of an exploration permit and 6 retention leases (Statutory Titles) which gave a permission or authority to the holders to explore for petroleum. One of the Statutory Titles was acquired by Shell prior to 1 July 2001 and the remaining Statutory Titles were derived from exploration permits that were held by Shell prior to 1 July 2001. | In August 2012, Shell entered into an asset exchange agreement (AEA) with Chevron to purchase Chevron's participating interest in the Browse Project. | Shell claimed a deduction of approximately $2.3 billion under sections 40-80 and 40-25 for the cost of acquiring 'mining, quarrying or prospecting rights' [1] (MQPRs) in the form of 'an additional proportional interest' in the Statutory Titles (commensurate with its additional proportional interest in the Browse Project after the dealing with Chevron), on the basis of it first using those MQPRs for 'exploration or prospecting'. | Under the terms of the AEA, once the dealing between Shell and Chevron had been approved and registered under the relevant petroleum legislation that governed the Statutory Titles, the AEA was to have retrospective effect from 1 June 2012. Approval and registration under the relevant petroleum legislation occurred in early November 2012. | Certain activities were carried out in the areas governed by the Statutory Titles prior to the approval and registration of the dealing between Shell and Chevron in November 2012. However, a geotechnical study, a geophysical survey and an ultra-high resolution seismic survey were also carried out after the relevant approval and registration. | Following an audit, the Commissioner disallowed Shell's claimed deductions and imposed administrative penalties. Shell objected to the Commissioner's decision and its objections were disallowed. The Commissioner's decision was appealed to the Federal Court. [2] | On 12 May 2021, Colvin J handed down a partly unfavourable decision against the Commissioner, who then appealed his Honour's decision to the Full Federal Court. [3] Shell also filed a cross appeal against part of his Honour's decision. | On 25 January 2022, the Full Federal Court dismissed the Commissioner's appeal and allowed Shell's cross-appeal. Davies J's decision was agreed with by Thawley J and Allsop CJ, with the Chief Justice also making some additional comments in a separate decision. | On 9 September 2022, the High Court dismissed the Commissioner's special leave application against the Full Federal Court's decision. | Issues decided by the Courts | The following 4 issues were decided: • What were the relevant depreciating assets and whether section 40-77 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) operated to disapply Division 40 to the relevant depreciating assets? • When did Shell begin to hold the relevant depreciating assets? • Whether certain activities conducted by the joint venture were activities of exploration? • When did Shell first use the relevant depreciating assets for the purposes of section 40-80? | • What were the relevant depreciating assets and whether section 40-77 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) operated to disapply Division 40 to the relevant depreciating assets? • When did Shell begin to hold the relevant depreciating assets? • Whether certain activities conducted by the joint venture were activities of exploration? • When did Shell first use the relevant depreciating assets for the purposes of section 40-80? | The MQPRs and Transitional Provisions issue | Both Courts proceeded on the basis that by acquiring Chevron's participating interest in the Browse Project, Shell had acquired a commensurate additional proportional interest in the Statutory Titles and these interests were MQPRs and the relevant depreciating assets. [4] | It was then held that subsections 40-77(1) and (1A) of the IT(TP)A did not apply because Shell only 'started to hold' these rights in November 2012, as a consequence of acquiring Chevron's participating interest in the Browse Project. [5] Further, it was held that subsection 40-77(1B) of the IT(TP)A did not apply because the rights were not a replacement for, or the successor to, a right that had ended, on the basis that Shell's proportional interest in the Statutory Titles which it held prior to the acquisition of Chevron's interest had not come to an end. [6] | In addition, the Full Federal Court held that the criterion in paragraph 40-77(1B)(c) of the IT(TP)A that the rights 'relate to the same area' was not satisfied. [7] This was held despite the area governed by the Statutory Titles being a subset of the area covered by earlier titles held by Shell. In particular, it was concluded that the word 'same' in paragraph 40-77(1B)(c) of the IT(TP)A means 'identical' and that a right does not cover the same area as another right if the area is different in size. However, neither of the Courts went on to consider whether the alternative condition in paragraph 40-77(1B)(c) of the IT(TP)A, that 'any difference in area is not significant', was met. | The 'hold' issue | At first instance, Colvin J rejected Shell's submission that it began to hold the additional proportional interest in the Statutory Titles from the retrospective effective date of the AEA of 1 June 2012. | His Honour agreed with the Commissioner's contention that because the relevant Petroleum Acts governing the Statutory Titles provide that a dealing which creates or assigns an interest in an existing statutory title is of 'no force' until it is approved and registered, Shell could only come to hold its additional proportional interest in the Statutory Titles from when the dealings by which that interest was transferred was approved and registered under the relevant Petroleum Acts, being in early November 2012. [8] | His Honour's conclusion on this issue was not part of Shell's cross appeal and this issue was therefore not considered by the Full Federal Court. | The 'exploration' issue | The Courts did not construe the meaning of the term 'exploration or prospecting' contained in subsection 40-730(4). The Commissioner contended, at first instance, that there could be no exploration for the purposes of the ITAA 1997 unless there was exploration for the purposes of the relevant Petroleum Acts. [9] Therefore, the issue considered by the Courts was the construction of the terms 'explore' and 'exploration' as used in the relevant Petroleum Acts. | The Full Federal Court agreed with Colvin J that, having regard to the statutory context and legislative history of the relevant Petroleum Acts, the terms 'explore' and 'exploration' were not confined to activities directed only to the discovery of petroleum but also included activities undertaken within the relevant area to ascertain the worth and extent of the resource and to assess the commercial feasibility for exploitation of the petroleum resource. [10] | Accordingly, the geotechnical study, the geophysical survey and the ultra-high resolution seismic survey, carried out after the approval and registration of the relevant dealing, were held to be activities that constituted exploration for the purposes of the relevant Petroleum Acts. These activities were undertaken after early November 2012 when Shell was found to have held new MQPRs as a result of its dealing with Chevron. [11] | The 'first use' issue | In allowing Shell's cross appeal against Colvin J's decision on this issue [12] , the Full Federal Court considered the meaning of 'first use' in section 40-80 and held that: • the first use of an asset to which section 40-80 can apply corresponds with the 'start time' for that asset as that term is defined in subsection 40-60(2), and • as the 'start time' of a depreciating asset is defined to include when that asset is first used or is held installed ready for use for any purpose, in practice that means that a bundle of rights, such as an MQPR, is installed ready for use once held for use. [13] | • the first use of an asset to which section 40-80 can apply corresponds with the 'start time' for that asset as that term is defined in subsection 40-60(2), and • as the 'start time' of a depreciating asset is defined to include when that asset is first used or is held installed ready for use for any purpose, in practice that means that a bundle of rights, such as an MQPR, is installed ready for use once held for use. [13]", "Issues_Decided": "The following 4 issues were decided: • What were the relevant depreciating assets and whether section 40-77 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) operated to disapply Division 40 to the relevant depreciating assets? • When did Shell begin to hold the relevant depreciating assets? • Whether certain activities conducted by the joint venture were activities of exploration? • When did Shell first use the relevant depreciating assets for the purposes of section 40-80? • What were the relevant depreciating assets and whether section 40-77 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) operated to disapply Division 40 to the relevant depreciating assets? • When did Shell begin to hold the relevant depreciating assets? • Whether certain activities conducted by the joint venture were activities of exploration? • When did Shell first use the relevant depreciating assets for the purposes of section 40-80? | The MQPRs and Transitional Provisions issue: Both Courts proceeded on the basis that by acquiring Chevron's participating interest in the Browse Project, Shell had acquired a commensurate additional proportional interest in the Statutory Titles and these interests were MQPRs and the relevant depreciating assets. [4] It was then held that subsections 40-77(1) and (1A) of the IT(TP)A did not apply because Shell only 'started to hold' these rights in November 2012, as a consequence of acquiring Chevron's participating interest in the Browse Project. [5] Further, it was held that subsection 40-77(1B) of the IT(TP)A did not apply because the rights were not a replacement for, or the successor to, a right that had ended, on the basis that Shell's proportional interest in the Statutory Titles which it held prior to the acquisition of Chevron's interest had not come to an end. [6] In addition, the Full Federal Court held that the criterion in paragraph 40-77(1B)(c) of the IT(TP)A that the rights 'relate to the same area' was not satisfied. [7] This was held despite the area governed by the Statutory Titles being a subset of the area covered by earlier titles held by Shell. In particular, it was concluded that the word 'same' in paragraph 40-77(1B)(c) of the IT(TP)A means 'identical' and that a right does not cover the same area as another right if the area is different in size. However, neither of the Courts went on to consider whether the alternative condition in paragraph 40-77(1B)(c) of the IT(TP)A, that 'any difference in area is not significant', was met. | The 'hold' issue: At first instance, Colvin J rejected Shell's submission that it began to hold the additional proportional interest in the Statutory Titles from the retrospective effective date of the AEA of 1 June 2012. His Honour agreed with the Commissioner's contention that because the relevant Petroleum Acts governing the Statutory Titles provide that a dealing which creates or assigns an interest in an existing statutory title is of 'no force' until it is approved and registered, Shell could only come to hold its additional proportional interest in the Statutory Titles from when the dealings by which that interest was transferred was approved and registered under the relevant Petroleum Acts, being in early November 2012. [8] His Honour's conclusion on this issue was not part of Shell's cross appeal and this issue was therefore not considered by the Full Federal Court. | The 'exploration' issue: The Courts did not construe the meaning of the term 'exploration or prospecting' contained in subsection 40-730(4). The Commissioner contended, at first instance, that there could be no exploration for the purposes of the ITAA 1997 unless there was exploration for the purposes of the relevant Petroleum Acts. [9] Therefore, the issue considered by the Courts was the construction of the terms 'explore' and 'exploration' as used in the relevant Petroleum Acts. The Full Federal Court agreed with Colvin J that, having regard to the statutory context and legislative history of the relevant Petroleum Acts, the terms 'explore' and 'exploration' were not confined to activities directed only to the discovery of petroleum but also included activities undertaken within the relevant area to ascertain the worth and extent of the resource and to assess the commercial feasibility for exploitation of the petroleum resource. [10] Accordingly, the geotechnical study, the geophysical survey and the ultra-high resolution seismic survey, carried out after the approval and registration of the relevant dealing, were held to be activities that constituted exploration for the purposes of the relevant Petroleum Acts. These activities were undertaken after early November 2012 when Shell was found to have held new MQPRs as a result of its dealing with Chevron. [11] | The 'first use' issue: In allowing Shell's cross appeal against Colvin J's decision on this issue [12] , the Full Federal Court considered the meaning of 'first use' in section 40-80 and held that: • the first use of an asset to which section 40-80 can apply corresponds with the 'start time' for that asset as that term is defined in subsection 40-60(2), and • as the 'start time' of a depreciating asset is defined to include when that asset is first used or is held installed ready for use for any purpose, in practice that means that a bundle of rights, such as an MQPR, is installed ready for use once held for use. [13] • the first use of an asset to which section 40-80 can apply corresponds with the 'start time' for that asset as that term is defined in subsection 40-60(2), and • as the 'start time' of a depreciating asset is defined to include when that asset is first used or is held installed ready for use for any purpose, in practice that means that a bundle of rights, such as an MQPR, is installed ready for use once held for use. [13]", "ATO_View_of_Decision": "The MQPRs and Transitional Provisions issue | The Commissioner accepts the Full Federal Court's decision that the word 'same' in paragraph 40-77(1B)(c) of the IT(TP)A means 'identical' and that a right does not cover the same area as another right if the area is different in size, even where the area covered by one right is merely a subset of the area covered by the other right. | However, as no argument was advanced before the Courts that any difference in area was not significant for the purposes of paragraph 40-77(1B)(c) of the IT(TP)A, neither decision provides authority for the meaning of the phrase 'any difference in area is not significant' as it appears in paragraph 40-77(1B)(c) of the IT(TP)A. | In relation to the MQPRs issue, the Commissioner's first ground in the special leave application was that it was incorrect for the Courts below to assume that Shell had acquired a commensurate additional proportional interest in the Statutory Titles merely because it had acquired Chevron's participating interest in the Browse Project. The Commissioner posited that a proper construction of the relevant Joint Venture Agreement demonstrated that no such additional proportional interest in the Statutory Titles arose despite Shell's acquisition of Chevron's participating interest in the Browse Project. The High Court's reasons for refusing leave were that the procedural history of the case made it an inappropriate vehicle to consider this issue. | Accordingly, whether or not an interest in joint venture property arises merely by virtue of the acquisition of a participating interest in the joint venture remains an open question. The Commissioner's view on this issue is that whether, and to what extent, a venturer has an interest in joint venture property and the nature of any such interest will depend on the facts and circumstances of each case (and may be affected by the joint venture agreement or by statute). | The 'hold' issue | Colvin J's decision on the 'hold' issue is consistent with the Commissioner's view on the operation of the relevant Petroleum Acts and their requirements for certain dealings to be approved and registered and otherwise having 'no force' until such approval and registration has been completed. | However, certain statements in MT 2012/1 and MT 2012/2 about when a farmee may begin to hold an interest in a mining tenement in accordance with section 40-40 will be updated to include further context to make it clear that the effect of the relevant regulatory regime needs to be considered in each case including, in particular, the operation of any 'no force' provisions. | The 'exploration' issue | Davies J stated that the ordinary meaning of 'explore' or 'exploration' can include activities conducted for the purposes of evaluating the feasibility of recovering petroleum. However, her Honour also noted that ultimately the natural and ordinary meanings of the terms did not assist the Court to favour one construction over the other for the purposes of the interpretative task and the statutory context and legislative history were of more probative assistance. [14] | The Commissioner accepts that, having regard to the statutory context and legislative history of the relevant Petroleum Acts, it was open for the Full Federal Court to conclude that the terms 'explore' and 'exploration' had a wider meaning in the context of those Acts than that contended by the Commissioner. The activities directed towards ascertaining the characteristics of the petroleum field or whether the identified resource was commercially recoverable were therefore found to have met the definition of 'explore' or 'exploration' under the relevant Petroleum Acts. | The Commissioner is of the view that the statutory context and legislative history of the defined term 'exploration or prospecting' contained in subsection 40-730(4) suggest that, except for the particular express additions contained in paragraphs 40-730(4)(a) to (d), a more limited meaning of those words was intended for the purposes of the ITAA 1997. This view is consistent with TR 2017/1 but the Commissioner will update certain statements in TR 2017/1 that refer to the ordinary meaning of 'exploration' in a more limited manner than was considered possible by the Full Federal Court. [15] | The 'first use' issue | The Commissioner accepts the Full Federal Court's decision that the 'first use' and 'start time' for an MQPR correspond with when the MQPR is taken to be held by an entity. | Whether Davies J's comments that 'a bundle of rights is installed ready for use once held for use' [16] can apply to other intangible assets listed in subsection 40-30(2) will depend on the nature of the relevant intangible asset and the operation of any relevant legislation that governs the use of the intangible asset. Further, whether or not the 'taxable purpose' requirement in subsection 40-30(2) is satisfied will depend on the facts and circumstances of each case. | For completeness, the Commissioner does not consider that 'mining, quarrying or prospecting information' is a bundle of rights and will continue to apply their view in Taxation Ruling TR 2019/4 Income tax: capital allowances: expenditure incurred by an entity that collects, processes and provides multi-client seismic data.", "Administrative_Treatment": "TD 2019/1 will be withdrawn with effect from 2 February 2023. | TR 2017/1, MT 2012/1 and MT 2012/2 will be updated in accordance with the comments made in this Decision impact statement.", "Related_Documents": "Taxation Determination TD 2019/1 Income tax: what constitutes 'use' (and potentially first use) of a mining, quarrying or prospecting right, that is a depreciating asset, for the purposes of subsection 40-80(1) of the Income Tax Assessment Act 1997? | Miscellaneous Taxation Ruling MT 2012/1 Miscellaneous taxes: application of the income tax and GST laws to immediate transfer farm-out arrangements | Miscellaneous Taxation Ruling MT 2012/2 Miscellaneous taxes: application of the income tax and GST laws to deferred transfer farm-out arrangements | [2022] HCA Trans 151 (special leave application) | 2022 ATC 20-816 | 2021 ATC 20-791 | TR 2019/4 | Div 40 | 40-25 | 40-30(2) | 40-40 | 40-60(2) | 40-80 | 40-730(4) | 40-730(4)(a) | 40-730(4)(b) | 40-730(4)(c) | 40-730(4)(d) | 995-1 | 40-77 | 40-77(1) | 40-77(1A) | 40-77(1B) | 40-77(1B)(c)", "Legislative_References": "Income Tax Assessment Act 1997 Div 40 40-25 40-30(2) 40-40 40-60(2) 40-80 40-730(4) 40-730(4)(a) 40-730(4)(b) 40-730(4)(c) 40-730(4)(d) 995-1 Income Tax (Transitional Provisions) Act 1997 40-77 40-77(1) 40-77(1A) 40-77(1B) 40-77(1B)(c)", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD146of2021/00001", "Unmatched_Content": "Footnotes: [1] As defined in subsection 995-1. | [2] Shell Energy Holdings Australia Limited v Commissioner of Taxation [2021] FCA 496 ( Shell at first instance ). | [3] Commissioner of Taxation v Shell Energy Holdings Australia Limited [2022] FCAFC 2( Shell FFC ). | [4] See [39] of Shell at first instance and [12] of Shell FFC . | [5] See [71] of Shell FFC, which also endorses [360-362] of Shell at first instance . | [6] See [72] of Shell FFC, which also endorses [346], [350] and [352] of Shell at first instance . | [7] See [72] of Shell FFC. | [8] See [107-108], [113] and [116-118] of Shell at first instance. | [9] See [194] of Shell at first instance. | [10] See [5] and [51-52] of Shell FFC, which endorse [233-237] of Shell at first instance . | [11] As stated in [194] of Shell at first instance, the Commissioner did not argue in this case that there might be activities that would be exploration for the purposes of the relevant Petroleum Acts but not 'exploration or prospecting' for the purposes of the ITAA 1997. | [12] See [131] of Shell at first instance for his Honour's conclusion on the 'first use' issue. | [13] See [64-66] of Shell FFC. | [14] See [31] of Shell FFC. | [15] In this case, on the facts as ultimately found by the Court, the activities determined to have been conducted for evaluating the commercial feasibility of recovering petroleum would likely have satisfied one or more of the express additions listed in paragraphs 40-730(4)(a) to (d). | [16] See [66] of Shell FFC."}
{"Case_Name": "Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd", "Venue_Reference_No": "P5/2021", "Venue": "High Court of Australia", "Judgment_Date": "9 February 2022", "Date_Published": "31 March 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns whether the applicant Mr McCourt was an employee of Personnel Contracting Pty Ltd (Personnel Contracting) for the purposes of the Fair Work Act 2009 (FW A). | While not a party to the litigation, the decision of the High Court is relevant to legislation administered by the Commissioner involving the ordinary meaning of the term 'employee'.", "Overview_of_Facts": "Personnel Contracting is a labour hire company which engages workers to supply labour to building clients. In 2016, Personnel Contracting engaged the services of Mr McCourt and entered into a written agreement with him, titled 'Administrative Services Agreement' (ASA). After an interview and execution of the ASA, Personnel Contracting contacted Mr McCourt and offered him work at a building site of Hanssen Pty Ltd (Hanssen), one of their major clients. | Mr McCourt commenced basic labouring work on site with Hanssen, under Hanssen's direct supervision. Mr McCourt did not sign a contract with Hanssen. Mr McCourt ceased working with Personnel Contracting and Hanssen on 30 June 2017. | Mr McCourt and the Construction, Forestry, Maritime, Mining and Energy Union commenced proceedings against Personnel Contracting for compensation and penalties under sections 545, 546 and 547 of the FWA. Mr McCourt claimed that he was a 'common law employee' of Personnel Contracting, who had not paid him according to his entitlement pursuant to the Building and Construction General On-site Award 2010. | The Federal Court [1] and Full Federal Court considered these claims by Mr McCourt and concluded that he was not an employee of Personnel Contracting [2] , applying the authority in Personnel Contracting Pty Ltd T/as Tricord Personnel v The Construction Forestry Mining and Energy Union of Workers [2004] WASCA 312, which involved an almost identical dispute between the Construction, Forestry, Mining and Energy Union (as it was then known) and Personnel Contracting, heard in the Western Australian Industrial Appeal Court. Mr McCourt appealed to the High Court. | Issues decided by the Court | The judgment of the Federal Court at first instance | At first instance in the Federal Court, O'Callaghan J applied a multifactorial approach to the characterisation of the relationship between Mr McCourt and Personnel Contracting and concluded that he was not an employee. His Honour concluded that, while the circumstances were evenly balanced, the references in the agreement to Mr McCourt as a 'contractor' was decisive in this instance (at [177-178]). | The judgment of the Full Federal Court on appeal | The Full Federal Court upheld the conclusion of O'Callaghan J on appeal. The Full Federal Court also applied the multifactorial analysis but concluded that, because they were bound by the decision of the Western Australian Industrial Appeal Court in Personnel Contracting Pty Ltd T/as Tricord Personnel v The Construction Forestry Mining and Energy Union of Workers [2004] WASCA 312, Mr McCourt was not an employee of Personnel Contracting. The Full Federal Court indicated that, were it not for that authority, they would have concluded that Mr McCourt was an employee. [3] | The judgment of the High Court | The High Court concluded that Mr McCourt was an employee of Personnel Contracting. | The High Court stated the Court's role is to characterise the relationship by examining the totality of the relationship having regard to the parties' rights and obligations contained in the written contract. [4] The High Court stated that where the parties have comprehensively committed the terms of the relationship to a written contract, and no party is disputing the validity of that contract, the characterisation must proceed on the basis of the legal rights and responsibilities established in that written contract. [5] | The High Court concluded that a multifactorial approach that examined all of the relations between the parties over the entire history of their dealings was unnecessary and inappropriate. [6] | However, the High Court did note that examination of post-contractual conduct is permissible in certain circumstances. This might be where the contract is not in writing, partly written and partly oral, or where the terms of the written contract are being challenged as invalid (such as sham) or varied. [7] In addition, conduct may be examined in circumstances where a party to the contract may be asserting rectification, estoppel or any other legal, equitable or statutory rights or remedies. [8] | In contrast, Gageler and Gleeson JJ considered that the multifactorial test was a well-established principle for characterising the totality of the legal relationship and that they were permitted to look at the whole employment relationship, including how it was formed and how it was performed, and were not restricted to the written contract. [9] | The High Court considered that labels used in a contract by the parties to describe the relationship are not determinative. [10] | Notwithstanding the different approaches taken in the judgment, the High Court agreed the critical grounding question was whether the putative employee performed the work while working in the business of the engaging entity. | Kiefel CJ, Keane, Edelman JJ (at [39]) and Gageler and Gleeson JJ (at [113]) considered that it would be useful to consider whether the worker performed their work in the engaging entity's business or in an enterprise of their own. Gordon J (with whom Steward J agreed as to reasoning (at [203])) considered that it is more appropriate to consider whether, by construction of the terms of the contract, the person is contracted to work in the business or enterprise of the purported employer rather than considering whether the individual is working in their own business (at [180-183]). | The High Court concluded that a significant aspect of the contractual relationship that indicated employment was the extent and degree to which the putative employer could control the work being done by the person, which indicates that they are working in the putative employer's business. [11] | When considering both the degree and nature of control and whether the worker was performing work in the business of the putative employer (or, in some circumstances, in a business of their own), various contractual aspects are to be considered. This includes well-known indicia from established authorities, such as the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work, the provision for holidays, the deduction of income tax and the delegation of work by the putative employee. [12] | In determining whether the worker works in the business or enterprise of the purported employer, the High Court considered that understanding and characterising the core nature of the putative employer's business was relevant in interpreting the terms of the written contract. [13] | The majority of the High Court concluded that Mr McCourt had contracted to provide labour to Personnel Contracting. That labour was subordinate or subservient to the core business being carried on by Personnel Contracting. Mr McCourt was not, in any meaningful sense, in business for himself. In supplying his labour, Mr McCourt was subject to the control of Personnel Contracting. Accordingly, Mr McCourt was an employee of Personnel Contracting. [14]", "Issues_Decided": "The judgment of the Federal Court at first instance: At first instance in the Federal Court, O'Callaghan J applied a multifactorial approach to the characterisation of the relationship between Mr McCourt and Personnel Contracting and concluded that he was not an employee. His Honour concluded that, while the circumstances were evenly balanced, the references in the agreement to Mr McCourt as a 'contractor' was decisive in this instance (at [177-178]). | The judgment of the Full Federal Court on appeal: The Full Federal Court upheld the conclusion of O'Callaghan J on appeal. The Full Federal Court also applied the multifactorial analysis but concluded that, because they were bound by the decision of the Western Australian Industrial Appeal Court in Personnel Contracting Pty Ltd T/as Tricord Personnel v The Construction Forestry Mining and Energy Union of Workers [2004] WASCA 312, Mr McCourt was not an employee of Personnel Contracting. The Full Federal Court indicated that, were it not for that authority, they would have concluded that Mr McCourt was an employee. [3] | The judgment of the High Court: The High Court concluded that Mr McCourt was an employee of Personnel Contracting. The High Court stated the Court's role is to characterise the relationship by examining the totality of the relationship having regard to the parties' rights and obligations contained in the written contract. [4] The High Court stated that where the parties have comprehensively committed the terms of the relationship to a written contract, and no party is disputing the validity of that contract, the characterisation must proceed on the basis of the legal rights and responsibilities established in that written contract. [5] The High Court concluded that a multifactorial approach that examined all of the relations between the parties over the entire history of their dealings was unnecessary and inappropriate. [6] However, the High Court did note that examination of post-contractual conduct is permissible in certain circumstances. This might be where the contract is not in writing, partly written and partly oral, or where the terms of the written contract are being challenged as invalid (such as sham) or varied. [7] In addition, conduct may be examined in circumstances where a party to the contract may be asserting rectification, estoppel or any other legal, equitable or statutory rights or remedies. [8] In contrast, Gageler and Gleeson JJ considered that the multifactorial test was a well-established principle for characterising the totality of the legal relationship and that they were permitted to look at the whole employment relationship, including how it was formed and how it was performed, and were not restricted to the written contract. [9] The High Court considered that labels used in a contract by the parties to describe the relationship are not determinative. [10] Notwithstanding the different approaches taken in the judgment, the High Court agreed the critical grounding question was whether the putative employee performed the work while working in the business of the engaging entity. Kiefel CJ, Keane, Edelman JJ (at [39]) and Gageler and Gleeson JJ (at [113]) considered that it would be useful to consider whether the worker performed their work in the engaging entity's business or in an enterprise of their own. Gordon J (with whom Steward J agreed as to reasoning (at [203])) considered that it is more appropriate to consider whether, by construction of the terms of the contract, the person is contracted to work in the business or enterprise of the purported employer rather than considering whether the individual is working in their own business (at [180-183]). The High Court concluded that a significant aspect of the contractual relationship that indicated employment was the extent and degree to which the putative employer could control the work being done by the person, which indicates that they are working in the putative employer's business. [11] When considering both the degree and nature of control and whether the worker was performing work in the business of the putative employer (or, in some circumstances, in a business of their own), various contractual aspects are to be considered. This includes well-known indicia from established authorities, such as the mode of remuneration, the provision and maintenance of equipment, the obligation to work, the hours of work, the provision for holidays, the deduction of income tax and the delegation of work by the putative employee. [12] In determining whether the worker works in the business or enterprise of the purported employer, the High Court considered that understanding and characterising the core nature of the putative employer's business was relevant in interpreting the terms of the written contract. [13] The majority of the High Court concluded that Mr McCourt had contracted to provide labour to Personnel Contracting. That labour was subordinate or subservient to the core business being carried on by Personnel Contracting. Mr McCourt was not, in any meaningful sense, in business for himself. In supplying his labour, Mr McCourt was subject to the control of Personnel Contracting. Accordingly, Mr McCourt was an employee of Personnel Contracting. [14]", "ATO_View_of_Decision": "The Commissioner was not party to this matter which concerned entitlements under the FWA. In relation to the common law test of employment, the decision of the High Court has provided clarity in the approach to be taken when characterising the legal relationship of the parties. | The Commissioner observes that the High Court has not disturbed the well-established practice of examining the totality of the relationship. The most significant clarification arises in primarily examining the terms of the written contract between the parties to establish the character of the relationship, where that contract is an accurate and accepted record of the agreement struck between the parties. | The multifactorial test, that requires considering all aspects of the contractual arrangement over an extended period of time, was rejected by the High Court. However, the Commissioner notes that Kiefel CJ, Keane, Edelman, Gordon and Steward JJ considered that a Court may look beyond a written contract and consider the conduct of the parties in circumstances where: • the contract is an oral contract, or is partly written and partly oral to determine when the contract was formed and the contractual terms that were agreed • the terms of the written contract have been varied • the terms of the written contract are being challenged as invalid (for example, being a sham) • a party to the contract asserts rectification, estoppel or any other legal, equitable or statutory rights or remedies. [15] | • the contract is an oral contract, or is partly written and partly oral to determine when the contract was formed and the contractual terms that were agreed • the terms of the written contract have been varied • the terms of the written contract are being challenged as invalid (for example, being a sham) • a party to the contract asserts rectification, estoppel or any other legal, equitable or statutory rights or remedies. [15] | The long-established employment indicia are still relevant when characterising the contractual relationship between the parties. However, they are to be considered through the focusing question or prism of whether the putative employee is working in the business of the employer. This reflects the Commissioner's understanding and application of the business integration test. The High Court has elevated that test as one of the primary and focusing aspects of the examination of the contractual terms. In addition, the High Court has continued the emphasis on the examination of control as a complementary focus to the business integration test. | The High Court's commentary that the use of labels in a contract should not be determinative of the nature of a relationship is consistent with existing views articulated by the Commissioner in several public advice and guidance products.", "Administrative_Treatment": "The Commissioner will review relevant products, including the following: • Superannuation Guarantee Ruling SGR 2005/2 Superannuation guarantee: work arranged by intermediaries • Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? • Taxation Ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees • Taxation Ruling TR 2013/1 Income tax: the identification of 'employer' for the purposes of the short-term visit exception under the Income from Employment Article, or its equivalent, of Australia's tax treaties • Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons • ATO Interpretive Decision ATO ID 2014/28 Superannuation Guarantee Status of the Worker: Pizza delivery drivers as employees. | • Superannuation Guarantee Ruling SGR 2005/2 Superannuation guarantee: work arranged by intermediaries • Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? • Taxation Ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees • Taxation Ruling TR 2013/1 Income tax: the identification of 'employer' for the purposes of the short-term visit exception under the Income from Employment Article, or its equivalent, of Australia's tax treaties • Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons • ATO Interpretive Decision ATO ID 2014/28 Superannuation Guarantee Status of the Worker: Pizza delivery drivers as employees. | The Advice under development program will be updated to indicate progress on this work.", "Related_Documents": "Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee | Superannuation Guarantee Ruling SGR 2005/2 Superannuation guarantee: work arranged by intermediaries | Superannuation Guarantee Ruling SGR 2009/1 Superannuation guarantee: payments made to sportspersons | Taxation Ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees | Taxation Ruling TR 2013/1 Income tax: the identification of 'employer' for the purposes of the short-term visit exception under the Income from Employment Article, or its equivalent, of Australia's tax treaties | ATO Interpretative Decision ATO ID 2014/28 Superannuation Guarantee Status of the Worker: Pizza delivery drivers as employees | [2022] HCA 1 | [2020] FCAFC 122 | [2022] HCA 2 | 96 ALJR 144", "Legislative_References": "Fair Work Act 2009", "Case_References": "Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2020] FCAFC 122 279 FCR 631 381 ALR 457 297 IR 269 Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2019] FCA 1806 Personnel Contracting Pty Ltd T/as Tricord Personnel v The Construction Forestry Mining and Energy Union of Workers [2004] WASCA 312 (2004) 141 IR 31 ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 96 ALJR 144", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/P5/2021/00001", "Unmatched_Content": "Footnotes: [1] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2019] FCA 1806. | [2] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2020] FCAFC 122 at [121], per Lee J. | [3] Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2020] HCA 1 ( Personnel ) at [31], per Allsop CJ, with whom Jagot J agreed, and at [185], per Lee J, with whom Jagot J agreed. | [4] Personnel at [61], per Kiefel CJ, Keane and Edelman JJ. See also [162] and [173], per Gordon J, with whom Steward J relevantly agreed at [203]. | [5] Personnel at [59], per Kiefel CJ, Keane and Edelman JJ. See also [173], per Gordon J, with whom Steward J relevantly agreed at [203]. | [6] Personnel at [18], [55] and [59], per Kiefel CJ, Keane and Edelman JJ, and [185-189], per Gordon J, with whom Steward J relevantly agreed at [203]. | [7] Personnel at [43] and [59], per Kiefel CJ, Keane and Edelman JJ. | [8] Personnel at [43] and [59], per Kiefel CJ, Keane and Edelman JJ, and [177], per Gordon J, with whom Steward J relevantly agreed at [203). | [9] Personnel at [136-143]. | [10] Personnel at [64] and [66], per Kiefel CJ, Keane and Edelman JJ, at [127], per Gageler and Gleeson JJ, and at [184] per Gordon J with whom Steward J relevantly agreed at [203]. | [11] Personnel at [73-74], [77] and [88], per Kiefel CK, Keane and Edelman JJ, at [174], per Gordon J, with whom Steward J relevantly agreed, and at [113], per Gageler and Gleeson JJ. | [12] Personnel at [61] and [177]. | [13] Personnel at [70-72] and [76], per Kiefel CJ, Keane and Edelman JJ. | [14] Personnel at [90], per Kiefel CK, Keane and Edelman JJ, at [159], per Gageler and Gleeson JJ, and at [200], per Gordon J. | [15] In ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2, Kiefel CJ, Keane and Edelman JJ (at [8-9]), in applying this principle from Personnel , explained it in terms that day-to-day performance may be looked at where the conduct of the parties results in the written terms and conditions being superseded."}
{"Case_Name": "Domestic Property Developments Pty Ltd as trustee for the Dals Property Trust and Commissioner of Taxation", "Venue_Reference_No": "2021/3014", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "23 December 2022", "Date_Published": "18 March 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns whether the sale of residential property was input taxed on the basis of having been used for the making of rental supplies for 5 years, and if so, whether goods and services tax (GST) had been passed on. | All legislative references in this Decision impact statement are to the A New Tax System (Goods and Services Tax) Act 1999.", "Overview_of_Facts": "Domestic Property Developments Pty Ltd as trustee for the DALS Property Trust (DALS), a property developer, rented 2 units in a newly-constructed development to tenants before selling the units. DALS remitted amounts of GST, calculated under the margin scheme, on both sales. DALS subsequently claimed that was an error as the sales were input taxed and sought a refund of the GST amounts it argued were mistakenly remitted. | DALS received certificates of occupancy for both units (Units 1 and 3) on or about 28 October 2011. DALS sought to sell one of another of the units in the development at auction on 5 November 2011, however it failed to sell. Subsequently, DALS offered Units 1 and 3 for lease. | Less than 5 years later (on 15 October 2016), DALS offered Unit 1 for sale. DALS submitted that Unit 1 continued to be available for lease during the sales campaign. DALS granted the purchaser a licence to occupy the unit following entry into the contract for sale, until settlement occurred in February 2017. DALS argued that the marketing of the unit for sale should not be regarded as a separate use and therefore the unit had only been used for making rental supplies for at least 5 years. | The Tribunal noted [1] that the parties agreed Unit 3 was an input taxed supply, having been used for making rental supplies for at least 5 years. The issue was whether GST had been passed on by DALS for the purposes of section 142-10.", "Issues_Decided": "The paragraph 40-75(2)(a) issue: The Tribunal addressed 2 constructional issues related to paragraph 40-75(2)(a), specifically focusing on the requirement that the premises 'have only been used' for making certain input taxed supplies (rental supplies) 'for the period of at least 5 years'. | Is marketing the premises for sale a 'use'?: Having considered the ordinary meaning of the term 'used', the Tribunal found [2] that actively marketing the premises for sale in the course of a developer's enterprise is a 'use' for the purposes of paragraph 40-75(2)(a). The Tribunal preferred to interpret the term 'used' according to its ordinary meaning as opposed to the Commissioner's submission that it should be interpreted consistently with the defined term 'apply' in the context of Division 129. [3] | The 5-year period: The Tribunal found [4] that paragraph 40-75(2)(a) requires a continuous period of at least 5 years. The Tribunal also found [5] that Unit 1 had not 'only been used' for making rental supplies due to the property being actively marketed for sale during the 5-year period. The Tribunal noted [6] that the parties agreed the units became 'new residential premises' when the certificate of occupancy was issued. While not determinative in this matter, the Tribunal noted that for the supply of Unit 1 to be an input taxed supply, the unit must have only been used for making rental supplies for the period of at least 5 years since the issue of the certificate of occupancy. [7] The Tribunal's reasoning did not address why the 5-year period commenced from the date the certificate of occupancy issued as opposed to a date commencing after the certificate issued. | The 'passing on' issue: This issue was whether DALS is denied a refund by the provisions of Subdivision 142-A because any overpaid amount of GST was passed on to the purchaser. DALS submitted that excess GST was not passed on in respect of either unit. The Tribunal applied the principles from Avon Products Pty Ltd v Commissioner of Taxation [2006] HCA 29 [8] to find that GST was incorporated into the sale price of the units. The Tribunal also noted that where excess GST had been passed on and not reimbursed, it was Parliament's intention that any windfall would result to the revenue, and not the supplier. The Tribunal stated that [9] : …because the applicant sold the units at prices that ensured they exceeded their costs (including substantial amounts erroneously understood to be payable as GST), it faces a difficult challenge in proving it has borne the burden of the excess GST itself and found [10] that DALS did not prove that excess GST was not recovered in the selling prices of the units. In drawing this conclusion, the Tribunal made the following observations: • The Tribunal did not accept that the contractual terms prevented the supplier from passing on the GST to the purchaser, as the excess GST may have been recovered in the agreed price. [11] However, the mere inclusion of standard contractual terms referencing GST does not necessarily mean that the parties have turned their mind to whether GST was considered to be payable. [12] • The Tribunal did not accept that if the sales were input taxed, there was no GST payable to pass on to the purchaser. The Tribunal observed that Subdivision 142-A is about passing on an amount that was incorrectly treated as if it were GST. [13] • The Tribunal observed that the absence of a tax invoice on the facts carried little weight in relation to the passing on issue for 2 reasons [14] - a tax invoice is not required if GST is calculated under the margin scheme, and - section 142-5 provides that passing on may occur even if a tax invoice is not issued. • The Tribunal observed that the Applicant's error in reporting the GST amounts in its business activity statements could be inferred to be a deliberate reporting that was later found to be mistaken. [15]", "ATO_View_of_Decision": "The paragraph 40-75(2)(a) issue | Is marketing the premises for sale a 'use'? | The Tribunal's decision confirms the Commissioner's view that marketing the premises for sale is a 'use' of the premises for the purposes of paragraph 40-75(2)(a). This outcome is consistent with the Commissioner's views as set out in Goods and Services Tax Ruling GSTR 2009/4 Goods and services tax: new residential premises and adjustments for changes in extent of creditable purpose [16] whereby actively marketing a property for sale would be both an application for Division 129 purposes and a use for the purposes of paragraph 40-75(2)(a). | The Tribunal preferred [17] an interpretation of 'used' that follows the ordinary meaning of the word in the context in which it appears in paragraph 40-75(2)(a), rather than an interpretation that seeks to be consistent with 'apply' in Division 129. [18] The Commissioner accepts that the term 'used' is to be interpreted by reference to its ordinary meaning within the statutory context of the GST Act. While there will be an overlap between the ordinary meaning of the term 'used' in the statutory context of the GST Act and the defined term 'apply', the Commissioner will consider what changes are required to be made to GSTR 2009/4 to clarify this position. | Despite a slightly different approach in reasoning to the Commissioner, the Tribunal nonetheless concluded [19] that 'used' in paragraph 40-75(2)(a) includes 'being applied by a developer, through active marketing, as premises for sale in the course of the developer's enterprise'. The Commissioner considers that actively marketing a property for sale would also be an application for Division 129 purposes and the Tribunal's conclusion is therefore considered consistent with the Commissioner's views as set out in GSTR 2009/4. Further, notwithstanding the Tribunal's preferred interpretation, it noted that 'used' is capable of embracing the holding or application of premises for the purposes of sale. [20] | The 5-year period | The Tribunal [21] confirms the Commissioner's view, contained in Goods and Services Tax Ruling GSTR 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises? and GSTR 2009/4, that paragraph 40-75(2)(a) requires a continuous period of 5 years. | The Commissioner has held the long-standing view that when applying paragraph 40-75(2)(a), the 5-year period can be any continuous period of at least 5 years between when the premises would otherwise have first become new residential premises and when they are sold. [22] The Commissioner considers this interpretation is open on the wording of paragraph 40-75(2)(a) which provides that: …if, for the period of at least 5 years since … the premises first became residential premises … the premises have only been used for making supplies that are input taxed supplies because of paragraph 40-35(1)(a). | That is, the 5-year period can commence from any date after (that is, since) the premises first became residential premises. | The Commissioner acknowledges that the paragraph can be interpreted to require the 5-year period to commence from the date from which the premises first become residential premises. However, the paragraph does not explicitly require the 5-year period to commence from that date. Given that the Tribunal's decision did not provide the reasoning for its position regarding the date from which the 5-year period commences, the Commissioner will maintain the position in GSTR 2003/3 and GSTR 2009/4 and seek to clarify this issue at the first available opportunity before the Tribunal or Federal Court. | The 'passing on' issue | The Tribunal's findings provide further support for the Commissioner's view in Goods and Services Tax Ruling GSTR 2015/1 Goods and services tax: the meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 in relation to the operation of Division 142.", "Administrative_Treatment": "The Commissioner has reviewed GSTR 2003/3 and GSTR 2009/4 and made minor amendments to clarify both Rulings are consistent with this decision. Date issued: 27 September 2023 | ISSN: 2653-5424 | NO: 1-Y1T7NAC", "Related_Documents": "GSTR 2003/3 | GSTR 2009/4 | 2022 ATC 10-661 | GSTR 2015/1 | ANTS(GST)A 40-35(1)(a) | ANTS(GST)A 40-75(2)(a) | ANTS(GST)A Div 129 | ANTS(GST)A Subdiv 142-A | ANTS(GST)A 142-5 | ANTS(GST)A 142-10 | 2006 ATC 4296 | 2021 ATC 10-599 | 2021 ATC 10-587", "Legislative_References": "ANTS(GST)A 40-35(1)(a) ANTS(GST)A 40-75(2)(a) ANTS(GST)A Div 129 ANTS(GST)A Subdiv 142-A ANTS(GST)A 142-5 ANTS(GST)A 142-10", "Case_References": "Avon Products Pty Ltd v Commissioner of Taxation [2006] HCA 29 2006 ATC 4296 62 ATR 399 (2006) 230 CLR 356 M3K Services Pty Ltd and Commissioner of Taxation [2021] AATA 4416 2021 ATC 10-599 113 ATR 995 WYPF and Commissioner of Taxation [2021] AATA 3050 2021 ATC 10-587 113 ATR 724", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2021/3014/00001", "Unmatched_Content": "Implications for impacted advice or guidance | Updated to note action taken in GSTR 2009/4 and GSTR 2003/3. | Footnotes: [1] Domestic Property Developments Pty Ltd as trustee for the Dals Property Trust and Commissioner of Taxation [2022] AATA 4436 ( Dals ) at [4]. | [6] Dals at [22, footnote 9]. | [8] These principles were also considered and applied in the Tribunal's decisions in M3K Services Pty Ltd and Commissioner of Taxation [2021] AATA 4416 and WYPF and Commissioner of Taxation [2021] AATA 3050. | [16] See paragraph 138 of GSTR 2009/4. | [18] See GSTR 2009/4 at [132-135]. | [22] See paragraph 90 of GSTR 2003/3 and paragraph 133 of GSTR 2009/4."}
{"Case_Name": "Ian Mark Collins & Mieneke Mianno Collins ATF The Collins Retirement Fund and Commissioner of Taxation", "Venue_Reference_No": "2020/6491-3", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "4 April 2022", "Date_Published": "9 June 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which is the first time the interpretation of the three limbs of section 188-25 of the A New Tax System (Goods and Services Tax) Act 1999 has been considered. All further legislative references in this Decision impact statement are to the A New Tax System (Goods and Services Tax) Act 1999. | The applicant, a complying superannuation fund whose activities are always an enterprise under paragraph 9-20(1)(da), argued it was not required to be registered as the sales of subdivided land were excluded from its goods and services tax (GST) turnover under section 188-25.", "Overview_of_Facts": "Mr and Mrs Collins held 2 acreage lots of land since 1986 and 1992 respectively (the 'parent lots'). These were used for a nursery and then later leased to a tenant from 2004 for a 4-year term with two 4-year options to renew. In August 2008, an offer from the tenant to purchase was rejected by Mr and Mrs Collins. The tenant remained in possession and exercised the second option to renew in 2012. | From 2014, Mr and Mrs Collins engaged experts to obtain approval to subdivide the parent lots. Subsequently, in 2014, they sold the parent lots to their self-managed superannuation fund (applicant). | The applicant was registered for GST and continued to lease the parent lots to the tenant. Shortly after acquiring the parent lots, the applicant submitted a development application to Council seeking to subdivide the land into 11 community title rural residential lots and one community association lot. Development approval was granted on 23 February 2016. On 21 March 2016, the applicant notified the tenant to vacate at expiration of the lease on 27 August 2016. | The applicant then cancelled its GST registration with effect from 1 October 2016 and proceeded to finalise the subdivision, using contractors. A plan of subdivision was registered on 16 June 2017. The applicant sold 10 residential lots in the period June 2017 to November 2017. The remaining lot was transferred to Mr and Mrs Collins in June 2018. | Although carrying on an enterprise pursuant to paragraph 9-20(1)(da), the applicant argued that it was not required to be registered for GST as the proceeds of sale of the subdivided lots were excluded from the GST turnover under section 188-25. | Issues decided by the Tribunal | Deemed 'enterprise' and GST registration issue | The Tribunal confirmed at [10] that the activity or activities of the applicant, as the trustee of a complying super fund, is an enterprise pursuant to section 9-20. Subsection 9-20(1) defines an 'enterprise' as: | An enterprise is an activity, or series of activities, done: ... (da) by the trustee of a *complying superannuation fund ... | The sole issue for determination was whether the sale of the lots was to be disregarded under section 188-25 from the applicant's GST turnover for the purpose of meeting the registration turnover threshold in section 188-10. | For section 188-25 to apply, it required the applicant to prove that its projected sales of the land were supplies made, or likely to be made: • by way of transfer of ownership of a capital asset (paragraph 188-25(a)), or • solely as a consequence of ceasing to carry on an enterprise (subparagraph 188-25(b)(i)), or • solely as a consequence of substantially and permanently reducing the size or scale of an enterprise (subparagraph 188-25(b)(ii)). | • by way of transfer of ownership of a capital asset (paragraph 188-25(a)), or • solely as a consequence of ceasing to carry on an enterprise (subparagraph 188-25(b)(i)), or • solely as a consequence of substantially and permanently reducing the size or scale of an enterprise (subparagraph 188-25(b)(ii)). | Capital asset issue | The Tribunal held at [26] that, for the purpose of paragraph 188-25(a), the character of an asset must be determined at the time the supply is made or is likely to be made. Section 188-25 only arises for consideration where the supply is or would be made in the course of an enterprise the taxpayer carries on. The Tribunal accepted at [24] and [53] that the applicant's intention or object at the time the asset is acquired is not determinative and is of less significance than it is for the purposes of the capital versus revenue dichotomy in the income tax context. | The Tribunal, in determining the character of the asset supplied, held at [54] that the applicant's property development undertaking amounted to more than a mere realisation of the property in an enterprising way. The Tribunal relied on Commissioner of Taxation (Cth) v Whitfords Beach Pty Ltd [1982] HCA 8 in concluding that development of the applicant's land involved substantial works in the way of planning, development and improvement of the land. | While the applicant had no professional experience in land development and was relatively passive in respect of the development activities, the Tribunal considered at [63] that the engagement of contractors to undertake extensive skilled work was '... a hallmark of modern subdivision projects' and did not point to mere realisation. Similarly, the Tribunal considered at [64] that the applicant's choice to sell vacant land, rather than construct housing for further profit, did not assist in determining the character of the assets sold. The Tribunal found at [66] that the supplies of the subdivided lots were not the transfer of capital assets. | Ceasing to carry on, or reducing the size and scale of, an enterprise issue | The Tribunal considered at [69] that the purpose of paragraph 188-25(b) is to exclude from consideration the value of projected supplies that are outside the usual run of transactions which, if included, would distort an assessment of the scale of an entity's enterprise. The Tribunal found at [73] and [77] that the sale of land is the central objective of a land development enterprise and the sales were made in the course of and as a consequence of the applicant carrying on the enterprise, not as a consequence of ceasing, or a reduction in the size or scale of, that enterprise. | The Tribunal considered at [78] that the applicant's approach under either limb of paragraph 188-25(b) would mean that land developers could escape GST on land sales transacted in the ordinary course of their business as being made solely as a consequence of ceasing or substantially and permanently reducing the size or scale of their enterprise.", "Issues_Decided": "Deemed 'enterprise' and GST registration issue: The Tribunal confirmed at [10] that the activity or activities of the applicant, as the trustee of a complying super fund, is an enterprise pursuant to section 9-20. Subsection 9-20(1) defines an 'enterprise' as: An enterprise is an activity, or series of activities, done: ... (da) by the trustee of a *complying superannuation fund ... The sole issue for determination was whether the sale of the lots was to be disregarded under section 188-25 from the applicant's GST turnover for the purpose of meeting the registration turnover threshold in section 188-10. For section 188-25 to apply, it required the applicant to prove that its projected sales of the land were supplies made, or likely to be made: • by way of transfer of ownership of a capital asset (paragraph 188-25(a)), or • solely as a consequence of ceasing to carry on an enterprise (subparagraph 188-25(b)(i)), or • solely as a consequence of substantially and permanently reducing the size or scale of an enterprise (subparagraph 188-25(b)(ii)). • by way of transfer of ownership of a capital asset (paragraph 188-25(a)), or • solely as a consequence of ceasing to carry on an enterprise (subparagraph 188-25(b)(i)), or • solely as a consequence of substantially and permanently reducing the size or scale of an enterprise (subparagraph 188-25(b)(ii)). | Capital asset issue: The Tribunal held at [26] that, for the purpose of paragraph 188-25(a), the character of an asset must be determined at the time the supply is made or is likely to be made. Section 188-25 only arises for consideration where the supply is or would be made in the course of an enterprise the taxpayer carries on. The Tribunal accepted at [24] and [53] that the applicant's intention or object at the time the asset is acquired is not determinative and is of less significance than it is for the purposes of the capital versus revenue dichotomy in the income tax context. The Tribunal, in determining the character of the asset supplied, held at [54] that the applicant's property development undertaking amounted to more than a mere realisation of the property in an enterprising way. The Tribunal relied on Commissioner of Taxation (Cth) v Whitfords Beach Pty Ltd [1982] HCA 8 in concluding that development of the applicant's land involved substantial works in the way of planning, development and improvement of the land. While the applicant had no professional experience in land development and was relatively passive in respect of the development activities, the Tribunal considered at [63] that the engagement of contractors to undertake extensive skilled work was '... a hallmark of modern subdivision projects' and did not point to mere realisation. Similarly, the Tribunal considered at [64] that the applicant's choice to sell vacant land, rather than construct housing for further profit, did not assist in determining the character of the assets sold. The Tribunal found at [66] that the supplies of the subdivided lots were not the transfer of capital assets. | Ceasing to carry on, or reducing the size and scale of, an enterprise issue: The Tribunal considered at [69] that the purpose of paragraph 188-25(b) is to exclude from consideration the value of projected supplies that are outside the usual run of transactions which, if included, would distort an assessment of the scale of an entity's enterprise. The Tribunal found at [73] and [77] that the sale of land is the central objective of a land development enterprise and the sales were made in the course of and as a consequence of the applicant carrying on the enterprise, not as a consequence of ceasing, or a reduction in the size or scale of, that enterprise. The Tribunal considered at [78] that the applicant's approach under either limb of paragraph 188-25(b) would mean that land developers could escape GST on land sales transacted in the ordinary course of their business as being made solely as a consequence of ceasing or substantially and permanently reducing the size or scale of their enterprise.", "ATO_View_of_Decision": "Deemed 'enterprise' and GST registration issue | The Tribunal's interpretation of the exclusions in section 188-25 from the projected turnover and its reasoning are consistent with the Commissioner's view set out in Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover. This case illustrates that the GST liabilities of a complying super fund turn on the requirements for registration, as the enterprise test in paragraph 9-20(1)(da) will always be satisfied. The case is a reminder that the activities of some entities are deemed to be an enterprise requiring only the turnover threshold for registration to be considered.", "Administrative_Treatment": "", "Related_Documents": "None | 2022 ATC 10-627 | 9-20 | 9-20(1) | 9-20(1)(da) | 188-10 | 188-25 | 188-25(a) | 188-25(b) | 188-25(b)(i) | 188-25(b)(ii) | 82 ATC 4031", "Legislative_References": "ANTS(GST)A 1999 9-20 9-20(1) 9-20(1)(da) 188-10 188-25 188-25(a) 188-25(b) 188-25(b)(i) 188-25(b)(ii)", "Case_References": "Commissioner of Taxation (Cth) v Whitfords Beach Pty Ltd [1982] HCA 8 (1982) 150 CLR 355 39 ALR 521 12 ATR 692 82 ATC 4031 56 ALJR 240", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2020/6491-3/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Water West Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2021-4194", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "8 March 2022", "Date_Published": "18 November 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns entitlement to the cash flow boost (CFB) and specifically whether there was a reasonable basis upon which the Applicant was a small business entity or a medium business entity for the relevant income year. | All legislative references in this Decision impact statement are to the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020, unless otherwise indicated.", "Overview_of_Facts": "To be entitled to the first CFB, an entity needs to satisfy the requirements outlined in section 5. One of the requirements is whether the Commissioner is satisfied on a reasonable basis that the entity is a small or medium business entity for the income year in which the period starts under subparagraph 5(1)(d)(ii). | The Applicant was incorporated in October 2013 and was a subsidiary of a significant global entity and part of a group of companies (the BPIH group) with high aggregated turnover. | In September 2014, the Applicant applied to change its accounting period to a substituted accounting period (SAP) to synchronise with its parent company. The Commissioner agreed to the SAP. The substitution occurred and the Applicant was given a transitional period and subsequently accounted at the end of the calendar year like the other companies in the BPIH group. | In December 2019, the Applicant's parent transferred all of its shares in the Applicant to 3 other entities who, at all relevant times, had an aggregated turnover of less than $10 million. | In March 2020, following another change in ownership, the Applicant applied to change its SAP, asking to revert to a 30 June balance date. The Commissioner agreed to this request in April 2020, confirming that, for the 2019-20 income year, the Applicant would be required to lodge a tax return covering the transitional period of 1 January 2019 to 30 June 2020. | In March 2021, the Applicant applied for a new SAP, requesting an early balance date of 31 December 2019. The Commissioner declined the request due to insufficient reasons justifying the new SAP. | The Applicant lodged its activity statements declaring pay as you go withholding amounts for the monthly periods commencing 1 March, 1 April, 1 May and 1 June 2020. These were the periods relevant in determining the income year under subparagraph 5(1)(d)(ii). | The Commissioner determined that the Applicant was not entitled to the CFB and the Applicant objected to that decision under Part IVC of the Taxation Administration Act 1953. The Applicant's objection was disallowed on the basis that the Applicant was not a small or medium business entity at the time when eligibility for CFB was assessed. | Issues decided by the Tribunal | The Tribunal firstly considered the issue of what was 'the income year in which the period starts' under subparagraph 5(1)(d)(ii), referring to the definition of 'income year' in the Income Tax Assessment Act 1997 (ITAA 1997) as provided for in subsection 4(1). [1] The Tribunal noted that the provisions of the ITAA 1997 assume that the income year is the financial year unless an exception applies, including where the Commissioner has allowed a SAP. [2] | In the Applicant's case, the Tribunal concluded that the income year in which the period starts (that is, each monthly period commencing 1 March, 1 April, 1 May and 1 June 2020) was the income year commencing 1 January 2019 and ending 30 June 2020. [3] | The Tribunal then considered whether the Applicant met the definition of a 'small business entity' under subsection 328-110(1) of the ITAA 1997, specifically having regard to its aggregated turnover. Essentially, an entity's aggregated turnover includes the turnover of connected entities and affiliates. | The first limb under paragraph 328-110(1)(b) of the ITAA 1997 focuses on whether the entity's aggregated turnover for the previous year was less than the statutory threshold of $10 million (for medium business entities, the threshold is $50 million). The second limb focuses on whether the entity's aggregated turnover for the current year is likely to be less than $10 million (for medium business entities, the threshold is $50 million). | The Tribunal found that the Applicant failed the first limb because its aggregated turnover for the previous year (1 January 2018 to 31 December 2018) was over $10 million (and indeed over $50 million). [4] This was because the Applicant was part of the BPIH group for the entire previous year. | The Tribunal also found that the Applicant failed the second limb because its current income year commenced on 1 January 2019 and ended on 30 June 2020. [5] The turnover of the BPIH group was relevant since the Applicant was part of the BPIH group for almost two-thirds of that year. [6] | The Tribunal also found that there was no reasonable basis upon which to conclude that the Applicant was a small or medium business entity despite it failing to satisfy the definition in subsection 328-110(1) of the ITAA 1997. [7] The Tribunal found that the power to make a determination on a 'reasonable basis' is only available where the Commissioner does not have access to all the information they would ordinarily consider when making an assessment of likely turnover. [8]", "Issues_Decided": "The Tribunal firstly considered the issue of what was 'the income year in which the period starts' under subparagraph 5(1)(d)(ii), referring to the definition of 'income year' in the Income Tax Assessment Act 1997 (ITAA 1997) as provided for in subsection 4(1). [1] The Tribunal noted that the provisions of the ITAA 1997 assume that the income year is the financial year unless an exception applies, including where the Commissioner has allowed a SAP. [2] In the Applicant's case, the Tribunal concluded that the income year in which the period starts (that is, each monthly period commencing 1 March, 1 April, 1 May and 1 June 2020) was the income year commencing 1 January 2019 and ending 30 June 2020. [3] The Tribunal then considered whether the Applicant met the definition of a 'small business entity' under subsection 328-110(1) of the ITAA 1997, specifically having regard to its aggregated turnover. Essentially, an entity's aggregated turnover includes the turnover of connected entities and affiliates. The first limb under paragraph 328-110(1)(b) of the ITAA 1997 focuses on whether the entity's aggregated turnover for the previous year was less than the statutory threshold of $10 million (for medium business entities, the threshold is $50 million). The second limb focuses on whether the entity's aggregated turnover for the current year is likely to be less than $10 million (for medium business entities, the threshold is $50 million). The Tribunal found that the Applicant failed the first limb because its aggregated turnover for the previous year (1 January 2018 to 31 December 2018) was over $10 million (and indeed over $50 million). [4] This was because the Applicant was part of the BPIH group for the entire previous year. The Tribunal also found that the Applicant failed the second limb because its current income year commenced on 1 January 2019 and ended on 30 June 2020. [5] The turnover of the BPIH group was relevant since the Applicant was part of the BPIH group for almost two-thirds of that year. [6] The Tribunal also found that there was no reasonable basis upon which to conclude that the Applicant was a small or medium business entity despite it failing to satisfy the definition in subsection 328-110(1) of the ITAA 1997. [7] The Tribunal found that the power to make a determination on a 'reasonable basis' is only available where the Commissioner does not have access to all the information they would ordinarily consider when making an assessment of likely turnover. [8]", "ATO_View_of_Decision": "Despite the Tribunal's decision, the Commissioner considers that the relevant income year when applying section 328-110 of the ITAA 1997 is to a 12-month period. The Commissioner will seek to clarify this position at the next available opportunity before the Tribunal or Courts. | Subsection 995-1(1) of the ITAA 1997 (read with subsections 4-10(2) and 9-5(2) of the ITAA 1997) provides that an income year is generally a period of 12 months beginning on 1 July, unless the Commissioner has agreed for an entity to adopt a SAP (which is a period of 12 months that ends on a date other than 30 June). Section 18 of the Income Tax Assessment Act 1936 (ITAA 1936) expresses an intention that an entity's annual accounting period is ordinarily to be the 12-month period ending on 30 June. | Further, the Commissioner considers that a transitional period, which facilitates an entity's changeover from one balance date to another (and is necessarily a period other than 12 months) does not constitute an income year. The Commissioner may require a tax return under section 162 of the ITAA 1936 or make an assessment of income for a transitional period under section 168 of the ITAA 1936 when an entity's balancing date changes. [9] | Accordingly, the Commissioner maintains the view that an income year cannot be a period of more than 12 months under the provisions of the ITAA 1997 and ITAA 1936. We note that the adoption of this position would not have impacted the outcome of the matter before the Tribunal as the Applicant was part of the BPIH group for the relevant periods. | The Commissioner also maintains the view that when working out aggregated turnover under section 328-115 of the ITAA 1997, an entity calculates the annual turnovers of entities connected with it and entities that are its affiliates for the relevant period that aligns with the entity's income year, even if those entities have a different accounting period to it. [10] An entity is required to calculate its aggregated turnover based on its income year, whether that ends on 30 June or some other date; for example, where an approved SAP is in place. [11] | An entity's aggregated turnover includes its own annual turnover, as well as the annual turnover of any entity (including any foreign resident) that it is connected with, or are its affiliates, at any time during its income year. [12]", "Administrative_Treatment": "Nil.", "Related_Documents": "None | 2022 ATC 10-622 | 4(1) | 5(1)(d)(ii) | 18 | 162 | 168 | 4-10(2) | 9-5(2) | 328-110(1) | 328-110(1)(b) | 328-115 | 995-1(1) | Pt IVC | TD 2021/7 | PS LA 2007/21", "Legislative_References": "Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 4(1) 5(1)(d)(ii) Income Tax Assessment Act 1936 18 162 168 Income Tax Assessment Act 1997 4-10(2) 9-5(2) 328-110(1) 328-110(1)(b) 328-115 995-1(1) Taxation Administration Act 1953 Pt IVC", "Case_References": "", "Subject_References": "", "Other_References": "TD 2021/7 PS LA 2007/21", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2021-4194/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | Footnotes: [1] Water West Pty Ltd and Commissioner of Taxation [2022] AATA 427 (Water West) at [23]. | [9] Law Administration Practice Statement PS LA 2007/21 Substituted Accounting Periods (SAPs). | [10] Taxation Determination TD 2021/7 Income tax: aggregated turnover - calculating the annual turnover of a connected entity or affiliate with a different accounting period to you. | [12] Section 328-115 of the ITAA 1997."}
{"Case_Name": "Addy v Commissioner of Taxation", "Venue_Reference_No": "S25/2021", "Venue": "High Court of Australia", "Judgment_Date": "3 November 2021", "Date_Published": "31 March 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case decided that a British citizen (the taxpayer) who held a working holiday visa but who was, in unusual circumstances, held to be a resident of Australia was entitled to be taxed at the more favourable rates applicable to her level of income that apply to Australian nationals who are resident of Australia, not the rates normally applicable to individuals who hold working holiday visas. The taxpayer was entitled to be taxed more favourably because of the non-discrimination article (NDA) in the double-tax convention between Australia and the United Kingdom (UK). [1] | Does this decision apply to you? | Most of Australia's tax treaties do not contain an NDA. This decision is only relevant to nationals of the following countries: • Chile • Finland • Germany (from 1 July 2017) • Israel (from 1 July 2020) • Japan • Norway • Turkey, and • the UK. [2] | • Chile • Finland • Germany (from 1 July 2017) • Israel (from 1 July 2020) • Japan • Norway • Turkey, and • the UK. [2] | The decision only applies to you if you were a national of one of the above countries, the holder of a working holiday visa (Subclasses 417 or 462, or associated bridging visa) and also a resident of Australia. Most holders of working holiday visas will not be residents of Australia. That is because persons who come to Australia for the purposes of a holiday, even if they work while here, generally do not become residents of Australia. But for unusual circumstances, the taxpayer in this case would not have been a resident of Australia. | In the far less common situation where you held a working holiday visa but subsequently remained in Australia, you may be a resident. If you are also a national of one of the above countries, the decision may be applicable to you. This may apply if you held a working holiday visa and subsequently obtained a different visa for a purpose other than having a holiday. Other cases where you held a working holiday visa and are a resident are theoretically possibly but will be rarely found in practice. | See Working holiday makers for how the Commissioner is dealing with these cases. | You may have to bring to account income you earned in a foreign country if you are treated like an Australian national resident of Australia.", "Overview_of_Facts": "The taxpayer is a British citizen. | The taxpayer was granted a Subclass 417 (working holiday) visa for one year and entered Australia on 20 August 2015. In July 2016, she was granted a further working holiday visa for another year. The taxpayer stayed in Australia until 1 May 2017, when she returned to the UK. | Before her stay in Australia, the taxpayer lived with her parents at the family home. She left a substantial portion of her possessions at that family home and expected to, and did, return there after her stay in Australia. | By September 2015, the taxpayer had commenced living in a house in Sydney. Those premises were leased by several persons, including a friend of the taxpayer who allowed her to share her room under an informal arrangement. | During her time in Australia, the taxpayer undertook some travel around Australia. From 2 January 2016 to 8 March 2016, she travelled to several countries in Southeast Asia. On her return to Australia, the taxpayer worked on a horse farm in Western Australia for three months in 2016 before returning to Sydney in July 2016, where she worked casually as a waitress in two different hotels. | The taxpayer returned to the UK because she missed the UK and the people she knew there. | The taxpayer's taxable income in the 2016-2017 income year was $26,576, derived from her Australian employment. | From 1 January 2017, and for the relevant income year, Part III of Schedule 7 to the Income Tax Rates Act 1986 (ITRA 1986) prescribed a 15% rate of tax on working holiday taxable income up to $37,000 [3] (working holiday maker tax rates). | The taxpayer lodged her 2016-2017 tax return. The Commissioner issued her a Notice of Assessment, assessing the tax payable on her working holiday taxable income at working holiday maker tax rates. | The taxpayer objected against her assessment, contending that she was a resident and that the NDA meant that her working holiday taxable income had to be assessed at rates applying to residents who were not working holiday makers; that is, under Part I of Schedule 7 to the ITRA 1986, not Part III of Schedule 7 to that Act. | On the basis that the taxpayer's case would be used as a test case to seek judicial views on the effect of the NDA, the taxpayer withdrew her first objection and the Commissioner issued a further amended assessment that was expressed to be made on the basis that the taxpayer was a resident but which did not alter her taxable income or the tax payable thereon. The taxpayer objected to this further amended assessment. The Commissioner disallowed the objection in full. | The taxpayer appealed to the Federal Court. Some weeks before the hearing, the taxpayer applied for, and was ultimately granted, leave to expand her grounds of appeal to include whether she was a resident for the whole of the 2016-2017 income year. The Commissioner opposed this application on the basis that the application of the 183-day test had not been squarely raised before and the Commissioner ought to be given an opportunity to form a view as to whether the Commissioner was satisfied as to the proviso. | Issues decided by the Court | Residency | The first issue was whether the taxpayer was 'a resident' of Australia for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) during the income year ended 30 June 2017, under either or both of the ordinary resides and 183-day tests. If the taxpayer was a resident under the 183-day test, a further issue arose as to whether the taxpayer was a resident for the entire 2016-2017 income year or only for the 11 months during which she was present. This was relevant to whether the tax-free threshold ought to be prorated. | At first instance in the Federal Court, Logan J found that the taxpayer was a resident under the ordinary resides test and under the 183-day test. Regarding the 183-day test, his Honour held that it was open to the Court to reach its own state of satisfaction and that he was not satisfied that the taxpayer's usual place of abode was overseas and that she did not have an intention to take up residence. | The Full Federal Court found that the taxpayer was not a resident under the ordinary resides test. | Derrington J, with whom Davies and Steward JJ agreed [4] , said that presence for an extended period was insufficient to become a resident under ordinary concepts. [5] His Honour found that the taxpayer's actual intention was to have a holiday. [6] This was consistent with her declarations made in obtaining the visa and there was no credible suggestion that her intention had changed. [7] His Honour said that the nature and quality of the taxpayer's stay in Australia and modality of life were consistent with being on an extended holiday. [8] This included her travel while in Australia and the circumstances in which she left lending a 'fluid nature' to her presence. [9] His Honour decided that it was not 'open to conclude' that she was a resident under ordinary concepts. [10] | The Full Federal Court found that the taxpayer was a resident under the 183-day test, though for different reasons to the primary judge. | This outcome rested on two facts that were largely not disputed by the Commissioner: • that the taxpayer had been in Australia for more than one half of the 2016-2017 income year, and • the Commissioner did not hold a state of satisfaction that the taxpayer's usual place of abode was outside Australia and that she did not intend to take up residence in Australia (the two matters in the proviso to the 183-day test). | • that the taxpayer had been in Australia for more than one half of the 2016-2017 income year, and • the Commissioner did not hold a state of satisfaction that the taxpayer's usual place of abode was outside Australia and that she did not intend to take up residence in Australia (the two matters in the proviso to the 183-day test). | The Full Federal Court: • held that as Parliament had conditioned the operation of the proviso on the opinion of the Commissioner, it was not open to a court to substitute its own opinion on the matters in the proviso if more than one opinion is open [11] • held that in the absence of an actual state of satisfaction, the taxpayer was entitled to succeed before the Court in their contention that they were a resident, and • concurred with the primary judge's finding that the taxpayer's residency ceased once she departed Australia in May 2017 and that the taxpayer was only entitled to a part of, and not the full, tax-free threshold under the ITRA 1986. [12] | • held that as Parliament had conditioned the operation of the proviso on the opinion of the Commissioner, it was not open to a court to substitute its own opinion on the matters in the proviso if more than one opinion is open [11] • held that in the absence of an actual state of satisfaction, the taxpayer was entitled to succeed before the Court in their contention that they were a resident, and • concurred with the primary judge's finding that the taxpayer's residency ceased once she departed Australia in May 2017 and that the taxpayer was only entitled to a part of, and not the full, tax-free threshold under the ITRA 1986. [12] | The above issues were not further considered by the High Court. | Application of the non-discrimination article | The second issue, that only arose if the taxpayer was a resident, was whether Article 25(1) of the UK double-tax convention was contravened. | At first instance, Logan J held that the Article was contravened. In the Full Federal Court, Steward and Derrington JJ held that the Article was not contravened. Davies J, in dissent, agreed with the primary judge. | The High Court unanimously held that the Article was contravened. | Their Honours held that as working holiday visas are sought by and issued to non-citizens, the 'same circumstances' to be considered could not include being the holder of a working holiday visa. [13] | For that reason, the comparison required was between the tax imposed on the taxpayer and the tax that would be imposed on an Australian resident national deriving the same income from the same source. | Their Honours noted that this was a question of the application of the domestic laws specific to a taxpayer in a specific income year. [14] In the matter before the Court, the taxpayer had only one type of income (the Australian sourced employment income) and so the relevant comparison was required only in respect of the tax imposed on that income. | Their Honours found that the ordinary taxation laws as they applied to this taxpayer and to an Australian national in the same circumstances were the same but for the rate. An Australian national 'doing the same work, earning the same income, under the same ordinary laws' would pay less tax than the taxpayer. [15] Therefore, the effect of the NDA being contravened for this taxpayer was that the taxpayer should pay tax at the rates applying to resident nationals as set out in Part I of Schedule 7 to the ITRA 1986. | Their Honours found that Article 25(1) enjoins Australia 'to accord the same treatment to a national of the United Kingdom' [16] as that applying to an Australian national in the same circumstances.", "Issues_Decided": "Residency: The first issue was whether the taxpayer was 'a resident' of Australia for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) during the income year ended 30 June 2017, under either or both of the ordinary resides and 183-day tests. If the taxpayer was a resident under the 183-day test, a further issue arose as to whether the taxpayer was a resident for the entire 2016-2017 income year or only for the 11 months during which she was present. This was relevant to whether the tax-free threshold ought to be prorated. At first instance in the Federal Court, Logan J found that the taxpayer was a resident under the ordinary resides test and under the 183-day test. Regarding the 183-day test, his Honour held that it was open to the Court to reach its own state of satisfaction and that he was not satisfied that the taxpayer's usual place of abode was overseas and that she did not have an intention to take up residence. The Full Federal Court found that the taxpayer was not a resident under the ordinary resides test. Derrington J, with whom Davies and Steward JJ agreed [4] , said that presence for an extended period was insufficient to become a resident under ordinary concepts. [5] His Honour found that the taxpayer's actual intention was to have a holiday. [6] This was consistent with her declarations made in obtaining the visa and there was no credible suggestion that her intention had changed. [7] His Honour said that the nature and quality of the taxpayer's stay in Australia and modality of life were consistent with being on an extended holiday. [8] This included her travel while in Australia and the circumstances in which she left lending a 'fluid nature' to her presence. [9] His Honour decided that it was not 'open to conclude' that she was a resident under ordinary concepts. [10] The Full Federal Court found that the taxpayer was a resident under the 183-day test, though for different reasons to the primary judge. This outcome rested on two facts that were largely not disputed by the Commissioner: • that the taxpayer had been in Australia for more than one half of the 2016-2017 income year, and • the Commissioner did not hold a state of satisfaction that the taxpayer's usual place of abode was outside Australia and that she did not intend to take up residence in Australia (the two matters in the proviso to the 183-day test). • that the taxpayer had been in Australia for more than one half of the 2016-2017 income year, and • the Commissioner did not hold a state of satisfaction that the taxpayer's usual place of abode was outside Australia and that she did not intend to take up residence in Australia (the two matters in the proviso to the 183-day test). The Full Federal Court: • held that as Parliament had conditioned the operation of the proviso on the opinion of the Commissioner, it was not open to a court to substitute its own opinion on the matters in the proviso if more than one opinion is open [11] • held that in the absence of an actual state of satisfaction, the taxpayer was entitled to succeed before the Court in their contention that they were a resident, and • concurred with the primary judge's finding that the taxpayer's residency ceased once she departed Australia in May 2017 and that the taxpayer was only entitled to a part of, and not the full, tax-free threshold under the ITRA 1986. [12] • held that as Parliament had conditioned the operation of the proviso on the opinion of the Commissioner, it was not open to a court to substitute its own opinion on the matters in the proviso if more than one opinion is open [11] • held that in the absence of an actual state of satisfaction, the taxpayer was entitled to succeed before the Court in their contention that they were a resident, and • concurred with the primary judge's finding that the taxpayer's residency ceased once she departed Australia in May 2017 and that the taxpayer was only entitled to a part of, and not the full, tax-free threshold under the ITRA 1986. [12] The above issues were not further considered by the High Court. | Application of the non-discrimination article: The second issue, that only arose if the taxpayer was a resident, was whether Article 25(1) of the UK double-tax convention was contravened. At first instance, Logan J held that the Article was contravened. In the Full Federal Court, Steward and Derrington JJ held that the Article was not contravened. Davies J, in dissent, agreed with the primary judge. The High Court unanimously held that the Article was contravened. Their Honours held that as working holiday visas are sought by and issued to non-citizens, the 'same circumstances' to be considered could not include being the holder of a working holiday visa. [13] For that reason, the comparison required was between the tax imposed on the taxpayer and the tax that would be imposed on an Australian resident national deriving the same income from the same source. Their Honours noted that this was a question of the application of the domestic laws specific to a taxpayer in a specific income year. [14] In the matter before the Court, the taxpayer had only one type of income (the Australian sourced employment income) and so the relevant comparison was required only in respect of the tax imposed on that income. Their Honours found that the ordinary taxation laws as they applied to this taxpayer and to an Australian national in the same circumstances were the same but for the rate. An Australian national 'doing the same work, earning the same income, under the same ordinary laws' would pay less tax than the taxpayer. [15] Therefore, the effect of the NDA being contravened for this taxpayer was that the taxpayer should pay tax at the rates applying to resident nationals as set out in Part I of Schedule 7 to the ITRA 1986. Their Honours found that Article 25(1) enjoins Australia 'to accord the same treatment to a national of the United Kingdom' [16] as that applying to an Australian national in the same circumstances.", "ATO_View_of_Decision": "Ordinary resides test | The Full Federal Court's decision was consistent with the Commissioner's views that the taxpayer was not a resident under ordinary concepts. | 183-day test | The Commissioner agrees that the Court is not able to reach its own state of satisfaction and substitute it for that of the Commissioner's. The Commissioner observes that this is different to a review by the Administrative Appeals Tribunal (AAT). [17] | The facts upon which the Full Federal Court held that the taxpayer did not meet the ordinary resides test and the conclusion thereon indicate that, with respect, Steward J was correct at [312(d)] to suggest that on these facts the Commissioner, had they considered it, may well have been satisfied that the taxpayer's usual place of abode was outside Australia and that she did not have an intention to take up residence in Australia. | In the normal course of events, the Commissioner would have a state of satisfaction by no later than when making an objection decision. [18] Consequently, and in the normal course of events, a taxpayer in similar circumstances as the taxpayer would be a non-resident (and the NDA would have no application to them). | It is not the Commissioner's view that all taxpayers who are present in Australia for more than one half of the year of income must lodge as residents, even though it would be reasonable for the Commissioner to be satisfied that their usual place of abode was outside Australia and they had no intention to take up residence in Australia. For the purposes of self-assessment, a taxpayer is entitled to assume that a discretion will be exercised in a particular way provided that it is reasonably arguable that it would be lawful for the Commissioner to exercise it in that way. [19] If it is exercisable only in one way, taxpayers should assume that it will be exercised in that way. A taxpayer who believes on good grounds that they have a usual place of abode outside Australia and does not have the intention to take up residence here should therefore self-assess on the basis that the Commissioner will be satisfied of the matters mentioned in the proviso. [20] | The decision of the Full Federal Court on this test involved technical questions that only arise when an appeal from a disallowed objection is made directly to the Federal Court and the appeal involves an administrative discretion. This part of the decision impact statement is directed at this (relatively rare) situation. | The Commissioner must make an assessment of the amount of the taxable income and the tax payable thereon 'from the returns or any other information in his possession'. [21] If the application of the 183-day test affects the taxable income or tax payable thereon in the circumstances of the taxpayer being assessed (which will not be the case if the taxpayer is resident regardless of that test), and the Commissioner has material before them that is relevant to the matters in the proviso, the Commissioner does not consider themself free to disregard that material (that is, so as to make a person resident whether or not they would have been satisfied of the matters in the proviso). The holding of a working holiday maker visa is relevant to both usual place of abode and intention to take up residence. Consequently, the Commissioner believes that where such information is in the Commissioner's possession, omission to consider it in applying the 183-day test involves making an assessment infected with an error of law. [22] The Commissioner also considers that the outcome of a consideration turning on the Commissioner's state of satisfaction that they as Commissioner are obliged to consider is a material fact necessary for the assessment. | The question of whether, in the absence of that fact, the Court can know all the material facts and can find that the assessed amount is wrong without remitting the matter to be considered by the Commissioner is one that, in a suitable case unencumbered with the unusual history attending this case, and provided that the Commissioner is advised that it is proper to do so consistently with the principles outlined in advices received by the Solicitor-General, the Commissioner would invite the courts to consider further. However, cases where this question arises are likely to be rare. | The Commissioner agrees with the Full Federal Court that the taxpayer's residency ceased upon her departing Australia and that she was therefore only entitled to a part of, and not the full, tax-free threshold under the ITRA 1986. | Application of the non-discrimination article | The NDA applied in this case because, on a comparison of tax payable under the domestic law by the taxpayer, she paid more than an Australian national would deriving the same income. | The Commissioner considers that the effect of the decision is that, if on a comparison of the tax payable by a resident working holiday visa holder (applying all domestic provisions including those that differ for foreign nationals) is greater than the tax payable by an Australian national resident deriving the same amount of income from the same sources and in the same circumstances, the working holiday visa holder will instead be taxed on the same basis as an Australian national; that is, omitting the provisions of domestic law that apply on the basis of nationality. | Where the resident working holiday visa holder derives working holiday maker taxable income as well as other income, this may mean that they include in their assessable income any foreign income that an Australian resident national in the same circumstances would include. [23] | However, if the tax payable by the resident working holiday maker is less than the tax paid by the comparable Australian national, the NDA does not apply (and the rates in Part III of Schedule 7 to the ITRA 1986 will continue to apply). | Where the resident working holiday visa holder is a resident for part of an income year, the tax-free threshold will need to be prorated. | The Commissioner notes the High Court's comments on Commissioner of Inland Revenue v United Dominions Trust Ltd in relation to when a company is resident. [24] The Commissioner agrees that where the basis for the more burdensome treatment is residence, the NDA is not engaged. Specifically, the definition of when a company is resident does not engage the NDA. | Implications | To be entitled to any protection under the treaty, the working holiday visa holder must be both a national of a country with which Australia has a treaty with an NDA in the same form as the NDA in the UK double-tax convention and a resident of Australia. | Regarding any other working holiday maker visa holder, the working holiday maker rates apply unchanged and they continue to be taxed at those rates. | A person who is a national from one of the relevant countries must consider if they are likely to be residents of Australia. In the Commissioner's view, most people in Australia on a working holiday visa will, consistently with their visa conditions [25] and declarations made to obtain it, be on a holiday and will not be a resident. As was observed by Derrington J, an intention to be in Australia for an extended holiday is 'generally antithetical' to an intention to reside in Australia. [26] | The Commissioner considers that, on a consideration of their facts and circumstances, it will usually be the case that people visiting Australia on a working holiday visa who leave at the end of (or before) that visa are genuine visitors and not resident of Australia under ordinary concepts. For most people, their purpose is to have a holiday. They usually have a home overseas to which they return and neither make and nor retain material connections with Australia once this purpose is at an end. Their work and accommodation habits are usually transient and deliberately flexible. | Most will not answer the description of a person who 'dwell[s] permanently or for a considerable time' in Australia or who has their 'settled or usual abode' in Australia. [27] While they may 'live', in the sense of 'stay' at a particular place even for extended durations, this is insufficient. [28] The association most working holiday visa holders have with Australia will be temporary and casual. Most are visitors. | Regarding the 183-day test and for similar reasons, the Commissioner considers that for most people entering and remaining in Australia on a working holiday visa their usual place of abode will remain outside Australia and they will not have an intention to take up residence in Australia. The latter is not shown by merely holding an intention to stay in Australia for a length of time much less by having some intention to stay for an undetermined period. [29] Credible evidence will be needed to show that the taxpayer is not a temporary visitor. The securing of a different type of longer-term visa may be such credible evidence. | The above views are consistent with the Full Federal Court's views in Addy - Full Federal Court and the Federal Court's view in Stockton v Commissioner of Taxation [2019] FCA 1679. They are also consistent with a number of other recent AAT cases which held that a person on a working holiday visa was not a resident. [30] | The Commissioner is not required to accept assertions regarding residency. Should a taxpayer wish to contend that they are a resident under either of those tests, the Commissioner will expect an explanation as to why they consider that they are a resident and may ask for supporting evidence (whether or not the taxpayer self-assessed as a resident or a non-resident). | The Commissioner will consider appropriate compliance strategies to ensure that working holiday maker visa holders are not self-assessing as residents when a consideration of the facts and circumstances would show that they are not resident.", "Administrative_Treatment": "The ATO has reviewed and updated working holiday maker-related website guidance to reflect the view of the High Court. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains [2003] ATS 22 (UK double-tax convention). | [2] While there may be treaties with other countries that have NDAs in the same form as the NDA in the UK double-tax convention, the countries listed are the only ones that are currently participating in Australia's working holiday maker program at the time of publication of this Decision impact statement. Note that while the Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes of Income [1983] ATS 16 has an NDA, it has not been incorporated into domestic law. As such, it does not create any private, justiciable rights; see Addy v Commissioner of Taxation [2021] HCA 34 ( Addy - High Court ) at [13], subsection 5(2) of the International Tax Agreements Act 1953 and pages 6 and 8 of the Explanatory Memorandum to the Income Tax (International Agreements) Amendment Bill 1983. | [3] For the 2020-21 to 2023-24 income years, Part III of Schedule 7 to the ITRA 1986 prescribes a 15% rate of tax on working holiday taxable income up to $45,000. | [4] Commissioner of Taxation v Addy [2020] FCAFC 135 (Addy - Full Federal Court) at [1] and [253]. | [5] Addy - Full Federal Court at [83] 'Visitors and holiday makers require somewhere to \"stay\" or \"live\" when in Australia, but it does not follow that they become resident there'. | [6] Addy - Full Federal Court at [81]. | [7] Addy - Full Federal Court at [81]. | [8] Addy - Full Federal Court at [97]. | [9] Addy - Full Federal Court at [84]. | [10] Addy - Full Federal Court at [98]. | [11] Addy - Full Federal Court at [26], [193] and [306]. | [12] Addy - Full Federal Court at [243] and [322]. | [13] Addy - High Court at [29-30]. | [14] Addy - High Court at [6]. | [15] Addy - High Court at [34]. | [16] Addy - High Court at [33]. | [17] The AAT is able to reach the relevant state of satisfaction (see subsection 43(1) of the Administrative Appeals Tribunal Act 1975). | [18] The Commissioner is entitled to reach a state of satisfaction for the first time at objection; Addy - Full Federal Court at [313]. Note also that subsection 169A(3) of the ITAA 1936 means that any state of satisfaction reached as part of the objection decision will be taken to have been reached when making the assessment. | [19] See subsection 284-15(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA). | [20] The Commissioner is entitled to accept statements made by taxpayers in their returns (subsection 169A(1) of the ITAA 1936). | [21] Section 166 of the ITAA 1936. | [22] Albeit an assessment that is still a valid assessment (table item 2 in subsection 350-10(1) of Schedule 1 to the TAA). | [23] Noting that an Australian resident national will not have the benefit of Subdivision 768-R of the Income Tax Assessment Act 1997. Note also that if the resident working holiday maker visa holder is a dual resident who tie-breaks to the other country under Article 4 of the relevant treaty, their comparison is made with a resident national who also tie-breaks to the other country. This may mean that the treaty restricts Australia's right to tax some foreign income. | [24] [1973] 2 NZLR 555; Addy - High Court at [26-27]. | [25] Cl 417.211(4) and cl 462.217 of Schedule 2 to the Migration Regulations 1994 . | [26] Addy - Full Federal Court at [81]. | [27] See the ordinary meaning given to the word 'resides' in Levene v IRC [1928] AC 217 at [222] as cited by Derrington J in Addy - Full Federal Court at [73]. | [28] Addy - Full Federal Court at [83]. | [29] See Harding v Commissioner of Taxation [2019] FCAFC 29 at [36], where Davies and Steward JJ observed that a person may be a temporary visitor, and hence within the proviso to the 183-day test, despite staying in Australia for a number of years. | [30] Dapper Coelho and Commissioner of Taxation [2020] AATA 2474 where four separate applications were heard together; MacKinnon and Commissioner of Taxation [2020] AATA 1647; Schiele and Commissioner of Taxation [2020] AATA 286; Clemens and Commissioner of Taxation [2015] AATA 124; Jaczenko and Commissioner of Taxation [2015] AATA 125; Koustrup and Commissioner of Taxation [2015] AATA 126; Gurney and Commissioner of Taxation [2020] AATA 3813.", "Related_Documents": "None | [2021] HCATrans 17 | 2021 ATC 20-803 | 2020 ATC 20-756 | [2019] FCA 1768 | 6(1) | 166 | 169A(1) | 169A(3) | Subdiv 768-R | Sch 7 Pt I | Sch 7 Pt III | 5(2) | Sch 1 284-15(2) | Sch 1 350-10(1) | 43(1) | [2015] AATA 124 | 2020 ATC 10-543 | 2020 ATC 10-549 | [2015] AATA 125 | [2015] AATA 126 | [1928] AC 217 | 2020 ATC 10-521 | 2019 ATC 20-713 | Explanatory Memorandum to the Income Tax (International Agreements) Amendment Bill 1983", "Legislative_References": "ITAA 1936 6(1) 166 169A(1) 169A(3) ITAA 1997 Subdiv 768-R ITRA 1986 Sch 7 Pt I Sch 7 Pt III International Tax Agreements Act 1953 5(2) TAA 1953 Sch 1 284-15(2) Sch 1 350-10(1) Administrative Appeals Tribunal Act 1975 43(1) Migration Regulations 1994 Sch 2 cl 417.211(4) Sch 2 cl 462.217", "Case_References": "Addy v Federal Commissioner of Taxation [2019] FCA 1768 2019 ATC 20-719 (2019) 110 ATR 839 Addy v Federal Commissioner of Taxation [2021] HCA 34 2021 ATC 20-803 (2021) 95 ALJR 911 Clemens and Commissioner of Taxation [2015] AATA 124 Commissioner of Inland Revenue v United Dominions Trust Ltd [1973] 2 NZLR 555 1 NZTC 61,028 3 ATR 686 Dapper Coelho and Commissioner of Taxation [2020] AATA 2474 2020 ATC 10-543 11 ATR 926 Federal Commissioner of Taxation v Addy [2020] FCAFC 135 382 ALR 68 280 FCR 46 171 ALD 44 Gurney and Commissioner of Taxation [2020] AATA 3813 2020 ATC 10-549 Harding v Commissioner of Taxation [2019] FCAFC 29 269 FCR 211 109 ATR 579 (2019) 365 ALR 286 Jaczenko and Commissioner of Taxation [2015] AATA 125 Koustrup and Commissioner of Taxation [2015] AATA 126 Levene v IRC [1928] AC 217 MacKinnon and Commissioner of Taxation [2020] AATA 1647 2020 ATC 10-5334 11 ATR 708 Schiele and Commissioner of Taxation [2020] AATA 286 2020 ATC 10-521 111 ATR 434 Stockton v Commissioner of Taxation [2019] FCA 1679 110 ATR 772 2019 ATC 20-713", "Subject_References": "", "Other_References": "Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains [2003] ATS 22 Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes of Income [1983] ATS 16 Explanatory Memorandum to the Income Tax (International Agreements) Amendment Bill 1983 Working holiday makers", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD108of2018/00001", "Unmatched_Content": "The ATO has finalised updates to advice and guidance products to take account of the impact of this decision."}
{"Case_Name": "Airport Handling Services Australia Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 48 of 2021", "Venue": "Federal Court of Australia", "Judgment_Date": "15 November 2021", "Date_Published": "15 September 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns amendments made to the 'sovereign entity' exclusion in subsection 7(2) of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (JobKeeper Rules). | All legislative references in this Decision impact statement are to the JobKeeper Rules, unless otherwise indicated.", "Overview_of_Facts": "The applicants operated businesses in Australia in the aviation and hospitality industries. Each was wholly owned by the Dubai Government and employed an Australian workforce. | Between 30 March and 1 May 2020, the applicants made wage payments of at least $1,500 to their employees in anticipation that the payments would be subsidised under the JobKeeper scheme. | To be entitled to JobKeeper payments, the applicants must have satisfied the conditions for entitlement in section 6. One requirement was that the applicants not be excluded by subsection 7(2). [1] Until 30 April 2020, paragraph 7(2)(e) excluded an entity that was a 'sovereign entity' within the meaning of section 880-15 of the Income Tax Assessment Act 1997. None of the applicants came within this definition. | On 1 May 2020, an instrument amending the JobKeeper Rules (Amending Instrument) was registered, extending the sovereign entity exclusion to Australian subsidiaries of sovereign entities. [2] The applicants fell within this extended definition. The commencement section of the Amending Instrument provided that it commenced immediately after registration. [3] However, the application provision specified that the amendment would apply to JobKeeper fortnights beginning on or after 30 March 2020. [4] | By the time of the Amending Instrument's registration, the applicants [5] had satisfied the requirements for entitlement in section 6, apart from the requirement to provide information about the entitlement to the Commissioner in the approved form. [6] | The applicants contended that they were entitled to JobKeeper payments for the first 2 JobKeeper fortnights, notwithstanding the amendment to the JobKeeper Rules. This was because the Amending Instrument purported to have retrospective effect and the applicants had accrued rights to JobKeeper payments, which were preserved by subsection 12(2) of the Legislation Act 2003 (LA 2003). Alternatively, the applicants contended that section 20 of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (CERP Act) did not authorise the Treasurer of Australia to make retrospective rules. | The Commissioner decided that the applicants were not entitled to the JobKeeper payments they sought. That decision was affirmed by the Commissioner on objection. The applicants appealed to the Federal Court. | Issues decided by the Court | The 3 issues considered by the Court were: • whether the Amending Instrument commenced before it was registered, within the meaning of subsection 12(2) of the LA 2003 ( retrospectivity issue ) • if the Amending Instrument had retrospective operation, whether the applicants had any 'rights' that were adversely affected within the meaning of paragraph 12(2)(a) of the LA 2003 under either of sections 6 or 7 (of the JobKeeper Rules) at the time that the Amending Instrument was registered ( rights issue ) • to the extent that the Amending Instrument had retrospective operation, whether it was ultra vires the rule-making power in section 20 of the CERP Act ( ultra vires issue ). | • whether the Amending Instrument commenced before it was registered, within the meaning of subsection 12(2) of the LA 2003 ( retrospectivity issue ) • if the Amending Instrument had retrospective operation, whether the applicants had any 'rights' that were adversely affected within the meaning of paragraph 12(2)(a) of the LA 2003 under either of sections 6 or 7 (of the JobKeeper Rules) at the time that the Amending Instrument was registered ( rights issue ) • to the extent that the Amending Instrument had retrospective operation, whether it was ultra vires the rule-making power in section 20 of the CERP Act ( ultra vires issue ). | His Honour found that the applicants were not entitled to the JobKeeper payments sought. His Honour's decision on each of the issues is summarised as follows: | Retrospectivity issue | The term 'commences' in subsection 12(2) of the LA 2003 is not limited to when an instrument formally commences but is synonymous with 'takes effect' and 'comes into operation'. [7] Accordingly, the Amending Instrument commenced on 30 March 2020, which was prior to its registration. [8] | Rights issue | The authorities [9] establish that the existence of a 'right' depends on the terms of the enactment giving rise to its creation. [10] Under section 6, no entitlement to a JobKeeper payment arises until all the requirements in that section are satisfied. Further, nothing in the text of the CERP Act or the JobKeeper Rules suggest that some criteria were of greater significance than others. [11] | It followed that, for the purposes of subsection 12(2) of the LA 2003, the applicants had no rights of any relevant kind at the time the Amending Instrument commenced. | Ultra vires issue | Because of the way that the retrospectivity issue was decided, it was not necessary for the Court to decide on the ultra vires issue. [12] | However, had it been necessary to decide, his Honour would have held that section 20 of the CERP Act authorised the making of rules with retrospective effect. [13] This intention could be inferred from the breadth of the subject matters that section 7 of the CERP Act permitted the JobKeeper Rules to deal with, the broad language of the rule-making power in section 20 and the need for the Treasurer of Australia to be able to adjust the JobKeeper scheme promptly in response to the COVID-19 pandemic. [14]", "Issues_Decided": "The 3 issues considered by the Court were: • whether the Amending Instrument commenced before it was registered, within the meaning of subsection 12(2) of the LA 2003 ( retrospectivity issue ) • if the Amending Instrument had retrospective operation, whether the applicants had any 'rights' that were adversely affected within the meaning of paragraph 12(2)(a) of the LA 2003 under either of sections 6 or 7 (of the JobKeeper Rules) at the time that the Amending Instrument was registered ( rights issue ) • to the extent that the Amending Instrument had retrospective operation, whether it was ultra vires the rule-making power in section 20 of the CERP Act ( ultra vires issue ). • whether the Amending Instrument commenced before it was registered, within the meaning of subsection 12(2) of the LA 2003 ( retrospectivity issue ) • if the Amending Instrument had retrospective operation, whether the applicants had any 'rights' that were adversely affected within the meaning of paragraph 12(2)(a) of the LA 2003 under either of sections 6 or 7 (of the JobKeeper Rules) at the time that the Amending Instrument was registered ( rights issue ) • to the extent that the Amending Instrument had retrospective operation, whether it was ultra vires the rule-making power in section 20 of the CERP Act ( ultra vires issue ). His Honour found that the applicants were not entitled to the JobKeeper payments sought. His Honour's decision on each of the issues is summarised as follows: | Retrospectivity issue: The term 'commences' in subsection 12(2) of the LA 2003 is not limited to when an instrument formally commences but is synonymous with 'takes effect' and 'comes into operation'. [7] Accordingly, the Amending Instrument commenced on 30 March 2020, which was prior to its registration. [8] | Rights issue: The authorities [9] establish that the existence of a 'right' depends on the terms of the enactment giving rise to its creation. [10] Under section 6, no entitlement to a JobKeeper payment arises until all the requirements in that section are satisfied. Further, nothing in the text of the CERP Act or the JobKeeper Rules suggest that some criteria were of greater significance than others. [11] It followed that, for the purposes of subsection 12(2) of the LA 2003, the applicants had no rights of any relevant kind at the time the Amending Instrument commenced. | Ultra vires issue: Because of the way that the retrospectivity issue was decided, it was not necessary for the Court to decide on the ultra vires issue. [12] However, had it been necessary to decide, his Honour would have held that section 20 of the CERP Act authorised the making of rules with retrospective effect. [13] This intention could be inferred from the breadth of the subject matters that section 7 of the CERP Act permitted the JobKeeper Rules to deal with, the broad language of the rule-making power in section 20 and the need for the Treasurer of Australia to be able to adjust the JobKeeper scheme promptly in response to the COVID-19 pandemic. [14]", "ATO_View_of_Decision": "Retrospectivity issue | We accept the Court's interpretation of the term 'commences' in subsection 12(2) of the LA 2003 and consider it to be consistent with the purpose of the section. The Commissioner will, in future, apply this view of the law in analogous circumstances. The Attorney-General's Department, which has responsibility for the LA 2003, also accepts this position. | Rights and ultra vires issues | The decision of the Federal Court on these issues is consistent with the way the Commissioner has interpreted and applied the JobKeeper Rules and the CERP Act.", "Administrative_Treatment": "Not applicable.", "Related_Documents": "None | 2021 ATC 20-806 | 20 | 2 | 6 | 6(1)(b) | 6(1)(f) | 7 | 7(2) | 7(2)(e) | 101 | 880-15 | 12(2) | 12(2)(a)", "Legislative_References": "Coronavirus Economic Response Package (Payments and Benefits) Act 2020 20 Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 2) 2020 2 Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 6 6(1)(b) 6(1)(f) 7 7(2) 7(2)(e) 101 Income Tax Assessment Act 1997 880-15 Legislation Act 2003 12(2) 12(2)(a)", "Case_References": "Chief Adjudication Officer v Maguire [1999] 1 WLR 1778", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID48of2021/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | [2] Coronavirus Economic Response Package (Payments and Benefits) Amendment Rules (No. 2) 2020. | [3] Table item 1 of section 2(1) of the Amending Instrument. | [5] Certain applicants had not yet notified the Commissioner of their election to participate in the scheme per paragraph 6(1)(e). However, the distinction is not relevant for present purposes. | [6] Pursuant to paragraph 6(1)(f). | [7] Airport Handling Services Australia Pty Ltd v Commissioner of Taxation [2021] FCA 1405 (Airport Handling) at [85]. | [8] Airport Handling at [100-101]. | [9] See, for example, Chief Adjudication Officer v Maguire [1999] 1 WLR 1778. | [10] Airport Handling at [131]. | [11] Airport Handling at [120]. | [12] Airport Handling at [137]. | [13] Airport Handling at [138] and [143]. | [14] Airport Handling at [141-142]."}
{"Case_Name": "Clough Limited v Commissioner of Taxation", "Venue_Reference_No": "WAD 60 of 2021", "Venue": "Federal Court of Australia", "Judgment_Date": "12 November 2021", "Date_Published": "15 March 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns whether the payments made for cancellation of certain options and performance rights held by employees in the context of a corporate takeover by a major shareholder were deductible under section 8-1 of the Income Tax Assessment Act 1997. | All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1997.", "Overview_of_Facts": "Clough Limited (Clough) is in the business of providing engineering and construction services to the mining, energy and infrastructure industries in Australia and Papua New Guinea. Clough had an entitlement and retention policy to incentivise its employees under an employee option plan and employee incentive scheme. | Prior to its takeover, Clough was listed on the Australian Securities Exchange (ASX). It was 61.6%-owned by Murray & Roberts Limited (M&R), a wholly-owned subsidiary of South African-listed company Murray & Roberts Holdings, being the head company of the Murray & Roberts Group. | In August 2013, the two entities in the Murray & Roberts Group and Clough entered into a Scheme Implementation Arrangement (SIA) under which M&R would acquire the remaining shares in Clough. As a condition precedent to the SIA, Clough made offers to buy out the various unvested options and performance rights held by its employees. The offers were conditional on the SIA becoming effective. If this had not occurred, under the plan rules, the change of control provisions would have applied. The unvested rights would have vested and M&R would likely have had to acquire shares from the employees. While those rights could have been 'cashed out' at Clough's election, this required specific additional steps, and these were not done. | Importantly, the offers made to the employees to cancel their unvested options were not made in compliance with the terms of the employee remuneration plans. Unlike under the plan, it was not a requirement of the cancellation payment that the employee remain employed by Clough post-acquisition by M&R. | The SIA was implemented on 11 December 2013 and Clough made payments to employees for cancellation of their respective options and performance rights on the same day. Clough was subsequently delisted from the ASX on 12 December 2013. | Clough's deemed assessment in respect of the 2013-2014 income year treated the payments as non-deductible. Clough objected to the deemed assessment on the basis that it was entitled to deduct the payments made for the cancellation of options and rights issued under option and incentive schemes, totalling $15,050,487. The Commissioner disallowed the objection. Clough subsequently appealed. | The primary judge, Colvin J, dismissed the appeal, concluding that on the evidence before him the amounts were not paid with a view to Clough gaining or producing assessable income but to satisfy a requirement of a takeover bid. On appeal, the Full Federal Court agreed that Colvin J had not been in error in so holding, and also that the amounts were in any event on capital account. | Issues decided by the Court | The judgment of the Federal Court at first instance | At first instance [1] , Colvin J held at [112-113] that the payments were made to facilitate the takeover of Clough by M&R, not in gaining or producing income nor necessarily incurred in the course of carrying on a business carried on for that purpose. In concluding that the payments did not fall within the positive limbs of section 8-1, Colvin J did not reach a view about whether the payments would have been excluded as being outgoings of capital by reason of paragraph 8-1(2)(a). | The judgment of the Full Federal Court on appeal | On appeal [2] , the Court unanimously held at [18] that although: ... the payments were made both to facilitate a change in control and ... to honour legal or commercial obligations [owed to employees]... in a practical business sense, the payments are better characterised as payments made pursuant to an agreement to secure a change in control rather than as meeting employee entitlements on a change of control. | That is: ... The payments were made to effect a reorganisation of the capital structure of Clough, through a takeover by Murray & Roberts and the delisting of Clough from the ASX. | This dual nature is recognised at [74]. However, the proper character of the payments '...were not incurred in gaining or producing assessable income on the basis that the occasion of them lay in the takeover and not in gaining or producing assessable income', as was said at [85]. In addition, [86] states that the payments were not in the nature of a working expense in the carrying on of Clough's business and were not payments by way of reward to the employees, but were part of the activity required to acquire the minority shareholding under the SIA as a necessary step to secure 100% control and the delisting of Clough. | As a result, the payments did not satisfy either positive limb. In addition, the Court also found that as a whole, the payments were on capital account. The Court held that the payments were made for an enduring change and they were not in the nature of an ordinary working expense. | This same rationale, to complete the takeover of any minority interests, was also the basis on which the payments were on capital account under subsection 8-1(2) at [91-93], and were predominantly connected with facilitating a change in the underlying shareholding of the company - see [123]. | Importantly, at [69] the Court noted that: Characterising expenditure from a practical and business perspective, having regard to the legal nature of the various rights created, used or brought to an end by that expenditure, requires regard to be had to the whole commercial context. | In addition, at [70] the Court noted that: The question of characterisation must be approached from the perspective of the person incurring the outgoing. An inquiry into the character of the receipt of the outgoing in the hands of the recipient at best distracts attention from the critical task of characterisation.", "Issues_Decided": "The judgment of the Federal Court at first instance: At first instance [1] , Colvin J held at [112-113] that the payments were made to facilitate the takeover of Clough by M&R, not in gaining or producing income nor necessarily incurred in the course of carrying on a business carried on for that purpose. In concluding that the payments did not fall within the positive limbs of section 8-1, Colvin J did not reach a view about whether the payments would have been excluded as being outgoings of capital by reason of paragraph 8-1(2)(a). | The judgment of the Full Federal Court on appeal: On appeal [2] , the Court unanimously held at [18] that although: ... the payments were made both to facilitate a change in control and ... to honour legal or commercial obligations [owed to employees]... in a practical business sense, the payments are better characterised as payments made pursuant to an agreement to secure a change in control rather than as meeting employee entitlements on a change of control. That is: ... The payments were made to effect a reorganisation of the capital structure of Clough, through a takeover by Murray & Roberts and the delisting of Clough from the ASX. This dual nature is recognised at [74]. However, the proper character of the payments '...were not incurred in gaining or producing assessable income on the basis that the occasion of them lay in the takeover and not in gaining or producing assessable income', as was said at [85]. In addition, [86] states that the payments were not in the nature of a working expense in the carrying on of Clough's business and were not payments by way of reward to the employees, but were part of the activity required to acquire the minority shareholding under the SIA as a necessary step to secure 100% control and the delisting of Clough. As a result, the payments did not satisfy either positive limb. In addition, the Court also found that as a whole, the payments were on capital account. The Court held that the payments were made for an enduring change and they were not in the nature of an ordinary working expense. This same rationale, to complete the takeover of any minority interests, was also the basis on which the payments were on capital account under subsection 8-1(2) at [91-93], and were predominantly connected with facilitating a change in the underlying shareholding of the company - see [123]. Importantly, at [69] the Court noted that: Characterising expenditure from a practical and business perspective, having regard to the legal nature of the various rights created, used or brought to an end by that expenditure, requires regard to be had to the whole commercial context. In addition, at [70] the Court noted that: The question of characterisation must be approached from the perspective of the person incurring the outgoing. An inquiry into the character of the receipt of the outgoing in the hands of the recipient at best distracts attention from the critical task of characterisation.", "ATO_View_of_Decision": "The decision is an application of well-settled principles to the facts before the Court. It is consistent with the reasoning of the Commissioner in Taxation Ruling IT 2656 Income tax: deductibility of takeover defence costs. | The Commissioner observes that whether a payment for the cancellation of employee entitlements in the context of a merger or acquisition event is deductible under section 8-1 is fact and circumstance-specific. Nonetheless, the decision in Clough provides authority for the characterisation of the outgoings in similar arrangements. | Note: Prior to the Federal Court hearing, the Commissioner had conceded that section 40-880 applied to the amounts made by Clough; the orders of the Court merely give effect to this concession. The operation of section 40-880 was not considered by the Court. The Commissioner's view of the nexus requirement of section 40-880 may be found in Taxation Ruling TR 2011/6 Income tax: business related capital expenditure - section 40-880 of the Income Tax Assessment Act 1997 core issues, namely that it is broader than that found in section 8-1. The Commissioner's view is that this concession, made after consideration of additional facts received after the objection decision was made, showed that the nexus requirement was satisfied in accordance with TR 2011/6.", "Administrative_Treatment": "", "Related_Documents": "IT 2656 | TR 2011/6 | 2021 ATC 20-805 | ITAA 1997 8-1 | ITAA 1997 8-1(2) | ITAA 1997 8-1(2)(a) | ITAA 1997 40-880 | ITAA 1997 40-880(2)(a) | 2021 ATC 20-779", "Legislative_References": "ITAA 1997 ITAA 1997 8-1 ITAA 1997 8-1(2) ITAA 1997 8-1(2)(a) ITAA 1997 40-880 ITAA 1997 40-880(2)(a)", "Case_References": "Clough Limited v Commissioner of Taxation [2021] FCA 108 2021 ATC 20-779 (2021) 112 ATR 752", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD60of2021/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | Note in 'ATO view of decision' | Third sentence of the note updated to reference the nexus requirement of section 40-880. | Footnotes: [1] Clough Limited v Commissioner of Taxation [2021] FCA 108. | [2] Clough Limited v Commissioner of Taxation [2021] FCAFC 197."}
{"Case_Name": "Commissioner of Taxation v Apted", "Venue_Reference_No": "QUD 11 of 2021", "Venue": "Federal Court of Australia", "Judgment_Date": "24 March 2021", "Date_Published": "29 April 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns the requirement for an entity to have an Australian business number (an ABN) on 12 March 2020 (or a later time allowed by the Commissioner) as per subsection 11(6) of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (the CERP Rules). The Decision also considers if the Commissioner's discretion to allow a later time for an entity to have an ABN forms part of a reviewable objection decision that is reviewable by the Administrative Appeals Tribunal (the Tribunal) and whether the discretion should be exercised in the circumstances of the respondent.", "Overview_of_Facts": "A number of criteria must be satisfied in order to establish entitlement to JobKeeper payments for an eligible business participant. This includes a requirement in subsection 11(6) of the CERP Rules that an entity must have '... had an ABN on 12 March 2020 (or a later time allowed by the Commissioner) ...'. | The respondent is a registered valuer who first obtained an ABN as a sole trader in 2012. In 2018, the respondent decided to retire and cancelled his goods and services tax registration and ABN. In September 2019, the respondent was engaged to provide valuation services. | On 31 March 2020, the respondent made an application to the Registrar of the Australian Business Register (the ABR), who reactivated the respondent's ABN with a date of effect of 31 March 2020. | The respondent applied for JobKeeper payments but was found to be ineligible because he did not have an ABN on 12 March 2020. The Commissioner also declined to exercise his discretion in subsection 11(6) of the CERP Rules to allow the respondent a later time to hold an ABN. The respondent then telephoned a representative of the Registrar of the ABR; to request that the reactivation of his ABN be amended, so that the ABN was effective from 1 July 2019. As a result, in accordance with the A New Tax System (Australian Business Number) Act 1999, the Registrar of the ABR adjusted the date of effect of the respondent's ABN to 1 July 2019. | The respondent objected under Part IVC of the Taxation Administration Act 1953 (the TAA) to the Commissioner's decision finding him ineligible for JobKeeper payments. The respondent's objection was disallowed on the basis that the respondent did not have an ABN on 12 March 2020. Further, while the Commissioner maintained his view that his discretion to allow a later time to hold an ABN is not reviewable under Part IVC of the TAA, the Commissioner considered the application of the discretion to the respondent's circumstances but declined to grant it. | Issues decided by the Court | The case on appeal from the Tribunal considered three issues: • whether the respondent 'had an ABN on 12 March 2020' within the meaning of subsection 11(6) of the CERP Rules, where the respondent reactivated his ABN after 12 March 2020 but with a date of effect on or before 12 March 2020 • whether the Commissioner's decision not to exercise the discretion in subsection 11(6) of the CERP Rules to allow a later time for the respondent to have an ABN was reviewable by the Tribunal, and • whether the Tribunal erred in exercising the discretion to allow the respondent a later time to hold an ABN. | • whether the respondent 'had an ABN on 12 March 2020' within the meaning of subsection 11(6) of the CERP Rules, where the respondent reactivated his ABN after 12 March 2020 but with a date of effect on or before 12 March 2020 • whether the Commissioner's decision not to exercise the discretion in subsection 11(6) of the CERP Rules to allow a later time for the respondent to have an ABN was reviewable by the Tribunal, and • whether the Tribunal erred in exercising the discretion to allow the respondent a later time to hold an ABN. | The meaning of 'had an ABN on 12 March 2020' | The Court accepted the Commissioner's argument that the provision sets up a 'point-in-time test'. The question of whether a person 'had an ABN on 12 March 2020' within the meaning of subsection 11(6) of the CERP Rules is resolved by reference to whether or not, if the ABR had been examined that day, it would have shown that the relevant entity had an ABN (at [84], per Thawley J). It is focused solely on the temporal date of 12 March 2020, not a date of effect an ABN may have (at [10], per Logan J). | The Court said this construction was in line with an ordinary reading of the text, its context and purpose. The CERP Rules '... were intended to provide a quick and easy mechanism to determine...' eligibility (at [84], per Thawley J) and the discretion for the Commissioner to allow a later time to have an ABN ensures that entities intended to benefit from the measure are not excluded simply because they do not meet the point-in-time test (at [11], per Logan J). | Whether the decision not to exercise the discretion was reviewable | The Court found that the Commissioner's decision not to exercise the discretion in subsection 11(6) of the CERP Rules formed part of the reviewable decision in respect of entitlement to JobKeeper payments under section 11 of the CERP Rules. The Court noted that: • the context and purpose of the provision of quick economic relief would not be consistent with requiring entities to pursue costly and difficult judicial review proceedings or having to unnecessarily enter two separate venues being the Tribunal and Federal Court in parallel (at [95], per Thawley J) • the discretion was not contained in a separate provision and was not expressed in the statute to indicate an intention that there were in fact two quite distinct decisions (at [96], per Thawley J) • in deciding whether an entity was entitled to JobKeeper payments under section 11 of the CERP Rules, the Commissioner was obliged to determine whether or not the entitlement criteria specified in that section were met. One of those criteria was the 'integrity rule' in subsection 11(6) of the CERP Rules, which permitted the Commissioner, in the ordinary course of determining payment eligibility, to exercise a discretion to allow a later time (at [18], per Logan J). The construction of the text, and the inclusion of 'unless' in the phrase '... unless the entity had an ABN on 12 March 2020 (or a later time allowed by the Commissioner) ...' means that (at [96), per Thawley J): ... it is only once both of the possibilities have been answered that \"a decision [has been made] that the entity is not entitled to a Coronavirus economic response payment for a period\" within the meaning of s13(2)(a) of the CERP Act. | • the context and purpose of the provision of quick economic relief would not be consistent with requiring entities to pursue costly and difficult judicial review proceedings or having to unnecessarily enter two separate venues being the Tribunal and Federal Court in parallel (at [95], per Thawley J) • the discretion was not contained in a separate provision and was not expressed in the statute to indicate an intention that there were in fact two quite distinct decisions (at [96], per Thawley J) • in deciding whether an entity was entitled to JobKeeper payments under section 11 of the CERP Rules, the Commissioner was obliged to determine whether or not the entitlement criteria specified in that section were met. One of those criteria was the 'integrity rule' in subsection 11(6) of the CERP Rules, which permitted the Commissioner, in the ordinary course of determining payment eligibility, to exercise a discretion to allow a later time (at [18], per Logan J). The construction of the text, and the inclusion of 'unless' in the phrase '... unless the entity had an ABN on 12 March 2020 (or a later time allowed by the Commissioner) ...' means that (at [96), per Thawley J): ... it is only once both of the possibilities have been answered that \"a decision [has been made] that the entity is not entitled to a Coronavirus economic response payment for a period\" within the meaning of s13(2)(a) of the CERP Act. | The Court also decided that even if the Commissioner's decision not to exercise the discretion in subsection 11(6) of the CERP Rules was not a decision which could be objected to under section 13(2)(a) of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (the CERP Act), the Tribunal could exercise the discretion under section 43(1) of the Administrative Appeals Tribunal Act 1975 because that exercise would be 'for the purpose of reviewing a decision', being the Commissioner's decision that the respondent was not entitled to a Coronavirus economic response payment for a period (at [89-92], per Thawley J). | Tribunal's exercise of discretion in the respondent's circumstance | The Court found that the Tribunal did not err in exercising the discretion to allow the respondent a later time to have an ABN. The Court said that the Commissioner's argument that the discretion could only be exercised in limited circumstances did not give primary effect to the statutory language read in context; it was an error to look to the extrinsic material and presume that to have been the intended meaning of the statutory text (at [108], per Thawley J). | The Court concluded that the discretion furnishes a broad discretion according to its terms, confined only by statutory purpose and context (at [109], per Thawley J). The Tribunal had taken into account a range of factors in making its decision, including that: • the respondent's failure to reactivate his ABN was due to 'oversight' • the respondent 'is the kind of person who was intended to benefit from the JobKeeper scheme', and • 'there is nothing to be achieved by denying him access to the payments in order to make a point about the desirability of obtaining an ABN'. | • the respondent's failure to reactivate his ABN was due to 'oversight' • the respondent 'is the kind of person who was intended to benefit from the JobKeeper scheme', and • 'there is nothing to be achieved by denying him access to the payments in order to make a point about the desirability of obtaining an ABN'. | The Court considered that each of these matters was relevant in considering the discretion (at [111-112], per Thawley J).", "Issues_Decided": "The case on appeal from the Tribunal considered three issues: • whether the respondent 'had an ABN on 12 March 2020' within the meaning of subsection 11(6) of the CERP Rules, where the respondent reactivated his ABN after 12 March 2020 but with a date of effect on or before 12 March 2020 • whether the Commissioner's decision not to exercise the discretion in subsection 11(6) of the CERP Rules to allow a later time for the respondent to have an ABN was reviewable by the Tribunal, and • whether the Tribunal erred in exercising the discretion to allow the respondent a later time to hold an ABN. • whether the respondent 'had an ABN on 12 March 2020' within the meaning of subsection 11(6) of the CERP Rules, where the respondent reactivated his ABN after 12 March 2020 but with a date of effect on or before 12 March 2020 • whether the Commissioner's decision not to exercise the discretion in subsection 11(6) of the CERP Rules to allow a later time for the respondent to have an ABN was reviewable by the Tribunal, and • whether the Tribunal erred in exercising the discretion to allow the respondent a later time to hold an ABN. | The meaning of 'had an ABN on 12 March 2020': The Court accepted the Commissioner's argument that the provision sets up a 'point-in-time test'. The question of whether a person 'had an ABN on 12 March 2020' within the meaning of subsection 11(6) of the CERP Rules is resolved by reference to whether or not, if the ABR had been examined that day, it would have shown that the relevant entity had an ABN (at [84], per Thawley J). It is focused solely on the temporal date of 12 March 2020, not a date of effect an ABN may have (at [10], per Logan J). The Court said this construction was in line with an ordinary reading of the text, its context and purpose. The CERP Rules '... were intended to provide a quick and easy mechanism to determine...' eligibility (at [84], per Thawley J) and the discretion for the Commissioner to allow a later time to have an ABN ensures that entities intended to benefit from the measure are not excluded simply because they do not meet the point-in-time test (at [11], per Logan J). | Whether the decision not to exercise the discretion was reviewable: The Court found that the Commissioner's decision not to exercise the discretion in subsection 11(6) of the CERP Rules formed part of the reviewable decision in respect of entitlement to JobKeeper payments under section 11 of the CERP Rules. The Court noted that: • the context and purpose of the provision of quick economic relief would not be consistent with requiring entities to pursue costly and difficult judicial review proceedings or having to unnecessarily enter two separate venues being the Tribunal and Federal Court in parallel (at [95], per Thawley J) • the discretion was not contained in a separate provision and was not expressed in the statute to indicate an intention that there were in fact two quite distinct decisions (at [96], per Thawley J) • in deciding whether an entity was entitled to JobKeeper payments under section 11 of the CERP Rules, the Commissioner was obliged to determine whether or not the entitlement criteria specified in that section were met. One of those criteria was the 'integrity rule' in subsection 11(6) of the CERP Rules, which permitted the Commissioner, in the ordinary course of determining payment eligibility, to exercise a discretion to allow a later time (at [18], per Logan J). The construction of the text, and the inclusion of 'unless' in the phrase '... unless the entity had an ABN on 12 March 2020 (or a later time allowed by the Commissioner) ...' means that (at [96), per Thawley J): ... it is only once both of the possibilities have been answered that \"a decision [has been made] that the entity is not entitled to a Coronavirus economic response payment for a period\" within the meaning of s13(2)(a) of the CERP Act. • the context and purpose of the provision of quick economic relief would not be consistent with requiring entities to pursue costly and difficult judicial review proceedings or having to unnecessarily enter two separate venues being the Tribunal and Federal Court in parallel (at [95], per Thawley J) • the discretion was not contained in a separate provision and was not expressed in the statute to indicate an intention that there were in fact two quite distinct decisions (at [96], per Thawley J) • in deciding whether an entity was entitled to JobKeeper payments under section 11 of the CERP Rules, the Commissioner was obliged to determine whether or not the entitlement criteria specified in that section were met. One of those criteria was the 'integrity rule' in subsection 11(6) of the CERP Rules, which permitted the Commissioner, in the ordinary course of determining payment eligibility, to exercise a discretion to allow a later time (at [18], per Logan J). The construction of the text, and the inclusion of 'unless' in the phrase '... unless the entity had an ABN on 12 March 2020 (or a later time allowed by the Commissioner) ...' means that (at [96), per Thawley J): ... it is only once both of the possibilities have been answered that \"a decision [has been made] that the entity is not entitled to a Coronavirus economic response payment for a period\" within the meaning of s13(2)(a) of the CERP Act. The Court also decided that even if the Commissioner's decision not to exercise the discretion in subsection 11(6) of the CERP Rules was not a decision which could be objected to under section 13(2)(a) of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 (the CERP Act), the Tribunal could exercise the discretion under section 43(1) of the Administrative Appeals Tribunal Act 1975 because that exercise would be 'for the purpose of reviewing a decision', being the Commissioner's decision that the respondent was not entitled to a Coronavirus economic response payment for a period (at [89-92], per Thawley J). | Tribunal's exercise of discretion in the respondent's circumstance: The Court found that the Tribunal did not err in exercising the discretion to allow the respondent a later time to have an ABN. The Court said that the Commissioner's argument that the discretion could only be exercised in limited circumstances did not give primary effect to the statutory language read in context; it was an error to look to the extrinsic material and presume that to have been the intended meaning of the statutory text (at [108], per Thawley J). The Court concluded that the discretion furnishes a broad discretion according to its terms, confined only by statutory purpose and context (at [109], per Thawley J). The Tribunal had taken into account a range of factors in making its decision, including that: • the respondent's failure to reactivate his ABN was due to 'oversight' • the respondent 'is the kind of person who was intended to benefit from the JobKeeper scheme', and • 'there is nothing to be achieved by denying him access to the payments in order to make a point about the desirability of obtaining an ABN'. • the respondent's failure to reactivate his ABN was due to 'oversight' • the respondent 'is the kind of person who was intended to benefit from the JobKeeper scheme', and • 'there is nothing to be achieved by denying him access to the payments in order to make a point about the desirability of obtaining an ABN'. The Court considered that each of these matters was relevant in considering the discretion (at [111-112], per Thawley J).", "ATO_View_of_Decision": "The decision confirms that the requirement to hold an ABN on 12 March 2020 under subsection 11(6) of the CERP Rules is not satisfied where an ABN that is reactivated or applied for after 12 March 2020 is given a retrospective date of effect by the Registrar of the ABR that is on or before 12 March 2020. | The Commissioner accepts the Court's views regarding the ability for the discretion to allow a later time for having an ABN under subsection 11(6) of the CERP Rules to be reviewed as part of a review of a decision on entitlement to JobKeeper payments, under Part IVC of the TAA. | The Commissioner accepts the Court's view that the discretion under subsection 11(6) of the CERP Rules to allow a later time to have an ABN is not restricted to the limited circumstances envisaged in the extrinsic material to the CERP Act and CERP Rules. The discretion allows for the consideration of a broad range of circumstances, and the approach must be guided by the purposes of the CERP Act and the CERP Rules and having regard to the integrity rules in their context. The Commissioner considers that this approach also applies to the discretions to allow a later time to provide notice of assessable business income/taxable supplies contained in subsections 11(7) and (8) of the CERP Rules. | The Commissioner's view is that the approach to the exercise of the discretion is informed by the role of the 'integrity rule' contained in subsection 11(6) of the CERP Rules, which requires not only the holding of an ABN at 12 March 2020, but also that income associated with the entity carrying on a business and/or making supplies was reported to the Commissioner by 12 March 2020 - the date that certain stimulus measures were announced. | Consistent with the Court's decision in this case, it is relevant to the exercise of the discretion under subsection 11(6) of the CERP Rules whether the Commissioner has been provided with evidence that an active business was being carried on prior to 12 March 2020. However, it is notable that the CERP Rules separately require that the entity was carrying on a business on 1 March 2020. For that reason, the Commissioner considers that it is not the intention of subsection 11(6) of the CERP Rules that the discretion is to be exercised in every case in which there was business activity prior to 12 March 2020: the discretion will be exercised on a case-by-case basis. | The holding of an ABN as at 12 March 2020 supports transparency that a business existed at 12 March 2020. The reporting of supplies or income to the Commissioner is concerned with engagement with the Commissioner prior to 12 March 2020 concerning the business in operation. The inclusion of those three elements in the integrity rule in the CERP Rules indicates that the JobKeeper payments for eligible business participants are in the ordinary case to be directed to businesses that are operating actively and doing so in view of the Commissioner as at 12 March 2020. [1] | Having regard to that context, if the business is operating without visibility to the Commissioner as at 12 March 2020 (deliberately or otherwise), that would weigh against the exercise of discretion. Of course, in such cases it would also be relevant to understand the reasons why the business did not hold an ABN or had not reported supplies or income to the Commissioner by 12 March 2020. Where there is a reasonable explanation, in most cases the discretion would be exercised. | The Commissioner considers that the Court's decision and the Commissioner's view of the decision will apply equally to the identical requirements in sections 5 and 6 of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package Act) 2020, having regard to the purpose and context of those rules. Similarly, the Commissioner accepts that those discretions can be reviewed, as part of a review of a decision on entitlement to cash flow boost payments, under Part IVC of the TAA. | The Commissioner considers the Court's decision applies to discretions contained in the integrity rules in the cash flow boost and JobKeeper legislation. It does not affect any other discretions that the Commissioner may exercise, including those relevant to determining ABN eligibility at a point in time, or deferral of lodgment due dates for tax returns or business activity statements.", "Administrative_Treatment": "The ATO has updated Law Administration Practice Statement PS LA 2020/1 Commissioner's discretion to allow further time for an entity to hold an ABN or provide notice to the Commissioner of assessable income or supplies in response to the Court's decision. | The Commissioner acknowledges that there are entities who might be impacted by the decision and is committed to addressing any such cases as a matter of priority. Further information about the steps being taken by the Commissioner and what you need to do if you think you or your entity is impacted can be found here .", "Related_Documents": "None | 2021 ATC 20-784 | 43(1) | s 5 | s 6 | s 13(2)(a) | 11 | 11(6) | 11(7) | 11(8) | Part IVC | 2020 ATC 10-559 | PS LA 2020/1", "Legislative_References": "Administrative Appeals Tribunal Act 1975 43(1) Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 s 5 s 6 Coronavirus Economic Response Package (Payments and Benefits) Act 2020 s 13(2)(a) Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 11 11(6) 11(7) 11(8) Taxation Administration Act 1953 Part IVC", "Case_References": "Apted and Commissioner of Taxation [2020] AATA 5139 2020 ATC 10-559 Slatter Building Group Pty Ltd and Commissioner of Taxation [2021] AATA 456 2021 ATC 10-565", "Subject_References": "", "Other_References": "PS LA 2020/1", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD11of2021/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products. | Footnotes: [1] See also Slatter Building Group Pty Ltd and Commissioner of Taxation [2021] AATA 456 at [49]."}
{"Case_Name": "Commissioner of Taxation v Auctus Resources Pty Ltd", "Venue_Reference_No": "WAD 205 of 2020", "Venue": "Full Federal Court of Australia", "Judgment_Date": "19 March 2021", "Date_Published": "12 October 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which considers whether the payment of a tax offset refund to the taxpayer was an 'administrative overpayment' under subsection 8AAZN(3) of the Taxation Administration Act 1953 (TAA). In particular, it considers whether the tax offset refund is an amount that the Commissioner has paid to a person by mistake, being an amount to which the person is not entitled.", "Overview_of_Facts": "The taxpayer registered certain research and development (R&D) activities with Innovation and Science Australia (the Board) under section 27A of the Industry Research and Development Act 1986 (IR&D Act). Registration of R&D activities is one of several requirements which must be satisfied before a taxpayer can be entitled to an R&D tax offset refund. | In respect of the 2012-13 income year, the taxpayer 'self assessed' [1] and claimed an R&D tax offset refund in its tax return. The Commissioner paid the taxpayer a refundable tax offset amount, using automated processes. | Subsequently, the Board issued a 'Certificate of Finding' under section 27J of the IR&D Act, informing the taxpayer that none of the activities that comprised the purported R&D project for the 2012-13 income year constituted R&D activities. The legislative consequence of this finding was that the taxpayer was deemed never to have been registered for their R&D activities and therefore never eligible or entitled to the R&D tax offset refund for the 2012-13 income year. | The Commissioner issued a notice under section 8AAZN of the TAA to the taxpayer, requiring the taxpayer to repay the amount of the R&D tax offset refund paid for the 2012-13 income year. The Commissioner also provided reasons for issuing a notice under that provision. | The taxpayer sought relief against the Commissioner, pursuant to section 39B of the Judiciary Act 1903. In Auctus Resources Pty Ltd v Commissioner of Taxation [2020] FCA 1096, Steward J concluded that the Commissioner was not authorised to apply section 8AAZN of the TAA to recover the R&D tax offset refund. An appeal by the Commissioner to the Full Federal Court (McKerracher, Davies and Thawley JJ) was allowed. A subsequent application to the High Court by the taxpayer for special leave to appeal the Full Federal Court's decision was refused. | Issues decided by the Court | As part of these proceedings, the parties agreed that, in respect of the 2012-13 income year, an assessment under section 166 of the Income Tax Assessment Act 1936 (ITAA 1936) did not include a tax offset refund. Thus, the Commissioner did not have the power in the 2012-13 income year to assess under section 166 of the ITAA 1936 or to issue an amended assessment to reverse a tax offset refund paid to a taxpayer not entitled to the refund. | The Full Federal Court was asked to determine the applicability of section 8AAZN of the TAA to the tax offset refund. In particular, the case turned on the meaning of 'administrative overpayment' as defined in subsection 8AAZN(3) of the TAA. | Per Thawley J (with McKerracher J agreeing), there is no question that subsection 8AAZN(3) of the TAA, read literally, and according to its ordinary meaning, is apt to cover the mistaken payment. [2] Nothing in the text construed in its context 'clearly' [3] requires the words of the definition to be read down. The tax offset refund was 'paid … by mistake' within the meaning of subsection 8AAZN(3) of the TAA at the time of payment. [4] The Commissioner did not have to actively make any assumption at the time of the refund for there to be a mistake. Furthermore, it did not matter that the refund was made by automated processes, nor did it matter that the processes did not involve a person actively turning their mind to whether or not payment of the refund should be made. [5] Section 8AAZN of the TAA applies to 'all mistaken payments to which a taxpayer is not entitled'. [6] | It should be noted that these circumstances can no longer arise. Refundable R&D tax offsets now form part of the assessment and the Commissioner could issue an amended assessment to recover the payment of any overpaid tax offset refunds. [7] Section 8AAZN of the TAA would not apply in such a situation. [8] | Davies J also agreed that the mistaken payment was an 'administrative overpayment' within the meaning of subsection 8AAZN(3) of the TAA and that it was open to the Commissioner to use the procedure provided for by section 8AAZN of the TAA to recover the mistaken payment from the taxpayer. [9] | The High Court refused the taxpayer's special leave application on the basis that section 8AAZN of the TAA did not permit recovery of a tax offset refund since the 2013-14 income year and therefore did not raise a matter of general importance. [10]", "Issues_Decided": "As part of these proceedings, the parties agreed that, in respect of the 2012-13 income year, an assessment under section 166 of the Income Tax Assessment Act 1936 (ITAA 1936) did not include a tax offset refund. Thus, the Commissioner did not have the power in the 2012-13 income year to assess under section 166 of the ITAA 1936 or to issue an amended assessment to reverse a tax offset refund paid to a taxpayer not entitled to the refund. The Full Federal Court was asked to determine the applicability of section 8AAZN of the TAA to the tax offset refund. In particular, the case turned on the meaning of 'administrative overpayment' as defined in subsection 8AAZN(3) of the TAA. Per Thawley J (with McKerracher J agreeing), there is no question that subsection 8AAZN(3) of the TAA, read literally, and according to its ordinary meaning, is apt to cover the mistaken payment. [2] Nothing in the text construed in its context 'clearly' [3] requires the words of the definition to be read down. The tax offset refund was 'paid … by mistake' within the meaning of subsection 8AAZN(3) of the TAA at the time of payment. [4] The Commissioner did not have to actively make any assumption at the time of the refund for there to be a mistake. Furthermore, it did not matter that the refund was made by automated processes, nor did it matter that the processes did not involve a person actively turning their mind to whether or not payment of the refund should be made. [5] Section 8AAZN of the TAA applies to 'all mistaken payments to which a taxpayer is not entitled'. [6] It should be noted that these circumstances can no longer arise. Refundable R&D tax offsets now form part of the assessment and the Commissioner could issue an amended assessment to recover the payment of any overpaid tax offset refunds. [7] Section 8AAZN of the TAA would not apply in such a situation. [8] Davies J also agreed that the mistaken payment was an 'administrative overpayment' within the meaning of subsection 8AAZN(3) of the TAA and that it was open to the Commissioner to use the procedure provided for by section 8AAZN of the TAA to recover the mistaken payment from the taxpayer. [9] The High Court refused the taxpayer's special leave application on the basis that section 8AAZN of the TAA did not permit recovery of a tax offset refund since the 2013-14 income year and therefore did not raise a matter of general importance. [10]", "ATO_View_of_Decision": "The Commissioner considers that the current application of section 8AAZN of the TAA is consistent with the reasoning of the Full Federal Court. Consequently, there is no impact on how the Commissioner administers the provision. | The Full Federal Court's interpretation of section 8AAZN confirms the Commissioner's view that section 8AAZN applies to 'all payments to which a taxpayer is not entitled'. This includes payment made to the wrong person.", "Administrative_Treatment": "Not applicable.", "Related_Documents": "None | 2021 ATC 20-782 | 166 | 172A | 8AAZN | 8AAZN(3) | 27A | 27J", "Legislative_References": "Income Tax Assessment Act 1936 166 172A Taxation Administration Act 1953 8AAZN 8AAZN(3) Industry Research and Development Act 1986 27A 27J Judiciary Act 1903 39B", "Case_References": "Auctus Resources Pty Ltd v Commissioner of Taxation [2020] FCA 1096 170 ALD 594 Auctus Resources Pty Ltd v Commissioner of Taxation for the Commonwealth of Australia [2021] HCASL 155", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD205of2020/00001", "Unmatched_Content": "This decision has no impact on any related advice and guidance. | Footnotes: [1] In the 2012-13 income year, the R&D tax offset refund did not form part of the income tax assessment. | [4] At [50]. Davies J agreed with Thawley J on this point at [2]. | [7] See specifically section 172A of the ITAA 1936, which applied to assessments from the income year ended 30 June 2014. | [10] Auctus Resources Pty Ltd v Commissioner of Taxation [2021] HCASL 155 at [2]."}
{"Case_Name": "Commissioner of Taxation v Virgin Australia Regional Airlines Pty Ltd", "Venue_Reference_No": "NSD 561 of 2021", "Venue": "Federal Court of Australia", "Judgment_Date": "22 November 2021", "Date_Published": "3 March 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns the interpretation of 'primary place of employment' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) when read with the extended meaning of 'business premises' in subsection 136(2).", "Overview_of_Facts": "In the fringe benefits tax (FBT) years ended 30 March 2013 to 31 March 2016 inclusive (the relevant years), Virgin Australia Regional Airlines Pty Ltd and Virgin Australia Airlines Pty Ltd (collectively Virgin) provided its Flight Crew and Cabin Crew (collectively Flight and Cabin Crew) employees with car parking facilities located near airport terminals in Sydney, Brisbane and Perth. | A number of conditions in section 39A of the FBTAA must be satisfied before a car parking fringe benefit is provided. In this case, the following conditions were relevant: (1) If the following conditions are satisfied in relation to a daylight period, or a combination of daylight periods, on a particular day: ... (e) on that day, the employee has a primary place of employment; (f) during the period or periods, the car is parked at, or in the vicinity of, that primary place of employment; ... | ... (e) on that day, the employee has a primary place of employment; (f) during the period or periods, the car is parked at, or in the vicinity of, that primary place of employment; ... | Subsection 136(1) of the FBTAA defines 'business premises' and 'primary place of employment' as follows: business premises, in relation to a person, means premises, or a part of premises, of the person used, in whole or in part, for the purposes of business operations of the person, but does not include: [various exceptions which were not relevant to this matter] ... primary place of employment, in relation to an employee in relation to a day, means business premises, or associated premises, of the employer of the employee, or of an associate of the employer, where: (a) if the employee performed duties of his or her employment on that day - on that day; or (b) in any other case - on the most recent day before that day on which the employee performed duties of his or her employment; those premises are or were: (c) the sole or primary place of employment of the employee; or (d) otherwise the sole or primary place from which or at which the employee performs duties of his or her employment. | (a) if the employee performed duties of his or her employment on that day - on that day; or (b) in any other case - on the most recent day before that day on which the employee performed duties of his or her employment; | (c) the sole or primary place of employment of the employee; or (d) otherwise the sole or primary place from which or at which the employee performs duties of his or her employment. | Subsection 136(2) of the FBTAA states: In the definition of business premises in subsection (1), premises includes a ship, vessel, floating structure, aircraft or train. | Virgin was assessed for FBT for the relevant years on the basis that the Flight and Cabin Crew employees' 'primary place of employment' was each employee's 'Home Base' airport terminal in Sydney, Brisbane or Perth. Virgin subsequently objected to these FBT assessments. | The Commissioner disallowed Virgin's objections made under Part IVC of the Taxation Administration Act 1953 (TAA 1953). Virgin appealed against those objection decisions to the Federal Court under section 14ZZ of the TAA 1953. | At first instance in Virgin Australia Airlines Pty Ltd v Commissioner of Taxation [2021] FCA 523, Griffiths J allowed Virgin's appeals. His Honour found the effect of subsection 136(2) of the FBTAA meant an aircraft could be a 'primary place of employment' for the purposes of the FBTAA. Based on his Honour's quantitative and qualitative analysis of the duties performed by Flight and Cabin Crew at their different places of employment during the course of a particular day, he concluded as follows: • the 'primary place of employment' for employees who worked on a single aircraft on a day was that aircraft, and • employees who worked on multiple aircraft had no primary place of employment. | • the 'primary place of employment' for employees who worked on a single aircraft on a day was that aircraft, and • employees who worked on multiple aircraft had no primary place of employment. | The Commissioner appealed to the Full Court of the Federal Court. The Full Court (Logan, Thawley and Downes JJ) allowed the Commissioner's appeals. | Issues decided by the Court | The Full Court of Australia referred to the primary judge's outline of issues as follows [1] : • First issue: On each relevant working day did Virgin's Flight and Cabin Crew have a 'primary place of employment'? • Second issue: If the answer to the first issue is 'yes', where was that 'primary place of employment'? • Third issue: If the answer to the first issue is 'yes', on each working day was the employee's car 'parked at, or in the vicinity of [the employee's] primary place of employment'? | • First issue: On each relevant working day did Virgin's Flight and Cabin Crew have a 'primary place of employment'? • Second issue: If the answer to the first issue is 'yes', where was that 'primary place of employment'? • Third issue: If the answer to the first issue is 'yes', on each working day was the employee's car 'parked at, or in the vicinity of [the employee's] primary place of employment'? | First and second issues | The Full Court considered the introductory words of subsection 39A(1) and paragraph 39A(1)(e) of the FBTAA and the definition of 'primary place of employment' focus the inquiry on a day. [2] | The Full Court found in relation to the 'primary place of employment' definition that '[p]aragraphs (a) and (b) ... require identification of whether the employee performed duties on the day in issue.' Paragraph (a) applies if an employee performed duties on the relevant day; paragraph (b) applies if they did not. [3] Paragraphs (c) and (d) of the definition provide two different tests to identify the premises which are or were the employee's 'primary place of employment'. [4] The focus of paragraph (d) is on 'the place of performance of 'duties'. The paragraph (c) test 'is broad and is not limited or exhausted by an inquiry into the places from which or at which the employee undertakes his or her duties'. [5] The Full Court found that the primary judge erred in treating paragraphs (c) and (d) as involving the same test of the places an employee performed duties during the course of a particular day. [6] | The Full Court accepted, as the primary judge did, that 'primary' within the 'primary place of employment' definition means 'first or highest in rank or importance; chief; principal'. However, as the statute uses the word 'primary', that word cannot 'be substituted by similar or explanatory words'. [7] | The Full Court had regard to Virgin's 'business premises' including the airport terminals and each aircraft on which the Flight and Cabin Crew worked. [8] They also had regard to the various Enterprise Agreements which set out the conditions of employment of the Flight and Cabin Crew. [9] As the Full Court stated at [21]: Flight and Cabin Crew were allocated a \"Home Base\". Numerous rights and obligations of Virgin and the Flight and Cabin Crew were defined by reference to the Home Base including rosters, rest periods between \"Tours of Duty\" or \"Trips\", allowances, and car parking entitlements. In certain circumstances Virgin could require both Flight Crew and Cabin Crew to change their Home Base for operational reasons. | This evidence led the Full Court to find the Flight and Cabin Crew's 'Home Base' airport was the 'primary place of employment' per paragraph (c) of the definition in subsection 136(1) of the FBTAA, read with subsection 136(2) of the FBTAA. [10] The Full Court stated at [23]: It was the primary place of employment on each day of the employment of the Flight and Cabin Crew, even on days where the employee did not attend the \"Home Base\" at all, for example, on one or more days of a \"Tour of Duty\" where the employee had no occasion to attend, or perform duties at, his or her \"Home Base\". The \"Home Base\" was still the central place relevant to such matters as the employee's rosters, rest periods, allowances and car parking entitlements. The \"Home Base\" was the central place from where a \"Tour of Duty\" might typically be expected to begin and end. It is relevant to the inquiry required under paragraph (c), but not determinative, that on any particular day an employee carried out central duties on aircraft away from the \"Home Base\". | The Full Court found it unnecessary to reach a conclusion about paragraph (d) of the definition to the facts of this case. [11] However, it agreed Griffiths J's 'qualitative and quantitative' analysis [12] showed 'the 'primary place from which or at which' the duties of the Flight and Cabin Crew are performed 'on the particular day' ... is the aircraft from which or at which those duties were performed'. [13] Where such duties were performed by a Flight or Cabin Crew employee on more than one aircraft during a particular day, the Full Court observed 'the 'primary place from which or at which' the duties are performed would typically be the aircraft from which or at which the employee performed his or her duties for the longest period of time.' [14] | Third issue | As '[i]t was common ground that the relevant parking facilities were provided 'in the vicinity of' the relevant 'Home Bases'', the airport terminals in Sydney, Brisbane and Perth, 'the condition in paragraph 39A(1)(f) of the FBTAA was also satisfied'. [15]", "Issues_Decided": "The Full Court of Australia referred to the primary judge's outline of issues as follows [1] : • First issue: On each relevant working day did Virgin's Flight and Cabin Crew have a 'primary place of employment'? • Second issue: If the answer to the first issue is 'yes', where was that 'primary place of employment'? • Third issue: If the answer to the first issue is 'yes', on each working day was the employee's car 'parked at, or in the vicinity of [the employee's] primary place of employment'? • First issue: On each relevant working day did Virgin's Flight and Cabin Crew have a 'primary place of employment'? • Second issue: If the answer to the first issue is 'yes', where was that 'primary place of employment'? • Third issue: If the answer to the first issue is 'yes', on each working day was the employee's car 'parked at, or in the vicinity of [the employee's] primary place of employment'? | First and second issues: The Full Court considered the introductory words of subsection 39A(1) and paragraph 39A(1)(e) of the FBTAA and the definition of 'primary place of employment' focus the inquiry on a day. [2] The Full Court found in relation to the 'primary place of employment' definition that '[p]aragraphs (a) and (b) ... require identification of whether the employee performed duties on the day in issue.' Paragraph (a) applies if an employee performed duties on the relevant day; paragraph (b) applies if they did not. [3] Paragraphs (c) and (d) of the definition provide two different tests to identify the premises which are or were the employee's 'primary place of employment'. [4] The focus of paragraph (d) is on 'the place of performance of 'duties'. The paragraph (c) test 'is broad and is not limited or exhausted by an inquiry into the places from which or at which the employee undertakes his or her duties'. [5] The Full Court found that the primary judge erred in treating paragraphs (c) and (d) as involving the same test of the places an employee performed duties during the course of a particular day. [6] The Full Court accepted, as the primary judge did, that 'primary' within the 'primary place of employment' definition means 'first or highest in rank or importance; chief; principal'. However, as the statute uses the word 'primary', that word cannot 'be substituted by similar or explanatory words'. [7] The Full Court had regard to Virgin's 'business premises' including the airport terminals and each aircraft on which the Flight and Cabin Crew worked. [8] They also had regard to the various Enterprise Agreements which set out the conditions of employment of the Flight and Cabin Crew. [9] As the Full Court stated at [21]: Flight and Cabin Crew were allocated a \"Home Base\". Numerous rights and obligations of Virgin and the Flight and Cabin Crew were defined by reference to the Home Base including rosters, rest periods between \"Tours of Duty\" or \"Trips\", allowances, and car parking entitlements. In certain circumstances Virgin could require both Flight Crew and Cabin Crew to change their Home Base for operational reasons. This evidence led the Full Court to find the Flight and Cabin Crew's 'Home Base' airport was the 'primary place of employment' per paragraph (c) of the definition in subsection 136(1) of the FBTAA, read with subsection 136(2) of the FBTAA. [10] The Full Court stated at [23]: It was the primary place of employment on each day of the employment of the Flight and Cabin Crew, even on days where the employee did not attend the \"Home Base\" at all, for example, on one or more days of a \"Tour of Duty\" where the employee had no occasion to attend, or perform duties at, his or her \"Home Base\". The \"Home Base\" was still the central place relevant to such matters as the employee's rosters, rest periods, allowances and car parking entitlements. The \"Home Base\" was the central place from where a \"Tour of Duty\" might typically be expected to begin and end. It is relevant to the inquiry required under paragraph (c), but not determinative, that on any particular day an employee carried out central duties on aircraft away from the \"Home Base\". The Full Court found it unnecessary to reach a conclusion about paragraph (d) of the definition to the facts of this case. [11] However, it agreed Griffiths J's 'qualitative and quantitative' analysis [12] showed 'the 'primary place from which or at which' the duties of the Flight and Cabin Crew are performed 'on the particular day' ... is the aircraft from which or at which those duties were performed'. [13] Where such duties were performed by a Flight or Cabin Crew employee on more than one aircraft during a particular day, the Full Court observed 'the 'primary place from which or at which' the duties are performed would typically be the aircraft from which or at which the employee performed his or her duties for the longest period of time.' [14] | Third issue: As '[i]t was common ground that the relevant parking facilities were provided 'in the vicinity of' the relevant 'Home Bases'', the airport terminals in Sydney, Brisbane and Perth, 'the condition in paragraph 39A(1)(f) of the FBTAA was also satisfied'. [15]", "ATO_View_of_Decision": "The decision of the Full Court is consistent with the Commissioner's application of section 39A of the FBTAA and paragraph (c) of the definition of 'primary place of employment' in subsection 136(1) of the FBTAA. The Commissioner accepts the Court's view on the application of paragraph (d) of the definition of 'primary place of employment' in subsection 136(1) of the FBTAA.", "Administrative_Treatment": "As noted when TR 2021/2 was published, that Ruling will be amended to include further guidance on the concept of 'primary place of employment' in light of the Federal Court and Full Federal Court's decisions. | The ATO will similarly update Chapter 16 of Fringe benefits tax - a guide for employers.", "Related_Documents": "TR 2021/2 Fringe benefits tax: car parking benefits | 2021 ATC 20-807 | Div 10A | 39A | 39A(1) | 39A(1)(e) | 39A(1)(f) | 136(1) | 136(2) | Part IVC | 14ZZ", "Legislative_References": "FBTAA 1986 Div 10A 39A 39A(1) 39A(1)(e) 39A(1)(f) 136(1) 136(2) TAA 1953 Part IVC 14ZZ", "Case_References": "Commissioner of Taxation v Virgin Australia Regional Airlines Pty Ltd [2021] FCAFC 209 2021 ATC 20-807 Virgin Australia Airlines Pty Ltd v Commissioner of Taxation [2021] FCA 523 2021 ATC 20-793", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2021/561-562/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products. | Footnotes: [1] Commissioner of Taxation v Virgin Australia Regional Airlines Pty Ltd [2021] FCAFC 209 ( Full Court ), at [7]. | [2] Subsection 39A(1) uses the wording 'a particular day' and the definition of 'primary place of employment' in subsection 136(1) uses the wording 'in relation to a day': see Full Court at [14]. | [4] Full Court at [15-16]. | [8] Full Court at [18-19]. | [9] Full Court at [20-22]. | [10] Full Court at [23-24]. | [12] Full Court at [8], referring to Virgin Australia Airlines Pty Ltd v Commissioner of Taxation [2021] FCA 523 at [91]. | [13] Full Court at [26] (original emphasis). | [14] Full Court at [26] (original emphasis)."}
{"Case_Name": "Decleah Investments Pty Ltd and anor as Trustee for the PRS Unit Trust and Commissioner of Taxation", "Venue_Reference_No": "2016-0200", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "24 December 2021", "Date_Published": "10 November 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns the calculation of goods and services tax (GST) payable under the margin scheme and whether a valuation on an 'as-is basis' using hindsight information is an approved valuation for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | All legislative references in this Decision impact statement are to the GST Act, unless otherwise indicated.", "Overview_of_Facts": "The taxpayer acquired land before the introduction of the GST Act, which came into effect on 1 July 2000. The land was subsequently subdivided and sold under the margin scheme provisions in Division 75. Subsection 75-10(3) provides for the taxpayer to use an approved valuation of the land's market value as at the commencement of GST on 1 July 2000, in order to calculate the margin to which GST applied. | Pursuant to section 75-35, a valuation that is made in accordance with requirements determined by the Commissioner by way of legislative instrument is an approved valuation. The Commissioner had issued 2 determinations that are relevant to this dispute. [1] A requirement of both determinations is that the valuation must be made in a manner that is not contrary to the professional standards recognised in Australia for the making of real property valuations. At issue before the Administrative Appeals Tribunal (Tribunal) was whether the valuation that the taxpayer obtained in 2009 was made in a manner that was not contrary to professional standards recognised in Australia for the making of real property valuations. In the original Tribunal decision [2] , the Tribunal decided that the taxpayer's valuation methodology was flawed, as it used actual and not projected cashflows for the land development and was not made in accordance with professional standards. It therefore did not meet the requirements of the relevant determinations. | On appeal to the Federal Court, Steward J set aside the Tribunal decision and remitted the matter to the Tribunal for rehearing. [3] His Honour observed that different valuers may conclude that the same land bears different market values as at the same date but nonetheless each resulting valuation may have been made in a manner not contrary to professional standards. [4] Each would be an 'approved valuation'. Whether a valuation has been made in a manner contrary to professional standards would, in each case, be a matter to be determined by expert opinion. | His Honour also observed that mere ostensible compliance with professional standards would be unlikely to be a sufficient adherence to the method set out in the relevant determination. [5] Substantial compliance is required. A valuation that is so unreasonable that no reasonable valuer could have made it could not be an 'approved valuation'. A valuation that applied a standard irrationally, or deployed absurd or fanciful reasoning, would not be one which complied with professional standards. Outside of these extremes, the requirements of the determinations contemplate considerable latitude in the formation of valuers of different opinions about the value of a given interest in land. | Steward J found that the Tribunal had misunderstood the legislative scheme as the mere misapplication of professional standards to given facts may not affect the capacity of a valuation to qualify as an approved valuation. [6] His Honour concluded that the Tribunal had impermissibly overlooked the evidence of the ATO's valuer, who confirmed that the taxpayer's valuation was not made in a manner contrary to the standards. [7] | Issues decided by the Tribunal | The Tribunal found that the: • taxpayer had provided an approved valuation pursuant to section 75-10(3) when they applied margin scheme [8] to calculate the GST payable on sales of their property during the tax periods from 1 October 2009 to 30 June 2012; the taxpayer's valuer's valuation was not contrary to professional standards [9] , and • penalties imposed on Decleah Investments Pty Ltd for the period 1 October 2009 to 30 June 2012 were excessive and consequently reduced to nil. | • taxpayer had provided an approved valuation pursuant to section 75-10(3) when they applied margin scheme [8] to calculate the GST payable on sales of their property during the tax periods from 1 October 2009 to 30 June 2012; the taxpayer's valuer's valuation was not contrary to professional standards [9] , and • penalties imposed on Decleah Investments Pty Ltd for the period 1 October 2009 to 30 June 2012 were excessive and consequently reduced to nil.", "Issues_Decided": "The Tribunal found that the: • taxpayer had provided an approved valuation pursuant to section 75-10(3) when they applied margin scheme [8] to calculate the GST payable on sales of their property during the tax periods from 1 October 2009 to 30 June 2012; the taxpayer's valuer's valuation was not contrary to professional standards [9] , and • penalties imposed on Decleah Investments Pty Ltd for the period 1 October 2009 to 30 June 2012 were excessive and consequently reduced to nil. • taxpayer had provided an approved valuation pursuant to section 75-10(3) when they applied margin scheme [8] to calculate the GST payable on sales of their property during the tax periods from 1 October 2009 to 30 June 2012; the taxpayer's valuer's valuation was not contrary to professional standards [9] , and • penalties imposed on Decleah Investments Pty Ltd for the period 1 October 2009 to 30 June 2012 were excessive and consequently reduced to nil.", "ATO_View_of_Decision": "We accept that the relevant enquiry under subsection 75-10(3) is to whether there has been an approved valuation, rather than whether the correct market value has been identified. We also accept that different valuers can adopt different approaches and arrive at different conclusions as to the market value of land on 1 July 2000, without necessarily failing to comply with the professional standards applicable to the relevant valuation exercise. | We acknowledge that ascertaining if a valuation was made in a manner that is not contrary to professional standards for the purposes of subsection 75-10(3) and section 75-35, and the relevant determinations, is a question to be resolved by expert evidence. As we understand it, this decision does not relieve the need for valuations to comply in all respects with legislative requirements and the legal principles applicable to valuations generally.", "Administrative_Treatment": "We are reviewing our public advice and guidance products to determine what effect (if any) the decision may have on them.", "Related_Documents": "A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination 2020 | 2021 ATC 10-607 | Div 75 | 75-10(3) | 75-35 | 2018 ATC 20-656 | F2005L02565 | F2009L03954", "Legislative_References": "GST Act Div 75 75-10(3) 75-35", "Case_References": "Decleah Investments Pty Ltd and Prince Removal and Storage Pty Ltd as Trustees for the PRS Unit Trust v Commissioner of Taxation [2018] FCA 717 107 ATR 815 2018 ATC 20-656 Decleah Investments Pty Ltd and Prince Removal and Storage Pty Ltd as Trustees for the PRS Unit Trust v Commissioner of Taxation (No 2) [2018] FCA 929", "Subject_References": "", "Other_References": "F2005L02565 A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination F2009L03954 A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2016-0200/00001", "Unmatched_Content": "Footnotes: [1] A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2005/3 as to the taxpayer's land sales before 1 March 2010 and A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination MSV 2009/1 for the taxpayer's land sales thereafter. | [2] Decleah Investments Pty Ltd and Anor as Trustee for the PRS Unit Trust and Commissioner of Taxation [2017] AATA 2418 at [66]. | [3] Decleah Investments Pty Ltd and Prince Removal and Storage Pty Ltd as Trustees for the PRS Unit Trust v Commissioner of Taxation (No 2) [2018] FCA 929. | [4] Decleah Investments Pty Ltd and Prince Removal and Storage Pty Ltd as Trustees for the PRS Unit Trust v Commissioner of Taxation [2018] FCA 717 ( Decleah Investments ) at [12(5)]. | [5] Decleah Investments at [12(7)]. | [6] Decleah Investments at [19]. | [7] Decleah Investments at [27-29]. | [8] Decleah Investments Pty Ltd and anor as Trustee for the PRS Unit Trust and Commissioner of Taxation [2021] AATA 4821 at [82]. | [9] Decleah Investments Pty Ltd and anor as Trustee for the PRS Unit Trust and Commissioner of Taxation [2021] AATA 4821 at [79] and [81]."}
{"Case_Name": "In the matter of Western Port Holdings Pty Ltd (receivers and managers appointed) (in liq)", "Venue_Reference_No": "2018/115544", "Venue": "Supreme Court", "Judgment_Date": "12 March 2021", "Date_Published": "26 August 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case concerns the recoverability of payments as unfair preferences pursuant to Part 5.7B of the Corporations Act 2001 (Corporations Act) in the winding up of Western Port Holdings Pty Ltd (the Company).", "Overview_of_Facts": "In the course of its operations, the Company borrowed money: • from, and extended loans to, related companies (SHA (Vic) Pty Ltd (SHA) and Services and Maintenance Group Pty Ltd (SMG)) and family members (Messrs O'Hare and Duthie) on an unsecured basis, and • from Hermes Capital on a secured basis. | • from, and extended loans to, related companies (SHA (Vic) Pty Ltd (SHA) and Services and Maintenance Group Pty Ltd (SMG)) and family members (Messrs O'Hare and Duthie) on an unsecured basis, and • from Hermes Capital on a secured basis. | On 13 April 2015, the Company went into voluntary administration and a Deed of Company Arrangement (DOCA) was executed on 22 May 2015. On 24 May 2017, creditors resolved to terminate the DOCA and appointed the deed administrators as liquidators. | Between 18 August 2015 and 1 March 2017, the Commissioner received payments totalling $2,692,025.06 on account of the taxation debts of the Company. Eleven of these payments (totalling $1,193,624.00) were made to the Commissioner directly from third parties (third-party payments). | Issue decided by the Court | Were the third-party payments 'receiv[ed] from the company' within the meaning of section 588FA(1)(b) of the Corporations Act? | Third-party payments | In determining whether the third-party payments resulted in the Commissioner 'receiving from the company' more than he would receive if he proved in a winding up, Rees J identified the following principles enunciated by the Victorian Court of Appeal in Cant v Mad Brothers Earthmoving Pty Ltd [2020] VSCA 198 (Mad Brothers) as applicable [1] : (c) The words 'from the company' in s 588FA(1)(b) have the effect of retaining the requirement under the previous law that the preference be received from the company's own money, meaning money or assets to which the company is entitled. (d) It is necessary, in order for a preference to be 'from the company' that the receipt of it by the creditor has the effect of diminishing the assets of the company available to creditors. (e) On the other hand, a payment by a third party which does not have the effect of diminishing the assets of the company available to creditors is not a payment received 'from the company' and is therefore not an unfair preference. | Rees J determined that she was required to follow Mad Brothers, being a considered judgment of an intermediate appellate court, albeit expressing some 'disquiet' by the reasoning of the Victorian Court of Appeal. [2] | In upholding the liquidators' claim to all eleven third-party payments, her Honour determined that each of the payments resulted in the Commissioner 'receiving from the company' an amount within the meaning of section 588FA(1)(b) of the Corporations Act. | Specifically, Rees J found that: • Certain payments made to the Commissioner by Mr O'Hare, SHA and SMG were made in reduction of debts owed by them to the Company. These payments resulted in a diminution of the Company's assets because the amount recoverable from those third parties were assets of the Company that were no longer available for distribution to creditors in a winding up (Loan Repayment Transactions). [3] • Certain payments made to the Commissioner by Mr Duthie, SHA and SMG by way of loans by them to the Company were also 'receiv[ed] from the company'. [4] The Court considered that such payments were '... no different from that which would apply if Western Port Holdings had borrowed the money on overdraft from its bank and paid the ATO those funds.' The Court referred to the decision of the Full Federal Court in Commissioner of Taxation v Kassem and Secatore [2012] FCAFC 124 (Kassem) in concluding that payments made from overdrafts were 'receiv[ed] from the company' within the meaning of section 588FA(1)(b) of the Corporations Act [5] (Loan Advance Transactions). • Payments made to the Commissioner by Hermes Capital were made by way of drawing on a facility secured against the Company's book debts and thus resulted in a diminution of assets available to unsecured creditors (Hermes Payments). [6] | • Certain payments made to the Commissioner by Mr O'Hare, SHA and SMG were made in reduction of debts owed by them to the Company. These payments resulted in a diminution of the Company's assets because the amount recoverable from those third parties were assets of the Company that were no longer available for distribution to creditors in a winding up (Loan Repayment Transactions). [3] • Certain payments made to the Commissioner by Mr Duthie, SHA and SMG by way of loans by them to the Company were also 'receiv[ed] from the company'. [4] The Court considered that such payments were '... no different from that which would apply if Western Port Holdings had borrowed the money on overdraft from its bank and paid the ATO those funds.' The Court referred to the decision of the Full Federal Court in Commissioner of Taxation v Kassem and Secatore [2012] FCAFC 124 (Kassem) in concluding that payments made from overdrafts were 'receiv[ed] from the company' within the meaning of section 588FA(1)(b) of the Corporations Act [5] (Loan Advance Transactions). • Payments made to the Commissioner by Hermes Capital were made by way of drawing on a facility secured against the Company's book debts and thus resulted in a diminution of assets available to unsecured creditors (Hermes Payments). [6]", "Issues_Decided": "Were the third-party payments 'receiv[ed] from the company' within the meaning of section 588FA(1)(b) of the Corporations Act? | Third-party payments: In determining whether the third-party payments resulted in the Commissioner 'receiving from the company' more than he would receive if he proved in a winding up, Rees J identified the following principles enunciated by the Victorian Court of Appeal in Cant v Mad Brothers Earthmoving Pty Ltd [2020] VSCA 198 (Mad Brothers) as applicable [1] : (c) The words 'from the company' in s 588FA(1)(b) have the effect of retaining the requirement under the previous law that the preference be received from the company's own money, meaning money or assets to which the company is entitled. (d) It is necessary, in order for a preference to be 'from the company' that the receipt of it by the creditor has the effect of diminishing the assets of the company available to creditors. (e) On the other hand, a payment by a third party which does not have the effect of diminishing the assets of the company available to creditors is not a payment received 'from the company' and is therefore not an unfair preference. Rees J determined that she was required to follow Mad Brothers, being a considered judgment of an intermediate appellate court, albeit expressing some 'disquiet' by the reasoning of the Victorian Court of Appeal. [2] In upholding the liquidators' claim to all eleven third-party payments, her Honour determined that each of the payments resulted in the Commissioner 'receiving from the company' an amount within the meaning of section 588FA(1)(b) of the Corporations Act. Specifically, Rees J found that: • Certain payments made to the Commissioner by Mr O'Hare, SHA and SMG were made in reduction of debts owed by them to the Company. These payments resulted in a diminution of the Company's assets because the amount recoverable from those third parties were assets of the Company that were no longer available for distribution to creditors in a winding up (Loan Repayment Transactions). [3] • Certain payments made to the Commissioner by Mr Duthie, SHA and SMG by way of loans by them to the Company were also 'receiv[ed] from the company'. [4] The Court considered that such payments were '... no different from that which would apply if Western Port Holdings had borrowed the money on overdraft from its bank and paid the ATO those funds.' The Court referred to the decision of the Full Federal Court in Commissioner of Taxation v Kassem and Secatore [2012] FCAFC 124 (Kassem) in concluding that payments made from overdrafts were 'receiv[ed] from the company' within the meaning of section 588FA(1)(b) of the Corporations Act [5] (Loan Advance Transactions). • Payments made to the Commissioner by Hermes Capital were made by way of drawing on a facility secured against the Company's book debts and thus resulted in a diminution of assets available to unsecured creditors (Hermes Payments). [6] • Certain payments made to the Commissioner by Mr O'Hare, SHA and SMG were made in reduction of debts owed by them to the Company. These payments resulted in a diminution of the Company's assets because the amount recoverable from those third parties were assets of the Company that were no longer available for distribution to creditors in a winding up (Loan Repayment Transactions). [3] • Certain payments made to the Commissioner by Mr Duthie, SHA and SMG by way of loans by them to the Company were also 'receiv[ed] from the company'. [4] The Court considered that such payments were '... no different from that which would apply if Western Port Holdings had borrowed the money on overdraft from its bank and paid the ATO those funds.' The Court referred to the decision of the Full Federal Court in Commissioner of Taxation v Kassem and Secatore [2012] FCAFC 124 (Kassem) in concluding that payments made from overdrafts were 'receiv[ed] from the company' within the meaning of section 588FA(1)(b) of the Corporations Act [5] (Loan Advance Transactions). • Payments made to the Commissioner by Hermes Capital were made by way of drawing on a facility secured against the Company's book debts and thus resulted in a diminution of assets available to unsecured creditors (Hermes Payments). [6]", "ATO_View_of_Decision": "Third-party payments | The Commissioner accepts that the Loan Repayment Transactions and the Hermes Payments had the effect of diminishing the assets of the Company available to unsecured creditors in a winding up. On the facts found by Rees J, upholding the liquidators' claim to those third-party payments was consistent with the principles in Mad Brothers. | In the Commissioner's view, although correctly identifying the applicable principles set out by the Victorian Court of Appeal in Mad Brothers and concluding that judgment was a binding authorit y, Rees J erred in her application of those principles to the Loan Advance Transactions sought to be recovered by the liquidators. | The Commissioner respectfully considers that Rees J erred in finding that the Loan Advance Transactions resulted in a diminution of the Company's assets available to unsecured creditors in the winding up. Contrary to the Court's findings, the Full Federal Court's decision in Kassem does not provide a basis for concluding that such payments are recoverable as unfair preferences. As Rees J identified, Kassem did not determine, but expressly left open, the question of whether a diminution of assets was necessary to satisfy section 588FA of the Corporations Act. [7] Conversely, the issue was specifically addressed and determined by the Victorian Court of Appeal in Mad Brothers. Further, in Kassem, the Full Federal Court was not required to consider the requirements of when a payment is 'receiv[ed] from the company' within the meaning of section 588FA(1)(b) of the Corporations Act. | The Commissioner understands the law in this area is as expressed by the Victorian Court of Appeal in Mad Brothers - that payments to an unsecured creditor from unsecured overdrafts and other unsecured borrowings merely effect a rearrangement amongst unsecured creditors. [8] Where borrowings are unsecured, the assets of a company available for distribution amongst creditors in a winding up are not diminished. As concluded by the Victorian Court of Appeal in Mad Brothers, such payments do not meet the description of being 'receiv[ed] from the company' within the meaning of section 588FA(1)(b) of the Corporations Act and accordingly are not voidable as unfair preferences. | On 6 April 2021, the Commissioner filed a Notice of Intention to Appeal the decision of the Court to the NSW Court of Appeal. | On 23 June 2021, at the request of the parties, the Court made notations that the parties had reached an agreement that the Commissioner was not required to pay the liquidators' claim to recover the Loan Advance Transactions. This development made any appeal by the Commissioner from the decision of Rees J unnecessary.", "Administrative_Treatment": "When responding to unfair preference claims involving payments from third parties (including those received from an unsecured overdraft), the Commissioner will rely on the decision in Mad Brothers as binding authority in this area of the law. As such, the Commissioner will require liquidators to prove that any payments made by third parties resulted in a diminution of the assets of a company which would have been available to unsecured creditors in a winding up before accepting that the payment was 'receiv[ed] from the company' within the meaning of section 588FA(1)(b) of the Corporations Act. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] At [7], referring to Mad Brothers at [120]. | [2] At [38-39]. | [3] At [170-171] and [175]. | [4] At [174-175]. | [5] At [174], referring to Kassem at [62]. | [6] At [178-179]. | [7] At [24], and Kassem at [60]. | [8] Mad Brothers at [112].", "Related_Documents": "None | [2021] NSWSC 232 | (2021) 358 FLR 45 | Part 5.7B | 588FA | 588FA(1)(b) | [2020] VSCA 198", "Legislative_References": "Corporations Act 2001 Part 5.7B 588FA 588FA(1)(b)", "Case_References": "Cant v Mad Brothers Earthmoving Pty Ltd (in liq) [2020] VSCA 198 Commissioner of Taxation v Kassem and Secatore (2012) 205 FCR 156 [2012] FCAFC 124", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2018/115544/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "M3K Services Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2021/0940", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "26 November 2021", "Date_Published": "24 March 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns whether the taxpayer passed on excess goods and services tax (GST) to its customers and, if it had, whether the excess GST was refundable to the taxpayer under section 142-15 of the A New Tax System (Goods and Services Tax) Act 1999. | All legislative references in this Decision impact statement are to the A New Tax System (Goods and Services Tax) Act 1999.", "Overview_of_Facts": "The taxpayer supplied and administered cosmetic treatments and injectables. | GST treatment | The taxpayer's point of sale system could only account for sales being fully taxable or GST-free supplies. The taxpayer incorrectly assumed its cosmetic injectable supplies were fully taxable and accounted for GST on this basis until a later point. The Commissioner issued notices of assessment for the earlier tax periods on the footing that the excess amounts were to be treated as payable in accordance with section 142-10. | Documentation surrounding the transactions | During the relevant period, the taxpayer's receipts, terms and conditions of sale, and other documents provided to customers did not mention GST. On the rare occasion when a customer requested a tax invoice, the invoice would display GST. | Price-setting policy | The taxpayer priced its supplies according to what the market would bear, having regard to the pricing of its major competitors, and not by applying a margin to costs. Regular price reviews were conducted to maximise prices to the extent they did not exceed the pricing of competitors. GST was not explicitly considered in the price reviews. | Issues decided by the Tribunal | The two issues before the Tribunal were whether: • the taxpayer passed on excess GST to customers under section 142-10, and • if any such excess GST was refundable under section 142-15. | • the taxpayer passed on excess GST to customers under section 142-10, and • if any such excess GST was refundable under section 142-15. | Issue 1 - was excess GST passed on? | The taxpayer contended that the High Court decision in Avon Products Pty Limited v Commissioner of Taxation [2006] HCA 29 (Avon Products) made its pricing policy the starting point in determining if excess GST was passed on. The Tribunal agreed, though noted that Avon Products did not confine the inquiry to a question of pricing policy alone. [1] The taxpayer argued that the excess GST was not passed on because its pricing policy did not seek to recover costs. However, the Tribunal found that the taxpayer '... did not set out to prove, and did not prove, that its prices did not recover costs in particular tax periods.' [2] Consequently, the evidence failed to establish that this case was unlike the usual position of a profitable business recovering all its costs, including GST and amounts mistakenly paid as GST, in the prices charged to customers. The tax invoices were consistent with the mistaken treatment of the supplies as fully taxable. [3] The Tribunal considered that it was not determinative that the taxpayer's prices remained unchanged after it started paying the correct amount of GST. [4] The Tribunal therefore decided that excess GST was passed on. [5] | Issue 2 - application of section 142-15 | Having found that the taxpayer passed on the excess GST, the question for the Tribunal became whether section 142-15 applied to provide the taxpayer a refund of the excess GST. | The taxpayer argued that section 142-15 was not to be narrowly construed and that refunding the excess GST would not result in a windfall gain; rather, it would remove a commercial detriment it suffered relative to its competitors in the market. | The Tribunal held that section 142-15 '... does not confer a broad discretionary power of the type that is unconfined other than in its terms and by reference to its scope, purpose and subject matter.' [6] Rather, the operation of section 142-15 rests on whether the Commissioner (or the Tribunal standing in the Commissioner's shoes on review) is satisfied that applying section 142-10 would be inconsistent with the prevention of a windfall gain. [7] | When interpreting the meaning of a 'windfall gain' in section 142-15, the Tribunal considered dictionary definitions, noting that the word 'windfall' embodied the concept of a gain that was not only unexpected but also unearned, in the sense that it did not arise out of the recipient's activities. [8] | The Tribunal accepted that by charging excess GST [9] , the taxpayer financially disadvantaged itself compared to some of its major competitors, inferring that the market generally would have treated the injectable component of the supplies as GST-free, despite acknowledging there was no direct evidence of this. | However, the question of whether the taxpayer would be at a commercial disadvantage was not the question asked by section 142-15. The correct question was whether it followed from this commercial disadvantage that refunding the excess GST would not give the taxpayer a windfall gain. [10] The Tribunal concluded that it could not be said that the taxpayer would not obtain a windfall gain if the excess GST was refunded. [11] | While the Tribunal acknowledged that such a result may be argued as harsh or unfair, it observed that the correct construction of section 142-15 did not confer a broad-based discretion involving 'fairness' or 'harshness of the result' as relevant considerations. [12]", "Issues_Decided": "The two issues before the Tribunal were whether: • the taxpayer passed on excess GST to customers under section 142-10, and • if any such excess GST was refundable under section 142-15. • the taxpayer passed on excess GST to customers under section 142-10, and • if any such excess GST was refundable under section 142-15. | Issue 1 - was excess GST passed on?: The taxpayer contended that the High Court decision in Avon Products Pty Limited v Commissioner of Taxation [2006] HCA 29 (Avon Products) made its pricing policy the starting point in determining if excess GST was passed on. The Tribunal agreed, though noted that Avon Products did not confine the inquiry to a question of pricing policy alone. [1] The taxpayer argued that the excess GST was not passed on because its pricing policy did not seek to recover costs. However, the Tribunal found that the taxpayer '... did not set out to prove, and did not prove, that its prices did not recover costs in particular tax periods.' [2] Consequently, the evidence failed to establish that this case was unlike the usual position of a profitable business recovering all its costs, including GST and amounts mistakenly paid as GST, in the prices charged to customers. The tax invoices were consistent with the mistaken treatment of the supplies as fully taxable. [3] The Tribunal considered that it was not determinative that the taxpayer's prices remained unchanged after it started paying the correct amount of GST. [4] The Tribunal therefore decided that excess GST was passed on. [5] | Issue 2 - application of section 142-15: Having found that the taxpayer passed on the excess GST, the question for the Tribunal became whether section 142-15 applied to provide the taxpayer a refund of the excess GST. The taxpayer argued that section 142-15 was not to be narrowly construed and that refunding the excess GST would not result in a windfall gain; rather, it would remove a commercial detriment it suffered relative to its competitors in the market. The Tribunal held that section 142-15 '... does not confer a broad discretionary power of the type that is unconfined other than in its terms and by reference to its scope, purpose and subject matter.' [6] Rather, the operation of section 142-15 rests on whether the Commissioner (or the Tribunal standing in the Commissioner's shoes on review) is satisfied that applying section 142-10 would be inconsistent with the prevention of a windfall gain. [7] When interpreting the meaning of a 'windfall gain' in section 142-15, the Tribunal considered dictionary definitions, noting that the word 'windfall' embodied the concept of a gain that was not only unexpected but also unearned, in the sense that it did not arise out of the recipient's activities. [8] The Tribunal accepted that by charging excess GST [9] , the taxpayer financially disadvantaged itself compared to some of its major competitors, inferring that the market generally would have treated the injectable component of the supplies as GST-free, despite acknowledging there was no direct evidence of this. However, the question of whether the taxpayer would be at a commercial disadvantage was not the question asked by section 142-15. The correct question was whether it followed from this commercial disadvantage that refunding the excess GST would not give the taxpayer a windfall gain. [10] The Tribunal concluded that it could not be said that the taxpayer would not obtain a windfall gain if the excess GST was refunded. [11] While the Tribunal acknowledged that such a result may be argued as harsh or unfair, it observed that the correct construction of section 142-15 did not confer a broad-based discretion involving 'fairness' or 'harshness of the result' as relevant considerations. [12]", "ATO_View_of_Decision": "The decision on both issues is favourable to the Commissioner and is in line with the Commissioner's published material on the interpretation of Division 142. | Issue 1: Passing on excess GST | The Tribunal's decision highlights that the onus on the taxpayer is to demonstrate sufficient circumstances to conclude that it had not passed on excess GST. The Commissioner agrees with the Tribunal's observation that it will be a rare case in which GST is not passed on to a customer, in accordance with the High Court's comments on 'passing on' in the context of sales tax, as expressed in Avon Products. | The Tribunal addressed all four factors outlined in paragraph 28 of Goods and Services Tax Ruling GSTR 2015/1 Goods and services tax: the meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 that the Commissioner regards as relevant in determining whether excess GST has been passed on. These factors are: • the manner in which the excess GST arose • the supplier's pricing policy and practice • the documentary evidence surrounding the transaction, and • any other relevant circumstances. | • the manner in which the excess GST arose • the supplier's pricing policy and practice • the documentary evidence surrounding the transaction, and • any other relevant circumstances. | Issue 2: Application of section 142-15 | The decision is in accordance with the Commissioner's approach to section 142-15, which is that it applies only in exceptional circumstances. The provision is interpreted as a confined power exercised according to its terms, rather than a broad-based discretion importing concepts of fairness, reasonableness or harshness of outcome.", "Administrative_Treatment": "The decision is in line with the Commissioner's public advice in GSTR 2015/1. It also provides clarity that the Tribunal's earlier decision on Division 142 in WYPF and Commissioner of Taxation [13] turned on the particular facts and circumstances of that case.", "Related_Documents": "GSTR 2015/1 | 2021 ATC 10-599 | Div 142 | 142-10 | 142-15 | 2021 ATC 10-587", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 Div 142 142-10 142-15", "Case_References": "Avon Products Pty Limited v Commissioner of Taxation [2006] HCA 29 230 CLR 356 80 ALJR 1161 WYPF and Commissioner of Taxation [2021] AATA 3050 2021 ATC 10-587", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2021/0940/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | Footnotes: [1] M3K Services Pty Ltd and Commissioner of Taxation [2021] AATA 4416 (M3K Services) at [32]. | [2] M3K Services at [23]. | [3] M3K Services at [41]. | [4] M3K Services at [40]. | [5] M3K Services at [42]. | [6] M3K Services at [54]. | [7] M3K Services at [55]. | [8] M3K Services at [75] and [76]. | [9] M3K Services at [71]. | [10] M3K Services at [73]. | [11] M3K Services at [79]. | [12] M3K Services at [83]."}
{"Case_Name": "MJ and IT Holdings Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2020/6929", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "8 September 2021", "Date_Published": "20 January 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns the 'payment and withholding requirement' under subparagraph 5(1)(a)(i) and the 'integrity rule' under paragraph 5(1)(g) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (BCF Act), which denies an entity the cash flow boost (CFB) where those requirements (among others) have not been satisfied.", "Overview_of_Facts": "To be entitled to the first CFB, an entity needs to satisfy the requirements outlined in section 5 of the BCF Act. Relevant to the matter before the Administrative Appeals Tribunal (the Tribunal), two of those requirements are: • the entity makes a payment in the relevant period and must withhold an amount from the payment under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the Taxation Administration Act 1953 (TAA), and • neither the entity nor any associate or agent of the entity entered into or carried out a scheme or part of a scheme for the sole or dominant purpose of gaining entitlement to the CFB or increasing the amount of CFB to which the entity is entitled. | • the entity makes a payment in the relevant period and must withhold an amount from the payment under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the Taxation Administration Act 1953 (TAA), and • neither the entity nor any associate or agent of the entity entered into or carried out a scheme or part of a scheme for the sole or dominant purpose of gaining entitlement to the CFB or increasing the amount of CFB to which the entity is entitled. | The dispute centred on the claim by the taxpayer to have made a $25,000 payment, being a director's fee and expensed by way of a journal entry in the accounting records of the taxpayer, between 29 and 31 March 2020. This was after the CFB announcement on 12 March 2020. | The taxpayer contended that, though no money had changed hands at the time, there was a constructive payment by way of offset of the director's fee against the director's loan account, evidenced by the accounting records. | The Commissioner contended that there was, in fact, no payment made by the taxpayer to the director. The Commissioner additionally contended that the taxpayer had entered into a scheme to increase their CFB entitlement by inflating their withholding amount for the month of March 2020. | The Commissioner determined the taxpayer was not entitled to the amount of CFB sought and the taxpayer objected to the decision reducing the amount of CFB under Part IVC of the TAA. The taxpayer's objection was disallowed. | Issues decided by the Tribunal | The issues considered by the Tribunal can be summarised as: • whether the taxpayer paid wages subject to withholding to the director in the relevant period (the 'payment and constructive payment issue'), and • whether the taxpayer, or their associate or agent, entered into a scheme for the sole or dominant purpose of increasing their entitlement to the CFB (the 'scheme issue'). | • whether the taxpayer paid wages subject to withholding to the director in the relevant period (the 'payment and constructive payment issue'), and • whether the taxpayer, or their associate or agent, entered into a scheme for the sole or dominant purpose of increasing their entitlement to the CFB (the 'scheme issue'). | The payment issues | The Tribunal decided (at [31-33]) that, notwithstanding the accounting records provided (which were clearly described in the accounts as a director's loan account and which did not establish the existence of offsetting liabilities), it was the intention of the parties that the director's fee be offset against amounts the taxpayer considered it had advanced to the director over the course of the year. The fact that the director's loan account was in credit and that there were no advanced amounts against which to offset the director's fee was considered by the Tribunal to be a mistake on the part of the taxpayer's accountant from which no adverse conclusions could be inferred (at [40]). In this context, the Tribunal noted that the taxpayer had changed their accounting software in March 2017 (at [37]) and the taxpayer's accountant had misunderstood the software and instructions (at [40]). | The Tribunal found that the actions taken by the taxpayer to implement this intention to offset, being: • the making of accounting records • the issuing of payslips, and • the lodging of a business activity statements (BAS) recording amounts withheld, were sufficient evidence to establish that payment had been made constructively per the requirements of section 11-5 of Schedule 1 to the TAA (at [31-33]). | • the making of accounting records • the issuing of payslips, and • the lodging of a business activity statements (BAS) recording amounts withheld, | were sufficient evidence to establish that payment had been made constructively per the requirements of section 11-5 of Schedule 1 to the TAA (at [31-33]). | The Tribunal concluded that the taxpayer had made a payment of $25,000 to the director in the month of March 2020 and was required to withhold from that payment under Subdivision 12-B of Schedule 1 to the TAA (at [32-33]). | Scheme issue | The Tribunal considered that the decision to make payment of a director's fee in March 2020 (contrary to the taxpayer's prior business practice of remunerating their director at the end of the financial year) and to withhold from the payment at a rate higher than would ordinarily be expected for a payment that was intended to encompass nine months of service were some of the actions taken as part of a scheme (at [66]). | The Tribunal concluded that the actions of the taxpayer, their director, their associate and their tax agent (both objectively and subjectively) displayed a dominant, if not sole purpose, of increasing the March 2020 CFB entitlement for the purposes of applying paragraph 5(1)(g) of the BCF Act (at [71-74]). The taxpayer was therefore ineligible to receive a CFB for the March 2020 period.", "Issues_Decided": "The issues considered by the Tribunal can be summarised as: • whether the taxpayer paid wages subject to withholding to the director in the relevant period (the 'payment and constructive payment issue'), and • whether the taxpayer, or their associate or agent, entered into a scheme for the sole or dominant purpose of increasing their entitlement to the CFB (the 'scheme issue'). • whether the taxpayer paid wages subject to withholding to the director in the relevant period (the 'payment and constructive payment issue'), and • whether the taxpayer, or their associate or agent, entered into a scheme for the sole or dominant purpose of increasing their entitlement to the CFB (the 'scheme issue'). | The payment issues: The Tribunal decided (at [31-33]) that, notwithstanding the accounting records provided (which were clearly described in the accounts as a director's loan account and which did not establish the existence of offsetting liabilities), it was the intention of the parties that the director's fee be offset against amounts the taxpayer considered it had advanced to the director over the course of the year. The fact that the director's loan account was in credit and that there were no advanced amounts against which to offset the director's fee was considered by the Tribunal to be a mistake on the part of the taxpayer's accountant from which no adverse conclusions could be inferred (at [40]). In this context, the Tribunal noted that the taxpayer had changed their accounting software in March 2017 (at [37]) and the taxpayer's accountant had misunderstood the software and instructions (at [40]). The Tribunal found that the actions taken by the taxpayer to implement this intention to offset, being: • the making of accounting records • the issuing of payslips, and • the lodging of a business activity statements (BAS) recording amounts withheld, were sufficient evidence to establish that payment had been made constructively per the requirements of section 11-5 of Schedule 1 to the TAA (at [31-33]). • the making of accounting records • the issuing of payslips, and • the lodging of a business activity statements (BAS) recording amounts withheld, were sufficient evidence to establish that payment had been made constructively per the requirements of section 11-5 of Schedule 1 to the TAA (at [31-33]). The Tribunal concluded that the taxpayer had made a payment of $25,000 to the director in the month of March 2020 and was required to withhold from that payment under Subdivision 12-B of Schedule 1 to the TAA (at [32-33]). | Scheme issue: The Tribunal considered that the decision to make payment of a director's fee in March 2020 (contrary to the taxpayer's prior business practice of remunerating their director at the end of the financial year) and to withhold from the payment at a rate higher than would ordinarily be expected for a payment that was intended to encompass nine months of service were some of the actions taken as part of a scheme (at [66]). The Tribunal concluded that the actions of the taxpayer, their director, their associate and their tax agent (both objectively and subjectively) displayed a dominant, if not sole purpose, of increasing the March 2020 CFB entitlement for the purposes of applying paragraph 5(1)(g) of the BCF Act (at [71-74]). The taxpayer was therefore ineligible to receive a CFB for the March 2020 period.", "ATO_View_of_Decision": "Scheme issue | This decision accords with the Commissioner's interpretation and application of the 'integrity rule' in paragraph 5(1)(g) of the BCF Act. | The Commissioner notes that the Tribunal's view provides support for the scheme provision to be interpreted broadly. | The payment issues | The Tribunal's decision that the taxpayer made a constructive payment of $25,000 to the director in the month of March 2020 is fundamentally a finding of fact particular to the evidence in this specific case, including the Tribunal's reasoning that the taxpayer had erroneously recorded the transaction in their accounts in the context of a change in accounting software. The Commissioner considers that this aspect of the decision may have limited application beyond the scope of this decision due to the specific factual situation considered by the Tribunal. | There appears to be some inconsistency in the Tribunal's statement of the authority of Temples Wholesale Flower Supplies Pty Ltd v Federal Commissioner of Taxation of the Commonwealth of Australia [1991] FCA 185 (Temples Wholesale Flower Supplies) (at [25]) and its subsequent application to the facts of the case (at [31]). Reading paragraphs 25 and 31 in context, we understand the reasoning of the Tribunal to be that the Temple Wholesale Flower Supplies decision provides that mere accounting entries by themselves do not constitute sufficient proof of the existence of a payment to a director, but that the taxpayer had provided sufficient additional evidence to distinguish the present case from that decision (at [31]). | We also consider that the lodgment of a business activity statement advising of a pay as you go (PAYG) withholding liability is not (in and of itself) sufficient evidence to conclude that a payment subject to PAYG withholding has been made. An entity cannot withhold an amount from a payment that has not been paid. We do not consider that the Full Federal Court decision of Commissioner of Taxation v Cassaniti [2018] FCAFC 212 suggests otherwise.", "Administrative_Treatment": "Not applicable.", "Related_Documents": "None | 2021 ATC 10-590 | 5 | 5(1)(a)(i) | 5(1)(g) | Pt IVC | Sch 1 11-5 | Sch 1 Subdiv 12-B | Sch 1 Subdiv 12-C | Sch 1 Subdiv 12-D", "Legislative_References": "BCF Act 2020 5 BCF Act 2020 5(1)(a)(i) BCF Act 2020 5(1)(g) TAA 1953 Pt IVC TAA 1953 Sch 1 11-5 TAA 1953 Sch 1 Subdiv 12-B TAA 1953 Sch 1 Subdiv 12-C TAA 1953 Sch 1 Subdiv 12-D", "Case_References": "Commissioner of Taxation v Cassaniti [2018] FCAFC 212 266 FCR 385 Temples Wholesale Flower Supplies Pty Ltd v Federal Commissioner of Taxation of the Commonwealth of Australia [1991] FCA 185 29 FCR 93 21 ATR 1606 99 ALR 479", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2020/6929/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Slatter Building Group Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2020/6013", "Venue": "Administrative Appeals Tribunal (Small Business Taxation Division)", "Judgment_Date": "10 March 2021", "Date_Published": "21 April 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns the requirement for an entity to make a taxable supply in a tax period that applied to it that started on or after 1 July 2018 and ended before 12 March 2020, as per subsection 5(6) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (Boosting Cash Flow Act). The entity's legal costs were funded under the Commissioner's test case funding program.", "Overview_of_Facts": "To receive the first cash flow boost, an entity needs to meet the requirements in section 5 of the Boosting Cash Flow Act. For an entity that is not a charity registered with the Australian Charities and Not-for-profits Commission, this includes that an entity must satisfy the 'business activity' requirement under either subsections 5(5) or 5(6) of the Boosting Cash Flow Act, being that: • either - the entity had an amount included in its assessable income for the 2018-19 income year in relation to it carrying on a business, or - the entity made a taxable, GST-free or input taxed supply in a tax period that applied to it that started on or after 1 July 2018 and ended before 12 March 2020, and • the Commissioner had notice of that assessable business income or taxable supply on or before 12 March 2020 (or a later time allowed by the Commissioner). | • either - the entity had an amount included in its assessable income for the 2018-19 income year in relation to it carrying on a business, or - the entity made a taxable, GST-free or input taxed supply in a tax period that applied to it that started on or after 1 July 2018 and ended before 12 March 2020, and • the Commissioner had notice of that assessable business income or taxable supply on or before 12 March 2020 (or a later time allowed by the Commissioner). | - the entity had an amount included in its assessable income for the 2018-19 income year in relation to it carrying on a business, or - the entity made a taxable, GST-free or input taxed supply in a tax period that applied to it that started on or after 1 July 2018 and ended before 12 March 2020, and | A similar requirement also exists in section 6 of the Boosting Cash Flow Act, for entitlement to the second cash flow boost. | The entity was created on 17 January 2020, when it was registered with the Australian Securities and Investment Commission. The sole director and shareholder of the entity had previously operated a business, in building and construction, as a sole trader since 2018. | The entity made taxable supplies in the period between its incorporation on 17 January 2020 and 12 March 2020. It accounted for goods and services tax on a quarterly basis and lodged its first activity statement, for the quarter ended 31 March 2020, on 1 May 2020. | The entity requested a review into its eligibility to receive cash flow boost payments but was found ineligible. | The entity objected under Part IVC of the Taxation Administration Act 1953 to the Commissioner's decision finding them ineligible to receive cash flow boost payments. The entity's objection was disallowed on the basis that the entity could not meet the business activity tests as it did not have a tax period that applied to it that ended before 12 March 2020. | Issues decided by the Court | The Tribunal concluded that the tax period must be one which applies to the entity. Accordingly, the entity was not able to meet the requirements for entitlement to the cash flow boost, as it did not have a tax period that applied to it that ended before 12 March 2020. | The Tribunal noted that although the entity '... appears to have struggled with the impact of the pandemic and may be a worthy recipient of financial assistance', the Tribunal's role was '... solely to determine whether the applicant is entitled to the cash flow boost as a matter of law, on a proper construction of the relevant legislative provisions'.", "Issues_Decided": "The Tribunal concluded that the tax period must be one which applies to the entity. Accordingly, the entity was not able to meet the requirements for entitlement to the cash flow boost, as it did not have a tax period that applied to it that ended before 12 March 2020. The Tribunal noted that although the entity '... appears to have struggled with the impact of the pandemic and may be a worthy recipient of financial assistance', the Tribunal's role was '... solely to determine whether the applicant is entitled to the cash flow boost as a matter of law, on a proper construction of the relevant legislative provisions'.", "ATO_View_of_Decision": "The decision is consistent with the Commissioner's interpretation of subsections 5(6) and 6(6) of the Boosting Cash Flow Act. | Entities that came into existence, or commenced business, after 31 December 2019 and report goods and services tax on a quarterly basis do not have a tax period that applied to them that ended before 12 March 2020. | Similarly, entities that came into existence or commenced business on or after 1 July 2019 and elected to report goods and services tax annually will not have a tax period that applies to them that ended before 12 March 2020. | These entities therefore cannot satisfy the requirements for entitlement to the cash flow boost, as they also would not have assessable business income from the 2018-19 income year (since they did not exist, or were not carrying on a business, during that income year). | An identical requirement exists in subsections 11(6) to 11(8) of the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020. Those subsections apply for entitlement to JobKeeper payments in relation to an eligible business participant. As the wording of those subsections is the same as the requirement in the Boosting Cash Flow Act, the Commissioner considers the same interpretation applies in that context. As such, the Commissioner's view is that entities in the circumstances outlined in this Decision impact statement will not be entitled to JobKeeper payments in relation to an eligible business participant.", "Administrative_Treatment": "", "Related_Documents": "None | 2021 ATC 10-565 | 5 | 5(5) | 5(6) | 6 | 6(6) | 11(6) | 11(7) | 11(8) | Pt IVC", "Legislative_References": "Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 5 5(5) 5(6) 6 6(6) Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 11(6) 11(7) 11(8) Taxation Administration Act 1953 Pt IVC", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2020/6013/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "The Buddhist Society of Western Australia Inc v Commissioner of Taxation (No 2)", "Venue_Reference_No": "WAD 118 of 2020", "Venue": "Federal Court of Australia", "Judgment_Date": "4 November 2021", "Date_Published": "18 May 2023", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerns the Commissioner's decision to revoke the endorsement of the Buddhist Society of Western Australia (Inc) (BSWA) as a deductible gift recipient. | All legislative references in this Decision impact statement are to the Taxation Administration Act 1953, unless otherwise indicated.", "Overview_of_Facts": "BSWA was endorsed as a deductible gift recipient for the operation of the Dhammaloka Buddhist Centre Building Fund (Fund) under Subdivision 30-BA of the Income Tax Assessment Act 1997 (ITAA 1997). | On 4 October 2019, the Commissioner revoked the endorsement of BSWA as a deductible gift recipient because the Fund did not satisfy the requirements of table item 2.1.10 of subsection 30-25(1) of the ITAA 1997. In particular, the Commissioner did not consider that the relevant buildings at the Dhammaloka Buddhist Centre were used as a school or college, for the purposes of table item 2.1.10, applying the views expressed in Taxation Ruling TR 2013/2 Income tax: school or college building funds. | BSWA objected to the revocation decision and the Commissioner disallowed the objection, prompting BSWA to commence its appeal in the Federal Court by relying on 2 sources of jurisdiction: 1. An appeal against the objection decision under Pt IVC (Part IVC Appeal). 2. Alternatively, an application for review of the objection decision under section 5 of the Administrative Decisions (Judicial Review) Act 1977. | 1. An appeal against the objection decision under Pt IVC (Part IVC Appeal). 2. Alternatively, an application for review of the objection decision under section 5 of the Administrative Decisions (Judicial Review) Act 1977. | Issues decided by the Court | Part IVC appeal | The Commissioner raised a threshold issue of whether the BSWA failed to discharge the burden of proof under paragraph 14ZZO(b)(ii) which provides that the appellant has the burden of proving that the taxation decision should not have been made or should have been made differently. | BSWA argued that it had discharged this evidentiary burden by proving that the revocation decision was incorrect based on the facts established by the information and documents provided to the Commissioner. To this end, BSWA tendered, at the hearing, documents purporting to be those documents and information that was before the Commissioner. No one gave evidence as to the authenticity of the documents. | BSWA contended that paragraph 14ZZO(b)(ii) should be read in conjunction with subsection 426-40(1) of Schedule 1 which empowers the Commissioner to seek information or a document from an entity for the purpose of checking their entitlement to the relevant endorsement, and paragraph 426-55(1)(b) of Schedule 1 which provides for the Commissioner to revoke an endorsement where information has not been provided pursuant to section 426-40. In that regard, BSWA submitted that the Commissioner was bound by the 'facts' established in the information and documents obtained for the purpose of the making of the revocation decision as the Commissioner did not notify BSWA that any of the facts were rejected or disputed. | In accepting the Commissioner's submission that BSWA had not discharged its evidentiary onus, McKerracher J stated [1] by reference to the Full Court's reasoning in Bosanac v Commissioner of Taxation [2019] FCAFC 116: ... There is no warrant to read the language of s 14ZZO(b)(ii) as conferring a different form of appeal right to that contained in s 14ZZO(b)(i) as explained by the Full Court in Bosanac . The Appeal is a fresh hearing in the Court's original jurisdiction in which evidence is received according to usual procedures. Importantly, additional evidence may also be received, provided that such evidence does not address matters additional to the grounds stated in the taxation objection. | The Part IVC appeal was dismissed [2] as BSWA failed to discharge its burden under section 14ZZO because the mere tender of the materials to the Commissioner was insufficient to discharge the burden of proof. | Application for judicial review | At issue was whether the objection decision was attended by an error of law as to the ordinary meaning of 'school'. | In the objection decision, the Commissioner concluded that the Dhammaloka Buddhist Centre was not a building used as a school because: • it was not a 'school' within the ordinary usage of that word, as it was not a place with the primary function of providing regular, ongoing and systematic instruction in a course of non-recreational education, and • any school use was not substantial - other uses of the building precluded the conclusion that it had the character of a school building. | • it was not a 'school' within the ordinary usage of that word, as it was not a place with the primary function of providing regular, ongoing and systematic instruction in a course of non-recreational education, and • any school use was not substantial - other uses of the building precluded the conclusion that it had the character of a school building. | The Commissioner also relied on the following factors, as expressed in paragraph 18 of TR 2013/2, to indicate that an organisation is providing instruction as a school: • a set curriculum, instruction or training provided by suitably qualified persons • the enrolment of students • some form of assessment and correction, and • the creation of a qualification or status that is recognised outside of the organisation. | • a set curriculum, instruction or training provided by suitably qualified persons • the enrolment of students • some form of assessment and correction, and • the creation of a qualification or status that is recognised outside of the organisation. | In the Federal Court, BSWA agreed that the relevant authorities for the purpose of construing the ordinary meaning of 'school' are Cromer Golf Club Ltd v Downs (1973) 47 ALJR 219 (Cromer), Commissioner of Taxation of the Commonwealth of Australia v The Leeuwin Sail Training Foundation Ltd [1996] FCA 626 and The Commissioner of Taxation of the Commonwealth of Australia v Australian Airlines Ltd [1996] FCA 935. BSWA contested the Commissioner's interpretation of these authorities and whether various parts of TR 2013/2, which imposed additional conditions, were consistent with the ordinary meaning of school expressed in the authorities. | McKerracher J found [3] that the Commissioner had proceeded on a misunderstanding of the law as to the 'ordinary meaning' of 'school' and accordingly made an error of law in the objection decision. | In that regard, McKerracher J referred [4] to the statement of Barwick CJ in Cromer: ... that a school is 'a place where people, whether young, adolescent or adult, assemble for the purpose of being instructed in some area of knowledge or of activity' ... [A] school is 'an institution in which instruction of any kind is given'. | His Honour observed [5] that the High Court in Cromer (and subsequent cases) applied a very broad ordinary meaning 'of the term 'school' and 'have avoided any gloss on the dictionary definition' or 'superimposing additional requirements such as appear in TR 2013/2'. | His Honour also noted [6] that while 'regular, ongoing and systematic instruction' may be provided by a school, the presence of these factors is not essential to satisfy the ordinary meaning of school. Furthermore, the absence of regular, ongoing and systematic instruction does not confirm that an entity is not operating as a school. [7] | His Honour stated that the factors expressed in paragraph 18 of TR 2013/2 do not form part of the ordinary meaning of 'school'. [8] While it was appropriate for the Commissioner to have regard to those factors in applying the ordinary meaning test, they should not be taken to form part of the test themselves. While they may indicate the existence of a school, they do not form part of a test to deny that a school exists. | His Honour further observed [9] that the ordinary meaning of school does not require the course of education to be vocational as opposed to recreational. Consideration of whether a course of instruction is recreational or vocational misdirects attention to the intention and subjective state of mind of the student, rather than the instruction given at the purported school in an activity or area of knowledge. | In considering whether a building is 'used, or to be used as a school', his Honour found [10] that it is necessary to consider the overall purpose (or purposes) for which the building is established and maintained. The importance of each of the activities carried out in the building as they relate to the purpose of the building as a school must be considered. It is also important to consider any connection that non-school activities conducted in the building may have to school activities, and the extent to which both pursuits support the purpose of the building as a school. The Commissioner was therefore wrong to simply compare the total number of hours of operation the building was put to school and non-school use and then ascribe a percentage value to school activities. | The decision was remitted to the Commissioner for further consideration and determination in light of the reasons of the Federal Court decision and according to law. | His Honour rejected BSWA's contentions [11] as to the objection decision being legally unreasonable and he declined to consider [12] whether estoppel applied against the Commissioner.", "Issues_Decided": "Part IVC appeal: The Commissioner raised a threshold issue of whether the BSWA failed to discharge the burden of proof under paragraph 14ZZO(b)(ii) which provides that the appellant has the burden of proving that the taxation decision should not have been made or should have been made differently. BSWA argued that it had discharged this evidentiary burden by proving that the revocation decision was incorrect based on the facts established by the information and documents provided to the Commissioner. To this end, BSWA tendered, at the hearing, documents purporting to be those documents and information that was before the Commissioner. No one gave evidence as to the authenticity of the documents. BSWA contended that paragraph 14ZZO(b)(ii) should be read in conjunction with subsection 426-40(1) of Schedule 1 which empowers the Commissioner to seek information or a document from an entity for the purpose of checking their entitlement to the relevant endorsement, and paragraph 426-55(1)(b) of Schedule 1 which provides for the Commissioner to revoke an endorsement where information has not been provided pursuant to section 426-40. In that regard, BSWA submitted that the Commissioner was bound by the 'facts' established in the information and documents obtained for the purpose of the making of the revocation decision as the Commissioner did not notify BSWA that any of the facts were rejected or disputed. In accepting the Commissioner's submission that BSWA had not discharged its evidentiary onus, McKerracher J stated [1] by reference to the Full Court's reasoning in Bosanac v Commissioner of Taxation [2019] FCAFC 116: ... There is no warrant to read the language of s 14ZZO(b)(ii) as conferring a different form of appeal right to that contained in s 14ZZO(b)(i) as explained by the Full Court in Bosanac . The Appeal is a fresh hearing in the Court's original jurisdiction in which evidence is received according to usual procedures. Importantly, additional evidence may also be received, provided that such evidence does not address matters additional to the grounds stated in the taxation objection. The Part IVC appeal was dismissed [2] as BSWA failed to discharge its burden under section 14ZZO because the mere tender of the materials to the Commissioner was insufficient to discharge the burden of proof. | Application for judicial review: At issue was whether the objection decision was attended by an error of law as to the ordinary meaning of 'school'. In the objection decision, the Commissioner concluded that the Dhammaloka Buddhist Centre was not a building used as a school because: • it was not a 'school' within the ordinary usage of that word, as it was not a place with the primary function of providing regular, ongoing and systematic instruction in a course of non-recreational education, and • any school use was not substantial - other uses of the building precluded the conclusion that it had the character of a school building. • it was not a 'school' within the ordinary usage of that word, as it was not a place with the primary function of providing regular, ongoing and systematic instruction in a course of non-recreational education, and • any school use was not substantial - other uses of the building precluded the conclusion that it had the character of a school building. The Commissioner also relied on the following factors, as expressed in paragraph 18 of TR 2013/2, to indicate that an organisation is providing instruction as a school: • a set curriculum, instruction or training provided by suitably qualified persons • the enrolment of students • some form of assessment and correction, and • the creation of a qualification or status that is recognised outside of the organisation. • a set curriculum, instruction or training provided by suitably qualified persons • the enrolment of students • some form of assessment and correction, and • the creation of a qualification or status that is recognised outside of the organisation. In the Federal Court, BSWA agreed that the relevant authorities for the purpose of construing the ordinary meaning of 'school' are Cromer Golf Club Ltd v Downs (1973) 47 ALJR 219 (Cromer), Commissioner of Taxation of the Commonwealth of Australia v The Leeuwin Sail Training Foundation Ltd [1996] FCA 626 and The Commissioner of Taxation of the Commonwealth of Australia v Australian Airlines Ltd [1996] FCA 935. BSWA contested the Commissioner's interpretation of these authorities and whether various parts of TR 2013/2, which imposed additional conditions, were consistent with the ordinary meaning of school expressed in the authorities. McKerracher J found [3] that the Commissioner had proceeded on a misunderstanding of the law as to the 'ordinary meaning' of 'school' and accordingly made an error of law in the objection decision. In that regard, McKerracher J referred [4] to the statement of Barwick CJ in Cromer: ... that a school is 'a place where people, whether young, adolescent or adult, assemble for the purpose of being instructed in some area of knowledge or of activity' ... [A] school is 'an institution in which instruction of any kind is given'. His Honour observed [5] that the High Court in Cromer (and subsequent cases) applied a very broad ordinary meaning 'of the term 'school' and 'have avoided any gloss on the dictionary definition' or 'superimposing additional requirements such as appear in TR 2013/2'. His Honour also noted [6] that while 'regular, ongoing and systematic instruction' may be provided by a school, the presence of these factors is not essential to satisfy the ordinary meaning of school. Furthermore, the absence of regular, ongoing and systematic instruction does not confirm that an entity is not operating as a school. [7] His Honour stated that the factors expressed in paragraph 18 of TR 2013/2 do not form part of the ordinary meaning of 'school'. [8] While it was appropriate for the Commissioner to have regard to those factors in applying the ordinary meaning test, they should not be taken to form part of the test themselves. While they may indicate the existence of a school, they do not form part of a test to deny that a school exists. His Honour further observed [9] that the ordinary meaning of school does not require the course of education to be vocational as opposed to recreational. Consideration of whether a course of instruction is recreational or vocational misdirects attention to the intention and subjective state of mind of the student, rather than the instruction given at the purported school in an activity or area of knowledge. In considering whether a building is 'used, or to be used as a school', his Honour found [10] that it is necessary to consider the overall purpose (or purposes) for which the building is established and maintained. The importance of each of the activities carried out in the building as they relate to the purpose of the building as a school must be considered. It is also important to consider any connection that non-school activities conducted in the building may have to school activities, and the extent to which both pursuits support the purpose of the building as a school. The Commissioner was therefore wrong to simply compare the total number of hours of operation the building was put to school and non-school use and then ascribe a percentage value to school activities. The decision was remitted to the Commissioner for further consideration and determination in light of the reasons of the Federal Court decision and according to law. His Honour rejected BSWA's contentions [11] as to the objection decision being legally unreasonable and he declined to consider [12] whether estoppel applied against the Commissioner.", "ATO_View_of_Decision": "Following the Federal Court decision, the Commissioner accepts that the views expressed in TR 2013/2 do not reflect the ordinary meaning of the term 'school'. | The Commissioner agrees with His Honour's views that the ordinary meaning of school does not require a course of education to be 'vocational as opposed to recreational'. Therefore, the focus will be the activities carried out to determine if instruction is being given in an activity or area of knowledge. | In determining whether a building is 'used, or to be used as a school', the Commissioner will give consideration to the overall purpose (or purposes) for which the building was 'established and maintained' and the activities which support its purpose. Where the 'activities' include a mixture of school and non-school activities, the Commissioner will have regard to the connection of the activities and the extent to which both activities contribute to the purpose (or purposes) for which the building was 'established and maintained'.", "Administrative_Treatment": "The Commissioner will review and update TR 2013/2 and relevant website guidance to reflect the decision of the Federal Court. The Commissioner will give consideration of Cromer to future applications and relevant applications that have been refused. Requests for review of previous decisions should be directed by email to ATOEndorsements@ato.gov.au", "Related_Documents": "TR 2013/2 | 2021 ATC 20-804 | 5 | 30-BA | 30-25(1) | 14ZZO | 14ZZO(b)(ii) | 426-40 of Schedule 1 | 426-40(1) of Schedule 1 | 426-55(1)(b) of Schedule 1 | Part IVC | [2019] FCAFC 116 | 96 ATC 5187 | 96 ATC 4721 | (1973) 47 ALJR 219", "Legislative_References": "ADJR 1977 5 ITAA 1997 30-BA 30-25(1) TAA 1953 14ZZO 14ZZO(b)(ii) 426-40 of Schedule 1 426-40(1) of Schedule 1 426-55(1)(b) of Schedule 1 Part IVC", "Case_References": "Bosanac v Commissioner of Taxation [2019] FCAFC 116 267 FCR 169 The Commissioner of Taxation of the Commonwealth of Australia v Australian Airlines Ltd [1996] FCA 935 71 FCR 446 96 ATC 5187 34 ATR 310 Commissioner of Taxation of the Commonwealth of Australia v The Leeuwin Sail Training Foundation Ltd [1996] FCA 626 68 FCR 197 96 ATC 4721 33 ATR 241 Cromer Golf Club Ltd v Downs (1973) 47 ALJR 219 [1972-73] ALR 1295", "Subject_References": "", "Other_References": "TR 2013/2", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD118of2020/00001", "Unmatched_Content": "Footnotes: [1] The Buddhist Society of Western Australia Inc v Commissioner of Taxation ( No 2 ) [2021] FCA 1363 ( BSWA ) at [47]."}
{"Case_Name": "VNBM and Commissioner of Taxation", "Venue_Reference_No": "2020/7690", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "7 June 2021", "Date_Published": "3 August 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns the application of the 'integrity rule' under paragraph 5(1)(g) and the 'payment and withholding requirement' under subparagraph 5(1)(a)(i) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 (BCF Act), which denies an entity the cash flow boost (CFB) where those requirements (among others) have not been satisfied.", "Overview_of_Facts": "To be entitled to the first CFB, an entity needs to satisfy the requirements outlined in section 5 of the BCF Act. Relevant to the matter before the Administrative Appeals Tribunal (Tribunal), two of those requirements are: • the entity makes a payment in the relevant period and must withhold an amount from the payment under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the Taxation Administration Act 1953, and • neither the entity nor any associate or agent of the entity entered into or carried out a scheme or part of a scheme for the sole or dominant purpose of gaining entitlement to, or increasing the amount of, the CFB to which the entity is entitled. | • the entity makes a payment in the relevant period and must withhold an amount from the payment under Subdivisions 12-B, 12-C or 12-D in Schedule 1 to the Taxation Administration Act 1953, and • neither the entity nor any associate or agent of the entity entered into or carried out a scheme or part of a scheme for the sole or dominant purpose of gaining entitlement to, or increasing the amount of, the CFB to which the entity is entitled. | Section 6 of the BCF Act contains the requirements an entity must satisfy to receive the second CFB, which similarly requires that an entity must not have entered into or carried out a scheme. | The Applicant provides services to an accounting firm. Its director is a registered tax agent and chartered accountant. The Applicant did not have its own bank account, but rather the business income it received was deposited into the joint personal bank account of the Director and the Director's spouse. | For over five years, the Applicant consistently reported wages of $1,300 per quarter to the Director, as well as much larger amounts as dividends paid to a discretionary trust, of which the Director was a beneficiary. | Following the announcement of the CFB on 12 March 2020, the Applicant reported a wage of $108,700 to the Director in its business activity statement for the March 2020 quarter. This amount purportedly comprised of 12 weekly payments of $100 and one weekly payment of $107,500. The corresponding withholding amount reported by the Applicant for this quarter was $50,009. The Applicant argued that the change in the pattern of wages was for the purpose of enhancing the Director's ability to refinance and consolidate certain loans. The higher wages would have increased the Applicant's CFB eligibility from the minimum ($10,000) to the maximum ($50,000) amount of CFB for the first boost. | The Commissioner determined the Applicant was not entitled to the CFB and the Applicant objected to that decision under Part IVC of the Taxation Administration Act 1953. The Applicant's objection was disallowed on the basis that it had entered into a scheme or part of a scheme for the sole or dominant purpose of increasing the amount of the CFB to which it is entitled. In the alternative, it was ineligible to the CFB as it did not establish it met the 'payment and withholding' requirement. | Issues decided by the Tribunal | The Tribunal considered two separate issues: • whether the Applicant, or its associate or agent, entered into a scheme for the sole or dominant purpose of increasing its entitlement to the CFB (the 'scheme issue'), and • whether the Applicant paid wages subject to withholding to the Director in the relevant period (the 'payment issue'). | • whether the Applicant, or its associate or agent, entered into a scheme for the sole or dominant purpose of increasing its entitlement to the CFB (the 'scheme issue'), and • whether the Applicant paid wages subject to withholding to the Director in the relevant period (the 'payment issue'). | Scheme issue | In determining this issue, the Tribunal considered the similarities and differences between paragraph 5(1)(g) of the BCF Act, Part IVA of the Income Tax Assessment Act 1936 and Division 165 of the A New Tax System (Goods and Services Tax) Act 1999. | The Tribunal considered that in applying the integrity rule, evidence as to actual (subjective) intention is relevant in inquiring whether the entity, or any associate or agent of the entity, entered into or carried out a scheme for the sole or dominant purpose of making the entity entitled to the CFB or increasing its entitlement. Objective circumstances, such as timing and other surrounding circumstances, are also highly relevant and may assist in determining purpose. | The Applicant's evidence included that the Director was advised over the phone by one of his lenders that his and his wife's capacity to service a loan would be enhanced if he were paid a higher level of wages, in the order of $100,000. The Director also stated that he was told wages were looked upon more favourably for loan-serviceability purposes than dividends. The Applicant provided an email from one of the lender's employees which did not support the advice purportedly received over the phone. | The Tribunal concluded that the Director did enter into a scheme and did not accept that the evidence the Director relied on provided a reasonable or credible explanation for the change. | Payment issue | The Tribunal held that there was a lack of contemporaneous evidence showing that the Applicant paid the amount of wages reported in the relevant period. The Applicant relied on its business activity statement and the Director's personal tax returns as evidence of payment. However, the Tribunal concluded at [77] that it did not regard the inclusion of wages in these reporting documents as '... strong evidence of what actually occurred'. | The Tribunal concluded that the Applicant's assertions and evidence were not sufficient to discharge its burden of proving that the increased amount of wages was paid.", "Issues_Decided": "The Tribunal considered two separate issues: • whether the Applicant, or its associate or agent, entered into a scheme for the sole or dominant purpose of increasing its entitlement to the CFB (the 'scheme issue'), and • whether the Applicant paid wages subject to withholding to the Director in the relevant period (the 'payment issue'). • whether the Applicant, or its associate or agent, entered into a scheme for the sole or dominant purpose of increasing its entitlement to the CFB (the 'scheme issue'), and • whether the Applicant paid wages subject to withholding to the Director in the relevant period (the 'payment issue'). | Scheme issue: In determining this issue, the Tribunal considered the similarities and differences between paragraph 5(1)(g) of the BCF Act, Part IVA of the Income Tax Assessment Act 1936 and Division 165 of the A New Tax System (Goods and Services Tax) Act 1999. The Tribunal considered that in applying the integrity rule, evidence as to actual (subjective) intention is relevant in inquiring whether the entity, or any associate or agent of the entity, entered into or carried out a scheme for the sole or dominant purpose of making the entity entitled to the CFB or increasing its entitlement. Objective circumstances, such as timing and other surrounding circumstances, are also highly relevant and may assist in determining purpose. The Applicant's evidence included that the Director was advised over the phone by one of his lenders that his and his wife's capacity to service a loan would be enhanced if he were paid a higher level of wages, in the order of $100,000. The Director also stated that he was told wages were looked upon more favourably for loan-serviceability purposes than dividends. The Applicant provided an email from one of the lender's employees which did not support the advice purportedly received over the phone. The Tribunal concluded that the Director did enter into a scheme and did not accept that the evidence the Director relied on provided a reasonable or credible explanation for the change. | Payment issue: The Tribunal held that there was a lack of contemporaneous evidence showing that the Applicant paid the amount of wages reported in the relevant period. The Applicant relied on its business activity statement and the Director's personal tax returns as evidence of payment. However, the Tribunal concluded at [77] that it did not regard the inclusion of wages in these reporting documents as '... strong evidence of what actually occurred'. The Tribunal concluded that the Applicant's assertions and evidence were not sufficient to discharge its burden of proving that the increased amount of wages was paid.", "ATO_View_of_Decision": "This decision accords with the Commissioner's interpretation and application of the integrity rule in paragraph 5(1)(g) of the BCF Act. | The Commissioner notes the Tribunal's view that the definition of 'scheme' is very broad and the scope of paragraph 5(1)(g) of the BCF Act is further expanded by the inclusion of the phrase 'or part of a scheme'. | The Tribunal's decision confirms the importance of considering all of the surrounding circumstances (including objective factors) when determining whether the requisite 'sole or dominant purpose' has been satisfied, rather than merely having regard to an applicant's stated intention. | The Tribunal's decision also confirms that where an entity does not satisfy the integrity rule, it is not entitled to any CFB and there is no ability to allow a lower amount of CFB on the basis of what would have been payable had the scheme not been entered into. | The Tribunal's decision regarding the 'payment issue' accords with the Commissioner's interpretation and application of the 'payment and withholding requirement' in subparagraph 5(1)(a)(i) of the BCF Act. The Applicant must discharge its burden of proving that wages were paid in the relevant period. | The Commissioner notes that the Tribunal's focus on contemporaneous documentary evidence and the need for the Applicant to prove that a wage was actually paid. Self-serving statements and assertions not supported by documentary evidence are open to being scrutinised. | The Commissioner will continue to review entities whose eligibility for CFB was impacted by significant changes in their reporting of withholding amounts and will closely monitor and examine claims that do not appear to reflect the true nature of transactions or events. Entities who engaged in contrived arrangements should expect to be reviewed. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).", "Administrative_Treatment": "", "Related_Documents": "None | 2021 ATC 10-575 | Div 165 | 5 | 5(1)(a)(i) | 5(1)(g) | Pt IVA | Pt IVC | Sch 1 Subdiv 12-B | Sch 1 Subdiv 12-C | Sch 1 Subdiv 12-D", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 Div 165 Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 5 5(1)(a)(i) 5(1)(g) Income Tax Assessment Act 1936 Pt IVA Taxation Administration Act 1953 Pt IVC Sch 1 Subdiv 12-B Sch 1 Subdiv 12-C Sch 1 Subdiv 12-D", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2020/7690/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "WYPF and Commissioner of Taxation", "Venue_Reference_No": "2020/3713-3714", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "25 August 2021", "Date_Published": "21 October 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which considers whether building works are consideration for the acquisition of land under subsection 75-10(2) of the A New Tax System (Goods and Services Tax) Act 1999. [1] This case also considers the operation of section 142-10.", "Overview_of_Facts": "A developer (the taxpayer) and an Australian Capital Territory (ACT) government entity (the government entity) entered into a development lease arrangement, requiring the taxpayer to complete preparatory works before the ACT would supply the land to the taxpayer. The supply of the land was by way of the grant of several long-term Crown leases (consequent leases). The consequent leases were conditional on certain building works being completed, including construction of residential apartments, on the land within 48 months. The taxpayer risked forfeiture of the consequent leases if they failed to complete the building works. | On completion of the building works, the taxpayer sold the residential apartments and applied the margin scheme under subsection 75-10(2). The goods and services tax (GST) payable is 1/11th of the 'margin' between the consideration for the taxable supply of the apartment and the consideration for the acquisition of the related land. To the extent the taxpayer provided non-monetary consideration for acquisition of the land, this would reduce the margin and the GST payable on its taxable supplies of the apartments. | It was common ground that the monetary payment and the preparatory works were consideration for acquisition of the land. The taxpayer, however, contended that the building works were also non-monetary consideration for the land. | The performance of preparatory works was a taxable supply by the taxpayer to the government entity. The taxpayer issued an invoice requesting payment of the GST amount for that taxable supply. The government entity was not contractually liable to pay that amount, and it was unpaid at the time of the hearing. | Part way through the period in which the taxpayer set prices for its apartment sales, the taxpayer received private rulings confirming that the preparatory works were non-monetary consideration for the acquisition of land. The taxpayer remitted GST on taxable supplies of apartments without taking the preparatory works into account. This means there was excess GST included in the relevant net amounts under section 142-10. | Issues decided by the Tribunal | The following issues were before the Tribunal: • whether the building works were consideration for acquisition of the land by the taxpayer under subsection 75-10(2) • whether the GST amount in the outstanding invoice issued for the preparatory works affects the consideration for acquisition of the land • whether the taxpayer passed on the excess GST to purchasers of the apartments under section 142-10, and • if the taxpayer did pass on excess GST, did section 142-15 apply so that section 142-10 should be treated as never having applied? | • whether the building works were consideration for acquisition of the land by the taxpayer under subsection 75-10(2) • whether the GST amount in the outstanding invoice issued for the preparatory works affects the consideration for acquisition of the land • whether the taxpayer passed on the excess GST to purchasers of the apartments under section 142-10, and • if the taxpayer did pass on excess GST, did section 142-15 apply so that section 142-10 should be treated as never having applied? | Building works issue | The Tribunal held at [45-46] that the building works were not consideration for the taxpayer's acquisition of the land. There was no sufficient nexus between the building works and acquisition of the land by way of the consequent leases. While undertaking the building works was a condition of the consequent leases, the Tribunal held at [37] that it was not a condition of the grant of the consequent leases. | The Tribunal held at [32-35] that the requirement to undertake the building works was not part of a 'single, integrated and indivisible' transaction, as described by the High Court in Commissioner of State Revenue v Lend Lease Development Pty Ltd [2014] HCA 51 (Lend Lease) at [62]. | The Tribunal at [44] concluded that although construction of the apartments may be consistent with the statutory objectives of the government agency, it did not follow that the building works were a supply made by the taxpayer or consideration for acquisition of the land. The Tribunal also held at [48] that the building works were not carried out to obtain the consequent leases, but for the taxpayer's own business objectives reflecting the commercial and practical reality of the development. | Invoice issue | The Tribunal held at [54] that there was no current basis for the GST amount in the unpaid invoice to reduce the value of the preparatory works as non-monetary consideration for the land. The Tribunal also observed at [53] that, if the GST amount was paid, it would probably trigger an adjustment event for that supply. However, it would not change the value of the preparatory works as consideration for the land. | Passing on issue | The Tribunal held at [76] that the taxpayer had not passed on the excess GST relating to the taxable supples of the apartments. The Tribunal accepted that the taxpayer had remitted the excess GST despite knowing it was not payable. The Tribunal concluded that the taxpayer set its prices in a market, where other developers were taking into account the value of the preparatory works and remitting the correct lower amount of GST (at [75]). | Section 142-15 | Having decided the building works and passing on issues, the section 142-15 issue did not need to be decided. However, the Tribunal made some observations about whether or not section 142-15 confers a discretion at [86].", "Issues_Decided": "The following issues were before the Tribunal: • whether the building works were consideration for acquisition of the land by the taxpayer under subsection 75-10(2) • whether the GST amount in the outstanding invoice issued for the preparatory works affects the consideration for acquisition of the land • whether the taxpayer passed on the excess GST to purchasers of the apartments under section 142-10, and • if the taxpayer did pass on excess GST, did section 142-15 apply so that section 142-10 should be treated as never having applied? • whether the building works were consideration for acquisition of the land by the taxpayer under subsection 75-10(2) • whether the GST amount in the outstanding invoice issued for the preparatory works affects the consideration for acquisition of the land • whether the taxpayer passed on the excess GST to purchasers of the apartments under section 142-10, and • if the taxpayer did pass on excess GST, did section 142-15 apply so that section 142-10 should be treated as never having applied? | Building works issue: The Tribunal held at [45-46] that the building works were not consideration for the taxpayer's acquisition of the land. There was no sufficient nexus between the building works and acquisition of the land by way of the consequent leases. While undertaking the building works was a condition of the consequent leases, the Tribunal held at [37] that it was not a condition of the grant of the consequent leases. The Tribunal held at [32-35] that the requirement to undertake the building works was not part of a 'single, integrated and indivisible' transaction, as described by the High Court in Commissioner of State Revenue v Lend Lease Development Pty Ltd [2014] HCA 51 (Lend Lease) at [62]. The Tribunal at [44] concluded that although construction of the apartments may be consistent with the statutory objectives of the government agency, it did not follow that the building works were a supply made by the taxpayer or consideration for acquisition of the land. The Tribunal also held at [48] that the building works were not carried out to obtain the consequent leases, but for the taxpayer's own business objectives reflecting the commercial and practical reality of the development. | Invoice issue: The Tribunal held at [54] that there was no current basis for the GST amount in the unpaid invoice to reduce the value of the preparatory works as non-monetary consideration for the land. The Tribunal also observed at [53] that, if the GST amount was paid, it would probably trigger an adjustment event for that supply. However, it would not change the value of the preparatory works as consideration for the land. | Passing on issue: The Tribunal held at [76] that the taxpayer had not passed on the excess GST relating to the taxable supples of the apartments. The Tribunal accepted that the taxpayer had remitted the excess GST despite knowing it was not payable. The Tribunal concluded that the taxpayer set its prices in a market, where other developers were taking into account the value of the preparatory works and remitting the correct lower amount of GST (at [75]). | Section 142-15: Having decided the building works and passing on issues, the section 142-15 issue did not need to be decided. However, the Tribunal made some observations about whether or not section 142-15 confers a discretion at [86].", "ATO_View_of_Decision": "Building works | The Tribunal's decision confirms the Commissioner's view that satisfying the building works requirements in an ACT long-term Crown lease is not consideration for the supply of the land by way of that long-term Crown lease. | The Tribunal's conclusions at [44] and [48] are consistent with the Commissioner's view, at paragraph 7 of Goods and Services Tax Determination GSTD 2021/1 Goods and services tax: development works in the Australian Capital Territory, that building works requirements in ACT long-term Crown leases do not provide the government entity with something of measurable economic value and are not non-monetary consideration for supply of the land. | The Commissioner accepts that whether a particular development lease arrangement is a 'single, integrated and indivisible' transaction consistent with Lend Lease is a relevant factor in determining if a particular payment, act or forbearance satisfies nexus requirements and is consideration for an acquisition (or supply). | The Tribunal observed at [31] that in Lend Lease it was held that '... all of the various payments, development works and other undertakings, moved the conveyance of the development land to Lend Lease'. The Commissioner does not consider that Lend Lease supports the proposition that all of a developer's obligations in such an arrangement are consideration for the land for GST purposes. | In Lend Lease, the dispute was not about whether certain obligations were payments, as both parties agreed that the payments had been made by Lend Lease. [2] The High Court was only asked to consider if the agreed payments had the required nexus to transfer of the land. In particular, the High Court did not conclude that Lend Lease's primary obligation in the arrangement - to perform building works on Lend Lease's own land - was consideration for that land. [3] | Invoice issue | The Commissioner accepts that, where a government entity has no contractual liability to pay an additional amount under a development lease arrangement, that unpaid amount does not affect the market value of the development services that are consideration for the acquisition of the land. | The Tribunal's observations about the potential GST implications if the unpaid amount were paid refers to a future hypothetical situation. The Commissioner would consider the particular facts and circumstances determine the GST implications, if this issue properly arises in the future. | Passing on issue | The Commissioner considers that, once the Tribunal made certain findings of fact about how the taxpayer and the broader market factored GST into their pricing at [70-71] and [74], it was then open for the Tribunal to conclude that in the 'particular circumstances' this was one of the 'rare instances' where the taxpayer had not passed on the excess GST (at [74]). | The Commissioner takes the view in Goods and Services Tax Ruling GSTR 2015/1 Goods and services tax: the meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 that whether excess GST has been passed on is a question of fact and must be determined on a case-by-case basis, taking into account the particular circumstances of each case. The Tribunal's findings in this matter reflect this approach and do not warrant any change to the Commissioner's view as set out in GSTR 2015/1. This includes the Commissioner's view that many observations made about passing on in sales tax situations, such as Avon Products Pty Limited v Commissioner of Taxation [2006] HCA 29, are equally relevant in considering whether excess GST has been passed on. | Section 142-15 | As the Tribunal did not make a decision on the operation of section 142-15, the Commissioner's view, consistent with paragraphs 20 and 21 of GSTR 2015/1, is that section 142-15 confers a discretion.", "Administrative_Treatment": "The decision in relation to building works is consistent with the ATO views expressed in Goods and Services Tax Ruling GSTR 2015/2 Goods and services tax: development lease arrangements with government agencies and GSTD 2021/1 and no changes are required.", "Related_Documents": "GSTR 2015/1 | GSTR 2015/2 | GSTD 2021/1 | 2021 ATC 10-587 | 75-10(2) | 142-10 | 142-15", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 75-10(2) 142-10 142-15", "Case_References": "Avon Products Pty Limited v Commissioner of Taxation [2006] HCA 29 230 CLR 356 80 ALJR 1161 Commissioner of State Revenue v Lend Lease Development Pty Ltd [2014] HCA 51 Lend Lease Development Pty Ltd v Commissioner of State Revenue [2013] VSCA 207", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2020/3713-3714/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | Footnotes: [1] All legislative references in this Decision impact statement are to the A New Tax System (Goods and Services Tax) Act 1999 . | [2] Being all the monetary payments made by Lend Lease under the arrangement and Lend Lease's undertakings to complete works (Lend Lease at [76]) on Victorian Urban Development Authority land (non-monetary consideration) (Lend Lease Development Pty Ltd v Commissioner of State Revenue [2013] VSCA 207 at [100], [165] and [185]). | [3] Lend Lease at [9] and Lend Lease Development Pty Ltd v Commissioner of State Revenue [2013] VSCA 207 at [14]. It was only the monetary payment by Lend Lease to the Victorian Urban Development Authority of a share of gross revenue on the sale of those buildings that was held to be consideration for the land; refer Lend Lease at [9], [17], [24], and [35]."}
{"Case_Name": "Burton v Commissioner of Taxation", "Venue_Reference_No": "WAD 600 of 2018 (Full Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "", "Date_Published": "24 July 2020", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns entitlement to foreign income tax offsets (FITOs) under subsection 770-10(1) of the Income Tax Assessment Act 1997 [1] where an Australian resident pays tax in the United States of America (US) on a capital gain that is only partly assessable in Australia.", "Overview_of_Facts": "The taxpayer was an Australian resident for income tax purposes. As the beneficiary of a trust estate, section 115-215 treated him as a taxpayer who had derived capital gains and those gains were eligible for discount. | The taxpayer paid the income tax assessed by the US on the whole of those gains, but at a discounted rate compared to that payable on ordinary income subject to US income tax. | Pursuant to the ITAA 1997, only part of the US capital gains was included in his Australian assessable income. This was because in one of the relevant years of income he had unrecouped capital losses which, pursuant to the method statement contained in subsection 102-5(1), reduced his assessable capital gain by the amount of those losses. His US capital gains were also further reduced, pursuant to that subsection, by the 50% discount applicable to capital gains resulting from the disposal of assets held for more than 12 months. | The taxpayer claimed FITOs in his Australian tax returns in respect of the US-sourced gains that were equal to the whole of the assessed US income tax that he had paid. The Commissioner issued amended income tax assessments to the taxpayer that reduced those FITOs to amounts equal to the US income tax paid in respect of the amount of the gains which were included in the taxpayer's assessable income in Australia. This is consistent with the Commissioner's view as expressed in ATO Interpretative Decision ATO ID 2010/175 Foreign income tax offset: entitlement where foreign capital gain is only partly assessable in Australia. | The taxpayer's objections to these amended assessments were disallowed. An appeal to the Federal Court (McKerracher J) against that decision was dismissed. A further appeal to the Full Federal Court (Logan, Steward and Jackson JJ) was also dismissed (by a majority - Logan J dissenting). A subsequent application to the High Court of Australia for special leave to appeal the Full Federal Court's decision was refused. | Issues decided by the Court | Per Steward, Jackson J agreeing, Logan J dissenting - the reference in Article 22(2) of the tax treaty between the Australia and the US [2] to 'the income' (that is, in respect of which Australian tax was payable by an Australian resident on income derived from sources in the US') should be read as a concept independent of, but not divorced from, the domestic income tax regimes of each sovereign power. There was no reason to read that expression, as contended by the taxpayer, as referring to one indivisible gain that was the subject matter against which the competing States sought to impose tax. Because the purpose of Article 22(2) was the allowance by Australia of a credit against tax payable, the starting point was the identification of what Australia taxed. Due to the operation of subsection 102-5(1), Australia did not tax all of the gain; it taxed 50% of it (or less if capital losses were offset). That was 'the income' for the purposes of Article 22(2), in respect of which Australian tax was payable. For that reason only half (or less if capital losses were offset) of the US tax paid could be said to be in respect of income taxed in Australia | Per the whole Court - the reference in subsection 770-10(1) to foreign tax paid 'in respect of ... an amount included in your assessable income' was a reference only to the proportion of the foreign tax paid on the net capital gain that was included in assessable income, as determined by subsection 102-5(1). | Per Steward, Jackson J agreeing, Logan J dissenting - even if the Court were to accept the taxpayer's interpretation of Article 22(2), but not his interpretation of subsection 770-10(1), Article 22(2) did not, of its own force, oblige the Commissioner to allow a credit but instead only imposed an obligation on the Commonwealth of Australia as a sovereign state to enact suitable legislation to give effect to the Article. In addition, there was no legislative mechanism, despite the existence of sections 4, 5, and 16 of the International Tax Agreements Act 1953 and section 4-10 of the ITAA 1997, by which such a credit could be allowed.", "Issues_Decided": "Per Steward, Jackson J agreeing, Logan J dissenting - the reference in Article 22(2) of the tax treaty between the Australia and the US [2] to 'the income' (that is, in respect of which Australian tax was payable by an Australian resident on income derived from sources in the US') should be read as a concept independent of, but not divorced from, the domestic income tax regimes of each sovereign power. There was no reason to read that expression, as contended by the taxpayer, as referring to one indivisible gain that was the subject matter against which the competing States sought to impose tax. Because the purpose of Article 22(2) was the allowance by Australia of a credit against tax payable, the starting point was the identification of what Australia taxed. Due to the operation of subsection 102-5(1), Australia did not tax all of the gain; it taxed 50% of it (or less if capital losses were offset). That was 'the income' for the purposes of Article 22(2), in respect of which Australian tax was payable. For that reason only half (or less if capital losses were offset) of the US tax paid could be said to be in respect of income taxed in Australia Per the whole Court - the reference in subsection 770-10(1) to foreign tax paid 'in respect of ... an amount included in your assessable income' was a reference only to the proportion of the foreign tax paid on the net capital gain that was included in assessable income, as determined by subsection 102-5(1). Per Steward, Jackson J agreeing, Logan J dissenting - even if the Court were to accept the taxpayer's interpretation of Article 22(2), but not his interpretation of subsection 770-10(1), Article 22(2) did not, of its own force, oblige the Commissioner to allow a credit but instead only imposed an obligation on the Commonwealth of Australia as a sovereign state to enact suitable legislation to give effect to the Article. In addition, there was no legislative mechanism, despite the existence of sections 4, 5, and 16 of the International Tax Agreements Act 1953 and section 4-10 of the ITAA 1997, by which such a credit could be allowed.", "ATO_View_of_Decision": "The decision of the majority of the Full Federal Court reflects the Commissioner's view of the law and has no impact for the ATO. | The Court's interpretation of subsection 770-10(1) confirms the correctness of the Commissioner's view expressed in ATO ID 2010/175 - that is, that where a resident of Australia pays foreign income tax on the whole of a foreign capital gain which is only partly assessable in Australia, only a proportionate share of the foreign income tax counts towards the foreign income tax offset under subsection 770-10(1). | It also reflects the Commissioner's view that subsection 770-10(1) is not inconsistent with Article 22(2) of the Treaty and that in any event Article 22(2) does not directly, of its own force, create an entitlement for a taxpayer to a credit for foreign income tax paid.", "Administrative_Treatment": "The decision confirms the correctness of the Commissioner's view expressed in ATO ID 2010/175. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1997 unless otherwise indicated. | [2] Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income 1983 ATS 16 (the Treaty).", "Related_Documents": "None | 2019 ATC 20-709 | 4-10 | 102-5(1) | 115-215 | 770-10(1) | 4 | 5 | 16 | [2012] HCA 56 | 248 CLR 378 | 293 ALR 412 | 2015 ATC 20-535 | 97 ATC 4752 | 2009 ATC 20-095 | (1998) 40 ATR 512 | 2012 ATC 20-322 | 2003 ATC 4770 | 2005 ATC 4398 | 100 CLR 537 | [1998] HCA 28 | 194 CLR 355 | 153 ALR 490 | 2018 ATC 20-671 | [2005] HCA 58 | 221 ALR 448 | 90 ATC 4717 | [2007] FCA 1961 | ATO ID 2010/175", "Legislative_References": "Income Tax Assessment Act 1997 4-10 102-5(1) 115-215 770-10(1) International Tax Agreements Act 1953 4 5 16 Taxation Laws Amendment (Foreign Tax Credits) Act 1986 The Act", "Case_References": "Anson v Commissioners for Her Majesty's Revenue and Customs [2015] UKSC 44 Carr v The State of Western Australia [2007] HCA 47 232 CLR 288 82 ALJR 1 239 ALR 415 Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross [2012] HCA 56 248 CLR 378 87 ALJR 131 293 ALR 412 Chevron Australia Holdings Pty Ltd v Federal Commissioner of Taxation (No 4) [2015] FCA 1092 102 ATR 13 2015 ATC 20-535 Commissioner of Inland Revenue v Lin [2018] NZCA 38 Commissioner of Taxation v Lamesa Holdings BV [1997] FCA 7 77 FCR 597 36 ATR 589 97 ATC 4752 ConnectEast Management Ltd v Commissioner of Taxation [2009] FCAFC 22 175 FCR 110 75 ATR 101 2009 ATC 20-095 Duckering (Inspector of Taxes) v Gollan [1965] 2 All ER 115 Esso Australia Resources Ltd v The Commissioner of Taxation of the Commonwealth of Australia [1998] FCA 1655 83 FCR 511 (1998) 40 ATR 512 Commissioner of Taxation v Greenhatch [2012] FCAFC 84 203 FCR 134 2012 ATC 20-322 88 ATR 560 Prebble v Commissioner of Taxation [2003] FCAFC 165 131 FCR 130 53 ATR 513 2003 ATC 4770 McDermott Industries (Aust) Pty Ltd v Commissioner of Taxation [2005] FCAFC 67 142 FCR 134 2005 ATC 4398 59 ATR 358 Mutual Life & Citizen's Assurance Co Ltd v Commissioner of Taxation (Cth) [1959] HCA 21 100 CLR 537 33 ALJR 54 [1959] ALR 733 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28 194 CLR 355 72 ALJR 312 153 ALR 490 Satyam Computer Services Ltd v Commissioner of Taxation [2018] FCAFC 172 266 FCR 502 2018 ATC 20-671 (2018) 108 ATR 822 Stevens v Kabushiki Kaisha Sony Computer Entertainment [2005] HCA 58 224 CLR 193 79 ALJR 1850 221 ALR 448 Thiel v Commissioner of Taxation [1990] HCA 37 171 CLR 338 21 ATR 531 90 ATC 4717 Woodside Energy Ltd (ABN 63 005 482 986) v Commissioner of Taxation (No.2) [2007] FCA 1961 69 ATR 465", "Subject_References": "", "Other_References": "Convention Between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income 1983 ATS 16 , Article 22(2) Vienna Convention on the Law of Treaties [1974] ATS 2 , Art 31 ATO ID 2010/175", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD600of2018/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products."}
{"Case_Name": "Commissioner of Taxation v Bogiatto", "Venue_Reference_No": "NSD 1839 of 2018", "Venue": "Federal Court of Australia", "Judgment_Date": "7 August 2020", "Date_Published": "4 February 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case where the Federal Court found that persons/entities had engaged in conduct that resulted in them and others being promoters of tax exploitation schemes.", "Overview_of_Facts": "Mr Bogiatto was a chartered accountant who promoted himself to prospective clients as a specialist in the Research and Development Tax Incentive (R&D Tax Incentive). Mr Bogiatto represented that he would assist them to obtain tax offsets under the R&D Tax Incentive for a percentage of any offset the client might obtain. | Mr Bogiatto assisted multiple clients by arranging for AusIndustry registration, and would provide each client with an R&D Tax Incentive Schedule containing figures that he advised the client to incorporate in their income tax return or in an amended income tax return. | Clients who acted on Mr Bogiatto's advice received substantial refunds from the ATO upon lodgment of their income tax return. | The Commissioner applied to the Court for orders that Mr Bogiatto and his associated companies (collectively 'the Respondents') had contravened the promoter penalty laws, and sought the imposition of civil penalties. The Commissioner pleaded separate contraventions by the Respondents for schemes promoted to 14 different clients (the Participants), alleging that the Respondents promoted to each Participant the availability of refundable R&D tax offsets where in fact those claims were not reasonably arguable. | Issues decided by the Court | The Court (Thawley J) found that for 13 of the 14 Participants, the Respondents contravened the promoter penalty laws as they had engaged in conduct that had resulted in them or others being promoters of tax exploitation schemes (see subsection 290-50(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)). | Thawley J reserved his decision, on the amount of penalty to be imposed, for further submissions. | Thawley J made several interpretative findings about the promoter penalty laws in the course of the judgment. Thawley J held that: • an entity can be a promoter, as defined in section 290-60 of the TAA, of a tax exploitation scheme by receiving consideration that results in other entities being promoters of that scheme (at [75-78]), and • the Commissioner was out of time to commence action for two cases where the scheme had not been implemented by the Participants, and the last acts of alleged promotion happened more than four years before the date of application. Contrary to the Commissioner's submissions, the unlimited period for the Commissioner to commence proceedings for a 'scheme involving tax evasion' could not apply to a scheme that was not implemented, as without implementation there could be no tax evaded (at [79-82]). | • an entity can be a promoter, as defined in section 290-60 of the TAA, of a tax exploitation scheme by receiving consideration that results in other entities being promoters of that scheme (at [75-78]), and • the Commissioner was out of time to commence action for two cases where the scheme had not been implemented by the Participants, and the last acts of alleged promotion happened more than four years before the date of application. Contrary to the Commissioner's submissions, the unlimited period for the Commissioner to commence proceedings for a 'scheme involving tax evasion' could not apply to a scheme that was not implemented, as without implementation there could be no tax evaded (at [79-82]). | Thawley J noted that in the scheme of the promoter penalty laws, the Commissioner bears the onus of establishing that the elements of contravention are made out, one being that it was not reasonably arguable that the claimed scheme benefit was available at law. The Commissioner discharges that onus by establishing that the taxable facts were such that it was not reasonably arguable that the scheme benefits were available. Thawley J observed that in the particular schemes before the Court, where the claimed scheme benefit resulted from the application of the R&D tax offset, it was insufficient for the Commissioner to merely point to the fact that a Participant did not have adequate or contemporaneous records to evidence the R&D claim, however other evidence was available to discharge the onus (at [97-102]).", "Issues_Decided": "The Court (Thawley J) found that for 13 of the 14 Participants, the Respondents contravened the promoter penalty laws as they had engaged in conduct that had resulted in them or others being promoters of tax exploitation schemes (see subsection 290-50(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)). Thawley J reserved his decision, on the amount of penalty to be imposed, for further submissions. Thawley J made several interpretative findings about the promoter penalty laws in the course of the judgment. Thawley J held that: • an entity can be a promoter, as defined in section 290-60 of the TAA, of a tax exploitation scheme by receiving consideration that results in other entities being promoters of that scheme (at [75-78]), and • the Commissioner was out of time to commence action for two cases where the scheme had not been implemented by the Participants, and the last acts of alleged promotion happened more than four years before the date of application. Contrary to the Commissioner's submissions, the unlimited period for the Commissioner to commence proceedings for a 'scheme involving tax evasion' could not apply to a scheme that was not implemented, as without implementation there could be no tax evaded (at [79-82]). • an entity can be a promoter, as defined in section 290-60 of the TAA, of a tax exploitation scheme by receiving consideration that results in other entities being promoters of that scheme (at [75-78]), and • the Commissioner was out of time to commence action for two cases where the scheme had not been implemented by the Participants, and the last acts of alleged promotion happened more than four years before the date of application. Contrary to the Commissioner's submissions, the unlimited period for the Commissioner to commence proceedings for a 'scheme involving tax evasion' could not apply to a scheme that was not implemented, as without implementation there could be no tax evaded (at [79-82]). Thawley J noted that in the scheme of the promoter penalty laws, the Commissioner bears the onus of establishing that the elements of contravention are made out, one being that it was not reasonably arguable that the claimed scheme benefit was available at law. The Commissioner discharges that onus by establishing that the taxable facts were such that it was not reasonably arguable that the scheme benefits were available. Thawley J observed that in the particular schemes before the Court, where the claimed scheme benefit resulted from the application of the R&D tax offset, it was insufficient for the Commissioner to merely point to the fact that a Participant did not have adequate or contemporaneous records to evidence the R&D claim, however other evidence was available to discharge the onus (at [97-102]).", "ATO_View_of_Decision": "The decision of the Court confirms that the promoter penalty laws can apply to promoters of bespoke arrangements for individual clients. | This confirmation advances the policy object of the law to: • deter promotion of tax exploitation schemes and protect members of the community from their adverse effects, and • preserve confidence in the tax system. | • deter promotion of tax exploitation schemes and protect members of the community from their adverse effects, and • preserve confidence in the tax system. | The ATO will continue to apply the law to advance these objects. | The ATO notes the Court's rejection of the Commissioner's argument that, on the operation of subsection 290-55(6) of the TAA, there can be an unlimited period for the Commissioner to commence proceedings for an unimplemented scheme. The ATO leaves open whether to re-test this point in an appropriate future case. | The ATO accepts the Court's views about the relevance of record keeping to the standard of evidence for the Commissioner to discharge the onus of proving that a promoted scheme benefit, involving the claim of the R&D tax offset, was not reasonably arguable at law. | The ATO considers that these views are specifically directed to the discharge of the onus of proof in applications made by the Commissioner under the promoter penalty laws, and have no relevance to the onus of proof that is on a taxpayer to establish that an assessment is excessive in a review or appeal against an objection decision under Part IVC of the TAA. In those contexts, and in any review or audit, the taxpayer is required to positively show that they are entitled to the underlying claim.", "Administrative_Treatment": "The ATO is updating Law Administration Practice Statements PS LA 2008/7 Application of the promoter penalty laws (Division 290 of Schedule 1 to the Taxation Administration Act 1953) to promotion of tax exploitation schemes and PS LA 2008/8 Application of the promoter penalty laws (Division 290 of Schedule 1 to the Taxation Administration Act 1953) to schemes involving product rulings and will consider incorporating the decisions in the replacement guidance.", "Related_Documents": "None | 2020 ATC 20-757 | Sch 1 Division 290 | Subsection 290-50(1) | Subsection 290-55(6) | Section 290-60 | Part IVC | PS LA 2008/7 | PS LA 2008/8", "Legislative_References": "Taxation Administration Act 1953 Sch 1 Division 290 Subsection 290-50(1) Subsection 290-55(6) Section 290-60 Part IVC", "Case_References": "", "Subject_References": "", "Other_References": "PS LA 2008/7 PS LA 2008/8", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1839of2018/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Douglas", "Venue_Reference_No": "QUD 103 of 2020", "Venue": "Federal Court of Australia", "Judgment_Date": "4 December 2020", "Date_Published": "11 February 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns whether certain invalidity benefits paid from pensions to individuals under the Military Superannuation and Benefits Scheme (MSB Scheme) and the Defence Force Retirement and Death Benefits Scheme (DFRDB Scheme) are superannuation income stream benefits or superannuation lump sum payments.", "Overview_of_Facts": "The decision concerns three appeals brought by the Commissioner with respect to invalidity benefits paid from pensions to Mr Douglas under the DFRDB Scheme and to Mr Walker and Mr Burns under the MSB Scheme. | While there are differences in the rules between the two superannuation schemes, an individual will qualify to receive invalidity benefits while they are classified as either Class A or Class B with respect to their incapacity. An individual will also qualify to receive invalidity benefits under the DFRDB Scheme when classified as Class C with respect to their incapacity. The rules of the schemes allow for the individual's rate of incapacity to be reviewed which may result in their entitlement to invalidity benefits being varied or cancelled. | On 4 November 2014, Mr Douglas was classified by the Commonwealth Superannuation Corporation (CSC) as having a Class A invalidity, and the CSC determined that the effective date of that classification was 2 September 2002. Mr Douglas received a lump sum arrears payment on 10 December 2014, calculated by reference to the effective date of 2 September 2002. Following the determination of invalidity on 4 November 2014, he also received ongoing invalidity benefits. | Mr Walker was classified on 13 November 2009 as having a Class A invalidity from that date and became entitled to an invalidity pension. That classification remained the same during the relevant income years. | Mr Burns was originally classified as having Class A invalidity from 13 December 1994. He was subject to reclassification on multiple occasions, including a period when his invalidity pension was cancelled. Relevantly, he was reclassified as Class B from 14 October 2003, at which time he again became entitled to an invalidity pension, and then subsequently as Class A on 11 August 2008. | Issues decided by the Court | A superannuation income stream benefit under subsection 307-70(1) of the Income Tax Assessment Act 1997 (ITAA) is a superannuation benefit specified in the Income Tax Assessment Regulations 1997 (ITAR) that is paid from a superannuation income stream. A superannuation benefit that does not satisfy these requirements defaults to be a superannuation lump sum under subsection 307-65(1) of the ITAA. | The cases considered three broad issues: 1. whether the ITAR did specify superannuation benefits to be superannuation income stream benefits 2. whether the invalidity benefit pension was a superannuation income stream under subparagraph 995-1.01(1)(a)(ii) of the ITAR because it was a pension under the Superannuation Industry (Supervision) Act 1993 (SISA Act) where the rules under which the benefits were paid complied with the pension standards set out in the Superannuation Industry (Supervision) Regulations 1994 (SISR), and 3. in the cases of Mr Burns and Mr Douglas, whether the invalidity pension was a superannuation income stream under paragraph 995-1.01(1)(b) of the ITAR because it was an income stream that had commenced before 20 September 2007. | 1. whether the ITAR did specify superannuation benefits to be superannuation income stream benefits 2. whether the invalidity benefit pension was a superannuation income stream under subparagraph 995-1.01(1)(a)(ii) of the ITAR because it was a pension under the Superannuation Industry (Supervision) Act 1993 (SISA Act) where the rules under which the benefits were paid complied with the pension standards set out in the Superannuation Industry (Supervision) Regulations 1994 (SISR), and 3. in the cases of Mr Burns and Mr Douglas, whether the invalidity pension was a superannuation income stream under paragraph 995-1.01(1)(b) of the ITAR because it was an income stream that had commenced before 20 September 2007. | 1. Specification of superannuation benefits to be superannuation income stream benefits | The Court accepted the Commissioner's argument that the definition of 'superannuation income stream benefit' contained in the ITAR during the relevant timeframes did provide the requisite specification for superannuation benefits to be superannuation income stream benefits (at [87] and [106]). While acknowledging some concerns with the drafting, the Court observed that this position was consistent with the purpose of the definition in the ITAR. The text of the definition regulation did not preclude the Court from giving effect to the purpose of the 2007 amendments to both the ITAA and the ITAR which brought in the concept of a superannuation income stream benefit (at [98]). | In making this finding, the Court was not required to consider issues concerning the application of amendments made to the ITAR in 2018 which were made with retrospective application to specify superannuation benefits to be superannuation income stream benefits. | 2. Superannuation income stream - pension standards test | The Court held that the rules of the MSB Scheme (the MSB rules) under which the invalidity benefits were paid do not satisfy the pension standards in the SISR. In order to satisfy the relevant standard in subregulation 1.06(2) of the SISR, the MSB rules had to ensure: • the pension is paid at least annually throughout the life of the primary beneficiary or reversionary beneficiary, and • the size of payments of benefit in a year is fixed, allowing for variation only as specified in the governing rules. | • the pension is paid at least annually throughout the life of the primary beneficiary or reversionary beneficiary, and • the size of payments of benefit in a year is fixed, allowing for variation only as specified in the governing rules. | The Court found that the MSB rules do not ensure the benefit is payable for the lifetime of the recipient (at [125]). The fact that the pension could be cancelled (due to their invalidity classification being reviewed) meant that the MSB rules do not ensure that the pension was paid at least annually throughout the life of the primary beneficiary (at [133]), nor were the size of the payments fixed, subject to variation as contemplated by the MSB rules (at [141]). The Court came to a similar conclusion with respect to the rules of the DFRDB Scheme (the DFRDB rules) that the DFRDB rules do not ensure that the benefit is paid at least annually or at least annually for the person's lifetime (at [168] to [169]). | 3. Superannuation income stream - pension that started before 20 September 2007 | The Court found that under the MSB rules, once a person is retired on the ground of invalidity, from the point in time that the person is first classified as Class A or Class B, that person becomes entitled to an 'invalidity pension' - namely 'invalidity benefits' under Class A or Class B - the amount of which will vary according to the terms of the MSB rules (at [130]). The invalidity pension payments were an 'income stream' (at [140]). Accordingly, a pension that commenced before 20 September 2007 that was subject to reclassification between Class A and Class B (and was not cancelled and recommenced) meets the definition of a superannuation income stream. This was the case with respect to Mr Burns (at [148] to [149]). | The Court found that the arrears payment made to Mr Douglas under the DFRDB Scheme was part of an income stream that was a pension within the meaning of the SISA Act (at [156]). However, Mr Douglas was subject to a determination made by the CSC on 4 November 2014 that created an entitlement to invalidity payments that were taken to have commenced on 2 September 2002. The Court found that the entitlement to the arrears payment did not arise until 4 November 2014 (at [161]). | The 'statutory fiction' under section 37 of the Defence Force Retirement and Death Benefits Act 1973 (DFRDBA) that Mr Douglas was taken to have been retired on the ground of invalidity or of physical or mental incapacity to perform his duties from 2 September 2002 did not extend to the application of the ITAA. Accordingly, the deeming which operated by reason of section 37 of the DFRDBA did not create or deem an income stream for the purposes of the ITAR to have commenced before 20 September 2007.", "Issues_Decided": "A superannuation income stream benefit under subsection 307-70(1) of the Income Tax Assessment Act 1997 (ITAA) is a superannuation benefit specified in the Income Tax Assessment Regulations 1997 (ITAR) that is paid from a superannuation income stream. A superannuation benefit that does not satisfy these requirements defaults to be a superannuation lump sum under subsection 307-65(1) of the ITAA. The cases considered three broad issues: 1. whether the ITAR did specify superannuation benefits to be superannuation income stream benefits 2. whether the invalidity benefit pension was a superannuation income stream under subparagraph 995-1.01(1)(a)(ii) of the ITAR because it was a pension under the Superannuation Industry (Supervision) Act 1993 (SISA Act) where the rules under which the benefits were paid complied with the pension standards set out in the Superannuation Industry (Supervision) Regulations 1994 (SISR), and 3. in the cases of Mr Burns and Mr Douglas, whether the invalidity pension was a superannuation income stream under paragraph 995-1.01(1)(b) of the ITAR because it was an income stream that had commenced before 20 September 2007. 1. whether the ITAR did specify superannuation benefits to be superannuation income stream benefits 2. whether the invalidity benefit pension was a superannuation income stream under subparagraph 995-1.01(1)(a)(ii) of the ITAR because it was a pension under the Superannuation Industry (Supervision) Act 1993 (SISA Act) where the rules under which the benefits were paid complied with the pension standards set out in the Superannuation Industry (Supervision) Regulations 1994 (SISR), and 3. in the cases of Mr Burns and Mr Douglas, whether the invalidity pension was a superannuation income stream under paragraph 995-1.01(1)(b) of the ITAR because it was an income stream that had commenced before 20 September 2007. | 1. Specification of superannuation benefits to be superannuation income stream benefits: The Court accepted the Commissioner's argument that the definition of 'superannuation income stream benefit' contained in the ITAR during the relevant timeframes did provide the requisite specification for superannuation benefits to be superannuation income stream benefits (at [87] and [106]). While acknowledging some concerns with the drafting, the Court observed that this position was consistent with the purpose of the definition in the ITAR. The text of the definition regulation did not preclude the Court from giving effect to the purpose of the 2007 amendments to both the ITAA and the ITAR which brought in the concept of a superannuation income stream benefit (at [98]). In making this finding, the Court was not required to consider issues concerning the application of amendments made to the ITAR in 2018 which were made with retrospective application to specify superannuation benefits to be superannuation income stream benefits. | 2. Superannuation income stream - pension standards test: The Court held that the rules of the MSB Scheme (the MSB rules) under which the invalidity benefits were paid do not satisfy the pension standards in the SISR. In order to satisfy the relevant standard in subregulation 1.06(2) of the SISR, the MSB rules had to ensure: • the pension is paid at least annually throughout the life of the primary beneficiary or reversionary beneficiary, and • the size of payments of benefit in a year is fixed, allowing for variation only as specified in the governing rules. • the pension is paid at least annually throughout the life of the primary beneficiary or reversionary beneficiary, and • the size of payments of benefit in a year is fixed, allowing for variation only as specified in the governing rules. The Court found that the MSB rules do not ensure the benefit is payable for the lifetime of the recipient (at [125]). The fact that the pension could be cancelled (due to their invalidity classification being reviewed) meant that the MSB rules do not ensure that the pension was paid at least annually throughout the life of the primary beneficiary (at [133]), nor were the size of the payments fixed, subject to variation as contemplated by the MSB rules (at [141]). The Court came to a similar conclusion with respect to the rules of the DFRDB Scheme (the DFRDB rules) that the DFRDB rules do not ensure that the benefit is paid at least annually or at least annually for the person's lifetime (at [168] to [169]). | 3. Superannuation income stream - pension that started before 20 September 2007: The Court found that under the MSB rules, once a person is retired on the ground of invalidity, from the point in time that the person is first classified as Class A or Class B, that person becomes entitled to an 'invalidity pension' - namely 'invalidity benefits' under Class A or Class B - the amount of which will vary according to the terms of the MSB rules (at [130]). The invalidity pension payments were an 'income stream' (at [140]). Accordingly, a pension that commenced before 20 September 2007 that was subject to reclassification between Class A and Class B (and was not cancelled and recommenced) meets the definition of a superannuation income stream. This was the case with respect to Mr Burns (at [148] to [149]). The Court found that the arrears payment made to Mr Douglas under the DFRDB Scheme was part of an income stream that was a pension within the meaning of the SISA Act (at [156]). However, Mr Douglas was subject to a determination made by the CSC on 4 November 2014 that created an entitlement to invalidity payments that were taken to have commenced on 2 September 2002. The Court found that the entitlement to the arrears payment did not arise until 4 November 2014 (at [161]). The 'statutory fiction' under section 37 of the Defence Force Retirement and Death Benefits Act 1973 (DFRDBA) that Mr Douglas was taken to have been retired on the ground of invalidity or of physical or mental incapacity to perform his duties from 2 September 2002 did not extend to the application of the ITAA. Accordingly, the deeming which operated by reason of section 37 of the DFRDBA did not create or deem an income stream for the purposes of the ITAR to have commenced before 20 September 2007.", "ATO_View_of_Decision": "The Commissioner accepts that it was open to the Court to decide that the MSB rules and the DFRDB rules under which the invalidity benefits were paid did not satisfy the requirements of subregulation 1.06(2) of the SISR. Accordingly, invalidity benefits paid under pensions provided under the MSB Scheme or the DFRDB Scheme that commenced on or after 20 September 2007 are superannuation lump sum benefits. Invalidity benefits paid under pensions provided under the MSB Scheme or the DFRDB Scheme that commenced before 20 September 2007 are superannuation income stream benefits.", "Administrative_Treatment": "The Commissioner has updated the ATO webpage to reflect the Court's decision. | Further details are available at Tax on benefits and Treatment of military invalidity benefits . These pages will be updated as required.", "Related_Documents": "None | 2020 ATC 20-773 | 307-65(1) | 307-70(1) | 995-1.01(1)(a)(ii) | 995-1.01(1)(b) | The Act | 1.06(2)", "Legislative_References": "Income Tax Assessment Act 1997 307-65(1) 307-70(1) Income Tax Assessment Regulations 1997 995-1.01(1)(a)(ii) 995-1.01(1)(b) Supervision Industry (Supervision) Act 1993 The Act Supervision Industry (Supervision) Regulations 1994 1.06(2) Defence Force Retirement and Death Benefits Act 1973 37", "Case_References": "", "Subject_References": "", "Other_References": "Tax on benefits Treatment of military invalidity benefits", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD103of2020/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Glencore Investment Pty Ltd", "Venue_Reference_No": "NSD 1679/2017; NSD 1900/2017; NSD 1956/2017 (Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "6 November 2020", "Date_Published": "28 September 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which concerned the construction and application of the transfer pricing provisions contained in Division 13 of the Income Tax Assessment Act 1936 (ITAA 1936) and Subdivision 815-A of the Income Tax Assessment Act 1997 (ITAA 1997) to amendments made in February 2007 to the terms of a sale agreement between Cobar Management Pty Ltd (CMPL) and its ultimate Swiss parent, Glencore International AG (GIAG). CMPL is a wholly-owned Australian subsidiary of Glencore Investment Pty Ltd (GIPL) and operator of the CSA copper mine (CSA mine) located in Cobar, New South Wales. These amendments affected CMPL's profits from the sale to GIAG of all the copper concentrate produced at the CSA mine during the period from February 2007 to 31 December 2009 (2007 to 2009 years).", "Overview_of_Facts": "The CSA mine was acquired by the Glencore group in 1998 and has been operated and managed by CMPL since 1999. | GIAG purchased all the copper concentrate produced at the CSA mine from CMPL which it then traded, mostly to smelters. The purchases were made under a series of 'life of mine offtake agreements', the first of which was entered into between GIAG and CMPL in mid-1999 and which had since been replaced and amended from time to time. | Up until February 2007, the offtake agreements had been structured as 'market-related' agreements. In February 2007, CMPL and GIAG amended their existing agreement to introduce a pricing method known in the copper concentrate industry as 'price sharing', which significantly altered the method of calculation of the price to be paid to CMPL for its copper concentrate. | Some of the amendments made in February 2007 included: • the calculation of the treatment and copper refining charges (TCRCs), which reduced the price to be paid by GIAG to CMPL for the copper concentrate, was no longer to be determined by reference to the benchmark and spot market for TCRCs and was instead to be fixed at 23% of the copper reference price for three years, and • GIAG was provided with increased optionality in selecting the 'quotational period' used to determine the average applicable copper price, which impacted the ultimate price to be paid by GIAG to CMPL for the copper concentrate. This included 'back-pricing', which permitted GIAG to select the period after knowing the price for at least one of the periods. | • the calculation of the treatment and copper refining charges (TCRCs), which reduced the price to be paid by GIAG to CMPL for the copper concentrate, was no longer to be determined by reference to the benchmark and spot market for TCRCs and was instead to be fixed at 23% of the copper reference price for three years, and • GIAG was provided with increased optionality in selecting the 'quotational period' used to determine the average applicable copper price, which impacted the ultimate price to be paid by GIAG to CMPL for the copper concentrate. This included 'back-pricing', which permitted GIAG to select the period after knowing the price for at least one of the periods. | For the 2009 year only, by way of written addendum, GIAG and CMPL also set higher freight rates by reference to the cost of shipments to India rather than by reference to the cost of shipments to China, Japan and/or the Philippines (which were historically the more frequent destinations for almost all of the copper concentrate sold by CMPL to GIAG). | After an audit, the Commissioner issued amended assessments in May 2013 to GIPL, as the head company of a multiple entry tax consolidated group that included CMPL, for the 2007 to 2009 years. The amended assessments were issued on the basis of determinations made by the Commissioner pursuant to Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997 to, inter alia, increase the consideration paid by GIAG to CMPL for the copper concentrate purchased by GIAG from CMPL for those income years. The increased consideration included the effect of substituting the 23% price sharing mechanism with a market-based TCRC calculation (akin to that previously used by the parties) and substituting the increased quotational period optionality afforded to GIAG with the use of a consistent quotational period annually. | GIPL objected to the amended assessments; those objections were subsequently disallowed by the Commissioner and the disallowed objection decisions were appealed by GIPL to the Federal Court. [1] | On 3 September 2019, Davies J handed down a wholly unfavourable decision against the Commissioner, who then appealed her Honour's decision to the Full Federal Court. On 6 November 2020, the Full Federal Court allowed the Commissioner's appeal in part, but only in respect of the freight matter for the 2009 year. On 21 May 2021, the High Court decided to not grant the Commissioner special leave to appeal against the balance of the Full Federal Court's decision. | Issues decided by the Court | The judgment of the Federal Court at first instance [2] | The Commissioner's primary case, based on expert evidence, was that an entity with the relevant attributes and in the position of CMPL, supplying copper concentrate to an independent counterparty with which it was dealing wholly independently, would not have agreed to a three-year 23% price sharing mechanism, the increased quotational period optionality and the revised freight terms for the relevant period. | GIPL's case, also based on expert evidence, was that the relevant terms which the Commissioner took issue with were terms that existed in contracts for the sale of copper concentrate between independent parties in the same industry and with some of the same characteristics as CMPL and GIAG; and were therefore terms that might be expected to be found in an arm's length agreement that was absent of any relational bias. | In refuting the Commissioner's primary case, Davies J found at [314] that '… the Commissioner's approach impermissibly restructures the actual contract entered into by the parties into a contract of a different character', and at [317] that: … any restructuring of the actual agreement for the purposes of the comparative analysis is limited to the two exceptional cases outlined in the 1995 Guidelines, each being instances where the form of the transaction adopted by the parties \"rather than be determined by normal commercial conditions ... may have been structured by the taxpayer to avoid or minimise tax\". | Her Honour went on to conclude at [319-322] that as the present case did not fall within either of the exceptions referred to in the 1995 OECD Guidelines, there was no ability for the Commissioner to restructure the amendments made in February 2007 from a price sharing contract to a market-related contract for the purposes of determining the extent to which the non-arm's length dealing affected CMPL's profits. | In the alternative, her Honour found that GIPL had discharged its onus of proof and that she was satisfied on the evidence that the terms operating between CMPL and GIAG to calculate the price at which CMPL sold its copper concentrate to GIAG were ones which might reasonably have been expected between independent parties, in the position of CMPL and GIAG, dealing with each other at arm's length and the consideration received by CMPL was also one which might reasonably have been expected between such parties. | The judgment of the Full Federal Court on appeal | On appeal, the Full Federal Court ultimately decided against the Commissioner, except in respect of the freight matter for the 2009 year. Middleton and Steward JJ delivered a joint judgment and Thawley J delivered a separate judgment, but all three judges agreed on the ultimate outcome. | Restructuring | The Full Federal Court disagreed with, and overturned, Davies J's conclusion that the Commissioner was 'impermissibly restructuring the contract' and instead held that, under both Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997, the Commissioner could substitute terms that resulted in a different formula or a different methodology to be utilised in order to ascertain the arm's length consideration. | Middleton and Steward JJ observed at [155-156] that those terms which 'define the price' could be substituted under Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997 and also that, under Subdivision 815-A: In respect of the conditions in an agreement that only indirectly bear upon price, the extent to which the Commissioner can substitute different conditions if he considers that those conditions differ from those which might be expected to operate between independent enterprises dealing wholly independently with one another is a question for another day. | Thawley J, however, disagreed with their Honours and observed at [267] and [296-298] that that there was no justification in limiting the terms or conditions that may be substituted under Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997 to only those which directly 'define the price'. | In reaching their view, Middleton and Steward JJ also observed at [153] that the OECD Guidelines: … are only a guide as to how a revenue authority or a taxpayer might apply the \"arm's length principle\", or how an O.E.C.D. member country might enact the \"arm's length principle\" into domestic law. In that respect, the various statements of abstract principle that may be found in the Transfer Pricing Guidelines may be contrasted with the much greater discipline and rigour in drafting that is usually found in domestic legislation. Of course, Subdiv. 815-A obliges the Court to work out whether an entity has got a transfer pricing benefit consistently with these Guidelines, but only to the extent they are relevant. | Pricing | Nevertheless, the Full Federal Court went on to hold that GIPL had discharged its onus of proof by establishing on the evidence that the actual pricing terms that applied between CMPL and GIAG in the 2007 to 2009 years, other than in respect of the freight terms in 2009, were ones that might reasonably have been expected between independent parties, with some of the same relevant objective characteristics as CMPL and GIAG, dealing at arm's length. | In reaching their conclusion, Middleton and Steward JJ relied heavily on the taxpayer's expert evidence, provided by Mr Wilson. Their Honours accepted Mr Wilson's expert evidence that the relevant terms set in February 2007, which were in dispute, were commercially prudent for the parties to adopt, existed in the relevant industry between independent parties with some of the same relevant objective characteristics as CMPL and GIAG and ultimately were a matter of commercial judgment having regard to the particular risk appetite of a particular mine. Although no evidence was led about CMPL's particular risk appetite, their Honours concluded at [191] that: The failure by C.M.P.L. to lead evidence about its actual risk appetite or that of G.I.A.G. or the broader Glencore Group did not foreclose C.M.P.L.'s ability to lead expert evidence more generally about, and make submissions concerning, what independent enterprises might have done to address the issue of risk. | Thawley J separately concluded at [264], [271] and [295] that, on the facts as found by the primary judge, GIPL had established that the relevant terms were ones which might reasonably have been expected between independent parties in the position of CMPL and GIAG dealing at arm's length and that the consideration for the supply of the copper concentrate on those terms was also one which might reasonably have been expected between such parties. | Lastly, in respect of the freight matter for the 2009 year, the Full Federal Court decided this issue in the Commissioner's favour as it found that no evidence was led at all to establish why the freight rates adopted for this year were ones that might reasonably have been expected between independent parties with the same relevant objective characteristics as CMPL and GIAG (including their shipping history), dealing at arm's length. | The High Court's reasons for not granting special leave to the Commissioner | The Commissioner applied for special leave to appeal from the High Court [3] on the basis that the Full Federal Court misconstrued the 'arm's length principle' applicable under Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997, and that the taxpayer did not discharge its onus of proof because it failed to lead evidence of the dealing that was likely to have been entered into between CMPL and GIAG if they had dealt with each other at arm's length. | In refusing the Commissioner's application, Kiefel CJ stated: The Commissioner seeks to overturn findings of fact upheld by the Full Court below. In our view no question of principle sufficient to warrant a grant of special leave arises.", "Issues_Decided": "The judgment of the Federal Court at first instance [2] The Commissioner's primary case, based on expert evidence, was that an entity with the relevant attributes and in the position of CMPL, supplying copper concentrate to an independent counterparty with which it was dealing wholly independently, would not have agreed to a three-year 23% price sharing mechanism, the increased quotational period optionality and the revised freight terms for the relevant period. GIPL's case, also based on expert evidence, was that the relevant terms which the Commissioner took issue with were terms that existed in contracts for the sale of copper concentrate between independent parties in the same industry and with some of the same characteristics as CMPL and GIAG; and were therefore terms that might be expected to be found in an arm's length agreement that was absent of any relational bias. In refuting the Commissioner's primary case, Davies J found at [314] that '… the Commissioner's approach impermissibly restructures the actual contract entered into by the parties into a contract of a different character', and at [317] that: … any restructuring of the actual agreement for the purposes of the comparative analysis is limited to the two exceptional cases outlined in the 1995 Guidelines, each being instances where the form of the transaction adopted by the parties \"rather than be determined by normal commercial conditions ... may have been structured by the taxpayer to avoid or minimise tax\". Her Honour went on to conclude at [319-322] that as the present case did not fall within either of the exceptions referred to in the 1995 OECD Guidelines, there was no ability for the Commissioner to restructure the amendments made in February 2007 from a price sharing contract to a market-related contract for the purposes of determining the extent to which the non-arm's length dealing affected CMPL's profits. In the alternative, her Honour found that GIPL had discharged its onus of proof and that she was satisfied on the evidence that the terms operating between CMPL and GIAG to calculate the price at which CMPL sold its copper concentrate to GIAG were ones which might reasonably have been expected between independent parties, in the position of CMPL and GIAG, dealing with each other at arm's length and the consideration received by CMPL was also one which might reasonably have been expected between such parties. | The judgment of the Full Federal Court on appeal: On appeal, the Full Federal Court ultimately decided against the Commissioner, except in respect of the freight matter for the 2009 year. Middleton and Steward JJ delivered a joint judgment and Thawley J delivered a separate judgment, but all three judges agreed on the ultimate outcome. Restructuring The Full Federal Court disagreed with, and overturned, Davies J's conclusion that the Commissioner was 'impermissibly restructuring the contract' and instead held that, under both Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997, the Commissioner could substitute terms that resulted in a different formula or a different methodology to be utilised in order to ascertain the arm's length consideration. Middleton and Steward JJ observed at [155-156] that those terms which 'define the price' could be substituted under Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997 and also that, under Subdivision 815-A: In respect of the conditions in an agreement that only indirectly bear upon price, the extent to which the Commissioner can substitute different conditions if he considers that those conditions differ from those which might be expected to operate between independent enterprises dealing wholly independently with one another is a question for another day. Thawley J, however, disagreed with their Honours and observed at [267] and [296-298] that that there was no justification in limiting the terms or conditions that may be substituted under Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997 to only those which directly 'define the price'. In reaching their view, Middleton and Steward JJ also observed at [153] that the OECD Guidelines: … are only a guide as to how a revenue authority or a taxpayer might apply the \"arm's length principle\", or how an O.E.C.D. member country might enact the \"arm's length principle\" into domestic law. In that respect, the various statements of abstract principle that may be found in the Transfer Pricing Guidelines may be contrasted with the much greater discipline and rigour in drafting that is usually found in domestic legislation. Of course, Subdiv. 815-A obliges the Court to work out whether an entity has got a transfer pricing benefit consistently with these Guidelines, but only to the extent they are relevant. Pricing Nevertheless, the Full Federal Court went on to hold that GIPL had discharged its onus of proof by establishing on the evidence that the actual pricing terms that applied between CMPL and GIAG in the 2007 to 2009 years, other than in respect of the freight terms in 2009, were ones that might reasonably have been expected between independent parties, with some of the same relevant objective characteristics as CMPL and GIAG, dealing at arm's length. In reaching their conclusion, Middleton and Steward JJ relied heavily on the taxpayer's expert evidence, provided by Mr Wilson. Their Honours accepted Mr Wilson's expert evidence that the relevant terms set in February 2007, which were in dispute, were commercially prudent for the parties to adopt, existed in the relevant industry between independent parties with some of the same relevant objective characteristics as CMPL and GIAG and ultimately were a matter of commercial judgment having regard to the particular risk appetite of a particular mine. Although no evidence was led about CMPL's particular risk appetite, their Honours concluded at [191] that: The failure by C.M.P.L. to lead evidence about its actual risk appetite or that of G.I.A.G. or the broader Glencore Group did not foreclose C.M.P.L.'s ability to lead expert evidence more generally about, and make submissions concerning, what independent enterprises might have done to address the issue of risk. Thawley J separately concluded at [264], [271] and [295] that, on the facts as found by the primary judge, GIPL had established that the relevant terms were ones which might reasonably have been expected between independent parties in the position of CMPL and GIAG dealing at arm's length and that the consideration for the supply of the copper concentrate on those terms was also one which might reasonably have been expected between such parties. Lastly, in respect of the freight matter for the 2009 year, the Full Federal Court decided this issue in the Commissioner's favour as it found that no evidence was led at all to establish why the freight rates adopted for this year were ones that might reasonably have been expected between independent parties with the same relevant objective characteristics as CMPL and GIAG (including their shipping history), dealing at arm's length. | The High Court's reasons for not granting special leave to the Commissioner: The Commissioner applied for special leave to appeal from the High Court [3] on the basis that the Full Federal Court misconstrued the 'arm's length principle' applicable under Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997, and that the taxpayer did not discharge its onus of proof because it failed to lead evidence of the dealing that was likely to have been entered into between CMPL and GIAG if they had dealt with each other at arm's length. In refusing the Commissioner's application, Kiefel CJ stated: The Commissioner seeks to overturn findings of fact upheld by the Full Court below. In our view no question of principle sufficient to warrant a grant of special leave arises.", "ATO_View_of_Decision": "Appropriate degree of depersonalisation | The Commissioner does not accept that this case narrows the extent by which a comparable hypothesis is to be personalised, nor that it sets a standard for 'depersonalisation'. While Middleton and Steward JJ considered at [187] the appropriate degree of depersonalisation relevant to the application of Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997 to the particular facts and circumstances, in doing so their Honours took into account relevant objective characteristics of the parties. [4] | Consistent with the High Court's reasons in rejecting the Commissioner's application for special leave to appeal, the Commissioner accepts that the endorsement by Middleton and Steward JJ at [170-175] of particular passages from the judgments of Allsop CJ and Pagone J in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62 (Chevron) [5] demonstrates that there is neither inconsistency in the application of the arm's length principle nor the tests to be applied in respect of Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997 between the Full Federal Court's decision in this case and the Full Federal Court's decision in Chevron . | Rather, the outcomes in the two cases were reached after a consideration of all the evidence before the respective Courts in each instance. | Evidence | The Commissioner considers that it will always require a careful examination of the totality of evidence available to best establish the arm's length consideration or the arm's length conditions that might reasonably have been expected to operate in any given case. | Depending on the particular case, the totality of evidence available might include evidence about all of the relevant objective circumstances of the actual parties in the actual market at the relevant time, relevant group policies, how the taxpayer and its group might have contemporaneously dealt with third parties for the same or similar transaction, the prevailing contemporaneous practices in the relevant industry, and what other independent entities in the same or similar contemporaneous circumstances as the taxpayer and the counterparty might reasonably have been expected to have done. | Also, where a taxpayer relies solely on the opinion of an expert as to what independent parties in the same industry might reasonably have been expected to have done, that may not be considered to be sufficient by the Commissioner to discharge their onus of proof depending on the totality of evidence available. Although such expert evidence was found to be relevant and ultimately accepted by Middleton and Steward JJ in this case, as their Honours observed at [180] and [191], evidence about the Glencore group's policies or its risk appetite might also have been relevant had it been before the Court. [6] | Similarly, if a taxpayer seeks to rely on agreements that exist in the broader industry between independent parties that are not comparable but may establish general 'reference points', it will not be accepted that such agreements alone are sufficient to establish arm's length conditions and arm's length consideration. As observed by Middleton and Steward JJ at [193], agreements that are not truly comparable '… cannot be determinative of the application of Div. 13 or Subdiv. 815-A to the facts …'. Again, the totality of evidence available, including any 'truly comparable' agreements [7] , will need to be considered in establishing relevant arm's length conditions and arm's length consideration. | Reconstruction | The Commissioner agrees with the Full Federal Court's conclusion that he was not impermissibly restructuring or reconstructing the relevant contract in this case. Moreover, as observed by Thawley J, the Commissioner agrees that there is no justification in the statutory language to limit the terms and conditions that can be substituted under Division 13 of the ITAA 1936 and Subdivision 815-A of the ITAA 1997 to only those that 'define the price'. | Subdivision 815-B of the ITAA 1997 | There are textual differences between the statutory tests in Subdivisions 815-A and 815-B of the ITAA 1997, which may bear upon how relevant the decisions in this case and Chevron are to how Subdivision 815-B is ultimately applied by a court. | In particular: • section 815-125 of Subdivision 815-B defines 'arm's length conditions' with specific reference to independent parties dealing wholly independently with one another in 'comparable circumstances' and a non-exhaustive list of relevant factors to which regard must be had in identifying those comparable circumstances is provided, and • section 815-130 of Subdivision 815-B sets out a 'basic rule' and 'exceptions' framework for how the arm's length conditions are to be identified and in what circumstances the identification of the arm's length conditions is to be based on the 'actual commercial or financial relations'. | • section 815-125 of Subdivision 815-B defines 'arm's length conditions' with specific reference to independent parties dealing wholly independently with one another in 'comparable circumstances' and a non-exhaustive list of relevant factors to which regard must be had in identifying those comparable circumstances is provided, and • section 815-130 of Subdivision 815-B sets out a 'basic rule' and 'exceptions' framework for how the arm's length conditions are to be identified and in what circumstances the identification of the arm's length conditions is to be based on the 'actual commercial or financial relations'.", "Administrative_Treatment": "This decision has no implication on any related advice or guidance.", "Related_Documents": "None | Federal Court | 2019 ATC 20-710 | Full Federal Court | 2020 ATC 20-770 | High Court | [2021] HCA Trans 98 | Subdiv 815-A | Subdiv 815-B | 815-125 | 815-130", "Legislative_References": "Income Tax Assessment Act 1936 Div 13 Income Tax Assessment Act 1997 Subdiv 815-A Subdiv 815-B 815-125 815-130", "Case_References": "Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62 345 ALR 570 251 FCR 40 Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74 193 FCR 149 82 ATR 680", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1636of2019/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | Footnotes: [1] In the objection decision and the Federal Court appeal, the Commissioner argued an additional ground that the freight terms agreed to by CMPL and GIAG also did not reflect arm's length terms. | [2] Glencore Investment Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2019] FCA 1432. | [3] The Commissioner of Taxation of the Commonwealth of Australia v Glencore Investment Pty Ltd [2021] HCATrans 98. | [4] Note further their Honours' support at [170] of Allsop CJ's proposition from Chevron that '... the inquiry does not necessarily require the detachment of the taxpayer as one of the independent parties to the hypothetical transaction' , and (at [175]) Pagone J's proposition from Chevron that '...the actual characteristics of the taxpayer must \"serve as a basis\" in the comparable agreement'. | [5] The endorsed passages at [170-175] regarding Chevron were [43-45] and [48] from the Chevron judgment of Allsop CJ, and [119] and [128] from the judgment of Pagone J. The Commissioner considers that the statements of principle contained in those passages from the respective judgments in Chevron , as well as the statements of principle contained in paragraphs [50-51], [65] and [91] from the judgment of Allsop CJ and paragraphs [129], [153] and [156] from the judgment of Pagone J, are to be applied to the totality of evidence available in any given case. | [6] Note by way of contrast that in Chevron , evidence about group policies and group behaviour was considered highly relevant by the Court to the task of establishing arm's length consideration and arm's length conditions. | [7] See [121-122] of Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74."}
{"Case_Name": "Commissioner of Taxation v Pike", "Venue_Reference_No": "QUD 35 of 2020", "Venue": "Federal Court of Australia", "Judgment_Date": "22 September 2020", "Date_Published": "13 November 2020", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns whether an individual was a 'resident' of Australia for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) and the application of the 'tiebreaker' test in the double-tax agreement between Australia and Thailand [1] (the DTA).", "Overview_of_Facts": "Mr Pike was born in 1972 in what became the Republic of Zimbabwe. While in Zimbabwe, Mr Pike developed a career in the tobacco industry and entered a long-standing de facto relationship with Ms Thornicroft. They have two sons, each born in Zimbabwe. | Ms Thornicroft accepted employment in Australia. Mr Pike, Ms Thornicroft and their sons arrived in Australia in March 2005. Mr Pike returned to Zimbabwe to complete his employment contract and dispose of or transport their assets but retained their house in Zimbabwe. He returned to Australia in September 2005. | Between 2005 and 2014, Mr Pike and Ms Thornicroft jointly rented a succession of three homes in Australia. They jointly purchased furniture and household appliances. They also jointly purchased motor vehicles for their use in Australia. | Mr Pike was unable to secure employment in Australia and in March 2006 became aware of work in Thailand. He travelled to Thailand that month and accepted a position. | Mr Pike worked in Thailand for the following eight years. He returned to his family in Australia each year but spent most of his time working and living in Thailand. Mr Pike always returned to the home in Australia where Ms Thornicroft and their sons were. They discussed moving the family to Thailand, but Ms Thornicroft did not agree. | Between 2006 and 2014, Mr Pike occupied rented properties in Thailand. He regarded them as his homes in Thailand. While in Thailand, Mr Pike joined and actively patronised golf, rugby and cricket clubs, and formed enduring friendships. | Mr Pike, Ms Thornicroft and their sons were granted permanent residency in Australia on 16 February 2009. In August 2010 Ms Thornicroft and their sons were granted Australian citizenship. Mr Pike made enquiries about obtaining Australian citizenship. | In September 2010, Mr Pike and Ms Thornicroft purchased vacant land in Australia and sold their house in Zimbabwe. Their intention was to build a family home and provide something tangible in Australia for their sons. Ultimately, they sold the land undeveloped in 2013. | Mr Pike's April 2013 application for Australian citizenship was refused. He made another application in October 2013 which was successful, and he became an Australian citizen in 2014. | In 2014, Mr Pike relocated to Tanzania for employment purposes. He lived in fully-furnished rented accommodation and joined golf and tennis clubs there. In early 2016, Mr Pike accepted a position in Dubai in the United Arab Emirates. | Issues decided by the Court | At issue was whether Mr Pike, an individual taxpayer, was a 'resident' of Australia for the purposes of subsection 6(1) of the ITAA 1936 for the income years ended 30 June 2009 to 30 June 2016 and the application of the tiebreaker test in the DTA to the years ended 30 June 2009 to 30 June 2014. | The first-instance [2] judge (Logan J) held that Mr Pike was a resident of Australia under the ordinary concepts test for the income years ended 30 June 2009 to 30 June 2016, and that Mr Pike was a resident under the domicile test from April 2014. Regarding the DTA, Logan J held that Mr Pike had a permanent home in neither Australia nor Thailand, had a habitual abode in both, and his closer personal and economic relations were with Thailand, with the result that Mr Pike was a resident solely of Thailand for the purposes of the DTA. [3] | The Commissioner appealed the finding that Mr Pike was solely a resident of Thailand on the basis that his closer personal and economic relations were with Thailand. The Commissioner also appealed the finding that Mr Pike was not a resident of Australia under the domicile test before April 2014. Mr Pike cross-appealed the findings that he was a resident according to ordinary concepts and that he satisfied the domicile test from April 2014. Mr Pike also contended that Logan J erred in holding that he had a habitual abode in both Australia and Thailand. | The Full Federal Court on appeal dismissed both the appeal and cross-appeal. | Ordinary concepts test | Davies, White and Steward JJ agreed with the reasoning and conclusions of the first instance judge regarding the ordinary concepts test. | The first-instance judge placed significance on the finding that when Mr Pike returned to Australia, he returned not as a visitor but to resume residing in Australia as a husband (de facto) and father who resumed living at the family home. [4] | Domicile test | The first-instance judge found that from April 2014, Mr Pike satisfied the 'domicile' test of residency in subparagraph (a)(i) of the definition of 'resident or resident of Australia' in subsection 6(1) of the ITAA 1936. His Honour found that Mr Pike did not obtain an Australian domicile until then, and further found that Mr Pike's permanent place of abode was Australia as it was not possible to conclude that Mr Pike had definitely abandoned Australia. [5] | The Full Federal Court concluded it was unnecessary to deal with this ground. [6] | Permanent home | The first-instance judge concluded that Mr Pike did not have a permanent home in either Australia or Thailand. His Honour noted that in considering the concept of permanent home '... questions of fact and degree are necessary entailed'. [7] His Honour observed that even if he were wrong, there was nothing to distinguish the rented homes in Australia and Thailand such that one would be permanent and the other not. [8] | Habitual abode | Davies, White and Steward JJ agreed with the first-instance judge that Mr Pike had a habitual abode in both countries [9] , and held that there was no basis for imputing the habitual abode of a person being the place where the individual has spent more days. [10] | The first-instance judge emphasised Mr Pike's life had two aspects; one aspect was working in Thailand and occupying premises there as a home, the other was living in Australia with his family for as long as possible. [11] | Personal and economic relations | The first-instance judge held that Mr Pike's personal relations were closer to Australia and that his economic relations were overwhelmingly closer to Thailand. His Honour then concluded that 'when considered conjunctively, Mr Pike's personal and economic relations were closer to Thailand than Australia, between 2009 and 2014'. [12] | Davies, White and Steward JJ observed that Article 4(3) of the DTA '... does not place greater weight on personal factors over economic factors' but: [13] ... poses a composite test and in each case it will be a matter of fact and degree as to whether a taxpayer's personal and economic relations, viewed as a whole, support ties closer to one contracting state over the other contracting state. | Their Honours were not persuaded that the conclusion was wrong. Their Honours held that: [14] [a]n appeal court will not overturn the decision of the primary judge merely because it prefers an outcome different from that adopted by the primary judge where both outcomes are equally available or finely balanced.", "Issues_Decided": "At issue was whether Mr Pike, an individual taxpayer, was a 'resident' of Australia for the purposes of subsection 6(1) of the ITAA 1936 for the income years ended 30 June 2009 to 30 June 2016 and the application of the tiebreaker test in the DTA to the years ended 30 June 2009 to 30 June 2014. The first-instance [2] judge (Logan J) held that Mr Pike was a resident of Australia under the ordinary concepts test for the income years ended 30 June 2009 to 30 June 2016, and that Mr Pike was a resident under the domicile test from April 2014. Regarding the DTA, Logan J held that Mr Pike had a permanent home in neither Australia nor Thailand, had a habitual abode in both, and his closer personal and economic relations were with Thailand, with the result that Mr Pike was a resident solely of Thailand for the purposes of the DTA. [3] The Commissioner appealed the finding that Mr Pike was solely a resident of Thailand on the basis that his closer personal and economic relations were with Thailand. The Commissioner also appealed the finding that Mr Pike was not a resident of Australia under the domicile test before April 2014. Mr Pike cross-appealed the findings that he was a resident according to ordinary concepts and that he satisfied the domicile test from April 2014. Mr Pike also contended that Logan J erred in holding that he had a habitual abode in both Australia and Thailand. The Full Federal Court on appeal dismissed both the appeal and cross-appeal. | Ordinary concepts test: Davies, White and Steward JJ agreed with the reasoning and conclusions of the first instance judge regarding the ordinary concepts test. The first-instance judge placed significance on the finding that when Mr Pike returned to Australia, he returned not as a visitor but to resume residing in Australia as a husband (de facto) and father who resumed living at the family home. [4] | Domicile test: The first-instance judge found that from April 2014, Mr Pike satisfied the 'domicile' test of residency in subparagraph (a)(i) of the definition of 'resident or resident of Australia' in subsection 6(1) of the ITAA 1936. His Honour found that Mr Pike did not obtain an Australian domicile until then, and further found that Mr Pike's permanent place of abode was Australia as it was not possible to conclude that Mr Pike had definitely abandoned Australia. [5] The Full Federal Court concluded it was unnecessary to deal with this ground. [6] | Permanent home: The first-instance judge concluded that Mr Pike did not have a permanent home in either Australia or Thailand. His Honour noted that in considering the concept of permanent home '... questions of fact and degree are necessary entailed'. [7] His Honour observed that even if he were wrong, there was nothing to distinguish the rented homes in Australia and Thailand such that one would be permanent and the other not. [8] | Habitual abode: Davies, White and Steward JJ agreed with the first-instance judge that Mr Pike had a habitual abode in both countries [9] , and held that there was no basis for imputing the habitual abode of a person being the place where the individual has spent more days. [10] The first-instance judge emphasised Mr Pike's life had two aspects; one aspect was working in Thailand and occupying premises there as a home, the other was living in Australia with his family for as long as possible. [11] | Personal and economic relations: The first-instance judge held that Mr Pike's personal relations were closer to Australia and that his economic relations were overwhelmingly closer to Thailand. His Honour then concluded that 'when considered conjunctively, Mr Pike's personal and economic relations were closer to Thailand than Australia, between 2009 and 2014'. [12] Davies, White and Steward JJ observed that Article 4(3) of the DTA '... does not place greater weight on personal factors over economic factors' but: [13] ... poses a composite test and in each case it will be a matter of fact and degree as to whether a taxpayer's personal and economic relations, viewed as a whole, support ties closer to one contracting state over the other contracting state. Their Honours were not persuaded that the conclusion was wrong. Their Honours held that: [14] [a]n appeal court will not overturn the decision of the primary judge merely because it prefers an outcome different from that adopted by the primary judge where both outcomes are equally available or finely balanced.", "ATO_View_of_Decision": "Ordinary concepts test | The Commissioner agrees with the first-instance judge and the Full Federal Court's decision that Mr Pike was a resident under ordinary concepts. | Domicile test | On appeal, the Commissioner contested the first-instance judge's finding that Mr Pike acquired an Australian domicile only from the time he became an Australian citizen in April 2014 as it was only then that His Honour considered there was a requisite intention by Mr Pike to make Australia his home indefinitely. The Commissioner notes that His Honour observed that opinions could differ on this point. [15] This is a factual matter and the Commissioner does not consider it has any material implications for the domicile test. | The Commissioner agrees with the first-instance judge that Mr Pike's permanent place of abode was Australia from April 2014 as he had not definitely abandoned Australia. In the Commissioner's view, Mr Pike's permanent place of abode was Australia throughout the entire period. | Permanent home | The Commissioner notes and agrees with the first-instance judge's observations that a rented accommodation can constitute a permanent home within the meaning of the DTA. [16] On appeal, the Commissioner did not take issue with the finding that on these facts it was open to conclude that Mr Pike did not have a permanent home in either country. The Commissioner observes that whether Mr Pike had a permanent home in neither country or in both countries, this component of the tiebreaker test was not going to resolve the issue of Mr Pike's residency. | Habitual abode | The Commissioner agrees with the findings of the first-instance judge and the Full Federal Court that Mr Pike had a habitual abode in both Thailand and Australia. [17] | On the ordinary meaning and consistent with the OECD commentary referred to by the first-instance judge [18] , the Commissioner considers that determining whether a person has a habitual abode requires ascertaining the frequency, duration and regularity of stays that are part of the settled routine of the individual's life. The decisions of the first-instance judge and that of the appeal are consistent with the Commissioner's view that a person's habitual abode cannot be determined just by time spent in each country. [19] | Personal and economic relations | In applying this aspect of the tiebreaker test, the Commissioner notes the OECD commentary that provides that '... considerations based on the personal acts of the individual must receive special attention... '. [20] The Commissioner's view is that where personal and economic factors lay with both countries, the factors of more significance to the taxpayer have greater weight. | The Commissioner accepts the Full Federal Court's decision to not overturn the decision of the first-instance judge.", "Administrative_Treatment": "None.", "Related_Documents": "TR 98/17 | TR 2001/13 | 2020 ATC 20-764 | 6(1) | [1989] ATS 36, Art 4", "Legislative_References": "Income Tax Assessment Act 1936 6(1)", "Case_References": "Pike v Commissioner of Taxation [2019] FCA 2185 Commissioner of Taxation v Pike [2020] FCAFC 158", "Subject_References": "", "Other_References": "Agreement between Australia and the Kingdom of Thailand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1989] ATS 36, Art 4 OECD (2019), Commentary on Article 4 : Concerning the definition of Resident in Model Tax Convention on Income and on Capital 2017 (Full Version), OECD Publishing, Paris", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD35of2020/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products. | Footnotes: [1] Agreement between Australia and the Kingdom of Thailand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income [1989] ATS 36. | [2] Pike v Commissioner of Taxation [2019] FCA 2185. | [3] The relevance of the outcome under the tiebreaker test in this case was whether Article 15 of the DTA permitted Australia to tax the income from the employment exercised in Thailand noting that whatever the outcome, Mr Pike would remain a resident of Australia for the purposes of subsection 6(1): see paragraph 66 of Taxation Ruling TR 98/17 Income tax : residency status of individuals entering Australia , and paragraph 13 of Taxation Ruling TR 2001/13 Income tax : Interpreting Australia's Double Tax Agreements . | [4] Pike v Commissioner of Taxation [2019] FCA 2185 at [60]. | [5] Pike v Commissioner of Taxation [2019] FCA 2185 at [85]. | [6] Commissioner of Taxation v Pike [2020] FCAFC 158 at [18]. | [7] Pike v Commissioner of Taxation [2019] FCA 2185 at [96]. | [8] Pike v Commissioner of Taxation [2019] FCA 2185 at [96]. | [9] Commissioner of Taxation v Pike [2020] FCAFC 158 at [33]. | [10] Commissioner of Taxation v Pike [2020] FCAFC 158 at [29]. | [11] Pike v Commissioner of Taxation [2019] FCA 2185 at [97]. | [12] Pike v Commissioner of Taxation [2019] FCA 2185 at [104]. | [13] Commissioner of Taxation v Pike [2020] FCAFC 158 at [39]. | [14] Commissioner of Taxation v Pike [2020] FCAFC 158 at [41]. | [15] Pike v Commissioner of Taxation [2019] FCA 2185 at [79]. | [16] Pike v Commissioner of Taxation [2019] FCA 2185 at [96]. | [17] Pike v Commissioner of Taxation [2019] FCA 2185 at [97]-[99] and Commissioner of Taxation v Pike [2020] FCAFC 158 at [33]. | [18] Pike v Commissioner of Taxation [2019] FCA 2185 at [98], referring to OECD (2019), Commentary on Article 4 : Concerning the definition of Resident in Model Tax Convention on Income and on Capital 2017 ( Full Version ), OECD Publishing, Paris. | [19] Pike v Commissioner of Taxation [2019] FCA 2185 at [99]. | [20] Commissioner of Taxation v Pike [2020] FCAFC 158 at [37]."}
{"Case_Name": "Eichmann v Commissioner of Taxation", "Venue_Reference_No": "QUD 43 of 2020", "Venue": "Federal Court of Australia", "Judgment_Date": "18 September 2020", "Date_Published": "29 July 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which involved a challenge to an unfavourable private ruling issued by the Commissioner on whether the active asset test in Division 152 of the Income Tax Assessment Act 1997 [1] was satisfied on the scheme disclosed in the ruling. The active asset test is one of the basic conditions that must be met by small business entities to access the CGT small business concessions.", "Overview_of_Facts": "The material facts of the scheme in relation to which the Commissioner made the private ruling can be summarised as follows: | The taxpayer and his spouse were the shareholders and directors of a trustee company and were also the beneficiaries of a discretionary trust. The trust carried on a business of building, bricklaying and paving that was established before 1987. The taxpayer and his spouse owned a second property adjacent to their main residence. The main residence and the second property were both acquired in 1997. The second property was sold in the 2016-17 income year for $935,000. That property had two sheds, and a block wall and gate to secure the property. | The property was used in the following ways: • The two sheds were used to store work tools, equipment and other materials. • The open space was used to store materials that did not need to be stored under cover, including bricks, blocks, pavers, mixers, wheelbarrows, drums, scaffolding and iron. • Parking of work vehicles and trailers. | • The two sheds were used to store work tools, equipment and other materials. • The open space was used to store materials that did not need to be stored under cover, including bricks, blocks, pavers, mixers, wheelbarrows, drums, scaffolding and iron. • Parking of work vehicles and trailers. | Tools and other items were collected from the property daily and, in some cases, the property would be visited a number of times a day depending on specific job requirements. | The aggregated turnover of the trust was less than $2 million in the 2016-17 income year. | Issues decided by the Court | Whether: • the applicable test for an 'active asset' as defined in paragraph 152-40(1)(a) was correctly identified by the primary judge • the property was used 'in the course of carrying on a business' being carried on by the trust, being an entity connected with the taxpayers, and • the property was an active asset based upon the scheme specified in the private ruling. | • the applicable test for an 'active asset' as defined in paragraph 152-40(1)(a) was correctly identified by the primary judge • the property was used 'in the course of carrying on a business' being carried on by the trust, being an entity connected with the taxpayers, and • the property was an active asset based upon the scheme specified in the private ruling. | For the purposes of Division 152, an 'active asset' is defined as an asset that is owned and used, or held ready for use, in the course of carrying on a business. | At first instance [2] , on appeal from a decision of the Administrative Appeals Tribunal in favour of the taxpayer, Derrington J referred to the Commissioner's submission at [57] that on a proper construction of subsection 152-40(1): ... the words 'is used or held ready for use, in the course of carrying on a business' ... [referred to] ... a use which is integral to the process or processes by which the business is carried on | Derrington J observed at [58] that: ... it is difficult to identify from the authorities relied upon that any requirement exists that the use of the asset is \"integral\" to the business processes, in the sense of being critical or fundamental to the business processes. | His Honour explained at [61] that: ... for an asset to be used \"in\" the course of carrying on a business it is necessary for the use to have a direct functional relevance to the carrying on of the normal day-to-day activities of the business which are directed to the gaining or production of assessable income. | In that sense, the use must be a constituent part or component of the day-to-day business activities and may in that way be described as 'integral' to the 'carrying on' of the business. | Derrington J concluded that the Commissioner had correctly ruled that the property was not an active asset. | The Full Federal Court decided that Derrington J did not correctly identify the applicable test. However, the Full Federal Court also concluded that, even if his Honour's articulation of the test had been correct, the Commissioner had, on the facts described in the ruling, incorrectly ruled that the property was not an active asset. The Full Federal Court rejected a direct functional relevance approach holding that [3] : ... s. 152-40(1)(a) does not require the use of the relevant asset to take place within the day to day or normal course of the carrying on of a business. Nor does the provision require a relationship of direct functional relevance between the use of an asset and the carrying on of a business. Such narrowing qualifications to the statutory test are not supported by the language of the provision ... | Further, the Full Federal Court rejected the proposition that the asset was required to be used in the course of carrying on the activities of a business directed at gaining or producing assessable income.", "Issues_Decided": "Whether: • the applicable test for an 'active asset' as defined in paragraph 152-40(1)(a) was correctly identified by the primary judge • the property was used 'in the course of carrying on a business' being carried on by the trust, being an entity connected with the taxpayers, and • the property was an active asset based upon the scheme specified in the private ruling. • the applicable test for an 'active asset' as defined in paragraph 152-40(1)(a) was correctly identified by the primary judge • the property was used 'in the course of carrying on a business' being carried on by the trust, being an entity connected with the taxpayers, and • the property was an active asset based upon the scheme specified in the private ruling. For the purposes of Division 152, an 'active asset' is defined as an asset that is owned and used, or held ready for use, in the course of carrying on a business. At first instance [2] , on appeal from a decision of the Administrative Appeals Tribunal in favour of the taxpayer, Derrington J referred to the Commissioner's submission at [57] that on a proper construction of subsection 152-40(1): ... the words 'is used or held ready for use, in the course of carrying on a business' ... [referred to] ... a use which is integral to the process or processes by which the business is carried on Derrington J observed at [58] that: ... it is difficult to identify from the authorities relied upon that any requirement exists that the use of the asset is \"integral\" to the business processes, in the sense of being critical or fundamental to the business processes. His Honour explained at [61] that: ... for an asset to be used \"in\" the course of carrying on a business it is necessary for the use to have a direct functional relevance to the carrying on of the normal day-to-day activities of the business which are directed to the gaining or production of assessable income. In that sense, the use must be a constituent part or component of the day-to-day business activities and may in that way be described as 'integral' to the 'carrying on' of the business. Derrington J concluded that the Commissioner had correctly ruled that the property was not an active asset. The Full Federal Court decided that Derrington J did not correctly identify the applicable test. However, the Full Federal Court also concluded that, even if his Honour's articulation of the test had been correct, the Commissioner had, on the facts described in the ruling, incorrectly ruled that the property was not an active asset. The Full Federal Court rejected a direct functional relevance approach holding that [3] : ... s. 152-40(1)(a) does not require the use of the relevant asset to take place within the day to day or normal course of the carrying on of a business. Nor does the provision require a relationship of direct functional relevance between the use of an asset and the carrying on of a business. Such narrowing qualifications to the statutory test are not supported by the language of the provision ... Further, the Full Federal Court rejected the proposition that the asset was required to be used in the course of carrying on the activities of a business directed at gaining or producing assessable income.", "ATO_View_of_Decision": "The active asset test | The conclusion of whether an asset is an active asset is intrinsically fact-dependent. As recognised by the Full Federal Court, whether an asset has been used in the course of 'carrying on', the relevant business demands '... inquiries [that] involve issues of fact and degree'. [4] | While the Full Federal Court has made clear that '... the legislature has not used language which might confine these inquiries' [5] , it remains the case that the asset must be '... used at some point in the carrying on of an identified business'. The Commissioner will continue to closely examine matters such as the way in which an asset has been employed in the business and the extent to which the asset has been so employed in considering whether the asset meets the active asset test. | The importance of the defined facts in a private ruling | A challenge to a private ruling proceeds within the confines of the scheme specified in the ruling. The importance of this point is underscored by the Eichmann litigation in that, both at first instance and on appeal, the Courts identified deficiencies in the description of the scheme which in turn made the task of deliberating on the Commissioner's views on the application of the law to those facts more difficult. The Full Federal Court observed that [6] : As is sometimes the case with private binding rulings, ruled facts can, with the benefit of hindsight, be found not to be as fulsome as might be desired to decide the question of law before the Court. That is not meant as a criticism of the Commissioner's staff. They cannot be expected to predict all of the legal arguments that might subsequently be made in relation to the facts they identify in a ruling. But it does suggest that the rulings system contained in Div. 359 of Sch. 1 to the Taxation Administration Act 1953 ... will not always be an apt mechanism to address disputes concerning facts, and even issues of characterisation of those facts. | In ruling on whether the active asset test is met in a particular case, the Commissioner will take care to ensure the description of the scheme is, so as far as possible, sufficiently detailed as to reveal all the facts relevant to the statutory enquiry.", "Administrative_Treatment": "The ATO will review the impact of this decision on related advice and guidance products.", "Related_Documents": "None | 2020 ATC 20-762 | Div 152 | 152-40(1) | 152-40(1)(a) | 2019 ATC 20-728", "Legislative_References": "Income Tax Assessment Act 1997 Div 152 152-40(1) 152-40(1)(a)", "Case_References": "Commissioner of Taxation v Eichmann [2019] FCA 2155 2019 ATC 20-728", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD43of2020/00001", "Unmatched_Content": "Footnotes: [1] All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1997 . | [2] Commissioner of Taxation v Eichmann [2019] FCA 2155 | [3] Eichmann v Commissioner of Taxation [2020] FCAFC 155 ( Eichmann FFC ), at [46]. | [4] Eichmann FFC, at [41]. | [5] In Eichmann FFC, the Full Federal Court observed at [41] that the legislature could have referred, but did not do so, to the day-to-day course of the business or used the words 'direct' or integral' to qualify the words 'in'. | [6] Eichmann FFC, at [9]."}
{"Case_Name": "Greig v Commissioner of Taxation", "Venue_Reference_No": "NSD 1427 of 2018", "Venue": "Federal Court of Australia", "Judgment_Date": "2 March 2020", "Date_Published": "9 June 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to Greig v Commissioner of Taxation [2020] FCAFC 25. | The main issue in this case was whether the taxpayer acquired shares in an Australian Securities Exchange (ASX)-listed company as part of a 'business operation or commercial transaction'. A majority of the Full Court concluded that the taxpayer did. Therefore, given the taxpayer also had a profit-making intention in acquiring those shares (which was not in dispute), the principle in Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18 ( Myer Emporium ) was engaged. As a result, the losses and outgoings made by the taxpayer from the compulsory transfer of those shares were deductible under paragraph 8-1(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997). | The Commissioner's view is that the Full Court's finely balanced conclusion was open on the particular facts of this case and does not disturb the Commissioner's understanding of the Myer Emporium principle. | The Commissioner has reviewed existing public advice and guidance on the application of the Myer Emporium principle to ensure it reflects the Full Court's application of the principle in this case.", "Overview_of_Facts": "The taxpayer was a senior executive for a global group of companies providing construction, project management and engineering services to clients, including those in the mining and resources industry. The case related to the taxpayer's acquisitions of shares in the former ASX-listed company, Nexus Energy Limited (Nexus). The taxpayer was familiar with Nexus because of his knowledge of the mining and resources sector. He considered there was value in the shares beyond that reflected in their share price, and reasonable prospects of him making a profit by selling the shares in the short-term. In particular, the taxpayer was of the view that Nexus' interest in a gas field off the north-west coast of Western Australia was undervalued. The taxpayer acquired a large number of Nexus shares over 64 transactions spanning approximately 2 years between 2012 and 2014, with an intention of making a profit from their sale prior to his retirement within 4 to 5 years. | During the period in which the taxpayer acquired and held Nexus shares, he regularly monitored their price and ASX announcements either directly or through his professional adviser, conducted research into the company's prospects by reading relevant financial press articles and research reports by investment banks and stockbrokers, and attended company meetings and presentations. During this period, the taxpayer played a key role in influencing a majority of the company's shareholders to reject a takeover proposal from Seven Group Holdings Ltd. However, when the company was placed into voluntary administration, the taxpayer was unsuccessful in legal proceedings (with some other shareholders) to oppose a deed of company administration (DOCA) that proposed the compulsory acquisition of his shares for no consideration. The Supreme Court of New South Wales approved the proposed DOCA in December 2014, which resulted in the taxpayer making share losses of approximately $11.85 million. The taxpayer also incurred associated legal fees of $507,198. | Aside from shares in Nexus, the taxpayer invested millions of dollars in the share market using both professional advice and his own business knowledge and experience. The taxpayer had treated his other considerable share investments (acquired in over 200 separate parcels, totalling approximately $26 million, of which approximately 180 parcels were sold, and the majority held for only short periods of time) as being held on capital account. However, only the tax treatment of the Nexus shares was in dispute in this case. | At first instance in the Federal Court before Thawley J, the taxpayer argued his Nexus shares were acquired by him as part of a 'business operation or commercial transaction', or alternatively that he engaged in a 'business' of dealing in those shares, so as to (in either case) fall within the principle in Myer Emporium. Thawley J rejected both of the taxpayer's arguments, upholding the Commissioner's assessment (which treated the taxpayer's losses and outgoings as being on capital account) for the 2014-15 income year. The taxpayer appealed to the Full Court of the Federal Court. | The Full Court (Kenny and Steward JJ, with Derrington J dissenting) allowed the taxpayer's appeal. The majority agreed with the taxpayer that the primary judge erred by not accepting that he acquired the shares in a business operation or commercial transaction, so as to engage the principle in Myer Emporium. The taxpayer's share losses and legal fees were therefore deductible under paragraph 8-1(1)(a) of the ITAA 1997. | The Commissioner did not seek leave to appeal the Full Court's decision to the High Court. | Issues decided by the Court | Business operation or commercial transaction | The Full Court considered whether the taxpayer, who was employed as a full-time senior executive and not otherwise carrying on a business during the relevant period, acquired the Nexus shares in a 'business operation or commercial transaction'. This is the second limb of the principle in Myer Emporium that a profit or loss from an isolated transaction will generally be on revenue account where the: • intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and • transaction was entered into, and the profit or loss was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction. | • intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and • transaction was entered into, and the profit or loss was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction. | It was not in dispute in the Full Court that the taxpayer acquired his relevant Nexus shares with a profit-making purpose (which satisfied the first limb of the Myer Emporium principle). | In applying the Myer Emporium principle, the Full Court explained: • Profit-making purpose is not sufficient by itself to engage the Myer Emporium principle and will not of itself give a transaction a business-like or commercial character - at [31], [141] and [225]. However, such a purpose is relevant to how the activities of the taxpayer are characterised in determining whether there is a business operation or commercial transaction - at [31], [141-142] and [224-225]. • In determining whether there is a business operation or commercial transaction, '...it is necessary to make both a wide survey and an exact scrutiny of the taxpayer's activities' and emphasis should not be put on one or more features of a transaction to the exclusion of others - at [27] and [212]. • Whether a transaction is on revenue account or capital account will depend on an objective assessment of the facts - at [96] and [242(3)]. While a taxpayer's subjective intention may form part of the wide survey and exact scrutiny of a taxpayer's activities, it should be treated with caution - at [212] and [214]. However, evidence about a taxpayer's personal characterisation of the transaction as being either on revenue account or capital account may go to the credit of the taxpayer's evidence or be relevant to penalties - at [242(3)]. • Activities entered into after an acquisition of shares will generally not be relevant in determining whether the shares were acquired in a business operation or commercial transaction. However, where shares are acquired progressively over time, the taxpayer's activities over that period may be relevant as part of the wide and exact scrutiny of the taxpayer's activities, particularly where the transaction is not an isolated one - at [30], [242(1)] and [245(4)]. • Where a taxpayer acquires shares to sell at a profit rather than to hold as a long-term investment and to receive dividends over time, the taxpayer waiting to sell the shares so as to realise the profit sought will not be fatal to a characterisation of the transaction as being on revenue account - at [246]. | • Profit-making purpose is not sufficient by itself to engage the Myer Emporium principle and will not of itself give a transaction a business-like or commercial character - at [31], [141] and [225]. However, such a purpose is relevant to how the activities of the taxpayer are characterised in determining whether there is a business operation or commercial transaction - at [31], [141-142] and [224-225]. • In determining whether there is a business operation or commercial transaction, '...it is necessary to make both a wide survey and an exact scrutiny of the taxpayer's activities' and emphasis should not be put on one or more features of a transaction to the exclusion of others - at [27] and [212]. • Whether a transaction is on revenue account or capital account will depend on an objective assessment of the facts - at [96] and [242(3)]. While a taxpayer's subjective intention may form part of the wide survey and exact scrutiny of a taxpayer's activities, it should be treated with caution - at [212] and [214]. However, evidence about a taxpayer's personal characterisation of the transaction as being either on revenue account or capital account may go to the credit of the taxpayer's evidence or be relevant to penalties - at [242(3)]. • Activities entered into after an acquisition of shares will generally not be relevant in determining whether the shares were acquired in a business operation or commercial transaction. However, where shares are acquired progressively over time, the taxpayer's activities over that period may be relevant as part of the wide and exact scrutiny of the taxpayer's activities, particularly where the transaction is not an isolated one - at [30], [242(1)] and [245(4)]. • Where a taxpayer acquires shares to sell at a profit rather than to hold as a long-term investment and to receive dividends over time, the taxpayer waiting to sell the shares so as to realise the profit sought will not be fatal to a characterisation of the transaction as being on revenue account - at [246]. | The Full Court stated that it is the commercial or business-like nature of a profit-making transaction that distinguishes it from wagering, lotteries and hobbies, from an investment by a 'private investor' made to hedge against inflation, and from a mere realisation of a capital asset, gain or losses from which would be on capital account - at [29], [229] and [242(4)]. An example of a transaction that is unlikely to be part of a 'business operation or commercial transaction' is an investment in shares to hold over time for their dividend yield - at [29], [235] and [242(6)]. | The Full Court also noted at [31] that: ...Whether a gain or loss is properly characterised as the outcome of a \"business operation or commercial transaction\" cannot be determined by further exegesis of the words \"business operations\" and \"commercial transaction\". | While the meaning of those words is 'plain enough', another way of expressing those words is 'business deal' or something a business person or person in trade would do - at [31], [242(4)] and [248]. | In concluding that the taxpayer's acquisition of Nexus shares had the character of a business operation or commercial transaction, Kenny and Steward JJ had regard to the following matters: • the taxpayer's 'sophisticated' plan to generate cash profits prior to his retirement in 4 to 5 years' time by acquiring shares in large volumes and selling them quickly at a substantial profit - at [29], [30] and [245(2)] • the taxpayer acquired the Nexus shares in a 'systematic' fashion on 64 occasions - at [245(3)] • the acquisitions of Nexus shares were part of, and indistinguishable from, the taxpayer's other share-trading activities which included the frequent and short-term acquisition and sale of 44 other stocks on 218 occasions - at [30] and [251] • the taxpayer's participation directly, or indirectly through the agency of his adviser, in the plan to increase the value of his shares (including research, meeting company representatives and becoming a substantial shareholder to have a greater say over any future sale process by Nexus) block the proposed takeover of Nexus by Seven Group Holdings Ltd and contest the subsequent DOCA proposed by creditors of Nexus - at [18], [30], [204], [207] and [245(4)] • the taxpayer's use of his own business knowledge and experience (that he had acquired as a senior executive of a global services group of companies which operated in the mining and resources industry) each time he decided to buy Nexus shares in a context where that knowledge and experience of the mining and resources sector was more than most ordinary private investors would have - at [30], [245(5)] and [247], and • the taxpayer acted as a business person would by engaging in the previously listed activities; the taxpayer engaged professional advisers; the taxpayer used 'system and organization' in relation to the acquisition of his Nexus shares; his share trading activities were not consistent with a hobby, pastime, private gambling or gaming; and the disposal of his shares was more than a 'mere' realisation of an asset - at [30], [242(6)] and [248]. | • the taxpayer's 'sophisticated' plan to generate cash profits prior to his retirement in 4 to 5 years' time by acquiring shares in large volumes and selling them quickly at a substantial profit - at [29], [30] and [245(2)] • the taxpayer acquired the Nexus shares in a 'systematic' fashion on 64 occasions - at [245(3)] • the acquisitions of Nexus shares were part of, and indistinguishable from, the taxpayer's other share-trading activities which included the frequent and short-term acquisition and sale of 44 other stocks on 218 occasions - at [30] and [251] • the taxpayer's participation directly, or indirectly through the agency of his adviser, in the plan to increase the value of his shares (including research, meeting company representatives and becoming a substantial shareholder to have a greater say over any future sale process by Nexus) block the proposed takeover of Nexus by Seven Group Holdings Ltd and contest the subsequent DOCA proposed by creditors of Nexus - at [18], [30], [204], [207] and [245(4)] • the taxpayer's use of his own business knowledge and experience (that he had acquired as a senior executive of a global services group of companies which operated in the mining and resources industry) each time he decided to buy Nexus shares in a context where that knowledge and experience of the mining and resources sector was more than most ordinary private investors would have - at [30], [245(5)] and [247], and • the taxpayer acted as a business person would by engaging in the previously listed activities; the taxpayer engaged professional advisers; the taxpayer used 'system and organization' in relation to the acquisition of his Nexus shares; his share trading activities were not consistent with a hobby, pastime, private gambling or gaming; and the disposal of his shares was more than a 'mere' realisation of an asset - at [30], [242(6)] and [248].", "Issues_Decided": "Business operation or commercial transaction: The Full Court considered whether the taxpayer, who was employed as a full-time senior executive and not otherwise carrying on a business during the relevant period, acquired the Nexus shares in a 'business operation or commercial transaction'. This is the second limb of the principle in Myer Emporium that a profit or loss from an isolated transaction will generally be on revenue account where the: • intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and • transaction was entered into, and the profit or loss was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction. • intention or purpose of the taxpayer in entering into the transaction was to make a profit or gain, and • transaction was entered into, and the profit or loss was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction. It was not in dispute in the Full Court that the taxpayer acquired his relevant Nexus shares with a profit-making purpose (which satisfied the first limb of the Myer Emporium principle). In applying the Myer Emporium principle, the Full Court explained: • Profit-making purpose is not sufficient by itself to engage the Myer Emporium principle and will not of itself give a transaction a business-like or commercial character - at [31], [141] and [225]. However, such a purpose is relevant to how the activities of the taxpayer are characterised in determining whether there is a business operation or commercial transaction - at [31], [141-142] and [224-225]. • In determining whether there is a business operation or commercial transaction, '...it is necessary to make both a wide survey and an exact scrutiny of the taxpayer's activities' and emphasis should not be put on one or more features of a transaction to the exclusion of others - at [27] and [212]. • Whether a transaction is on revenue account or capital account will depend on an objective assessment of the facts - at [96] and [242(3)]. While a taxpayer's subjective intention may form part of the wide survey and exact scrutiny of a taxpayer's activities, it should be treated with caution - at [212] and [214]. However, evidence about a taxpayer's personal characterisation of the transaction as being either on revenue account or capital account may go to the credit of the taxpayer's evidence or be relevant to penalties - at [242(3)]. • Activities entered into after an acquisition of shares will generally not be relevant in determining whether the shares were acquired in a business operation or commercial transaction. However, where shares are acquired progressively over time, the taxpayer's activities over that period may be relevant as part of the wide and exact scrutiny of the taxpayer's activities, particularly where the transaction is not an isolated one - at [30], [242(1)] and [245(4)]. • Where a taxpayer acquires shares to sell at a profit rather than to hold as a long-term investment and to receive dividends over time, the taxpayer waiting to sell the shares so as to realise the profit sought will not be fatal to a characterisation of the transaction as being on revenue account - at [246]. • Profit-making purpose is not sufficient by itself to engage the Myer Emporium principle and will not of itself give a transaction a business-like or commercial character - at [31], [141] and [225]. However, such a purpose is relevant to how the activities of the taxpayer are characterised in determining whether there is a business operation or commercial transaction - at [31], [141-142] and [224-225]. • In determining whether there is a business operation or commercial transaction, '...it is necessary to make both a wide survey and an exact scrutiny of the taxpayer's activities' and emphasis should not be put on one or more features of a transaction to the exclusion of others - at [27] and [212]. • Whether a transaction is on revenue account or capital account will depend on an objective assessment of the facts - at [96] and [242(3)]. While a taxpayer's subjective intention may form part of the wide survey and exact scrutiny of a taxpayer's activities, it should be treated with caution - at [212] and [214]. However, evidence about a taxpayer's personal characterisation of the transaction as being either on revenue account or capital account may go to the credit of the taxpayer's evidence or be relevant to penalties - at [242(3)]. • Activities entered into after an acquisition of shares will generally not be relevant in determining whether the shares were acquired in a business operation or commercial transaction. However, where shares are acquired progressively over time, the taxpayer's activities over that period may be relevant as part of the wide and exact scrutiny of the taxpayer's activities, particularly where the transaction is not an isolated one - at [30], [242(1)] and [245(4)]. • Where a taxpayer acquires shares to sell at a profit rather than to hold as a long-term investment and to receive dividends over time, the taxpayer waiting to sell the shares so as to realise the profit sought will not be fatal to a characterisation of the transaction as being on revenue account - at [246]. The Full Court stated that it is the commercial or business-like nature of a profit-making transaction that distinguishes it from wagering, lotteries and hobbies, from an investment by a 'private investor' made to hedge against inflation, and from a mere realisation of a capital asset, gain or losses from which would be on capital account - at [29], [229] and [242(4)]. An example of a transaction that is unlikely to be part of a 'business operation or commercial transaction' is an investment in shares to hold over time for their dividend yield - at [29], [235] and [242(6)]. The Full Court also noted at [31] that: ...Whether a gain or loss is properly characterised as the outcome of a \"business operation or commercial transaction\" cannot be determined by further exegesis of the words \"business operations\" and \"commercial transaction\". While the meaning of those words is 'plain enough', another way of expressing those words is 'business deal' or something a business person or person in trade would do - at [31], [242(4)] and [248]. In concluding that the taxpayer's acquisition of Nexus shares had the character of a business operation or commercial transaction, Kenny and Steward JJ had regard to the following matters: • the taxpayer's 'sophisticated' plan to generate cash profits prior to his retirement in 4 to 5 years' time by acquiring shares in large volumes and selling them quickly at a substantial profit - at [29], [30] and [245(2)] • the taxpayer acquired the Nexus shares in a 'systematic' fashion on 64 occasions - at [245(3)] • the acquisitions of Nexus shares were part of, and indistinguishable from, the taxpayer's other share-trading activities which included the frequent and short-term acquisition and sale of 44 other stocks on 218 occasions - at [30] and [251] • the taxpayer's participation directly, or indirectly through the agency of his adviser, in the plan to increase the value of his shares (including research, meeting company representatives and becoming a substantial shareholder to have a greater say over any future sale process by Nexus) block the proposed takeover of Nexus by Seven Group Holdings Ltd and contest the subsequent DOCA proposed by creditors of Nexus - at [18], [30], [204], [207] and [245(4)] • the taxpayer's use of his own business knowledge and experience (that he had acquired as a senior executive of a global services group of companies which operated in the mining and resources industry) each time he decided to buy Nexus shares in a context where that knowledge and experience of the mining and resources sector was more than most ordinary private investors would have - at [30], [245(5)] and [247], and • the taxpayer acted as a business person would by engaging in the previously listed activities; the taxpayer engaged professional advisers; the taxpayer used 'system and organization' in relation to the acquisition of his Nexus shares; his share trading activities were not consistent with a hobby, pastime, private gambling or gaming; and the disposal of his shares was more than a 'mere' realisation of an asset - at [30], [242(6)] and [248]. • the taxpayer's 'sophisticated' plan to generate cash profits prior to his retirement in 4 to 5 years' time by acquiring shares in large volumes and selling them quickly at a substantial profit - at [29], [30] and [245(2)] • the taxpayer acquired the Nexus shares in a 'systematic' fashion on 64 occasions - at [245(3)] • the acquisitions of Nexus shares were part of, and indistinguishable from, the taxpayer's other share-trading activities which included the frequent and short-term acquisition and sale of 44 other stocks on 218 occasions - at [30] and [251] • the taxpayer's participation directly, or indirectly through the agency of his adviser, in the plan to increase the value of his shares (including research, meeting company representatives and becoming a substantial shareholder to have a greater say over any future sale process by Nexus) block the proposed takeover of Nexus by Seven Group Holdings Ltd and contest the subsequent DOCA proposed by creditors of Nexus - at [18], [30], [204], [207] and [245(4)] • the taxpayer's use of his own business knowledge and experience (that he had acquired as a senior executive of a global services group of companies which operated in the mining and resources industry) each time he decided to buy Nexus shares in a context where that knowledge and experience of the mining and resources sector was more than most ordinary private investors would have - at [30], [245(5)] and [247], and • the taxpayer acted as a business person would by engaging in the previously listed activities; the taxpayer engaged professional advisers; the taxpayer used 'system and organization' in relation to the acquisition of his Nexus shares; his share trading activities were not consistent with a hobby, pastime, private gambling or gaming; and the disposal of his shares was more than a 'mere' realisation of an asset - at [30], [242(6)] and [248].", "ATO_View_of_Decision": "Business operation or commercial transaction | The Commissioner considers that this case does not change the principle in Myer Emporium and, in particular, does not disturb the Commissioner's understanding of the factors that will be relevant in determining whether an acquisition of shares is made in carrying out a 'business operation or commercial transaction'. | The Commissioner considers that it was reasonably open to the Full Court on the facts of this case to conclude that the taxpayer acquired his Nexus shares in a business operation or commercial transaction. In particular, the majority of the Full Court had regard to the taxpayer's extensive business knowledge and experience, the significant commercial steps that the taxpayer took to increase the value of his Nexus shares, and the scale and periodicity of his overall share-trading activities (not just those involving the relevant Nexus shares) over 7 years. | In addition to the relevant Nexus shares, Steward J noted at [223] that: ...from 2007 to 2014 the taxpayer purchased parcels of listed shares on 218 occasions (he purchased Nexus shares on a further 64 occasions). He sold approximately 180 of these. He expended in aggregate about, by my reckoning, $26 million. A great many shares were held for only months; a very great deal were held for less than two years. | The taxpayer also became a substantial shareholder in 3 ASX-listed companies (including Nexus). The Full Court majority concluded by the way that all of the taxpayer's other share transactions were on revenue account, notwithstanding he had self-assessed them as being on capital account - at [28] and [252]. | As summed up by Steward J at [223] in referring to the taxpayer's overall share trading activities: ... It would, in my view, and generally speaking, be surprising if such trading, with its scale and periodicity, and with its express purpose of profit-making, could be characterised as an affair of capital. | The Commissioner considers that the Full Court majority's conclusion is not inconsistent with the existing advice and guidance in Taxation Rulings TR 92/3 Income tax: whether profits on isolated transactions are income and TR 92/4 Income tax: whether losses on isolated transactions are deductible and on the ATO's website. [1] Paragraph 13 of TR 92/3 sets out the matters which may be relevant in considering whether an isolated transaction amounts to a business operation or commercial transaction, including the nature and scale of other activities undertaken by the taxpayer, the amount of money involved in the operation, the magnitude of the profit sought, the nature, scale and complexity of the operation, and the timing of the transaction. Having regard to those matters, the Commissioner considers that the taxpayer's activities in this case as explained by the majority of the Full Court can reasonably be characterised as business or commercial in character. | The Commissioner notes Steward J's acknowledgment that the question of whether there was a business dealing or commercial transaction in this case raised a 'difficult issue of characterisation' and that his Honour reached his conclusion in this case '... (a)fter much hesitation' - at [225] and [245]. Kenny J also noted at [24] that existing cases on the Myer Emporium principle: ...do not directly address a case like this where the issue is whether a taxpayer was engaged \"in a business operation or commercial transaction\" for the purpose of making a profit, while also being a very well remunerated corporate employee in full-time employment. | The borderline nature of this case is also demonstrated by the different conclusions reached by Thawley J at first instance and Derrington J in dissent. | The Commissioner accepts that the activities of agents acting on behalf of a taxpayer (such as a professional adviser or broker) are relevant to the factual matrix which needs to be considered in characterising the nature of a transaction. | Carrying on a business | The majority of the Full Court did not address whether the taxpayer was carrying on a business of dealing in the relevant Nexus shares (as it was not necessary for them to do so). Where a taxpayer is carrying on a business, TR 92/3 and TR 92/4 provide guidance on when a profit or loss from an isolated transaction will be assessable as income or deductible (as relevant). | Individual taxpayers investing in shares who are able to establish that they are within the Myer Emporium principle on the basis that they are carrying on a business (such that gains or losses from their shares are assessable or deductible on revenue account, respectively) should also be aware of the non-commercial loss rules in Division 35 of the ITAA 1997, which can limit the ability to utilise losses from carrying on a business activity. The operation of the non-commercial loss rules is explained in Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses.", "Administrative_Treatment": "The Commissioner considers the decision is consistent with the ATO's explanation of the Myer Emporium principle in existing advice and guidance and provides another example of the application of that principle to the particular facts before the Full Court. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] Shareholding as investor or share trading as business", "Related_Documents": "none | [2020] FCAFC 25 | 2020 ATC 20-733 | 8-1 | 8-1(1)(a) | Division 35 | 87 ATC 4363 | 2018 ATC 20-662 | TR 92/3 | TR 92/4 | TR 2001/14", "Legislative_References": "Income Tax Assessment Act 1997 8-1 8-1(1)(a) Division 35", "Case_References": "Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18 163 CLR 199 87 ATC 4363 18 ATR 693 Greig v Commissioner of Taxation [2018] FCA 1084 2018 ATC 20-662 108 ATR 491", "Subject_References": "", "Other_References": "TR 92/3 TR 92/4 TR 2001/14", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1427of2018/00001", "Unmatched_Content": "The ATO considers this decision has no impact on these rulings."}
{"Case_Name": "MWWD and Commissioner of Taxation", "Venue_Reference_No": "2020/0839 - 2020/0843", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "16 October 2020", "Date_Published": "25 February 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case, which considered whether a person engaged by the taxpayer was an 'employee' under section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA).", "Overview_of_Facts": "The taxpayer provides repair and maintenance services. They provide some of these services to their clients through service technicians. This case concerned a person who was engaged by the taxpayer as a service technician and was treated as an independent contractor for the quarterly periods ending 30 September 2013 to 30 September 2017 (the period). | The person was initially engaged as a casual worker, then was subsequently offered written terms of engagement that specified, among other things, that he was an 'independent contractor'. He was engaged under that agreement, and similar agreements, over the period. | The taxpayer did not make any superannuation contributions for the person during the period on the basis that he was not an employee. | The Commissioner assessed the taxpayer as being liable to pay superannuation guarantee charge on the basis that the person was an employee under subsections 12(1) and 12(3) of the SGAA during the period. | Issues decided by the Tribunal | The Tribunal found that the person was not an employee under subsections 12(1) or 12(3) of the SGAA. | Subsection 12(1) of the SGAA - employee at common law | The Tribunal observed at [13] that determining whether a person is an employee at common law involves a 'multi-factorial' approach. The Tribunal's specific findings in relation to the factors that it considered are outlined below. | Terms of the contract | The Tribunal concluded at [32] that the text of the agreement pointed in both directions. | It found at [32] that the terms described the person as an 'independent contractor' and gave the person a 'right to delegate', indicating he was an independent contractor. It also found that some terms gave the taxpayer 'some formal control over where, when and how the person provided the services', indicating he was an employee. | Exercising control | The Tribunal concluded that the control test did not point decisively in either direction. | It observed at [33] that the agreement gave the taxpayer more control over the person than would be expected in an independent contracting arrangement, but found, on the evidence at [41], that the person was not actively 'supervised or directed'. | Integration into the organisation of the business | The Tribunal observed at [43] that the work of the service technicians was central to the taxpayer's business. The person was the 'face' of the taxpayer and was expected to promote its business to customers, which may be suggestive of an employment arrangement. | It found on the evidence at [43] that the person did not supervise any of the taxpayer's employees and was not actively supervised himself as part of the taxpayer's hierarchy. Generally, the person operated alone at the premises of the taxpayer's customers. | The Tribunal found at [44] that the person 'enjoyed a great deal of autonomy in the relationship' but concluded that this was not 'necessarily inconsistent with an employment relationship'. | Exclusivity | The Tribunal concluded at [46] that 'this indicator was ultimately inconclusive'. | It found at [45] that the person was 'permitted to undertake private work' notwithstanding a restraint of trade clause in the agreement and practical impediments to working for third parties. | The Tribunal also found on the evidence at [46] that the person performed all work personally, did not subcontract, and worked substantially for the taxpayer. | Tools and equipment | The Tribunal concluded at [52] that this factor pointed to an independent contractor relationship, but not decisively so. | The Tribunal found on the evidence at [50] that the person was required to provide many of his own tools and a vehicle, but the taxpayer maintained a workshop and provided some equipment to the person. | Remuneration and tax arrangements | The Tribunal found on the evidence at [54] that the person was, for the most part, being paid to complete discrete tasks in accordance with the agreement, which pointed to an independent contractor relationship. | The Tribunal also observed at [53-54] that the taxpayer did not withhold amounts in respect of income tax nor make any superannuation contributions. The person included goods and services tax in his invoices and claimed deductions for expenses. The Tribunal accepted that this merely reflected the parties arranging their affairs in accordance with the agreement. | Insurance arrangements and risk | The Tribunal found on the evidence at [56] that the person assumed the risk. | It found at [55] that the agreement required the person to bear liability for any loss or damage arising out of his work. There were a handful of instances where he had to re-do work at his own expense. | Conclusion - employee at common law | The Tribunal found on the evidence at [57] that while the parties intended to negotiate an independent contracting relationship, the relationship they created included features of both an employment and independent contracting arrangement. | The Tribunal ultimately decided at [57-58] that the person was not a common-law employee. It was satisfied that the person and the taxpayer were 'dealing with each other as principals' and while individual indicia pointed to different conclusions, the overall impression was that they were not in an employment relationship. | Subsection 12(3) of the SGAA - statutorily-expanded definition | The Tribunal accepted at [60] that the person performed the contracted work personally and that the agreement did not place much emphasis on the provision of tools and equipment. | However, despite both the evidence suggesting there were practical obstacles to delegating the work, and the person not delegating work in practice, the Tribunal found on the evidence at [61] that he had the right to delegate. Further, there was no reason to suppose the taxpayer would have (or could have) unreasonably prevented delegation. | Conclusion - statutorily-expanded definition | The Tribunal concluded at [64] that the person was not an employee under subsection 12(3) of the SGAA because he had a right to delegate.", "Issues_Decided": "The Tribunal found that the person was not an employee under subsections 12(1) or 12(3) of the SGAA. | Subsection 12(1) of the SGAA - employee at common law: The Tribunal observed at [13] that determining whether a person is an employee at common law involves a 'multi-factorial' approach. The Tribunal's specific findings in relation to the factors that it considered are outlined below. | Terms of the contract: The Tribunal concluded at [32] that the text of the agreement pointed in both directions. It found at [32] that the terms described the person as an 'independent contractor' and gave the person a 'right to delegate', indicating he was an independent contractor. It also found that some terms gave the taxpayer 'some formal control over where, when and how the person provided the services', indicating he was an employee. | Exercising control: The Tribunal concluded that the control test did not point decisively in either direction. It observed at [33] that the agreement gave the taxpayer more control over the person than would be expected in an independent contracting arrangement, but found, on the evidence at [41], that the person was not actively 'supervised or directed'. | Integration into the organisation of the business: The Tribunal observed at [43] that the work of the service technicians was central to the taxpayer's business. The person was the 'face' of the taxpayer and was expected to promote its business to customers, which may be suggestive of an employment arrangement. It found on the evidence at [43] that the person did not supervise any of the taxpayer's employees and was not actively supervised himself as part of the taxpayer's hierarchy. Generally, the person operated alone at the premises of the taxpayer's customers. The Tribunal found at [44] that the person 'enjoyed a great deal of autonomy in the relationship' but concluded that this was not 'necessarily inconsistent with an employment relationship'. | Exclusivity: The Tribunal concluded at [46] that 'this indicator was ultimately inconclusive'. It found at [45] that the person was 'permitted to undertake private work' notwithstanding a restraint of trade clause in the agreement and practical impediments to working for third parties. The Tribunal also found on the evidence at [46] that the person performed all work personally, did not subcontract, and worked substantially for the taxpayer. | Tools and equipment: The Tribunal concluded at [52] that this factor pointed to an independent contractor relationship, but not decisively so. The Tribunal found on the evidence at [50] that the person was required to provide many of his own tools and a vehicle, but the taxpayer maintained a workshop and provided some equipment to the person. | Remuneration and tax arrangements: The Tribunal found on the evidence at [54] that the person was, for the most part, being paid to complete discrete tasks in accordance with the agreement, which pointed to an independent contractor relationship. The Tribunal also observed at [53-54] that the taxpayer did not withhold amounts in respect of income tax nor make any superannuation contributions. The person included goods and services tax in his invoices and claimed deductions for expenses. The Tribunal accepted that this merely reflected the parties arranging their affairs in accordance with the agreement. | Insurance arrangements and risk: The Tribunal found on the evidence at [56] that the person assumed the risk. It found at [55] that the agreement required the person to bear liability for any loss or damage arising out of his work. There were a handful of instances where he had to re-do work at his own expense. | Conclusion - employee at common law: The Tribunal found on the evidence at [57] that while the parties intended to negotiate an independent contracting relationship, the relationship they created included features of both an employment and independent contracting arrangement. The Tribunal ultimately decided at [57-58] that the person was not a common-law employee. It was satisfied that the person and the taxpayer were 'dealing with each other as principals' and while individual indicia pointed to different conclusions, the overall impression was that they were not in an employment relationship. | Subsection 12(3) of the SGAA - statutorily-expanded definition: The Tribunal accepted at [60] that the person performed the contracted work personally and that the agreement did not place much emphasis on the provision of tools and equipment. However, despite both the evidence suggesting there were practical obstacles to delegating the work, and the person not delegating work in practice, the Tribunal found on the evidence at [61] that he had the right to delegate. Further, there was no reason to suppose the taxpayer would have (or could have) unreasonably prevented delegation. | Conclusion - statutorily-expanded definition: The Tribunal concluded at [64] that the person was not an employee under subsection 12(3) of the SGAA because he had a right to delegate.", "ATO_View_of_Decision": "The ATO observes that determining whether a person is an employee, or an independent contractor, depends on the facts and circumstances of each case. | The Tribunal's conclusion differed from that of the ATO's because of the finding of facts made by the Tribunal and the emphasis that it gave to some facts over others. This finding of facts was open to the Tribunal based on the evidence presented. | The ATO accepts the Tribunal's decision (that the person was not an employee under subsection 12(1) and that subsection 12(3) did not apply) was open to it based on its finding of facts. | The ATO does not consider that this decision has wider ramifications beyond the taxpayer's particular circumstances.", "Administrative_Treatment": "None.", "Related_Documents": "None | 2020 ATC 10-553 | The Act | 12 | 12(1) | 12(3)", "Legislative_References": "Income Tax Assessment Act 1936 The Act Superannuation Guarantee (Administration) Act 1992 12 12(1) 12(3)", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2020-0839-2020-0843/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "SWPD and Commissioner of Taxation", "Venue_Reference_No": "2018/3729", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "18 March 2020", "Date_Published": "22 July 2020", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision Impact Statement outlines the ATO's response to this case which concerns whether the taxpayer (referred to by the Tribunal as the Applicant) was carrying on a 'forestry' business in the 2015-16 income year for the purposes of the small business capital gains tax concessions in Subdivision 152-A of the Income Tax Assessment Act 1997 (ITAA 1997), and whether the sale of the property on which the trees were planted satisfied the active asset test.", "Overview_of_Facts": "The taxpayer purchased real property in 1992 for $180,000, from a known forestry operator who had in the past selectively logged the native forest on the property. The taxpayer saw the purchase as a good business opportunity and gave evidence that he had done calculations prior to the purchase, although he no longer had the calculations. | The taxpayer had heard about the property through an employee at a hotel he owned and, having little knowledge of the forestry industry at the time, spoke to a number of people about the opportunity, including two forestry people who were patrons of his bar. The property, being 343.95 hectares, contained predominantly native forest regeneration and a small five-hectare plantation forest. The property had a well-developed road system and was close to a mill. The taxpayer borrowed 70% of the purchase price from the National Australia Bank. | At the time of purchase, the Tribunal found at [20] that the taxpayer planned to: ... sit on the property and wait as it was too big to weed or water and did not need daily or weekly attention, although it did need maintenance works to the boundary and roads. | The taxpayer gave evidence that no other use could be made of the land as it had no access to water, sewerage or power although the Tribunal observed at [48] that there was no evidence before it that the taxpayer '... ever made enquiries as to the value of the land itself or the prospects of capital growth'. | During the period of ownership, no harvesting activities took place on the property. The activities engaged in by the taxpayer, or at his direction, included: • maintaining roads and fences on the property • repairing rain damaged and blocked culverts • clearing fallen logs • weed eradication (at the direction of local Council), and • establishing a replacement access road (due to the previous road being in the wrong place). | • maintaining roads and fences on the property • repairing rain damaged and blocked culverts • clearing fallen logs • weed eradication (at the direction of local Council), and • establishing a replacement access road (due to the previous road being in the wrong place). | The Tribunal found at [52] that the taxpayer also '... attended various industry seminars'. | As to how the taxpayer was to have known when the trees were ready for harvesting, the Tribunal observed at [52] that the taxpayer's evidence was that '... he had been told that trees would be viable to harvest when it became hard for him to put his arms around them'. The Tribunal also found that the parties' experts had agreed this '... was a reasonable, although far from precise, measure'. | The taxpayer sold the property in April 2016 for $2.75 million. At the time of the sale, no harvesting of the trees planted on the property had taken place - the Tribunal found at [51] that the evidence was that '... the trees were still many years from being a commercial crop'. The Tribunal also found at [23] that the '... trees did not grow as initially anticipated by the Applicant', a drought having commenced in 1996 and continued to 2004, and the water table having dropped. The Tribunal heard evidence at [53] that the taxpayer's initial prediction of when '... the trees would be ready to harvest' (20 years from purchase) was 'overly optimistic' given the low quality of the soil, but the taxpayer's prediction had been based on advice which the taxpayer had received and could not be criticised for accepting. | Overall, the Tribunal found at [26] that the taxpayer was a witness of truth with a good recollection of relevant matters, and at [27] there was some corroboration for the taxpayer's evidence. The Tribunal accepted at [58] the taxpayer's evidence of what took place. | Issues decided by the Tribunal | Was the taxpayer a 'CGT small business entity' within the terms of subparagraph 152-10(1)(c)(i) of the ITAA 1997? | To be entitled to reduce the capital gain made on the sale of the property under the CGT small business conditions, one of the conditions that had to be satisfied was that the taxpayer was a CGT small business entity for the 2015-16 income year. This in turn required the taxpayer to be a 'small business entity', the definition of which includes the requirement that the taxpayer carried on a business in the relevant year. The primary issue for determination therefore was whether the taxpayer was carrying on a forestry business over the relevant time. This is a question of fact and degree. | The indicia identified by the High Court in Spriggs v Commissioner of Taxation [2009] HCA 22 (Spriggs) relevant to the existence of a business were central to the Tribunal's consideration of this issue. The Tribunal considered and weighed up the indicia and accepted that on balance, the taxpayer was carrying on a forestry business. | In summary, based on the evidence before it, including expert evidence led by both parties, the Tribunal found: (a) at [37], a profit-making purpose existed. The Tribunal found at [30] that it is ... entirely plausible that an entrepreneur such as the Applicant would have purchased the property intending to make a profit without knowing a great deal about the industry and after only a few conversations with people in the industry. Further, the Tribunal found at [34] that ... there is no evidence that he abandoned his profit-making intentions when it became apparent the trees would take much longer to grow to the size required for commercial harvesting. (b) at [44], the activities carried out were very much characteristic of a forestry business in its growth stage. The Tribunal observed that the forestry business was in the growth phase and that as such the significance to be attached to repetition and regularity as an indicia of carrying on a business was at [41] '... of considerably less importance in a forestry operation ...' of the type before the Tribunal. The Tribunal found at [42] that the taxpayer ... by his own hand or through contractors, carried out activities which were ancillary to the forestry business such as maintaining the roads and fences, removing noxious weeds and building an access road ... these activities were consistent with a forestry business ... (c) at [45-46], the transactions, while few, were of a commercial character having regard to a forestry business in the 'growth' phase where few transactions are to be expected and the absence of transactions is therefore not indicative of a lack of business, and (d) at [49], the activities were carried out by the taxpayer in a business-like manner putting to one side the deficiencies in the taxpayer's record keeping. While the taxpayer did not have a business plan or a budget, the Tribunal at [50] accepted the evidence of the taxpayer's accountant that it was not to be expected that the taxpayer would have these items '... and it would have been quite unusual if he had them'. | (a) at [37], a profit-making purpose existed. The Tribunal found at [30] that it is ... entirely plausible that an entrepreneur such as the Applicant would have purchased the property intending to make a profit without knowing a great deal about the industry and after only a few conversations with people in the industry. Further, the Tribunal found at [34] that ... there is no evidence that he abandoned his profit-making intentions when it became apparent the trees would take much longer to grow to the size required for commercial harvesting. (b) at [44], the activities carried out were very much characteristic of a forestry business in its growth stage. The Tribunal observed that the forestry business was in the growth phase and that as such the significance to be attached to repetition and regularity as an indicia of carrying on a business was at [41] '... of considerably less importance in a forestry operation ...' of the type before the Tribunal. The Tribunal found at [42] that the taxpayer ... by his own hand or through contractors, carried out activities which were ancillary to the forestry business such as maintaining the roads and fences, removing noxious weeds and building an access road ... these activities were consistent with a forestry business ... (c) at [45-46], the transactions, while few, were of a commercial character having regard to a forestry business in the 'growth' phase where few transactions are to be expected and the absence of transactions is therefore not indicative of a lack of business, and (d) at [49], the activities were carried out by the taxpayer in a business-like manner putting to one side the deficiencies in the taxpayer's record keeping. While the taxpayer did not have a business plan or a budget, the Tribunal at [50] accepted the evidence of the taxpayer's accountant that it was not to be expected that the taxpayer would have these items '... and it would have been quite unusual if he had them'. | The Tribunal did not consider the lack of large-scale transactions or activity in this matter necessarily indicative of whether a business was being carried on. Instead, having regard to the consensus of both the taxpayer's and the Commissioner's experts on this issue, the Tribunal found at [45] that the low level of activity and transactions was consistent with a forestry business of this nature being in the 'growth' stage. The Tribunal also noted at [29] that '... [t]he forestry experts engaged by each party considered the property to be of a commercial size and to be carrying a crop of trees which would become commercial with time'. | While the Tribunal considered at [49] that the taxpayer's record keeping was 'sorely lacking', and noted at [32] that both the taxpayer and his accountant acknowledged that the taxpayer was a 'poor record-keeper', the Tribunal also found at [32] that poor record keeping '... does not of itself prove that the Applicant was not carrying on a business'. | Does the property satisfy the active asset test within the terms of paragraph 152-10(1)(d) of the ITAA 1997? | The Tribunal noted that the Commissioner did not agree that the condition in paragraph 152-10(1)(d) of the ITAA 1997 was satisfied. However, having concluded that the taxpayer had operated a business over the relevant period, the Tribunal found at [59] '... [i]t also follows that the property satisfied the active asset test'. | No further consideration or reasoning was provided for this conclusion.", "Issues_Decided": "Was the taxpayer a 'CGT small business entity' within the terms of subparagraph 152-10(1)(c)(i) of the ITAA 1997?: To be entitled to reduce the capital gain made on the sale of the property under the CGT small business conditions, one of the conditions that had to be satisfied was that the taxpayer was a CGT small business entity for the 2015-16 income year. This in turn required the taxpayer to be a 'small business entity', the definition of which includes the requirement that the taxpayer carried on a business in the relevant year. The primary issue for determination therefore was whether the taxpayer was carrying on a forestry business over the relevant time. This is a question of fact and degree. The indicia identified by the High Court in Spriggs v Commissioner of Taxation [2009] HCA 22 (Spriggs) relevant to the existence of a business were central to the Tribunal's consideration of this issue. The Tribunal considered and weighed up the indicia and accepted that on balance, the taxpayer was carrying on a forestry business. In summary, based on the evidence before it, including expert evidence led by both parties, the Tribunal found: (a) at [37], a profit-making purpose existed. The Tribunal found at [30] that it is ... entirely plausible that an entrepreneur such as the Applicant would have purchased the property intending to make a profit without knowing a great deal about the industry and after only a few conversations with people in the industry. Further, the Tribunal found at [34] that ... there is no evidence that he abandoned his profit-making intentions when it became apparent the trees would take much longer to grow to the size required for commercial harvesting. (b) at [44], the activities carried out were very much characteristic of a forestry business in its growth stage. The Tribunal observed that the forestry business was in the growth phase and that as such the significance to be attached to repetition and regularity as an indicia of carrying on a business was at [41] '... of considerably less importance in a forestry operation ...' of the type before the Tribunal. The Tribunal found at [42] that the taxpayer ... by his own hand or through contractors, carried out activities which were ancillary to the forestry business such as maintaining the roads and fences, removing noxious weeds and building an access road ... these activities were consistent with a forestry business ... (c) at [45-46], the transactions, while few, were of a commercial character having regard to a forestry business in the 'growth' phase where few transactions are to be expected and the absence of transactions is therefore not indicative of a lack of business, and (d) at [49], the activities were carried out by the taxpayer in a business-like manner putting to one side the deficiencies in the taxpayer's record keeping. While the taxpayer did not have a business plan or a budget, the Tribunal at [50] accepted the evidence of the taxpayer's accountant that it was not to be expected that the taxpayer would have these items '... and it would have been quite unusual if he had them'. (a) at [37], a profit-making purpose existed. The Tribunal found at [30] that it is ... entirely plausible that an entrepreneur such as the Applicant would have purchased the property intending to make a profit without knowing a great deal about the industry and after only a few conversations with people in the industry. Further, the Tribunal found at [34] that ... there is no evidence that he abandoned his profit-making intentions when it became apparent the trees would take much longer to grow to the size required for commercial harvesting. (b) at [44], the activities carried out were very much characteristic of a forestry business in its growth stage. The Tribunal observed that the forestry business was in the growth phase and that as such the significance to be attached to repetition and regularity as an indicia of carrying on a business was at [41] '... of considerably less importance in a forestry operation ...' of the type before the Tribunal. The Tribunal found at [42] that the taxpayer ... by his own hand or through contractors, carried out activities which were ancillary to the forestry business such as maintaining the roads and fences, removing noxious weeds and building an access road ... these activities were consistent with a forestry business ... (c) at [45-46], the transactions, while few, were of a commercial character having regard to a forestry business in the 'growth' phase where few transactions are to be expected and the absence of transactions is therefore not indicative of a lack of business, and (d) at [49], the activities were carried out by the taxpayer in a business-like manner putting to one side the deficiencies in the taxpayer's record keeping. While the taxpayer did not have a business plan or a budget, the Tribunal at [50] accepted the evidence of the taxpayer's accountant that it was not to be expected that the taxpayer would have these items '... and it would have been quite unusual if he had them'. The Tribunal did not consider the lack of large-scale transactions or activity in this matter necessarily indicative of whether a business was being carried on. Instead, having regard to the consensus of both the taxpayer's and the Commissioner's experts on this issue, the Tribunal found at [45] that the low level of activity and transactions was consistent with a forestry business of this nature being in the 'growth' stage. The Tribunal also noted at [29] that '... [t]he forestry experts engaged by each party considered the property to be of a commercial size and to be carrying a crop of trees which would become commercial with time'. While the Tribunal considered at [49] that the taxpayer's record keeping was 'sorely lacking', and noted at [32] that both the taxpayer and his accountant acknowledged that the taxpayer was a 'poor record-keeper', the Tribunal also found at [32] that poor record keeping '... does not of itself prove that the Applicant was not carrying on a business'. | Does the property satisfy the active asset test within the terms of paragraph 152-10(1)(d) of the ITAA 1997?: The Tribunal noted that the Commissioner did not agree that the condition in paragraph 152-10(1)(d) of the ITAA 1997 was satisfied. However, having concluded that the taxpayer had operated a business over the relevant period, the Tribunal found at [59] '... [i]t also follows that the property satisfied the active asset test'. No further consideration or reasoning was provided for this conclusion.", "ATO_View_of_Decision": "CGT small business entity issue | The Commissioner considers that the Tribunal applied the correct legal test as outlined in Spriggs in determining whether the taxpayer was carrying on a business and that such a determination is factually specific and requires the consideration and balancing of various indicia, in combination and as a whole. In this case, after balancing the various indicia that it applied to the facts of this matter, the Tribunal accepted the taxpayer was carrying on a forestry business. The Commissioner accepts that this finding was open to the Tribunal on the facts as presented to it, albeit remains of the view that the facts of the case are extreme. | The ATO considers that there is nothing in this decision which casts any doubt on the proposition that, to be carrying on a business a taxpayer must satisfy the relevant test as outlined in Spriggs and do more than passively hold a CGT asset for a period of time. While acknowledging the result on the facts, the Commissioner does not consider it to establish any point of principle. The Commissioner will continue to carefully examine cases where it is asserted that the taxpayer is carrying on a business yet there is little evidence of relevant activities being carried on by the taxpayer. The absence of appropriate record keeping will also be a matter of concern for the Commissioner. | Active asset test issue | There was little analysis of this issue by the Tribunal beyond a conclusory statement. The ATO's view as to when an asset is active, for the purposes of paragraph 152-10(1)(d) of the ITAA 1997, remains that an asset is active if you own it; and you use it or hold it ready for use in the course of carrying on a business, or if it is an intangible asset inherently connected with a business you are carrying on. This decision does not consider the active asset test and does not change the way we apply that test.", "Administrative_Treatment": "None.", "Related_Documents": "None | 2020 ATC 10-526 | Subdivision 152 A | 152-10(a)(c)(i) | 152-10(1)(d) | 2009 ATC 20-109", "Legislative_References": "Income Tax Assessment Act 1997 Subdivision 152 A 152-10(a)(c)(i) 152-10(1)(d)", "Case_References": "Spriggs v Commissioner of Taxation [2009] HCA 22 (2009) 239 CLR 1 2009 ATC 20-109 72 ATR 148 256 ALR 596", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/20183729/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products."}
{"Case_Name": "Victoria Power Networks Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID237-240 of 2019 (Full Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "21 October 2020", "Date_Published": "15 July 2021", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to the Full Federal Court's decision which concerns: • whether customer cash contributions received by electricity distributors for connection to the network were ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), and • the amount to be brought to account as a non-cash business benefit under section 21A of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of the receipt of assets provided by customers upon connection to the network. | • whether customer cash contributions received by electricity distributors for connection to the network were ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), and • the amount to be brought to account as a non-cash business benefit under section 21A of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of the receipt of assets provided by customers upon connection to the network.", "Overview_of_Facts": "Powercor Australia Pty Ltd and CitiPower Pty Ltd (the distributors) provide electricity distribution services in Victoria pursuant to licences issued under the Electricity Industry Act 2000 (Vic). The distributors are each subsidiary members of a consolidated tax group of which Victoria Power Networks Pty Ltd (the taxpayer) is the head company. | Under the terms of their licences, the distributors were required to connect new customers to their respective electricity networks when requested. For safety reasons, certain connection works were required to be carried out by the relevant distributor, while 'contestable works' could be carried out by either the distributor or the customer, at the customer's option. Depending on the type of works involved and the choice made by the customer, either the distributor undertook construction of the relevant connection assets (Option 1), or the customer undertook construction of the assets (Option 2). Under Option 2, the customer was required to transfer the assets to the distributor at the time of the connection (transferred assets). | Electricity Industry Guideline No. 14: Provision of services by electricity distributors (Guideline 14) provided that a customer was not required to contribute to the cost of the connection unless the 'incremental cost' exceeded the 'incremental revenue'. Under Guideline 14, the incremental cost is an estimate of the capital cost of the connection works (including construction of the connection assets) plus the present value of the distributors' future maintenance and operating costs in providing the connection services to the customer. The incremental revenue is an estimate of the present value of the future revenue expected to be earned from the connection. | For so-called 'uneconomic connections', where the incremental cost exceeded the incremental revenue, the distributor was permitted under Guideline 14 to seek a contribution from the customer capped at the amount of the difference (the shortfall). Under Option 1, the customer made a contribution in cash to the distributor equal to the shortfall (customer cash contribution). Under Option 2, where the estimated cost of construction of the transferred assets exceeded the amount of the shortfall, the distributor paid a rebate to the customer equivalent to the excess. | The price the distributors could charge for electricity distribution services was set by an independent regulator and was based on the distributors' 'regulatory asset base' (RAB). Under Option 1, the RAB was increased by the distributors' expenditure on the new connection assets less the customer cash contribution. Under Option 2, the RAB was increased by the amount of the rebate paid by the distributor. | At first instance in the Federal Court in Victoria Power Networks Pty Ltd v Commissioner of Taxation [2019] FCA 77 before Moshinsky J, the taxpayer argued that customer cash contributions under Option 1 were not assessable as ordinary income under section 6-5 of the ITAA 1997, but rather they were an assessable recoupment pursuant to section 20-20 of the ITAA 1997. In relation to Option 2, the taxpayer argued that the arm's length value of the transferred assets for the purposes of section 21A of the ITAA 1936 was equal to the rebate. In that case, the amount brought to account as income under paragraph 21A(2)(a) of the ITAA 1936, being the arm's length value reduced by the recipient's contribution (that is, the rebate), was nil. | Moshinsky J rejected both of the taxpayer's arguments holding, consistent with the Commissioner's arguments, that customer cash contributions were ordinary income under section 6-5 of the ITAA 1997 and that the arm's length value of the transferred assets was equal to the estimated cost of construction. In that case, the amount brought to account under paragraph 21A(2)(a) of the ITAA 1936 was the shortfall (that is, the estimated cost of construction less the rebate). | The taxpayer appealed to the Full Federal Court, which dismissed the taxpayer's appeal in respect of customer cash contributions, but allowed the appeal in respect of the arm's length value of the transferred assets. | The Commissioner had also argued in relation to Option 2 that payment of the customer contribution permitted under Guideline 14 occurred by way of set-off against the value of the transferred assets, and was therefore income under ordinary concepts without recourse to section 21A of the ITAA 1936. However, that argument was rejected by Moshinsky J and by the Full Federal Court. | Neither party sought special leave to appeal to the High Court. | Issues decided by the Court | Notwithstanding that Logan J agreed with the reasons of Colvin J (and Thawley J with respect to the section 21A of the ITAA 1936 issue) and Thawley J agreed with the reasons of both Logan J and Colvin J, their Honours each gave separate reasons for judgment. | Customer cash contributions | In contending that customer cash contributions were not received as ordinary income, the taxpayer relied on the proposition from GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (Cth) [1990] HCA 25 (GP International Pipecoaters) that: ... when the amount is received by way of gift or subsidy to replenish or augment the payee's capital ... the receipt cannot fairly be said to be a product or incident of the payee's income-producing activity ... | The taxpayer argued that customer cash contributions subsidised the capital cost of the connection works and were not paid as remuneration for the provision of connection services. In particular, Guideline 14 required customers to make customer cash contributions 'as a contribution to the capital cost of new works for connection'. Further, the taxpayer argued that regulatory regime for setting the prices that could be charged for distribution services did not permit the distributors to earn a profit on such connections. | In rejecting the taxpayer's arguments, their Honours referred to the limitations placed on the proposition from GP International Pipecoaters relied on by the taxpayer (at [74]): ... But it cannot be accepted that an intention on the part of a payer and a payee or either of them that a receipt be applied to recoup capital expenditure by the payee determines the character of a receipt when the circumstances show that the payment is received in consideration of the performance of a contract, the performance of which is the business of the recipient or which is performed in the ordinary course of the business of the recipient. | Instead, their Honours considered that: • The business of each distributor involved the supply of electricity distribution services to customers connected to the distribution network (at [15] and [80]). • The connection of customers to the electricity distribution network was a part of that business (at [21], [69] and [114]). • Customer cash contributions were part of the price paid to distributors for those services and were therefore received by each of the distributors in the ordinary course of their business and were ordinary income for the purposes of subsection 6-5(1) of the ITAA 1997 (at [18], [21], [82], [83] and [114]). | • The business of each distributor involved the supply of electricity distribution services to customers connected to the distribution network (at [15] and [80]). • The connection of customers to the electricity distribution network was a part of that business (at [21], [69] and [114]). • Customer cash contributions were part of the price paid to distributors for those services and were therefore received by each of the distributors in the ordinary course of their business and were ordinary income for the purposes of subsection 6-5(1) of the ITAA 1997 (at [18], [21], [82], [83] and [114]). | Their Honours also rejected (at [21], [81] and [114]) the taxpayer's contentions that customer cash contributions were a reimbursement or recoupment of capital costs. Rather, as Colvin J pointed out (at [81]): ... The regulation required a determination as to whether incremental revenue was exceeded by incremental cost. The required calculation involved an assessment of the net present value of revenue that might be earned over 15 or 30 years. As to costs, it was not confined to the connection costs. It included operating and maintenance costs. The shortfall was not a reimbursement for identified capital costs. It was to cover the deficiency in revenue in supplying distribution services to the customer at the prevailing capped price for distribution services. | Further, Colvin J (at [81]) held that the requirement that the shortfall be covered by a customer cash contribution ensured that the price paid for the 'connection and distribution services was profitable'. | Transferred assets | Colvin J at [93] and Thawley J at [116] (with whom Logan J both agreed) rejected the Commissioner's contention that Option 2 resulted in the distributors receiving the amount of the customer contribution as ordinary income on the basis that there was no obligation on customers to make any payment to the distributors under Option 2. Rather, the obligation on the customer was to undertake the contestable works and to transfer the assets to the relevant distributor, and the obligation on the distributors was to pay the rebate to the customer and provide the connection. | As a result, the issue to be determined was the amount to be brought to account as income pursuant to paragraph 21A(2)(a) of the ITAA 1936 in relation to the non-cash business benefits received by the distributors from customers, being the arm's length value of the transferred assets reduced by the recipient's contribution (if any). | Arm's length value is relevantly defined in subsection 21A(5) of the ITAA 1936 as follows: arm's length value, in relation to a non-cash business benefit, means: (a) the amount that the recipient could reasonably be expected to have been required to pay to obtain the benefit from the provider under a transaction where the parties to the transaction are dealing with each other at arm' s length in relation to the transaction ... | (a) the amount that the recipient could reasonably be expected to have been required to pay to obtain the benefit from the provider under a transaction where the parties to the transaction are dealing with each other at arm' s length in relation to the transaction ... | It was common ground that the transferred assets were received by the distributors on revenue account, the distributors and customers were dealing with each other at arm's length, and the amount of the recipient's contribution was equal to the rebate. | Their Honours ultimately concluded that the arm's length value of the transferred assets was an amount equal to the rebate. In coming to this conclusion, their Honours focused on the regulated market in which the actual parties transacted and the effect that the regulations had on arm's length dealings in those circumstances. In particular, their Honours observed that where the distributors were required to provide an 'uneconomic connection' the customer could be required to bear the shortfall. Therefore the distributors could only reasonably be expected to pay the rebate for the transferred assets, rather than the full amount of the estimated costs of the contestable work undertaken by the customer (at [26], [30], [36], [41], [96], [98-99], [103-104], and [123]). | Colvin J considered that the test requires regard to be had to the manner in which the events have occurred (at [94]) or the form of transaction (at [104]). His Honour observed at [105] that for an Option 2 'uneconomic connection', Guideline 14 did not impose an obligation on the customer to pay the shortfall to the distributor. Rather, it required the distributor to connect the customer to the electricity distribution network, but only if the customer bore the burden of the shortfall. Hence, his Honour held at [105] that the amount the distributor could reasonably have been expected to pay for the benefit of the transferred assets was the estimated cost of construction less the shortfall. | Although agreeing with the reasons of Colvin J (at [3]), Logan J provided additional reasons. His Honour held at [26-27] that the test is objective and concerns not the transaction, but a transaction where the parties are dealing at arm's length. Further, at certain paragraphs (see [29], [32] and [41]), Logan J described the relevant test by reference to an electricity distributor and a new customer (rather than the actual parties). According to his Honour at [40], where the incremental cost is greater than the incremental revenue, it was not reasonable to expect the distributor to pay the estimated cost of construction of the transferred assets to obtain the benefit of the assets. Moreover, his Honour observed at [41] that the customer has agreed to bear part of the cost of the construction of the connection assets. The rebate also represented the extent to which the expected revenues from the connection would cover the expected costs. Hence, objectively the rebate is the amount that the distributor could reasonably be expected to pay to obtain the benefit of the transferred assets and was in fact the amount it paid. | Thawley J agreed with the reasons of both Logan J and Colvin J (at [109]). In separate reasons for judgment his Honour concluded at [119] that the evident object of the test was to determine the value of the benefit objectively on the basis of an arm's length dealing. However, his Honour went further to add at [122] that it would only be necessary to hypothesise 'a transaction' different from 'the transaction' if the parties were not dealing with each other at arm's length. Here, the distributor and customer dealt with each other at arm's length and in the regulated market in which the distributor and the customer were required to transact, what the distributor could reasonably be expected to pay to acquire the benefit of the transferred assets was the amount of the rebate. According to his Honour at [123]: ... [The distributor] could not reasonably have been expected to have been required to pay for the benefit of the transferred assets an amount representing the whole of the construction costs in \"a transaction\" or arm's length dealing in circumstances where: (a) the construction costs were paid by the customer, who was required ultimately to bear the \"shortfall\"; and (b) [the distributor] was only required to pay to the customer an amount representing a portion of the construction costs.", "Issues_Decided": "Notwithstanding that Logan J agreed with the reasons of Colvin J (and Thawley J with respect to the section 21A of the ITAA 1936 issue) and Thawley J agreed with the reasons of both Logan J and Colvin J, their Honours each gave separate reasons for judgment. | Customer cash contributions: In contending that customer cash contributions were not received as ordinary income, the taxpayer relied on the proposition from GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (Cth) [1990] HCA 25 (GP International Pipecoaters) that: ... when the amount is received by way of gift or subsidy to replenish or augment the payee's capital ... the receipt cannot fairly be said to be a product or incident of the payee's income-producing activity ... The taxpayer argued that customer cash contributions subsidised the capital cost of the connection works and were not paid as remuneration for the provision of connection services. In particular, Guideline 14 required customers to make customer cash contributions 'as a contribution to the capital cost of new works for connection'. Further, the taxpayer argued that regulatory regime for setting the prices that could be charged for distribution services did not permit the distributors to earn a profit on such connections. In rejecting the taxpayer's arguments, their Honours referred to the limitations placed on the proposition from GP International Pipecoaters relied on by the taxpayer (at [74]): ... But it cannot be accepted that an intention on the part of a payer and a payee or either of them that a receipt be applied to recoup capital expenditure by the payee determines the character of a receipt when the circumstances show that the payment is received in consideration of the performance of a contract, the performance of which is the business of the recipient or which is performed in the ordinary course of the business of the recipient. Instead, their Honours considered that: • The business of each distributor involved the supply of electricity distribution services to customers connected to the distribution network (at [15] and [80]). • The connection of customers to the electricity distribution network was a part of that business (at [21], [69] and [114]). • Customer cash contributions were part of the price paid to distributors for those services and were therefore received by each of the distributors in the ordinary course of their business and were ordinary income for the purposes of subsection 6-5(1) of the ITAA 1997 (at [18], [21], [82], [83] and [114]). • The business of each distributor involved the supply of electricity distribution services to customers connected to the distribution network (at [15] and [80]). • The connection of customers to the electricity distribution network was a part of that business (at [21], [69] and [114]). • Customer cash contributions were part of the price paid to distributors for those services and were therefore received by each of the distributors in the ordinary course of their business and were ordinary income for the purposes of subsection 6-5(1) of the ITAA 1997 (at [18], [21], [82], [83] and [114]). Their Honours also rejected (at [21], [81] and [114]) the taxpayer's contentions that customer cash contributions were a reimbursement or recoupment of capital costs. Rather, as Colvin J pointed out (at [81]): ... The regulation required a determination as to whether incremental revenue was exceeded by incremental cost. The required calculation involved an assessment of the net present value of revenue that might be earned over 15 or 30 years. As to costs, it was not confined to the connection costs. It included operating and maintenance costs. The shortfall was not a reimbursement for identified capital costs. It was to cover the deficiency in revenue in supplying distribution services to the customer at the prevailing capped price for distribution services. Further, Colvin J (at [81]) held that the requirement that the shortfall be covered by a customer cash contribution ensured that the price paid for the 'connection and distribution services was profitable'. | Transferred assets: Colvin J at [93] and Thawley J at [116] (with whom Logan J both agreed) rejected the Commissioner's contention that Option 2 resulted in the distributors receiving the amount of the customer contribution as ordinary income on the basis that there was no obligation on customers to make any payment to the distributors under Option 2. Rather, the obligation on the customer was to undertake the contestable works and to transfer the assets to the relevant distributor, and the obligation on the distributors was to pay the rebate to the customer and provide the connection. As a result, the issue to be determined was the amount to be brought to account as income pursuant to paragraph 21A(2)(a) of the ITAA 1936 in relation to the non-cash business benefits received by the distributors from customers, being the arm's length value of the transferred assets reduced by the recipient's contribution (if any). Arm's length value is relevantly defined in subsection 21A(5) of the ITAA 1936 as follows: arm's length value, in relation to a non-cash business benefit, means: (a) the amount that the recipient could reasonably be expected to have been required to pay to obtain the benefit from the provider under a transaction where the parties to the transaction are dealing with each other at arm' s length in relation to the transaction ... (a) the amount that the recipient could reasonably be expected to have been required to pay to obtain the benefit from the provider under a transaction where the parties to the transaction are dealing with each other at arm' s length in relation to the transaction ... It was common ground that the transferred assets were received by the distributors on revenue account, the distributors and customers were dealing with each other at arm's length, and the amount of the recipient's contribution was equal to the rebate. Their Honours ultimately concluded that the arm's length value of the transferred assets was an amount equal to the rebate. In coming to this conclusion, their Honours focused on the regulated market in which the actual parties transacted and the effect that the regulations had on arm's length dealings in those circumstances. In particular, their Honours observed that where the distributors were required to provide an 'uneconomic connection' the customer could be required to bear the shortfall. Therefore the distributors could only reasonably be expected to pay the rebate for the transferred assets, rather than the full amount of the estimated costs of the contestable work undertaken by the customer (at [26], [30], [36], [41], [96], [98-99], [103-104], and [123]). Colvin J considered that the test requires regard to be had to the manner in which the events have occurred (at [94]) or the form of transaction (at [104]). His Honour observed at [105] that for an Option 2 'uneconomic connection', Guideline 14 did not impose an obligation on the customer to pay the shortfall to the distributor. Rather, it required the distributor to connect the customer to the electricity distribution network, but only if the customer bore the burden of the shortfall. Hence, his Honour held at [105] that the amount the distributor could reasonably have been expected to pay for the benefit of the transferred assets was the estimated cost of construction less the shortfall. Although agreeing with the reasons of Colvin J (at [3]), Logan J provided additional reasons. His Honour held at [26-27] that the test is objective and concerns not the transaction, but a transaction where the parties are dealing at arm's length. Further, at certain paragraphs (see [29], [32] and [41]), Logan J described the relevant test by reference to an electricity distributor and a new customer (rather than the actual parties). According to his Honour at [40], where the incremental cost is greater than the incremental revenue, it was not reasonable to expect the distributor to pay the estimated cost of construction of the transferred assets to obtain the benefit of the assets. Moreover, his Honour observed at [41] that the customer has agreed to bear part of the cost of the construction of the connection assets. The rebate also represented the extent to which the expected revenues from the connection would cover the expected costs. Hence, objectively the rebate is the amount that the distributor could reasonably be expected to pay to obtain the benefit of the transferred assets and was in fact the amount it paid. Thawley J agreed with the reasons of both Logan J and Colvin J (at [109]). In separate reasons for judgment his Honour concluded at [119] that the evident object of the test was to determine the value of the benefit objectively on the basis of an arm's length dealing. However, his Honour went further to add at [122] that it would only be necessary to hypothesise 'a transaction' different from 'the transaction' if the parties were not dealing with each other at arm's length. Here, the distributor and customer dealt with each other at arm's length and in the regulated market in which the distributor and the customer were required to transact, what the distributor could reasonably be expected to pay to acquire the benefit of the transferred assets was the amount of the rebate. According to his Honour at [123]: ... [The distributor] could not reasonably have been expected to have been required to pay for the benefit of the transferred assets an amount representing the whole of the construction costs in \"a transaction\" or arm's length dealing in circumstances where: (a) the construction costs were paid by the customer, who was required ultimately to bear the \"shortfall\"; and (b) [the distributor] was only required to pay to the customer an amount representing a portion of the construction costs.", "ATO_View_of_Decision": "Customer cash contributions | The decision of the Full Federal Court is consistent with the Commissioner's view that customer cash contributions were ordinary income for the purposes of section 6-5 of the ITAA 1997. | The Commissioner considers that the decision reflects the correct application of the established principle that 'a profit or gain made in the ordinary course of carrying on a business constitutes income' (Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18). | In particular, the Commissioner notes the flaw in the taxpayer's contention identified by Logan J at [19]: ... It is difficult to see why the profit or gain arising from a distributor's business as a supplier of an electricity distribution service to a customer should not include an amount received by it under a supply agreement with a customer merely because one undissected component of that amount was calculated to compensate in part the distributor for its expenditure on the new plant and equipment required for the supply of the electricity distribution service. | Transferred assets | In this case, the Full Federal Court found that the regulatory regime in which the distributors and customers transacted, had the effect that the distributors could not reasonably be expected to pay the estimated cost of construction of the transferred assets because the regulations required the customer to bear part of that cost to the extent of the shortfall. Importantly, the Full Federal Court found that Guideline 14 did not impose any obligation on the customer to pay that shortfall to the distributor as part of the price for the connection. As a result, the arm's length value of the transferred assets was the estimated cost of construction less the shortfall. Given that this was equal to the rebate that was paid, there was no amount to be brought to account as income pursuant to paragraph 21A(2)(a) of the ITAA 1936. | Comparison of tax outcomes | The effect of the Court's decision is that although 'from the perspective of the distributor there is no economic difference between Option 1 and Option 2' (at [54]) before tax, there is one after tax. This is because under Option 1 the shortfall amount is derived as income at the time of the transaction and the entire costs of construction are deducted by way of capital allowances over time. Whereas under Option 2, no amount is brought to account as assessable income and capital allowances are limited to the cost of construction less the shortfall. The net effect on taxable income is the same but there is a significant timing difference. This result may not be intended and is currently being examined. | Implications | The decision of the Full Federal Court in relation to section 21A has implications for other electricity distributors subject to equivalent regulatory regimes and may have implications for participants in industries with closely similar regulatory regimes. The Commissioner is currently assessing the potential impact of the decision on other infrastructure providers and regulated industries such as gas, water, telecommunications, rail and ports. However, the Commissioner does not consider this aspect of the decision to have wider application beyond similarly regulated industries. This is because the outcome of the decision was significantly influenced by the regulated environment in which the actual parties transacted which, in effect, prescribed the amount that would be paid for the non-cash business benefit in an arm's length dealing. | In normal cases where the market is not affected in this way, the operation of section 21A of the ITAA 1936 may be expected to have, in broad terms, the result that a non-cash business benefit will be brought to tax at the prevailing market cash price required to obtain it from any available supplier. That is because in normal market conditions an arm's length price between the parties will not significantly differ from the price that applies between other arm's length parties. Also, the arm's length value of a non-cash business benefit will not usually be less than the cost of supplying it. This is because suppliers do not normally charge less than their costs in arm's length conditions. That was not the outcome in the circumstances of this case because of the regulated environment. Otherwise, the value to the distributor of obtaining the transferred assets and the arm's length amount that it might be expected to pay for them would be the same as the construction cost. This decision is therefore one on special facts. | As noted above, a consequence of the decision that the arm's length value of the transferred assets for the purposes of section 21A of the ITAA 1936 is the rebate and not the estimated cost of construction is that capital allowance deductions available under Division 40 of the ITAA 1997 are also relevantly limited to the amount of the rebate.", "Administrative_Treatment": "None. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).", "Related_Documents": "None | Full Federal Court | 2020 ATC 20-768 | 21A | 21A(2)(a) | 21A(5) | 6-5 | 6-5(1) | 20-20 | Div 40 | The Act | 87 ATC 4363 | 90 ATC 4413 | 2019 ATC 20-682", "Legislative_References": "Income Tax Assessment Act 1936 21A 21A(2)(a) 21A(5) Income Tax Assessment Act 1997 6-5 6-5(1) 20-20 Div 40 Electricity Industry Act 2000 (Vic) The Act", "Case_References": "Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18 (1987) 163 CLR 199 87 ATC 4363 18 ATR 693 GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation [1990] HCA 25 (1990) 170 CLR 124 90 ATC 4413 21 ATR 1 ALJR 382 Victoria Power Networks Pty Ltd v Commissioner of Taxation [2019] FCA 77 2019 ATC 20-682 (2019) 109 ATR 537", "Subject_References": "", "Other_References": "Electricity Industry Guideline No 14: Provision of services by electricity distributors", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID237-240of2019/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Bluescope Steel (AIS) Pty Ltd v Australian Workers' Union", "Venue_Reference_No": "NSD 542 of 2018", "Venue": "Federal Court of Australia", "Judgment_Date": "24 May 2019", "Date_Published": "12 November 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case with respect to the meaning of 'ordinary time earnings' and 'ordinary hours of work' as used in the Superannuation Guarantee (Administration) Act 1992 (SGAA).", "Overview_of_Facts": "The Commissioner applied for leave to intervene in an appeal by BlueScope Steel (AIS) Pty Ltd (BlueScope Steel) against a judgment of the Federal Court in Australian Workers' Union v BlueScope Steel (AIS) Pty Ltd [2018] FCA 80. | At first instance, the Court found that BlueScope Steel had contravened terms of various industrial awards and agreements by not making superannuation contributions relating to the 'additional hours component' and the 'public holidays component' of their employees' annualised salaries. | In arriving at this conclusion, the Court considered the construction and application of the terms 'ordinary time earnings' and 'ordinary hours of work' as defined in the SGAA, finding that the 'ordinary hours of work' of BlueScope Steel's employees included the 'additional hours' and 'public holidays' provided for in the relevant industrial awards and agreements. | The Commissioner's application to intervene was made on the basis that the Commissioner is responsible for the general administration of the SGAA and is responsible for the collection of the superannuation guarantee charge that may arise in relation to the Court's ruling. Further, the approach of the Court at first instance was inconsistent with the Commissioner's long settled and published position on the meaning of 'ordinary time earnings' and 'ordinary hours of work'. To that extent, the decision at first instance would have had widespread and large scale consequences for Australian employees, employers and the Commissioner. The Commissioner has singular responsibility for the public interests sought to be served by the superannuation guarantee regime and those broader interests could not be privately enforced by employees, either directly or through seeking to compel the Commissioner to do so. | Issues decided by the Full Court | The Commissioner was granted leave to intervene to be heard on issues relating to: (i) the meaning of the terms 'ordinary time earnings' and 'ordinary hours of work', and (ii) the general operation of the SGAA and the Commissioner's powers and responsibilities under that Act. | (i) the meaning of the terms 'ordinary time earnings' and 'ordinary hours of work', and (ii) the general operation of the SGAA and the Commissioner's powers and responsibilities under that Act. | In allowing the appeal of BlueScope Steel, the Full Court agreed with the Commissioner's submissions on the interpretation of the terms 'ordinary time earnings' and 'ordinary hours of work', within the meaning of section 6 of the SGAA. | In particular Allsop CJ stated at [56]: ... The meaning that best reflects these considerations and the text, context, purpose and history of the provision is earnings in respects of ordinary or standard hours of work at ordinary rates of pay as provided for in a relevant industrial instrument, or contract of employment, but if such does not exist (and there is no distinction between ordinary or standard hours and other hours by reference to rates of pay) earnings in respect of the hours that the employee has agreed to work or, if different, the hours usually or ordinarily worked. | Collier J also stated at [314]: In light of these findings, I conclude that the expression \"ordinary time earnings\" in ss 6(1) and 23(2) of the SGA Act, in the circumstances of the present case where \"ordinary hours of work\" are defined by the Enterprise Agreements, means earnings in respect of those ordinary hours of work as defined. | Rangiah J agreed with Allsop CJ and Collier J on these issues. | In considering the interaction between the SGAA and industrial instruments that refer to the making of superannuation contributions, Allsop CJ observed at [19]: ... If contributions are not made the employer suffers a tax. This is not an idle distinction, especially in the light of the fact that the superannuation legislation does not confer on an employee any right to require the Commissioner of Taxation to do anything for him or her in respect of superannuation: Kronen v Federal Commissioner of Taxation [2012] FCA 1463; 213 FCR 495 at 505 [50]. There is every reason for those representing employees to include in an enterprise agreement an obligation to pay superannuation at the minimum level that will avoid a charge or tax. That reason is the direct enforceability of the obligation. True it is that if an employer fails to pay the minimum contribution it is then faced with both the imposition of a tax and the possible enforcement of obligations in the enterprise agreement. That problem is easily avoided: comply with the obligations freely entered into in the enterprise agreement. This possible duality of consequences is no reason not to view the enterprise agreement as containing binding obligations which can be enforced on behalf of employees for their protection and proper payment, for instance by seeking relief under civil remedy provisions such as ss 539(2), 540, 545(1), 2(a) and (b) of the Fair Work Act . | This observation confirms that employees may have a right of action against their employer under the terms of their employment contract or industrial agreement where the employer does not meet their obligations to pay superannuation pursuant to the terms of that contract or industrial agreement. The contribution amounts prescribed in a contract or agreement may actually be over and above the prescribed minimum superannuation contributions required to avoid the imposition of the superannuation guarantee charge.", "Issues_Decided": "The Commissioner was granted leave to intervene to be heard on issues relating to: (i) the meaning of the terms 'ordinary time earnings' and 'ordinary hours of work', and (ii) the general operation of the SGAA and the Commissioner's powers and responsibilities under that Act. (i) the meaning of the terms 'ordinary time earnings' and 'ordinary hours of work', and (ii) the general operation of the SGAA and the Commissioner's powers and responsibilities under that Act. In allowing the appeal of BlueScope Steel, the Full Court agreed with the Commissioner's submissions on the interpretation of the terms 'ordinary time earnings' and 'ordinary hours of work', within the meaning of section 6 of the SGAA. In particular Allsop CJ stated at [56]: ... The meaning that best reflects these considerations and the text, context, purpose and history of the provision is earnings in respects of ordinary or standard hours of work at ordinary rates of pay as provided for in a relevant industrial instrument, or contract of employment, but if such does not exist (and there is no distinction between ordinary or standard hours and other hours by reference to rates of pay) earnings in respect of the hours that the employee has agreed to work or, if different, the hours usually or ordinarily worked. Collier J also stated at [314]: In light of these findings, I conclude that the expression \"ordinary time earnings\" in ss 6(1) and 23(2) of the SGA Act, in the circumstances of the present case where \"ordinary hours of work\" are defined by the Enterprise Agreements, means earnings in respect of those ordinary hours of work as defined. Rangiah J agreed with Allsop CJ and Collier J on these issues. In considering the interaction between the SGAA and industrial instruments that refer to the making of superannuation contributions, Allsop CJ observed at [19]: ... If contributions are not made the employer suffers a tax. This is not an idle distinction, especially in the light of the fact that the superannuation legislation does not confer on an employee any right to require the Commissioner of Taxation to do anything for him or her in respect of superannuation: Kronen v Federal Commissioner of Taxation [2012] FCA 1463; 213 FCR 495 at 505 [50]. There is every reason for those representing employees to include in an enterprise agreement an obligation to pay superannuation at the minimum level that will avoid a charge or tax. That reason is the direct enforceability of the obligation. True it is that if an employer fails to pay the minimum contribution it is then faced with both the imposition of a tax and the possible enforcement of obligations in the enterprise agreement. That problem is easily avoided: comply with the obligations freely entered into in the enterprise agreement. This possible duality of consequences is no reason not to view the enterprise agreement as containing binding obligations which can be enforced on behalf of employees for their protection and proper payment, for instance by seeking relief under civil remedy provisions such as ss 539(2), 540, 545(1), 2(a) and (b) of the Fair Work Act . This observation confirms that employees may have a right of action against their employer under the terms of their employment contract or industrial agreement where the employer does not meet their obligations to pay superannuation pursuant to the terms of that contract or industrial agreement. The contribution amounts prescribed in a contract or agreement may actually be over and above the prescribed minimum superannuation contributions required to avoid the imposition of the superannuation guarantee charge.", "ATO_View_of_Decision": "The conclusion reached by the Court on the meaning of the terms 'ordinary time earnings' and 'ordinary hours of work' is consistent with the Commissioner's long settled and published position in Superannuation Guarantee Ruling SGR 2009/2 Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' .", "Administrative_Treatment": "None", "Related_Documents": "None | [2019] FCAFC 84 | 3 | 5 | 6 | 11 | 12 | 16 | 17 | 19 | 23 | 47 | [2018] FCA 80 | 107 ATR 333 | 278 IR 170 | SGR 2009/2", "Legislative_References": "Fair Work Act 2009 539(2) 540 545(1) 545(2)(a) 545(2)(b) Superannuation Guarantee (Administration) Act 1992 3 5 6 11 12 16 17 19 23 47", "Case_References": "Australian Workers' Union v BlueScope Steel (AIS) Pty Ltd [2018] FCA 80 107 ATR 333 [2019] ALMD 784 278 IR 170 Kronen v Commissioner of Taxation [2012] FCA 1463 213 FCR 495 [2014] ALMD 612", "Subject_References": "", "Other_References": "SGR 2009/2", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD542of2018/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Caltex Australia Petroleum Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 823 of 2018", "Venue": "Federal Court of Australia", "Judgment_Date": "14 November 2019", "Date_Published": "13 December 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case concerning entitlement to benefits under the Product Stewardship (Oil) Act 2000 (PSO Act) for the recycling of diesel contaminated through use as a solvent or hydraulic medium. The key issue considered by the Federal Court was whether diesel is a petroleum based oil for the purposes of the PSO Act.", "Overview_of_Facts": "The taxpayer imports, stores and sells petroleum products and is registered for entitlement to benefits under the PSO Act. It uses diesel in connection with refinery operations as a solvent to flush crude oil and petroleum products through shipping tanks and pipelines; and as a medium to push inspection devices through pipelines. This diesel becomes contaminated and must be refined to meet fuel quality standards before it is sold as automotive diesel fuel in Australia. | The taxpayer's claim for benefits for recycling and sale of contaminated diesel under the PSO Act was disallowed by the Commissioner. | Issues decided by the Court | The issue in this case concerned whether diesel is a petroleum based oil for the purposes of the PSO Act. | The term 'oils' is defined under subsection 6(1) of the PSO Act to mean, among other things: (a) petroleum based oils (including lubricant base oils; prepared lubricant additives containing carrier oils; lubricants for engines, gear sets, pumps and bearings; greases; hydraulic fluids; brake fluids; transmission oils; and transformer and heat transfer oils); (b) synthetic equivalents of goods covered by paragraph (a); ... | The Court found that diesel is a 'petroleum based oil' within the meaning of subsection 6(1) of the PSO Act, concluding that Parliament did not intend the words in brackets to be an exhaustive list of petroleum based oils for the purposes of the PSO Act. The Court rejected the Commissioner's construction of the term 'oils' to exclude petroleum based oils that are primarily for use as fuel and held that there was no evident reason to exclude recycled diesel from the scope of the PSO Act because its primary use is as a fuel.", "Issues_Decided": "The issue in this case concerned whether diesel is a petroleum based oil for the purposes of the PSO Act. The term 'oils' is defined under subsection 6(1) of the PSO Act to mean, among other things: (a) petroleum based oils (including lubricant base oils; prepared lubricant additives containing carrier oils; lubricants for engines, gear sets, pumps and bearings; greases; hydraulic fluids; brake fluids; transmission oils; and transformer and heat transfer oils); (b) synthetic equivalents of goods covered by paragraph (a); ... The Court found that diesel is a 'petroleum based oil' within the meaning of subsection 6(1) of the PSO Act, concluding that Parliament did not intend the words in brackets to be an exhaustive list of petroleum based oils for the purposes of the PSO Act. The Court rejected the Commissioner's construction of the term 'oils' to exclude petroleum based oils that are primarily for use as fuel and held that there was no evident reason to exclude recycled diesel from the scope of the PSO Act because its primary use is as a fuel.", "ATO_View_of_Decision": "The ATO accepts that it was reasonably open to the Court to find that diesel is a 'petroleum based oil' within the meaning of subsection 6(1) of the PSO Act. | The ATO (in consultation with the Department of Environment and Energy) is assessing the impacts of the decision on the effectiveness and sustainability of the Product Stewardship for Oil program. | The ATO is also considering any implications of the decision for the classification of diesel under the Schedule to the Excise Tariff Act 1921 where that diesel is employed as a solvent or for some other non fuel use in connection with refinery operations.", "Administrative_Treatment": "", "Related_Documents": "Product Grant and Benefit Ruling PGBR 2012/1 Product Stewardship (Oil) Benefit: the meaning of the expression 'goods produced from used oil' and the terms 'filtered', 'de-watered', and 'de-mineralised' for the purposes of the Product stewardship for oil benefit scheme | 6(1) | The Schedule 5 | The Regulations | [2008] HCA 45 | [2012] HCA 56 | (2012) 248 CLR 378 | 2009 ATC 20-107 | (1985) 157 CLR 201 | (1966) 118 CLR 628 | 40 ALJR 394 | (1997) 191 CLR 1 | (1985) 157 CLR 351 | 59 ALJR 804 | 62 ALR 17 | [2010] HCA 23 | (1964) 109 CLR 395 | [1996] HCA 31 | (1996) 187 CLR 310 | 71 ALJR 32 | 140 ALR 156", "Legislative_References": "Product Stewardship (Oil) Act 2000 6(1) Excise Tariff Act 1921 The Schedule 5 Product Stewardship (Oil) Regulations 2000 The Regulations", "Case_References": "BHP Billiton Iron Ore Pty Ltd v National Competition Council [2008] HCA 45 (2008) 236 CLR 145 82 ALJR 1482 249 ALR 418 Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross [2012] HCA 56 (2012) 248 CLR 378 87 ALJR 131 239 ALR 412 Commissioner of Taxation v Bargwanna [2009] FCA 620 2009 ATC 20-107 72 ATR 963 Corporate Affairs Commission (SA) v Australian Central Credit Union [1985] HCA 64 (1985) 157 CLR 201 59 ALJR 785 61 ALR 236 Gibb v Commissioner of Taxation (Cth) [1966] HCA 74 (1966) 118 CLR 628 40 ALJR 394 [1967] ALR 527 (1966) 14 ATD 363 IW v The City of Perth [1997] HCA 30 (1997) 191 CLR 1 71 ALJR 943 146 ALR 696 Re Gray; Ex parte Marsh [1985] HCA 67 (1985) 157 CLR 351 59 ALJR 804 62 ALR 17 Saeed v Minister for Immigration and Citizenship [2010] HCA 23 (2010) 241 CLR 252 84 ALJR 507 267 ALR 204 YZ Finance Co Pty Ltd v Cummings [1964] HCA 12 (1964) 109 CLR 395 37 ALJR 431 [1964] ALR 667 Zickar v MGH Plastic Industries Pty Ltd [1996] HCA 31 (1996) 187 CLR 310 71 ALJR 32 140 ALR 156", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID823of2018/00001", "Unmatched_Content": ""}
{"Case_Name": "Coles Supermarkets Australia Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 1364-1368 of 2018", "Venue": "Federal Court of Australia", "Judgment_Date": "25 September 2019", "Date_Published": "4 December 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case concerned whether the taxpayer was entitled to fuel tax credits or decreasing fuel tax adjustments in respect of fuel that was lost through evaporation and/or leakage whilst held for retail sale, and if so, whether any such entitlements had ceased.", "Overview_of_Facts": "Taxpayers are (with some exceptions) entitled to a fuel tax credit to the extent that they acquire taxable fuel for use in carrying on an enterprise. | The taxpayer in this case carried on an enterprise of retailing fuel and operating convenience stores. A small portion of the fuel acquired by the taxpayer was lost through evaporation or leakage. This was an inevitable part of the delivery and storage of the fuel being held for sale. | The taxpayer was unaware of any potential fuel tax entitlement in respect of fuel anticipated to be lost through evaporation and/or leakage and accordingly made no such credit claims in its relevant Business Activity Statements (which constitute fuel tax returns, disclosing a net fuel amount). | It was common ground that the taxpayer did not 'use' fuel to the extent that it was sold to customers. The taxpayer sought a fuel tax credit for the fuel that was lost due to evaporation and/or leakage. | Issues decided by the Court | The following issues were before the Court (although not all issues arose in respect of each tax period in dispute): (a) whether, for the purposes of section 41-5 of the Fuel Tax Act 2006 (FTA), the relevant fuel was acquired 'for use in carrying on the taxpayer's enterprise', such that the taxpayer was entitled to a fuel tax credit in respect of the fuel lost by evaporation and/or leakage (the fuel tax credit issue) (b) (in the alternative to issue (a)) whether, under section 44-5 of the FTA, the taxpayer was entitled to a decreasing fuel tax adjustment on the basis that fuel acquired for retail sale, but subsequently lost by evaporation or leakage, was used in a way that was different from that intended use when acquired (the decreasing fuel tax adjustment issue), and (c) if the taxpayer was entitled to fuel tax credits pursuant to section 41-5 of the FTA for any of the tax periods from July 2012 to January 2014, whether the taxpayer has ceased to be entitled to those fuel tax credits by reason of the operation of section 47-5 of the FTA (the section 47-5 issue). | (a) whether, for the purposes of section 41-5 of the Fuel Tax Act 2006 (FTA), the relevant fuel was acquired 'for use in carrying on the taxpayer's enterprise', such that the taxpayer was entitled to a fuel tax credit in respect of the fuel lost by evaporation and/or leakage (the fuel tax credit issue) (b) (in the alternative to issue (a)) whether, under section 44-5 of the FTA, the taxpayer was entitled to a decreasing fuel tax adjustment on the basis that fuel acquired for retail sale, but subsequently lost by evaporation or leakage, was used in a way that was different from that intended use when acquired (the decreasing fuel tax adjustment issue), and (c) if the taxpayer was entitled to fuel tax credits pursuant to section 41-5 of the FTA for any of the tax periods from July 2012 to January 2014, whether the taxpayer has ceased to be entitled to those fuel tax credits by reason of the operation of section 47-5 of the FTA (the section 47-5 issue). | In respect of the fuel tax credit and decreasing fuel tax adjustment issues, the Court found that the taxpayer was not entitled to fuel tax credits on the basis that the fuel that was lost through evaporation and/or leakage was not 'used' in carrying on the taxpayer's enterprise for the purposes of the FTA. The Court's reasoning was summarised at paragraph 114, as follows: ... That is, the term \"use\" takes its ordinary meaning, save that it does not include making a taxable supply of fuel. In my view, for the reasons discussed above, it is artificial to ascribe different uses to the portion of fuel that was re-sold to Coles Express's customers and the remainder of the fuel, which evaporated or leaked. The evaporation or leakage of fuel was wholly incidental to Coles Express making a taxable supply of fuel, in the sense that it was an unwelcome, and unavoidable, part of that activity. Accordingly, it is appropriate to characterise the portion of the fuel that evaporated or leaked in the same way as the fuel that was re-sold to Coles Express's customers. | While it was unnecessary to decide the section 47-5 issue, the Court made observations regarding the parties' submissions. | The Court would have rejected the taxpayer's submission that the relevant fuel tax credits in dispute had been 'taken into account in an assessment' within the four-year period referred to in section 47-5 of the FTA. The fuel tax credits at issue were not a relevant integer in calculating the taxpayer's net amount in its fuel tax returns for the relevant tax periods. | Otherwise, the Court found force in the taxpayer's submissions that section 47-5 did not disentitle a taxpayer to fuel tax credits once a return had been assessed with a valid objection lodged against the related assessment. These observations are contrary to the Commissioner's views set out in Draft Miscellaneous Taxation Ruling MT 2018/D1 Miscellaneous tax: time limits for claiming an input tax or fuel tax credit .", "Issues_Decided": "The following issues were before the Court (although not all issues arose in respect of each tax period in dispute): (a) whether, for the purposes of section 41-5 of the Fuel Tax Act 2006 (FTA), the relevant fuel was acquired 'for use in carrying on the taxpayer's enterprise', such that the taxpayer was entitled to a fuel tax credit in respect of the fuel lost by evaporation and/or leakage (the fuel tax credit issue) (b) (in the alternative to issue (a)) whether, under section 44-5 of the FTA, the taxpayer was entitled to a decreasing fuel tax adjustment on the basis that fuel acquired for retail sale, but subsequently lost by evaporation or leakage, was used in a way that was different from that intended use when acquired (the decreasing fuel tax adjustment issue), and (c) if the taxpayer was entitled to fuel tax credits pursuant to section 41-5 of the FTA for any of the tax periods from July 2012 to January 2014, whether the taxpayer has ceased to be entitled to those fuel tax credits by reason of the operation of section 47-5 of the FTA (the section 47-5 issue). (a) whether, for the purposes of section 41-5 of the Fuel Tax Act 2006 (FTA), the relevant fuel was acquired 'for use in carrying on the taxpayer's enterprise', such that the taxpayer was entitled to a fuel tax credit in respect of the fuel lost by evaporation and/or leakage (the fuel tax credit issue) (b) (in the alternative to issue (a)) whether, under section 44-5 of the FTA, the taxpayer was entitled to a decreasing fuel tax adjustment on the basis that fuel acquired for retail sale, but subsequently lost by evaporation or leakage, was used in a way that was different from that intended use when acquired (the decreasing fuel tax adjustment issue), and (c) if the taxpayer was entitled to fuel tax credits pursuant to section 41-5 of the FTA for any of the tax periods from July 2012 to January 2014, whether the taxpayer has ceased to be entitled to those fuel tax credits by reason of the operation of section 47-5 of the FTA (the section 47-5 issue). In respect of the fuel tax credit and decreasing fuel tax adjustment issues, the Court found that the taxpayer was not entitled to fuel tax credits on the basis that the fuel that was lost through evaporation and/or leakage was not 'used' in carrying on the taxpayer's enterprise for the purposes of the FTA. The Court's reasoning was summarised at paragraph 114, as follows: ... That is, the term \"use\" takes its ordinary meaning, save that it does not include making a taxable supply of fuel. In my view, for the reasons discussed above, it is artificial to ascribe different uses to the portion of fuel that was re-sold to Coles Express's customers and the remainder of the fuel, which evaporated or leaked. The evaporation or leakage of fuel was wholly incidental to Coles Express making a taxable supply of fuel, in the sense that it was an unwelcome, and unavoidable, part of that activity. Accordingly, it is appropriate to characterise the portion of the fuel that evaporated or leaked in the same way as the fuel that was re-sold to Coles Express's customers. While it was unnecessary to decide the section 47-5 issue, the Court made observations regarding the parties' submissions. The Court would have rejected the taxpayer's submission that the relevant fuel tax credits in dispute had been 'taken into account in an assessment' within the four-year period referred to in section 47-5 of the FTA. The fuel tax credits at issue were not a relevant integer in calculating the taxpayer's net amount in its fuel tax returns for the relevant tax periods. Otherwise, the Court found force in the taxpayer's submissions that section 47-5 did not disentitle a taxpayer to fuel tax credits once a return had been assessed with a valid objection lodged against the related assessment. These observations are contrary to the Commissioner's views set out in Draft Miscellaneous Taxation Ruling MT 2018/D1 Miscellaneous tax: time limits for claiming an input tax or fuel tax credit .", "ATO_View_of_Decision": "The Court's decision with respect to evaporation or leakage of fuel is consistent with the ATO's view of the law.", "Administrative_Treatment": "Having regard to the Court's observations regarding the section 47-5 issue, which took into account the Full Federal Court's decision in Linfox Australia Pty Ltd v. Commissioner of Taxation of the Commonwealth of Australia [2019] FCAFC 131 on this issue, the Commissioner has withdrawn Draft Miscellaneous Taxation Ruling MT 2018/D1. | A final public ruling providing a revised view on the application of Division 47 of the FTA (and Division 93 of A New Tax System (Goods and Services Tax) Act 1999 ) will be published in early 2020.", "Related_Documents": "MT 2018/D1 | [2019] FCA 1582 | 41-5 | 44-1 | 44-5 | 44-10 | 47-5 | Div 93 | [2019] FCAFC 131 | [2019] AATA 222", "Legislative_References": "Fuel Tax Act 2006 41-5 44-1 44-5 44-10 47-5 A New Tax System (Goods and Services Tax) Act 1999 Div 93", "Case_References": "Linfox Australia Pty Ltd v Federal Commissioner of Taxation [2019] FCAFC 131 Linfox Australia Pty Ltd and Commissioner of Taxation [2019] AATA 222", "Subject_References": "", "Other_References": "Siebel Reference: 1-K0AOE0E", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1364-1368of2018/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Racing Queensland Board", "Venue_Reference_No": "QUD 275 of 2019 (Full Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "", "Date_Published": "7 August 2020", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the AT O's response to this case which concerns whether, for the purposes of subsection 12(8) of the Superannuation Guarantee (Administration) Act 1992 (SGAA), the Racing Queensland Board (the Board) was liable to pay riding fees to jockeys engaged to ride in races and barrier trials during the relevant period.", "Overview_of_Facts": "From 1 July 2009 to 30 September 2014 (inclusive), the Board paid riding fees to jockeys in respect of riding in horse races and barrier trials conducted in Queensland. | The Board is the Principal Racing Authority (PRA) for that State in accordance with the Australian Rules of Racing and the Racing Queensland Local Rules (Thoroughbred Racing). | Note: References to 'the Board' throughout this Decision impact statement include references to the preceding PRAs responsible for the general administration of the thoroughbred racing industry in Queensland. | In response to the introduction of the goods and services tax (GST), and to minimise related administrative requirements on other industry participants, the Board adopted a centralised prizemoney system in Queensland after an industry recommendation to do so. | The result was that the Board took on the role of paying prizemoney, riding fees and the GST, with the intention of reducing the documentation and record-keeping requirements which might otherwise have rested with individual race clubs, owners, trainers and jockeys. | Section 12 of the SGAA has regard to the terms 'employer' and 'employee' for the purposes of that Act. | While subsection 12(1) of the SGAA confirms that each of those terms have their ordinary meaning, the remaining subsections of section 12 expand and clarify the meaning of those terms. | Relevantly, subsection 12(8) of the SGAA provides (emphasis added): The following are employees for the purposes of this Act: (a) a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment | As a result, the Commissioner of Taxation formed the view that under subsection 12(8) of the SGAA, the Board was the employer of jockeys to whom it had paid riding fees. | Note: The Commissioner did not form the view that the Board was the 'employer' of jockeys per the ordinary meaning of that term, or for any effect other than under the superannuation guarantee (SG) legislation. | In relation to the quarters in which there were SG shortfalls, the Commissioner issued superannuation guarantee charge (SGC) assessments to the Board. | The Board put forward the view that although it happened to pay riding fees to jockeys, it was not liable to make such payments - and only did so on behalf of the owners and trainers of the horses being ridden, due to historical administrative practices. | Issues decided by the Court | This case involved an appeal by the Commissioner to the Full Federal Court from a decision by the Federal Court which found in favour of the Board. | In a unanimous decision, the Full Federal Court allowed the Commissioner's appeal, finding that the Board was the entity liable to make payment of riding fees to jockeys. | In a joint judgment, Griffiths and Derrington JJ noted that a critical aspect of the case was whether or not the Board satisfied the onus of demonstrating that the assessments of SGC were excessive, per section 14ZZO of the Taxation Administration Act 1953. To be able to do so, the Board needed to establish that it was not liable to pay riding fees to jockeys. | Of the several grounds of appeal relied upon by the Commissioner, their Honours discussed three grounds from which the remaining were also effectively addressed. | Ground one - liability to pay riding fees | Their Honours concluded that the primary judge erred in failing to ascertain if, during the relevant periods, the obligation to pay the riding fees rested with the Board. | The documentation from earlier in 2000, upon which the primary judge based his conclusion that the Board was not liable to pay riding fees, was inconsistent with the evidence presented on behalf of the Board in relation to establishing who was liable to make the payments during the relevant periods. | Ground two - whether the Board agreed to pay riding fees on behalf of the owners or trainers | The Board's contention that there was no contractual relationship between the Board and the jockeys was not accepted. In contrast to the conclusion of the primary judge, their Honours found: The agreement in relation to riding fees was that [the Board] agreed to pay the riding fee if the jockey participated in a regulated race, and the acceptance of that offer occurred when the jockey fulfilled that condition. ... It also means that the Commissioner's conclusion that [the Board] was liable to pay riding fees to jockeys was correct. | Ground three - no entitlement of the Board to seek contribution from owners or trainers for unpaid riding fees | Their Honours found that there was not sufficient evidence to allow a conclusion that the Board was not obliged to pay the riding fees which it paid in practice, further stating: It cannot be accepted that the trainers or owners would have some right of indemnity or contribution against [the Board] were it to happen that the latter did not pay riding fees. | Overall, their Honours determined that the Board had not discharged its onus of proving that the assessments of SGC were excessive, having been unable to establish that it was not liable to pay riding fees to jockeys. | Steward J agreed with the joint judgment of their Honours and added an observation about the statutory construction of paragraph 12(8)(a) of the SGAA. His Honour noted that the paragraph, much like the other expansive subsections within section 12 of the SGAA, identifies who an 'employee' is, but does not identify an 'employer' on a literal reading. Identification of the employer is crucial, as it is with them that any liability to pay an SGC rests. | His Honour however went on to form the view that: a necessary implication to be deduced from the terms of the Act is that the person who, for the purposes of s 12(8)(a) is liable to make the payment, should be deemed to be an \"employer\".", "Issues_Decided": "This case involved an appeal by the Commissioner to the Full Federal Court from a decision by the Federal Court which found in favour of the Board. In a unanimous decision, the Full Federal Court allowed the Commissioner's appeal, finding that the Board was the entity liable to make payment of riding fees to jockeys. In a joint judgment, Griffiths and Derrington JJ noted that a critical aspect of the case was whether or not the Board satisfied the onus of demonstrating that the assessments of SGC were excessive, per section 14ZZO of the Taxation Administration Act 1953. To be able to do so, the Board needed to establish that it was not liable to pay riding fees to jockeys. Of the several grounds of appeal relied upon by the Commissioner, their Honours discussed three grounds from which the remaining were also effectively addressed. | Ground one - liability to pay riding fees: Their Honours concluded that the primary judge erred in failing to ascertain if, during the relevant periods, the obligation to pay the riding fees rested with the Board. The documentation from earlier in 2000, upon which the primary judge based his conclusion that the Board was not liable to pay riding fees, was inconsistent with the evidence presented on behalf of the Board in relation to establishing who was liable to make the payments during the relevant periods. | Ground two - whether the Board agreed to pay riding fees on behalf of the owners or trainers: The Board's contention that there was no contractual relationship between the Board and the jockeys was not accepted. In contrast to the conclusion of the primary judge, their Honours found: The agreement in relation to riding fees was that [the Board] agreed to pay the riding fee if the jockey participated in a regulated race, and the acceptance of that offer occurred when the jockey fulfilled that condition. ... It also means that the Commissioner's conclusion that [the Board] was liable to pay riding fees to jockeys was correct. | Ground three - no entitlement of the Board to seek contribution from owners or trainers for unpaid riding fees: Their Honours found that there was not sufficient evidence to allow a conclusion that the Board was not obliged to pay the riding fees which it paid in practice, further stating: It cannot be accepted that the trainers or owners would have some right of indemnity or contribution against [the Board] were it to happen that the latter did not pay riding fees. Overall, their Honours determined that the Board had not discharged its onus of proving that the assessments of SGC were excessive, having been unable to establish that it was not liable to pay riding fees to jockeys. Steward J agreed with the joint judgment of their Honours and added an observation about the statutory construction of paragraph 12(8)(a) of the SGAA. His Honour noted that the paragraph, much like the other expansive subsections within section 12 of the SGAA, identifies who an 'employee' is, but does not identify an 'employer' on a literal reading. Identification of the employer is crucial, as it is with them that any liability to pay an SGC rests. His Honour however went on to form the view that: a necessary implication to be deduced from the terms of the Act is that the person who, for the purposes of s 12(8)(a) is liable to make the payment, should be deemed to be an \"employer\".", "ATO_View_of_Decision": "The decision of the Full Federal Court is consistent with the Commissioner's interpretation of subsection 12(8) of the of the SGAA. | Other PRAs which have had arrangements in place substantively similar to those involving the Racing Queensland Board (or its relevant PRA predecessor) as discussed above should review their arrangements and lodge SGC statements for any quarters in which they have an SG shortfall. | The Commissioner may also raise SGC assessments against those PRAs where SG shortfalls exist, and such shortfalls are brought to the Commissioner's attention. | PRAs with SG shortfalls for the quarters between 1 July 1992 and 31 March 2018 may be eligible for the SG amnesty. The SG amnesty closes on 7 September 2020. | Where PRAs still have the above arrangements in place, they may also be required under subsection 389-5(1) of Schedule 1 to the Taxation Administration Act 1953 (regarding Single Touch Payroll reporting) to report to the Commissioner the riding fees they pay to jockeys. | Based on previous advice provided to the Commissioner, the PRAs most likely to be directly affected by the above approach are those based in the Australian Capital Territory, the Northern Territory, Queensland, Tasmania and Western Australia.", "Administrative_Treatment": "None.", "Related_Documents": "None | 2019 ATC 20-726 | 12 | 12(1) | 12(8) | 12(8)(a) | 14ZZO | Sch 1 389-5(1) | 2019 ATC 20-692", "Legislative_References": "Superannuation Guarantee (Administration) Act 1992 12 12(1) 12(8) 12(8)(a) Taxation Administration Act 1953 14ZZO Sch 1 389-5(1)", "Case_References": "Racing Queensland Board v Commissioner of Taxation [2019] FCA 509 2019 ATC 20-692 371 ALR 358", "Subject_References": "", "Other_References": "Australian Rules of Racing Racing Queensland Local Rules (Thoroughbred Racing)", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD275of2019/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products."}
{"Case_Name": "Commissioner of Taxation v Scone Race Club Limited", "Venue_Reference_No": "NSD 1158 of 2019 (Full Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "", "Date_Published": "7 August 2020", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns whether, for the purposes of subsection 12(8) of the Superannuation Guarantee (Administration) Act 1992 (SGAA), Scone Race Club Limited (the Club) was liable to pay riding fees to jockeys engaged to ride in races and barrier trials during the relevant period.", "Overview_of_Facts": "From 1 July 2009 to 30 June 2014 (inclusive), the Club (via Racing NSW) paid riding fees to jockeys in respect of riding in horse races and barrier trials conducted at the Scone racecourse. | During this period, the Club was governed by the Rules of Racing of Racing NSW, which incorporated both the Australian Rules of Racing and the Local Rules of Racing. Local rule LR 72 read in part: (1) Clubs shall pay such fee for a jockey or apprentice jockey in consideration for their riding a horse in a race or a barrier trial as may be set from time to time by the Board [that is, Racing NSW]. | Section 12 of the SGAA has regard to the terms 'employer' and 'employee' for the purposes of that Act. | While subsection 12(1) of the SGAA confirms that each of those terms have their ordinary meaning, the remaining subsections of section 12 expand and clarify the meaning of those terms. | Relevantly, subsection 12(8) of the SGAA provides (emphasis added): The following are employees for the purposes of this Act: (a) a person who is paid to perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment | As a result, the Commissioner of Taxation formed the view that under subsection 12(8) of the SGAA, the Club was the employer of jockeys to whom it had paid riding fees. | Note: The Commissioner did not form the view that the Board was the 'employer' of jockeys per the ordinary meaning of that term, or for any effect other than under the superannuation guarantee (SG) legislation. | In relation to the quarters in which there were SG shortfalls, the Commissioner issued superannuation guarantee charge (SGC) assessments to the Club. | The Club put forward the view that although it happened to pay riding fees (via Racing NSW) to jockeys, it was not liable to make such payments - and only did so on behalf of the owners and trainers of the horses being ridden, due to historical administrative practices. | Issues decided by the Court | This case involved an appeal by the Commissioner to the Full Federal Court from a decision by the Federal Court which found in favour of the Club. | In a majority decision, the Full Federal Court allowed the Commissioner's appeal, finding that the Club was the entity liable to make payment of riding fees to jockeys. | Steward J, with whom Derrington J agreed, did not consider the Club to have discharged its onus of proof with regard to the assessments of SGC being excessive (section 14ZZO of the Taxation Administration Act 1953). | His Honour felt there was extensive evidence against the Club's claim that it was not the entity liable to pay riding fees, including the following: • The actual payments of riding fees were made by Racing NSW as agent for the Club via a Stakes Payment System (being a centralised system operated and managed by Racing NSW). No payments of riding fees were made by any horse owners or trainers. • Neither the Club nor Racing NSW sought to recover such fees from the horse owners or trainers. The complete assumption of the economic burden of paying riding fees by the Club is at odds with the proposition that owners were legally liable to pay such fees. • The riding fees were accounted for by the Club as a race day expense, with a witness called by the Club accepting that payment of the fees 'reduced the profit of the club'. • A witness called by the Club stated that the jockeys were considered subcontractors of the Club, and as such, the Club was 'reporting the GST as we would with any other subcontractor though the BAS system'. This approach meant the Club claimed input tax credits for the payment of riding fees, and that it treated the jockeys as making taxable supplies. The claiming of such input tax credits by the Club is consistent with the presence of a legal liability to make such a payment (section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999). • The concept of the Club treating the amount of riding fees as 'returns to owners' is not consistent with a conclusion that any liability was imposed on owners. Instead, it seemed more like a subsidy. • Considering that one way for the Club to claim it was not liable to pay riding fees was to demonstrate with whom that liability instead rested, it was telling that no evidence was called from any owner, trainer or jockey - particularly when most arrangements between owners (or trainers) and jockeys were verbal rather than in writing. Nor were any written contracts tendered. • Examples of statements of accounts sent by Racing NSW to the Club, to an owner, to a trainer and to a jockey showed the only entity that was debited with a 'rider payment' was the Club. This is consistent with Racing NSW on-charging to the Club the riding fees it paid via the Stakes Payment System. | • The actual payments of riding fees were made by Racing NSW as agent for the Club via a Stakes Payment System (being a centralised system operated and managed by Racing NSW). No payments of riding fees were made by any horse owners or trainers. • Neither the Club nor Racing NSW sought to recover such fees from the horse owners or trainers. The complete assumption of the economic burden of paying riding fees by the Club is at odds with the proposition that owners were legally liable to pay such fees. • The riding fees were accounted for by the Club as a race day expense, with a witness called by the Club accepting that payment of the fees 'reduced the profit of the club'. • A witness called by the Club stated that the jockeys were considered subcontractors of the Club, and as such, the Club was 'reporting the GST as we would with any other subcontractor though the BAS system'. This approach meant the Club claimed input tax credits for the payment of riding fees, and that it treated the jockeys as making taxable supplies. The claiming of such input tax credits by the Club is consistent with the presence of a legal liability to make such a payment (section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999). • The concept of the Club treating the amount of riding fees as 'returns to owners' is not consistent with a conclusion that any liability was imposed on owners. Instead, it seemed more like a subsidy. • Considering that one way for the Club to claim it was not liable to pay riding fees was to demonstrate with whom that liability instead rested, it was telling that no evidence was called from any owner, trainer or jockey - particularly when most arrangements between owners (or trainers) and jockeys were verbal rather than in writing. Nor were any written contracts tendered. • Examples of statements of accounts sent by Racing NSW to the Club, to an owner, to a trainer and to a jockey showed the only entity that was debited with a 'rider payment' was the Club. This is consistent with Racing NSW on-charging to the Club the riding fees it paid via the Stakes Payment System. | In contrast to these findings, Griffiths J (dissenting) was of the view that: ... the issue of the proper construction of LRR 72 falls to be determined by reference to its text, when viewed in the light of context and purpose. There was ample evidence to support the primary judge's findings regarding the industry understanding, when viewed in the context of industry custom and practice with particular reference to the practical and accounting operation of the [Stakes Payment System] and the policy of \"owner returns\". | His Honour agreed with the primary judge's views that the Club was in effect paying riding fees on behalf of owners, being expenses which the owners previously paid directly to jockeys prior to the centralised administrative arrangement coming into being.", "Issues_Decided": "This case involved an appeal by the Commissioner to the Full Federal Court from a decision by the Federal Court which found in favour of the Club. In a majority decision, the Full Federal Court allowed the Commissioner's appeal, finding that the Club was the entity liable to make payment of riding fees to jockeys. Steward J, with whom Derrington J agreed, did not consider the Club to have discharged its onus of proof with regard to the assessments of SGC being excessive (section 14ZZO of the Taxation Administration Act 1953). His Honour felt there was extensive evidence against the Club's claim that it was not the entity liable to pay riding fees, including the following: • The actual payments of riding fees were made by Racing NSW as agent for the Club via a Stakes Payment System (being a centralised system operated and managed by Racing NSW). No payments of riding fees were made by any horse owners or trainers. • Neither the Club nor Racing NSW sought to recover such fees from the horse owners or trainers. The complete assumption of the economic burden of paying riding fees by the Club is at odds with the proposition that owners were legally liable to pay such fees. • The riding fees were accounted for by the Club as a race day expense, with a witness called by the Club accepting that payment of the fees 'reduced the profit of the club'. • A witness called by the Club stated that the jockeys were considered subcontractors of the Club, and as such, the Club was 'reporting the GST as we would with any other subcontractor though the BAS system'. This approach meant the Club claimed input tax credits for the payment of riding fees, and that it treated the jockeys as making taxable supplies. The claiming of such input tax credits by the Club is consistent with the presence of a legal liability to make such a payment (section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999). • The concept of the Club treating the amount of riding fees as 'returns to owners' is not consistent with a conclusion that any liability was imposed on owners. Instead, it seemed more like a subsidy. • Considering that one way for the Club to claim it was not liable to pay riding fees was to demonstrate with whom that liability instead rested, it was telling that no evidence was called from any owner, trainer or jockey - particularly when most arrangements between owners (or trainers) and jockeys were verbal rather than in writing. Nor were any written contracts tendered. • Examples of statements of accounts sent by Racing NSW to the Club, to an owner, to a trainer and to a jockey showed the only entity that was debited with a 'rider payment' was the Club. This is consistent with Racing NSW on-charging to the Club the riding fees it paid via the Stakes Payment System. • The actual payments of riding fees were made by Racing NSW as agent for the Club via a Stakes Payment System (being a centralised system operated and managed by Racing NSW). No payments of riding fees were made by any horse owners or trainers. • Neither the Club nor Racing NSW sought to recover such fees from the horse owners or trainers. The complete assumption of the economic burden of paying riding fees by the Club is at odds with the proposition that owners were legally liable to pay such fees. • The riding fees were accounted for by the Club as a race day expense, with a witness called by the Club accepting that payment of the fees 'reduced the profit of the club'. • A witness called by the Club stated that the jockeys were considered subcontractors of the Club, and as such, the Club was 'reporting the GST as we would with any other subcontractor though the BAS system'. This approach meant the Club claimed input tax credits for the payment of riding fees, and that it treated the jockeys as making taxable supplies. The claiming of such input tax credits by the Club is consistent with the presence of a legal liability to make such a payment (section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999). • The concept of the Club treating the amount of riding fees as 'returns to owners' is not consistent with a conclusion that any liability was imposed on owners. Instead, it seemed more like a subsidy. • Considering that one way for the Club to claim it was not liable to pay riding fees was to demonstrate with whom that liability instead rested, it was telling that no evidence was called from any owner, trainer or jockey - particularly when most arrangements between owners (or trainers) and jockeys were verbal rather than in writing. Nor were any written contracts tendered. • Examples of statements of accounts sent by Racing NSW to the Club, to an owner, to a trainer and to a jockey showed the only entity that was debited with a 'rider payment' was the Club. This is consistent with Racing NSW on-charging to the Club the riding fees it paid via the Stakes Payment System. In contrast to these findings, Griffiths J (dissenting) was of the view that: ... the issue of the proper construction of LRR 72 falls to be determined by reference to its text, when viewed in the light of context and purpose. There was ample evidence to support the primary judge's findings regarding the industry understanding, when viewed in the context of industry custom and practice with particular reference to the practical and accounting operation of the [Stakes Payment System] and the policy of \"owner returns\". His Honour agreed with the primary judge's views that the Club was in effect paying riding fees on behalf of owners, being expenses which the owners previously paid directly to jockeys prior to the centralised administrative arrangement coming into being.", "ATO_View_of_Decision": "The decision of the Full Federal Court is consistent with the Commissioner's interpretation of subsection 12(8) of the SGAA. | Other race clubs which have had arrangements in place substantively similar to those involving the Scone Race Club Limited as discussed in this Decision impact statement, should review their arrangements and lodge SGC statements for any quarters in which they have an SG shortfall. | The Commissioner may also raise SGC assessments against those race clubs where SG shortfalls exist, and such shortfalls are brought to the Commissioner's attention. | Race clubs with SG shortfalls for the quarters between 1 July 1992 and 31 March 2018 may be eligible for the SG amnesty. The SG amnesty closes on 7 September 2020. | Where race clubs still have the above arrangements in place, they may also be required under subsection 389-5(1) of Schedule 1 to the Taxation Administration Act 1953 (regarding Single Touch Payroll reporting) to report to the Commissioner the riding fees they pay to jockeys. | Based on previous advice provided to the Commissioner, the race clubs most likely to be directly affected by the above approach are those based in New South Wales, South Australia and Victoria.", "Administrative_Treatment": "None.", "Related_Documents": "None | 2019 ATC 20-727 | 11-5 | 12 | 12(1) | 12(8) | 12(8)(a) | 14ZZO | Sch 1 389-5(1) | 2019 ATC 20-698", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 11-5 Superannuation Guarantee (Administration) Act 1992 12 12(1) 12(8) 12(8)(a) Taxation Administration Act 1953 14ZZO Sch 1 389-5(1)", "Case_References": "Scone Race Club Limited v Commissioner of Taxation [2019] FCA 976 2019 ATC 20-698 (2019) 373 ALR 676", "Subject_References": "", "Other_References": "Rules of Racing of Racing NSW The Australian Rules of Racing The Local Rules of Racing", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1158of2019/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products."}
{"Case_Name": "DCT v MWB", "Venue_Reference_No": "CI-17-04907", "Venue": "County Court of Victoria", "Judgment_Date": "20 September 2019", "Date_Published": "22 April 2020", "Document_Type": "Interim Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether section 8AAZN of the Taxation Administration Act 1953 (TAA) can be used to recover amounts that the Commissioner has paid to a tax agent by mistake because the agent has lodged activity statements without the authority of the taxpayer which resulted in refunds issuing to the agent. | Background | Broadly speaking, section 8AAZN of the TAA allows the Commissioner to recover amounts that the Commissioner has paid to a person by mistake, which the person is not entitled to. | In this case, the Commissioner sought to recover from MWB Accountants Pty Ltd (MWB) a running balance account (RBA) deficit debt comprised of administrative overpayment liabilities under section 8AAZN of the TAA and general interest charge. The administrative overpayment liabilities were raised by the Commissioner to recover payments made to MWB by mistake in the following circumstances: • MWB acted as tax agent for BIT Pty Ltd (BIT). • MWB lodged business activity statements (BASs) for BIT claiming credits which were not authorised. • The unauthorised BAS resulted in BIT having RBA surpluses which were refunded by the ATO and paid into MWB's bank account. • BIT later identified and disclosed these matters to the ATO, together with corrections required to its BASs to properly report its tax liability. On the basis of these disclosures, the ATO cancelled the BASs that had been lodged by MWB without BIT's authority. • The ATO sought to recover the unauthorised refunds paid to BIT by mistake as an administrative overpayment giving rise to a recoverable debt under section 8AAZN. | • MWB acted as tax agent for BIT Pty Ltd (BIT). • MWB lodged business activity statements (BASs) for BIT claiming credits which were not authorised. • The unauthorised BAS resulted in BIT having RBA surpluses which were refunded by the ATO and paid into MWB's bank account. • BIT later identified and disclosed these matters to the ATO, together with corrections required to its BASs to properly report its tax liability. On the basis of these disclosures, the ATO cancelled the BASs that had been lodged by MWB without BIT's authority. • The ATO sought to recover the unauthorised refunds paid to BIT by mistake as an administrative overpayment giving rise to a recoverable debt under section 8AAZN. | Decision | Judge Marks delivered her reasons for judgment on 20 September 2019. Her Honour decided that section 8AAZN of the TAA could not be used to recover the alleged unauthorised refunds because the defendant was not the 'recipient' of an administrative overpayment. | Her Honour held that: (a) for the purposes of section 8AAZN of the TAA, the 'recipient' of an overpayment could only be someone who was overpaid and not someone who was paid something they were never entitled to be paid (at [51-52] and [120]), and (b) BIT, and not MWB, was the 'recipient' of the administrative overpayment because BIT '...was the taxpayer the Commissioner intended to pay as a result of its entitlement under a taxation law' (at [66]). | (a) for the purposes of section 8AAZN of the TAA, the 'recipient' of an overpayment could only be someone who was overpaid and not someone who was paid something they were never entitled to be paid (at [51-52] and [120]), and (b) BIT, and not MWB, was the 'recipient' of the administrative overpayment because BIT '...was the taxpayer the Commissioner intended to pay as a result of its entitlement under a taxation law' (at [66]). | In coming to the decision, her Honour concluded that it was unnecessary for the Court to determine whether the BASs had been lodged by MWB without BIT's authority, or whether MWB or BIT had received the benefit of the refunds.", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "The decision of the County Court is inconsistent with the ATO's view in Law Administration Practice Statements PS LA 2008/11 Suspected fraud by a third party or tax practitioner and PS LA 2011/5 Recovery of administrative overpayments . In accordance with those practice statements, the ATO is of the view that her Honour erred in finding MWB was not the recipient for the purposes of section 8AAZN of the TAA. The ATO takes the view that there was an administrative overpayment recoverable from MWB. | The Commissioner has filed an application for leave to appeal from Her Honour's judgment to the Victorian Court of Appeal. | The Commissioner will continue to seek recovery of overpayments in accordance with its published view in PS LA 2008/11 and PS LA 2011/5, pending the outcome of the appeals process. | Furthermore, in any case where litigation is proposed to recover a refund mistakenly paid, consideration will be given to pleading common law causes of action that are available to the Commissioner to recover monies paid by mistake in the alternative to section 8AAZN of the TAA. | A final decision impact statement will be published after the litigation in this matter is concluded. Date issued: 22 April 2020 | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).", "Administrative_Treatment": "", "Related_Documents": "Decision Impact Statement | [2019] VCC 1516 | 8AAZN | PS LA 2008/11 | PS LA 2011/5 | Deputy Commissioner of Taxation v MWB Accountants Pty Ltd [2019] VCC 1516", "Legislative_References": "Taxation Administration Act 1953 8AAZN", "Case_References": "", "Subject_References": "", "Other_References": "PS LA 2008/11 PS LA 2011/5 Deputy Commissioner of Taxation v MWB Accountants Pty Ltd [2019] VCC 1516", "Is_Interim": true, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/CI-17-04907/00001", "Unmatched_Content": "This interim decision impact statement has been finalised. Refer to the Decision Impact Statement on Deputy Commissioner of Taxation v MWB Accountants Pty Ltd [2019] VCC 1516."}
{"Case_Name": "Deputy Commissioner of Taxation v MWB Accountants Pty Ltd [2019] VCC 1516", "Venue_Reference_No": "CI-17-04907", "Venue": "County Court of Victoria", "Judgment_Date": "20 September 2019", "Date_Published": "20 August 2025", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's final response to the decision of the County Court of Victoria in Deputy Commissioner of Taxation v MWB Accountants Pty Ltd [2019] VCC 1516 (MWB Accountants). This decision concerns whether section 8AAZN of the Taxation Administration Act 1953 can be used to recover amounts from a tax agent that the Commissioner of Taxation has paid to the agent because the agent lodged activity statements for a taxpayer without the taxpayer's knowledge, claiming credits to which the taxpayer was not entitled. This resulted in refunds being paid into the bank account of the tax agent (which had been nominated by the taxpayer for receipt of payments on account of the taxpayer from the ATO). | 2. All legislative references in this Decision impact statement are to the Taxation Administration Act 1953, unless otherwise indicated. | 3. All judgment references in this Decision impact statement are to the judgment of MWB Accountants.", "Overview_of_Facts": "4. Broadly speaking, section 8AAZN allows the Commissioner to recover an amount that the Commissioner has paid to a person by mistake, being an amount which the person is not entitled. | 5. In this case, the Commissioner sought to recover from MWB Accountants Pty Ltd (MWB) a running balance account (RBA) deficit debt comprised of administrative overpayment liabilities and general interest charge. The administrative overpayment liabilities were raised by the Commissioner to recover payments made to MWB in the following circumstances. • The director of MWB acted as tax agent for BIT Pty Ltd (BIT). • While draft business activity statements (BAS) were sent to BIT, MWB lodged different BAS and amended BAS without BIT's knowledge, claiming credits that BIT was not entitled to. • Those BAS resulted in BIT having RBA surpluses which were refunded by the ATO and paid into MWB's bank account (the account nominated by BIT for receipt of payments from the ATO). • BIT later discovered what MWB had done and disclosed these matters to the ATO, together with corrections required to its BAS to properly report its tax liability. On the basis of these disclosures, the ATO cancelled the BAS that had been lodged by MWB without BIT's knowledge. • The ATO sought to recover the refunds paid to MWB as an administrative overpayment giving rise to a recoverable debt under section 8AAZN. | • The director of MWB acted as tax agent for BIT Pty Ltd (BIT). • While draft business activity statements (BAS) were sent to BIT, MWB lodged different BAS and amended BAS without BIT's knowledge, claiming credits that BIT was not entitled to. • Those BAS resulted in BIT having RBA surpluses which were refunded by the ATO and paid into MWB's bank account (the account nominated by BIT for receipt of payments from the ATO). • BIT later discovered what MWB had done and disclosed these matters to the ATO, together with corrections required to its BAS to properly report its tax liability. On the basis of these disclosures, the ATO cancelled the BAS that had been lodged by MWB without BIT's knowledge. • The ATO sought to recover the refunds paid to MWB as an administrative overpayment giving rise to a recoverable debt under section 8AAZN.", "Issues_Decided": "6. Judge Marks delivered her reasons for judgment on 20 September 2019. Her Honour decided that section 8AAZN could not be used to recover the refunds paid to MWB because MWB was not the 'recipient' of an administrative overpayment. Rather, that recipient was BIT, in its capacity as the taxpayer on whose behalf MWB had authority to act. 7. Her Honour held that: • For the purposes of section 8AAZN, the 'recipient' of an overpayment could only be someone who was overpaid and not someone who was paid something they were never entitled to be paid (at [51-52] and [120]). • BIT, and not MWB, was the 'recipient' of the administrative overpayment because BIT 'was the taxpayer the Commissioner intended to pay as a result of its entitlement under a taxation law' (at [66]). • For the purposes of section 8AAZN, the 'recipient' of an overpayment could only be someone who was overpaid and not someone who was paid something they were never entitled to be paid (at [51-52] and [120]). • BIT, and not MWB, was the 'recipient' of the administrative overpayment because BIT 'was the taxpayer the Commissioner intended to pay as a result of its entitlement under a taxation law' (at [66]). 8. In coming to the decision, her Honour concluded that it was unnecessary for the Court to determine whether the BAS had been lodged by MWB without BIT's authority, or whether MWB or BIT had received the benefit of the refunds.", "ATO_View_of_Decision": "9. The Commissioner subsequently appealed this decision to the Victorian Court of Appeal. However, the appeal was withdrawn prior to the case being decided. This was because her Honour's ultimate conclusion that the Commissioner's right of recovery was against BIT rather than MWB, was, on the facts, correct. | 10. Where it is established that an entity has received money in its capacity as the taxpayer's authorised representative, including as tax agent, for a taxpayer, it is that taxpayer who is the party who is taken to have received the money. This is because the entity is receiving the money on behalf of the taxpayer. | 11. Whether an entity has received money in capacity as the taxpayer's authorised representative requires consideration of all the relevant facts and circumstances including the scope of the authority of the entity to act on behalf the taxpayer (actual and ostensible). | 12. The decision of the Full Federal Court in Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 makes clear that section 8AAZN applies to 'all payments to which a taxpayer is not entitled'. This includes payment made to the wrong person. The Decision impact statement for that decision provides further information.", "Administrative_Treatment": "13. We have reviewed the impact of this decision on related advice and guidance. Law Administration Practice Statement PS LA 2008/11 Suspected fraud by a third party or tax practitioner was withdrawn on 12 December 2024 as it is no longer current. | Commissioner of Taxation 20 August 2025 | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).", "Related_Documents": "Decision impact statement | [2019] VCC 1516 | TAA 1953 8AAZN | 2021 ATC 20-782 | Decision Impact Statement | PS LA 2008/11 | DCT v MWB (CI-17-04907)", "Legislative_References": "TAA 1953 8AAZN", "Case_References": "Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 284 FCR 294 388 ALR 553 2021 ATC 20-782 112 ATR 859", "Subject_References": "", "Other_References": "Decision Impact Statement for Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 PS LA 2008/11 (withdrawn) DCT v MWB (CI-17-04907)", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/CI-17-04907-2/00001", "Unmatched_Content": "ATO view of this decision | Implications for affected advice or guidance"}
{"Case_Name": "Glencore International AG v Commissioner of Taxation", "Venue_Reference_No": "S256/2018", "Venue": "High Court of Australia", "Judgment_Date": "14 August 2019", "Date_Published": "26 February 2020", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns whether the common law of legal professional privilege provided the holder of that privilege with an actionable right to recover the privileged material from another person and to restrain the use of such material by that other person.", "Overview_of_Facts": "The plaintiffs are companies within the global Glencore corporate group. The plaintiffs contended that they sought legal advice from Appleby (Bermuda) Limited (Appleby). Communications between the plaintiffs, their legal advisers and Appleby were stored on Appleby's electronic document management system. That system was accessed in 2016 and a large number of documents and records were downloaded. The downloaded documents have come to be referred to as the 'Paradise papers'. The existence and content of the Paradise papers received widespread media coverage. The plaintiffs contended that some or all of those documents are in the possession of the Commissioner. | The plaintiffs asserted legal professional privilege (LPP) in respect of the documents and requested that the Commissioner return them, destroy any copies, and give an undertaking not to make use of or rely upon knowledge derived from them. | That request was refused. The plaintiffs sought an injunction to restrain the Commissioner from making use of any of the documents or information contained in them, and an order for the return of the documents. The Commissioner demurred. This is a defence which denies that the plaintiff's pleaded facts disclose any cause of action. That is to say, a demurrer asserts that even if the facts pleaded are true, the plaintiff is not entitled to the relief the plaintiff seeks. | Because the case proceeded by way of demurrer it was not necessary for the Court to decide if any of the documents were actually privileged: for the purposes of the case it was simply assumed that the documents were privileged. The Commissioner did not concede that any of the documents were privileged. | Issues decided by the court | The first issue before the High Court was whether LPP provided the holder of privilege at common law with a positive, actionable right to recover privileged documents from another person and to restrain by injunction the use of knowledge derived from such material by that person, or whether it was, as the Commissioner argued, only an immunity. | In a unanimous decision, the High Court found that LPP is only an immunity (that is a defence) to the exercise of a power which would otherwise compel the disclosure of privileged communications. [1] It is not a source of positive rights. | The High Court did not agree that Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited [2] stood for any principle that privilege confers a positive right which could justify relief by way of injunction based on the law of privilege. This case only concerned the case management powers of a court in respect of a proceeding before it; it is irrelevant where that is not the context. | The Court also observed that where injunctions have been granted in respect of the use of confidential documents that were also privileged documents; this was because the documents were confidential, not because they were privileged. (It should be noted that confidentiality is not a defence to the exercise of the Commissioner's statutory powers, and confidentiality was not a ground on which the plaintiffs sought an injunction in this matter.) | The second issue before the High Court was an alternative argument put by the Commissioner that section 166 of the Income Tax Assessment Act 1936 (ITAA 1936) provided a defence against any common law action by a privilege holder to recover privileged communications. | The High Court found that given its decision in respect of the first issue there was no need to consider this alternative ground. [3]", "Issues_Decided": "The first issue before the High Court was whether LPP provided the holder of privilege at common law with a positive, actionable right to recover privileged documents from another person and to restrain by injunction the use of knowledge derived from such material by that person, or whether it was, as the Commissioner argued, only an immunity. In a unanimous decision, the High Court found that LPP is only an immunity (that is a defence) to the exercise of a power which would otherwise compel the disclosure of privileged communications. [1] It is not a source of positive rights. The High Court did not agree that Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited [2] stood for any principle that privilege confers a positive right which could justify relief by way of injunction based on the law of privilege. This case only concerned the case management powers of a court in respect of a proceeding before it; it is irrelevant where that is not the context. The Court also observed that where injunctions have been granted in respect of the use of confidential documents that were also privileged documents; this was because the documents were confidential, not because they were privileged. (It should be noted that confidentiality is not a defence to the exercise of the Commissioner's statutory powers, and confidentiality was not a ground on which the plaintiffs sought an injunction in this matter.) The second issue before the High Court was an alternative argument put by the Commissioner that section 166 of the Income Tax Assessment Act 1936 (ITAA 1936) provided a defence against any common law action by a privilege holder to recover privileged communications. The High Court found that given its decision in respect of the first issue there was no need to consider this alternative ground. [3]", "ATO_View_of_Decision": "The High Court's decision reflects what the Commissioner has always understood to be the law. | The High Court did not deal with the possible operation of section 166 of the ITAA 1936. However, the Commissioner considers that the Full Federal Court's decision in Commissioner of Taxation v Donoghue [2015] FCAFC 183 correctly states the operation of that section. | The High Court made some general observations concerning equitable remedies available to restrain an apprehended breach of confidential information. [4] Whilst it was not necessary for the Court to decide this point, it did state that there were difficulties in obtaining such relief in the present circumstances: the documents are in the public domain and there were no allegations concerning the Commissioner's conduct or knowledge. [5] The High Court also observed that the fact that the material was in the public domain created particular problems where the Commissioner is the party that is to be restrained. The granting of such relief would require the Commissioner to assess entities to income tax on a basis which may be known to bear no real relationship to the true facts. [6] | In light of the above observations, even putting aside the operation of section166 of the ITAA 1936 or other statutory provisions, we consider that equitable remedies for breach of confidentiality would not have been available against the Commissioner. | Since the decision confirmed the existing view of the Commissioner that LPP was irrelevant where documents or information is obtained otherwise than through the exercise of powers of compulsion, the Commissioner's practice in respect of the use of such documents or information is not affected by the decision. | The decision of the High Court also does not affect the right of a taxpayer to refuse to furnish documents that are privileged in response to the exercise of a power of compulsory disclosure. | Consequently, the decision has no implications for the practice of the Commissioner.", "Administrative_Treatment": "Nil", "Related_Documents": "None | 2019 ATC 20-708 | 83 ATC 4606 | 35 ATR 130 | [2002] HCA 49", "Legislative_References": "", "Case_References": "Baker v Campbell [1983] HCA 39 153 CLR 52 14 ATR 713 83 ATC 4606 Carter v Managing Partner, Northmore Hale Davy & Leake [1995] HCA 33 183 CLR 121 69 ALJR 572 Commissioner of Australian Federal Police v Propend Finance Pty Ltd [1997] HCA 3 188 CLR 501 35 ATR 130 Commissioner of Taxation v Donoghue [2015] FCAFC 183 237 FCR 316 Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited [2013] HCA 46 88 ALJR 76 303 ALR 199 Grant v Downs [1976] HCA 63 135 CLR 674 51 ALJR 198 11 ALR 577 Lord Ashburton v Pape [1913] 2 Ch 469 The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49 213 CLR 543 192 ALR 561 Three Rivers District Council v Governor and Company of the Bank of England [No 6] [2005] 1 AC 610 [2004] WR 1274", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S256of2018/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | [5] At [7]. There was no indication that the Commissioner's conscience had been relevantly affected."}
{"Case_Name": "Harding v Commissioner of Taxation", "Venue_Reference_No": "QUD 442 of 2018", "Venue": "Federal Court of Australia", "Judgment_Date": "22 February 2019", "Date_Published": "27 October 2022", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "At issue was whether the taxpayer, an individual, was a 'resident' of Australia for the purposes of subsection 6(1) of the Income Tax Assessment Act 1936 for the 2011 income year under either the ordinary meaning of resides (the 'ordinary concepts test') or under subparagraph 6(1)(a)(i) (the 'domicile test'). The Court at first instance [1] found that Mr Harding was not a resident under the ordinary concepts test but was a resident under the domicile test. Mr Harding appealed on the application of the domicile test (and the ATO put on a notice of contention regarding the ordinary concepts test). The Court on appeal found that Mr Harding was not a resident under either test. The Commissioner's special leave application to the High Court was refused.", "Overview_of_Facts": "Mr Harding was an Australian citizen. He worked and lived for over 15 years in Saudi Arabia with his then-wife and children. Following the worsening of the political and geopolitical situation in Saudi Arabia, Mr and Mrs Harding decided to relocate to Australia. Mrs Harding arrived first with the children in 2004. Mr and Mrs Harding built a house in Queensland. Mr Harding joined his family in Australia in May 2006. | Mr Harding worked in Australia and, dissatisfied with his employment opportunities in Australia, took up an offer to work in Saudi Arabia in February 2009. The Hardings agreed that Mr Harding would live in Bahrain and commute each day to Saudi Arabia and that Mrs Harding would join Mr Harding, with their youngest son, toward the end of 2011 after their middle child completed high school. | When Mr Harding left Australia in March 2009, he took his personal possessions and those he did not take were sold (including his boat and car) or left for his sons. | Upon his return to the Middle East, Mr Harding started making plans to relocate his wife and youngest son to Bahrain. Mrs Harding and the children visited Mr Harding and they looked for appropriate accommodation and enrolled their youngest son in a school in Bahrain. Mr Harding purchased a car for his wife to use when she joined him in Bahrain. Mr Harding returned to Australia regularly each year to visit his family. In the 2010-11 income year, he spent 91 days in Australia, generally when working conditions permitted, and stayed in the family home. | From 2011, Mrs Harding indicated her reluctance to return to the Middle East. Mr Harding was not prepared to alter his plans and the pursuit of his employment opportunities in the Middle East. The first instance judge accepted that the purposes of Mr Harding's extended visits in the 2010-11 income year were to see his family and to encourage Mrs Harding to come to Bahrain. [2] Mr and Mrs Harding separated around October 11 and ultimately divorced. | In Bahrain, Mr Harding leased and lived in an apartment building and moved between fully-furnished apartments within that same building. He initially took a 2 bedroom apartment and then moved to a one bedroom apartment in June 2011 when he knew his family would not be joining him. In 2014, Mr Harding committed to moving to Oman for work. His relationship at the time ended as his then-partner was reluctant to move to Oman. Mr Harding subsequently met and married another person and they commenced living together in Oman. | Issues decided by the Court | Ordinary concepts test | Davies and Steward JJ, with Logan J agreeing, agreed with the reasoning and conclusion of the first instance judge regarding the ordinary concepts test. | The first instance judge placed substantial significance on the finding that Mr Harding held a strong and fixed intent [3] to resume his previous lifestyle [4] in the Middle East irrespective of whether his family ultimately joined him there. [5] The first instance judge noted that the objective circumstances surrounding Mr Harding's departure were consistent with this intent [6] and that his conduct prior to and after the 2010-11 income year were also consistent with that intent. [7] His connections to Australia in the relevant year were 'remnants of his prior residency' and not consistent with ongoing residency. [8] | The first instance judge observed that the maintenance of a house in Australia where a spouse and children lived and the maintenance of a house as a family home would usually be important indicators of residency. [9] However, his Honour considered that in the 'unusual' [10] circumstances of this case, those factors assumed less significance and concluded that the nature and quality of Mr Harding's continued presence in Australia was not consistent with residing in Australia. | The Full Federal Court observed that Mr Harding's connections with Australia either supported the finding that Mr Harding was not a resident or were insufficient to overcome the significance of Mr Harding's intention to leave indefinitely. [11] | Permanent place of abode | Davies and Steward JJ, with Logan J agreeing, found that the expression 'place of abode', in the specific legislative context, referred not only to a specific house or flat or other dwelling but also referred to a town or country. [12] | The Full Federal Court referred to the Explanatory Notes accompanying the Income Tax Assessment Act 1930 that inserted the current definition of resident and said [13] : ...Where it can be shown to the Commissioner's satisfaction that that person has \"definitely abandoned\" their Australian residence, Parliament's intention is that that person should not be subject to federal income tax. A person who ceases permanently to live in Australia, but who nonetheless considers themselves still to be an Australian might fall within this category. | The phrase 'permanent place of abode' directed attention to the place, extending to a town or country, where the person was living in a permanent way and required identification of a single country where the person could be said to be living permanently. [14] | Commissioner's satisfaction | Davies and Steward JJ noted that the criterion in subparagraph (a)(i) of the definition of 'resident' in subsection 6(1) of the Income Tax Assessment Act 1936 , namely whether the person's permanent place of abode was outside Australia, turns upon the Commissioner's satisfaction. Their Honours observed that this was not merely a procedural step but reserves to the Commissioner a function that forms part of the criteria of residence. [15]", "Issues_Decided": "Ordinary concepts test: Davies and Steward JJ, with Logan J agreeing, agreed with the reasoning and conclusion of the first instance judge regarding the ordinary concepts test. The first instance judge placed substantial significance on the finding that Mr Harding held a strong and fixed intent [3] to resume his previous lifestyle [4] in the Middle East irrespective of whether his family ultimately joined him there. [5] The first instance judge noted that the objective circumstances surrounding Mr Harding's departure were consistent with this intent [6] and that his conduct prior to and after the 2010-11 income year were also consistent with that intent. [7] His connections to Australia in the relevant year were 'remnants of his prior residency' and not consistent with ongoing residency. [8] The first instance judge observed that the maintenance of a house in Australia where a spouse and children lived and the maintenance of a house as a family home would usually be important indicators of residency. [9] However, his Honour considered that in the 'unusual' [10] circumstances of this case, those factors assumed less significance and concluded that the nature and quality of Mr Harding's continued presence in Australia was not consistent with residing in Australia. The Full Federal Court observed that Mr Harding's connections with Australia either supported the finding that Mr Harding was not a resident or were insufficient to overcome the significance of Mr Harding's intention to leave indefinitely. [11] | Permanent place of abode: Davies and Steward JJ, with Logan J agreeing, found that the expression 'place of abode', in the specific legislative context, referred not only to a specific house or flat or other dwelling but also referred to a town or country. [12] The Full Federal Court referred to the Explanatory Notes accompanying the Income Tax Assessment Act 1930 that inserted the current definition of resident and said [13] : ...Where it can be shown to the Commissioner's satisfaction that that person has \"definitely abandoned\" their Australian residence, Parliament's intention is that that person should not be subject to federal income tax. A person who ceases permanently to live in Australia, but who nonetheless considers themselves still to be an Australian might fall within this category. The phrase 'permanent place of abode' directed attention to the place, extending to a town or country, where the person was living in a permanent way and required identification of a single country where the person could be said to be living permanently. [14] | Commissioner's satisfaction: Davies and Steward JJ noted that the criterion in subparagraph (a)(i) of the definition of 'resident' in subsection 6(1) of the Income Tax Assessment Act 1936 , namely whether the person's permanent place of abode was outside Australia, turns upon the Commissioner's satisfaction. Their Honours observed that this was not merely a procedural step but reserves to the Commissioner a function that forms part of the criteria of residence. [15]", "ATO_View_of_Decision": "Ordinary concepts test | The Commissioner considers that, regarding the ordinary concepts test, the first instance judge followed the familiar process of applying the ordinary meaning of 'resides' to the circumstances of the individual. The descriptions in the case law of what it means to 'reside' in a location include: • to dwell permanently [16] • to have a settled or usual abode [17] • to establish a home [18] • to habitually live. [19] | • to dwell permanently [16] • to have a settled or usual abode [17] • to establish a home [18] • to habitually live. [19] | These all direct attention to the nature, duration and quality of a person's presence, and their association with a place including a consideration of their intention. The question of whether a person resides in Australia is always one of fact and degree and, as noted by the first instance judge, one where reasonable minds may differ. The process engaged in by the primary judge is the same process followed by the Commissioner, albeit a different conclusion was reached. | The Commissioner accepts that, in the particular circumstances of Mr Harding, described by the first instance judge as 'unusual' [20] , rare [21] and extraordinary [22] , it was reasonable to conclude that Mr Harding's presence in Australia during the 2010-11 income year did not amount to residing in Australia under the ordinary concepts test. We note that the circumstances in which the first instance judge made this finding included Mr Harding's history of living in the Middle East and the importance he placed on his return there. | The Commissioner agrees with Logan J's comments where his Honour said [23] : ...In the answering of that question, it is of cardinal importance not to elevate into matters of principle in a later case particular facts found decisive in the different circumstances of an earlier case. | Any pattern of working overseas and returning to Australia at intervals must be examined against the individual circumstances. This case stands for no higher proposition than that Mr Harding, when his circumstances were examined, was found not to reside in Australia. | Regarding intention, we agree with the first instance judge's observation that 'the objective manifestation of a person's intention is often a more accurate indicator of their state of mind at a particular time in the past than is an assertion about that alleged prior intent'. [24] | Permanent place of abode | Regarding the domicile test, the Commissioner will apply the Full Federal Court's construction and, in determining whether the Commissioner is satisfied that a person's permanent place of abode is outside Australia, will consider whether the person has: • definitely abandoned residence in Australia, and • commenced living permanently in a specific country overseas. | • definitely abandoned residence in Australia, and • commenced living permanently in a specific country overseas. | In deciding whether the person's permanent place of abode is outside Australia, the Commissioner will consider the facts and circumstances surrounding the person's departure from Australia, their arrangements in relation to the overseas country and nature of their presence there. | The Commissioner notes that the definition given to 'place of abode' was inclusive. We consider that the nature of the dwelling, or dwellings, and the particular use made of it, or them, will form part of the relevant facts and circumstances taken into account as to whether a person has definitely abandoned residence in Australia and commenced living permanently in a country overseas. In this respect, we note that the factors listed in paragraph 23 of Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia remain relevant. | Each case will turn on its facts. The facts in this case provide an illustration of where a person's permanent place of abode is outside Australia and are an application of the law to the specific facts of that case. | Commissioner's satisfaction | The significance of the discretion afforded to the Commissioner in determining whether a person's permanent place of abode is outside Australia is that in a case where the facts are such that reasonable minds could differ, the Commissioner's opinion or, on review, that of the Administrative Appeals Tribunal will be determinative.", "Administrative_Treatment": "Paragraphs 64 and 66 of Draft Taxation Ruling TR 2022/D2 Income tax: residency tests for individuals reflect the view of the Full Federal Court by recognising that 'place of abode' refers not only to a dwelling but can also refer to a country. | TR 2022/D2 replaced IT 2650, incorporating the Commissioner's view expressed in that Ruling to the extent that it continues to apply and updating it to incorporate developments in new case law, including to this case.", "Related_Documents": "IT 2650 | 2019 ATC 20-685 | TR 2022/D2 | 6(1) | 6(1)(a)(i) | 2018 ATC 20-660 | (1985) 6 FCR 444 | 60 ALR 674 | 64 CLR 241 | [1941] ALR 125 | [1928] AC 217", "Legislative_References": "ITAA 1936 6(1) 6(1)(a)(i) Income Tax Assessment Act 1930 Explanatory Notes", "Case_References": "Harding v Commissioner of Taxation [2018] FCA 837 (2018) 108 ATR 137 2018 ATC 20-660 Hafza, M. v Director-General of Social Security [1985] FCA 201 (1985) 6 FCR 444 60 ALR 674 Koitaki Para Rubber Estates Limited v Federal Commissioner of Taxation [1941] HCA 13 64 CLR 241 (1941) 6 ATD 82 [1941] ALR 125 Levene v Commissioners of Inland Revenue [1928] AC 217", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD442of2018/00001", "Unmatched_Content": "Footnotes: [1] Harding v Commissioner of Taxation [2018] FCA 837 (Harding 2018). | [2] Harding 2018 at [81]. | [3] Harding 2018 at [81]. | [4] Harding 2018 at [51]. | [5] Harding 2018 at [54]. | [6] Harding 2018 at [55] and [56]. | [7] Harding 2018 at [55] and [77]. | [8] Harding 2018 at [84]. | [9] Harding 2018 at [59] and [80]. | [10] Harding 2018 at [51]. | [12] Harding 2018 at [26] and [40]. | [13] Harding 2018 at [36]. | [16] Levene v Commissioners of Inland Revenue [1928] AC 217, page 222, per Viscount Cave LC. | [17] Koitaki Para Rubber Estates Limited v Federal Commissioner of Taxation [1941] HCA 13; (1941) 64 CLR 241, page 249, per Williams J. | [18] Hafza, M. v Director - General of Social Security [1985] FCA 201. | [19] Koitaki Para Rubber Estates Limited v Federal Commissioner of Taxation [1941] HCA 13, (1941) 64 CLR 241, page 249. | [20] Harding 2018 at [51]. | [21] Harding 2018 at [86]. | [22] Harding 2018 at [86]. | [24] Harding 2018 at [43]."}
{"Case_Name": "Linfox Australia Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia", "Venue_Reference_No": "NSD 464 of 2019 (Full Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "", "Date_Published": "24 September 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to these cases which concern whether the taxpayer was required to reduce its fuel tax credit by the road user charge (RUC), and if not, whether Division 47 of the Fuel Tax Act 2006 (FTA) would have operated to deny any entitlement to the fuel tax credits at issue outside of the four year limitation period.", "Overview_of_Facts": "Taxpayers are (subject to exceptions) entitled to a fuel tax credit for taxable fuel that they acquire for use in carrying on their enterprise. However, that fuel tax credit is reduced by a RUC if the fuel is acquired to use for travelling on a public road. | The taxpayer acquired fuel that was used in vehicles which had a gross vehicle mass of more than 4.5 tonnes. These vehicles travelled, from time to time, on certain privately operated toll roads. The vehicles also had cabin air-conditioning powered by the vehicle's main engine. | The taxpayer argued that the RUC did not apply to fuel acquired to power cabin air conditioning and for travelling on privately operated toll roads. | Issues decided by the Tribunal and the Court | The Administrative Appeals Tribunal (Tribunal) found that: 1. The RUC applied in these situations. 2. Fuel used 'for travelling on a public road' was not confined to meaning propelling a vehicle on a public road and was apt to include fuel used to power air-conditioning in the driver's cabin. 3. A public road, for the purposes of the FTA, is one on which members of the public are generally entitled as of right to travel. 4. It did not matter whether the road was maintained by private operators, or by government, or whether a toll was imposed for use of the road. | 1. The RUC applied in these situations. 2. Fuel used 'for travelling on a public road' was not confined to meaning propelling a vehicle on a public road and was apt to include fuel used to power air-conditioning in the driver's cabin. 3. A public road, for the purposes of the FTA, is one on which members of the public are generally entitled as of right to travel. 4. It did not matter whether the road was maintained by private operators, or by government, or whether a toll was imposed for use of the road. | The Tribunal also found that Division 47 of the FTA would not have operated to deny the taxpayer any increased fuel tax credit that would have occurred if the RUC did not apply. The Tribunal considered that, having applied the RUC to reduce the fuel tax credit claimed in its returns, the taxpayer had 'taken into account' the relevant fuel tax credits at issue in an assessment. | The taxpayer appealed to the Full Federal Court. The Full Federal Court was not asked to consider the Tribunal's conclusions in respect of cabin air-conditioning, and accordingly that aspect of the Tribunal's decision was not challenged and now stands. | The Full Federal Court found no error in the Tribunal's decision. In particular: 1. A public road is one to which the public have access and this includes privately operated toll roads. 2. 'Taken into account in assessment' involves the ascertainment of the taxpayer's total fuel tax credits, which in turn includes the calculation by which the taxpayer's entitlement to credits is reduced by the amount of the RUC. | 1. A public road is one to which the public have access and this includes privately operated toll roads. 2. 'Taken into account in assessment' involves the ascertainment of the taxpayer's total fuel tax credits, which in turn includes the calculation by which the taxpayer's entitlement to credits is reduced by the amount of the RUC.", "Issues_Decided": "The Administrative Appeals Tribunal (Tribunal) found that: 1. The RUC applied in these situations. 2. Fuel used 'for travelling on a public road' was not confined to meaning propelling a vehicle on a public road and was apt to include fuel used to power air-conditioning in the driver's cabin. 3. A public road, for the purposes of the FTA, is one on which members of the public are generally entitled as of right to travel. 4. It did not matter whether the road was maintained by private operators, or by government, or whether a toll was imposed for use of the road. 1. The RUC applied in these situations. 2. Fuel used 'for travelling on a public road' was not confined to meaning propelling a vehicle on a public road and was apt to include fuel used to power air-conditioning in the driver's cabin. 3. A public road, for the purposes of the FTA, is one on which members of the public are generally entitled as of right to travel. 4. It did not matter whether the road was maintained by private operators, or by government, or whether a toll was imposed for use of the road. The Tribunal also found that Division 47 of the FTA would not have operated to deny the taxpayer any increased fuel tax credit that would have occurred if the RUC did not apply. The Tribunal considered that, having applied the RUC to reduce the fuel tax credit claimed in its returns, the taxpayer had 'taken into account' the relevant fuel tax credits at issue in an assessment. The taxpayer appealed to the Full Federal Court. The Full Federal Court was not asked to consider the Tribunal's conclusions in respect of cabin air-conditioning, and accordingly that aspect of the Tribunal's decision was not challenged and now stands. The Full Federal Court found no error in the Tribunal's decision. In particular: 1. A public road is one to which the public have access and this includes privately operated toll roads. 2. 'Taken into account in assessment' involves the ascertainment of the taxpayer's total fuel tax credits, which in turn includes the calculation by which the taxpayer's entitlement to credits is reduced by the amount of the RUC. 1. A public road is one to which the public have access and this includes privately operated toll roads. 2. 'Taken into account in assessment' involves the ascertainment of the taxpayer's total fuel tax credits, which in turn includes the calculation by which the taxpayer's entitlement to credits is reduced by the amount of the RUC.", "ATO_View_of_Decision": "The Full Court decision confirms the ATO view that a 'public road' is a road that is available for use, or generally accessible as of right, by members of the public. | The Tribunal, in coming to its conclusions on cabin air-conditioning, found that the act of travelling involves more than mere propulsion. Rather, the Tribunal found that fuel acquired 'for travelling' included fuel used for operations other than propulsion which are part of going from one place to another. The ATO considers that this reasoning would extend to the operation of all such auxiliary equipment in vehicles and the use of fuel for travel on public roads. | The ATO notes that, in this respect, some elements of the Tribunal's reasoning are inconsistent with the Tribunal's earlier decision in Linfox Australia Pty Ltd and Commissioner of Taxation [2012] AATA 517. The ATO intends to apply this decision (that is, the 2019 decision) to the extent of any inconsistency. | The ATO accepts the Full Court's conclusions in relation to how the RUC was 'taken into account in an assessment'. The ATO notes that the particular facts before the Full Court did not require it to consider the situation where no credit has been claimed in respect of any particular fuel acquisition. For example, where a taxpayer has simply forgotten to, or omitted to, claim a credit in respect of an acquisition within the four year limitation period. There is other current litigation that may address this particular factual situation.", "Administrative_Treatment": "The Full Court and the Tribunal decision (in respect of cabin air-conditioning) are consistent with ATO published views as set out in: • Fuel Tax Determination FTD 2016/1 Fuel tax: fuel tax credits - fuel used for idling and cabin air-conditioning of a vehicle on a public road, and • Fuel Tax Ruling FTR 2008/1 Fuel tax: vehicle's travel on a public road that is incidental to the vehicle's main use and the road user charge. | • Fuel Tax Determination FTD 2016/1 Fuel tax: fuel tax credits - fuel used for idling and cabin air-conditioning of a vehicle on a public road, and • Fuel Tax Ruling FTR 2008/1 Fuel tax: vehicle's travel on a public road that is incidental to the vehicle's main use and the road user charge. | Passenger air-conditioning | Further to the Tribunal's reasoning in respect of cabin air-conditioning, the Commissioner is now reconsidering if fuel used to power other passenger air conditioning units (for example, in commercial buses) is used 'for travelling' and therefore whether the associated fuel tax credits would be reduced by the RUC where the fuel is used for travelling on public roads. | This would specifically impact on: • Example 9B at paragraph 43B of FTR 2008/1, and • the apportionment rate of 5% in respect of commercial buses or coaches set out in table item 2 in paragraph 9 of Practical Compliance Guideline PCG 2016/11 Fuel tax credits - apportioning taxable fuel used in a heavy vehicle with auxiliary equipment. | • Example 9B at paragraph 43B of FTR 2008/1, and • the apportionment rate of 5% in respect of commercial buses or coaches set out in table item 2 in paragraph 9 of Practical Compliance Guideline PCG 2016/11 Fuel tax credits - apportioning taxable fuel used in a heavy vehicle with auxiliary equipment. | In reconsidering whether fuel tax credits for fuel used to power other passenger air conditioning units is subject to the RUC, any change in view would only take effect prospectively from the date FTR 2008/1 is amended. | Auxiliary equipment | The Commissioner is also further considering, and will publicly consult on, the impact of the Tribunal's decision in respect of fuel used to power other forms of auxiliary equipment in vehicles set out in FTR 2008/1 and PCG 2016/11. | Time limits for credit claims | The Full Court and the Tribunal decisions in relation to time limits for credit claims together with the outcomes of other current litigation will be taken into account in finalising Draft Miscellaneous Tax Ruling MT 2018/D1 Miscellaneous tax: time limits for claiming an input tax or fuel tax credit.", "Related_Documents": "FTR 2008/1 | PCG 2016/11 | Full Federal Court | [2019] FCAFC 131 | Administrative Appeals Tribunal | [2019] AATA 222 | Div 47 | [2012] AATA 517", "Legislative_References": "Fuel Tax Act 2006 Div 47", "Case_References": "Linfox Australia Pty Ltd and Commissioner of Taxation [2012] AATA 517 (2012) 89 ATR 931", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD464of2019/00001", "Unmatched_Content": ""}
{"Case_Name": "Melbourne Apartment Project Pty Ltd (as trustee for Melbourne Apartment Project) v Commissioner of Taxation", "Venue_Reference_No": "VID 887 of 2019", "Venue": "Federal Court of Australia", "Judgment_Date": "19 December 2019", "Date_Published": "30 April 2020", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This statement outlines the ATO's response to this case on whether the sale of an apartment by the taxpayer, a registered charity, to a person eligible to receive social housing was a 'supply of accommodation' for the purposes of subparagraph 38-250(1)(b)(i) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). [1]", "Overview_of_Facts": "The taxpayer is a private ancillary fund, endorsed charity and deductible gift recipient. It acquired apartments from a family trust and on-sold them at market value to persons identified as suitable purchasers by the Melbourne City Mission and who were then living in social housing provided by the Victorian State Government. | The taxpayer applied for a private ruling on whether the sale of one of the apartments was a 'supply of accommodation' under subparagraph 38-250(1)(b)(i). The Commissioner ruled 'no' to this question on the basis that the provision did not extend to include transfer of freehold title in property. The taxpayer objected to the private ruling, and the objection was disallowed. The taxpayer then appealed to the Federal Court. | Issues decided by the court | Kerr J held that the supply of freehold title in an apartment was a 'supply of accommodation' under subparagraph 38-250(1)(b)(i). The ordinary and natural meaning of 'accommodation' includes an apartment or any premises that are used by a person as their place of residence, whether their right of residency is conferred by licence, lease or ownership. That the term 'accommodation' had a narrower temporal aspect was expressly rejected by the Court. | Kerr J also held that the phrase 'supply of accommodation' was not to be regarded as a composite expression for interpretational purposes. The words when read together convey no separate and distinct meaning as a compound phrase. [2] Other provisions in the GST Act that use the word 'accommodation' did not provide a sufficient basis to support the Commissioner's view on the meaning of 'supply of accommodation'. Further, Kerr J did not consider that 'accommodation' needed to be construed uniformly across the GST Act. This was because the word appears in different provisions dealing with different subject matters. [3] | Kerr J also said that an outcome of the Commissioner's view 'would have the seemingly perverse effect of privileging the tax treatment of the supply of insecure short term tenure to disadvantaged persons over the supply of more secure entitlements'. [4] Finally, the judge agreed that section 38-250 is not a provision which is to be construed liberally on the basis that it is remedial or beneficial legislation. [5]", "Issues_Decided": "Kerr J held that the supply of freehold title in an apartment was a 'supply of accommodation' under subparagraph 38-250(1)(b)(i). The ordinary and natural meaning of 'accommodation' includes an apartment or any premises that are used by a person as their place of residence, whether their right of residency is conferred by licence, lease or ownership. That the term 'accommodation' had a narrower temporal aspect was expressly rejected by the Court. Kerr J also held that the phrase 'supply of accommodation' was not to be regarded as a composite expression for interpretational purposes. The words when read together convey no separate and distinct meaning as a compound phrase. [2] Other provisions in the GST Act that use the word 'accommodation' did not provide a sufficient basis to support the Commissioner's view on the meaning of 'supply of accommodation'. Further, Kerr J did not consider that 'accommodation' needed to be construed uniformly across the GST Act. This was because the word appears in different provisions dealing with different subject matters. [3] Kerr J also said that an outcome of the Commissioner's view 'would have the seemingly perverse effect of privileging the tax treatment of the supply of insecure short term tenure to disadvantaged persons over the supply of more secure entitlements'. [4] Finally, the judge agreed that section 38-250 is not a provision which is to be construed liberally on the basis that it is remedial or beneficial legislation. [5]", "ATO_View_of_Decision": "This decision is concerned only with the meaning of 'supply of accommodation' in subparagraph 38-250(1)(b)(i). Kerr J was not asked and did not consider other requirements for supply of the apartment to be GST-free under section 38-250, in particular whether the consideration was less than 75% of the GST-inclusive market value. | While Kerr J expressed no concluded view on the meaning of 'supply of accommodation' in section 38-260 [6] , it is considered that the phrase has the same meaning in both provisions. Kerr J was unpersuaded that the meaning of 'accommodation' elsewhere in the GST Act (sections 38-90, 38-105, 40-35, 40-65, 87-15 and the definition of 'residential premises' in section 195-1) provided a contextual basis on which to support a narrower reading of the term 'accommodation' in section 38-250. The meaning of 'accommodation' in these other provisions will depend on the particular context and purpose involved.", "Administrative_Treatment": "We have updated two ATO Interpretative Decisions (ATO ID) which needed to be amended as a result of this decision: • ATO ID 2009/103 Goods and Services Tax: GST and services related to accommodation in a retirement village operated by an endorsed charitable institution or trustee of a charitable fund that are GST-free. • ATO ID 2009/104 Goods and Services Tax: GST and services not related to accommodation in a retirement village operated by an endorsed charitable institution or trustee of a charitable fund. | • ATO ID 2009/103 Goods and Services Tax: GST and services related to accommodation in a retirement village operated by an endorsed charitable institution or trustee of a charitable fund that are GST-free. • ATO ID 2009/104 Goods and Services Tax: GST and services not related to accommodation in a retirement village operated by an endorsed charitable institution or trustee of a charitable fund.", "Related_Documents": "None | 2019 ATC 20-729 | 38-90 | 38-105 | 38-250 | 38-250(1)(b)(i) | 38-260 | 40-35 | 40-65 | 87-15 | 195-1 | ATO ID 2009/103 | ATO ID 2009/104", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 38-90 38-105 38-250 38-250(1)(b)(i) 38-260 40-35 40-65 87-15 195-1", "Case_References": "", "Subject_References": "", "Other_References": "ATO ID 2009/103 ATO ID 2009/104", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID887of2019/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products. | Footnotes: [1] All legislative references in this Decision Impact Statement are to the GST Act."}
{"Case_Name": "Qian and Commissioner of Taxation", "Venue_Reference_No": "2017/3327, 3329", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "9 January 2019", "Date_Published": "11 April 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "At issue in this decision was whether the taxpayer was carrying on an enterprise as a courier driver for the purposes of the taxpayer's entitlement to GST registration, and entitlement to input tax credits in his activity statement for the June 2016 quarter, under the A New Tax System (Goods and Services Tax) Act 1999.", "Overview_of_Facts": "The taxpayer undertook, through an intermediary company, work as a courier on an exclusive basis for Mail Call Couriers and, subsequently, Direct Couriers (delivery companies). To undertake this work, the taxpayer purchased a van (subject to finance). | There was limited written evidence of the terms and conditions of the taxpayer's engagement with the respective companies. The delivery companies set the fee for each delivery. Evidence was provided that Mail Call issued daily 'payment summaries' and also issued recipient-created tax invoices for the taxpayer. Public liability insurance was organised on the taxpayer's behalf by either the delivery companies or the intermediary (the evidence was unclear on this point). | The taxpayer wore a uniform bearing the relevant delivery company's logo and affixed the relevant delivery company's logo on his vehicle. The taxpayer was notified of available deliveries through a device supplied by the delivery company. | There were no contracts directly between the taxpayer and the people to whom, and from, he delivered and collected goods. | Although the taxpayer was to be paid on the basis of deliveries done, there was a minimum amount that he was to be paid per day. In practice, the taxpayer did not make enough deliveries to exceed that minimum amount. | Issues decided by the court | Entitlement to GST registration - carrying on an enterprise | The parties conducted the matter on the basis that the taxpayer's work as a courier driver was capable of constituting carrying on an enterprise, unless his role was that of an employee. Consequently, the focus of the Tribunal was on whether the taxpayer was undertaking the work for the delivery companies as an employee or independent contractor. | The Tribunal highlighted (at [16]) the key indicators of the employee/independent contractor distinction outlined in Taxation Ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees and Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? | The Tribunal noted that regard must be had to the totality and substance of the relationship, and that the comparative weight of relevant aspects of the relationship may vary according to the particular circumstances. [at 18] | The Tribunal observed that the evidence in this matter was opaque and ambiguous in certain important aspects, and that a number of inferences had to be made from the evidence presented. [at 21-24, 29 and 37-38) | The Tribunal considered that the following facts pointed more towards the taxpayer being an employee. • The taxpayer was liveried as a representative of the delivery company. • The taxpayer did not outwardly appear to be working on his own behalf and worked exclusively for one delivery company at a time. • The taxpayer was reliant on the delivery company to generate and allocate jobs to him. • The taxpayer had no control over the rates paid or the total cost for each job. • The taxpayer did not maintain an accounting system for the jobs. • The taxpayer did not generate invoices or payment summaries. | • The taxpayer was liveried as a representative of the delivery company. • The taxpayer did not outwardly appear to be working on his own behalf and worked exclusively for one delivery company at a time. • The taxpayer was reliant on the delivery company to generate and allocate jobs to him. • The taxpayer had no control over the rates paid or the total cost for each job. • The taxpayer did not maintain an accounting system for the jobs. • The taxpayer did not generate invoices or payment summaries. | The Tribunal considered that the following facts did not meaningfully inform the character of the relationship: • The taxpayer had some freedom to accept or reject individual jobs, but the basis on which he did so was really a matter of objective practical efficiency which served both his own interests and that of the delivery company. • The conceivable, but unexpressed, contractual permissibility of delegation, because the objective circumstances tend to contradict its likely, or likely to be tolerated, occurrence. | • The taxpayer had some freedom to accept or reject individual jobs, but the basis on which he did so was really a matter of objective practical efficiency which served both his own interests and that of the delivery company. • The conceivable, but unexpressed, contractual permissibility of delegation, because the objective circumstances tend to contradict its likely, or likely to be tolerated, occurrence. | The Tribunal also had regard to the fact that the taxpayer supplied, operated and maintained his own van, which was a commercial transport vehicle. The Tribunal noted that there was the (theoretical) possibility that the taxpayer's remuneration could be influenced by his own endeavours and efficiency. The Tribunal thought these factors, and the form of the regular accounting in the 'payment summary' documents, favoured the view that the taxpayer was an independent contractor. | Ultimately, the Tribunal found that the taxpayer was conducting an enterprise as an independent contractor. | Entitlement to input tax credits - June 2016 quarter | The Tribunal noted that the amended assessment for the June 2016 activity statement was based wholly on a determination that the taxpayer was not conducting an enterprise. It did not address, and could not meaningfully address, the accuracy of the contents of the contentious activity statement. The Tribunal observed that there were reasons to doubt the accuracy of the contents of the activity statement including: • the discrepancy between the 'total sales' and the arithmetic total of all the payments made to the taxpayer • the use of the amounts paid to the taxpayer as the 'total sales' value, rather than the total invoice amount, and • the unexplained/unexamined basis for the 'GST on purchases' value. | • the discrepancy between the 'total sales' and the arithmetic total of all the payments made to the taxpayer • the use of the amounts paid to the taxpayer as the 'total sales' value, rather than the total invoice amount, and • the unexplained/unexamined basis for the 'GST on purchases' value. | For the above reasons, the Tribunal set aside the amended assessment decision and remitted that aspect back to the Commissioner.", "Issues_Decided": "Entitlement to GST registration - carrying on an enterprise: The parties conducted the matter on the basis that the taxpayer's work as a courier driver was capable of constituting carrying on an enterprise, unless his role was that of an employee. Consequently, the focus of the Tribunal was on whether the taxpayer was undertaking the work for the delivery companies as an employee or independent contractor. The Tribunal highlighted (at [16]) the key indicators of the employee/independent contractor distinction outlined in Taxation Ruling TR 2005/16 Income tax: Pay As You Go - withholding from payments to employees and Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? The Tribunal noted that regard must be had to the totality and substance of the relationship, and that the comparative weight of relevant aspects of the relationship may vary according to the particular circumstances. [at 18] The Tribunal observed that the evidence in this matter was opaque and ambiguous in certain important aspects, and that a number of inferences had to be made from the evidence presented. [at 21-24, 29 and 37-38) The Tribunal considered that the following facts pointed more towards the taxpayer being an employee. • The taxpayer was liveried as a representative of the delivery company. • The taxpayer did not outwardly appear to be working on his own behalf and worked exclusively for one delivery company at a time. • The taxpayer was reliant on the delivery company to generate and allocate jobs to him. • The taxpayer had no control over the rates paid or the total cost for each job. • The taxpayer did not maintain an accounting system for the jobs. • The taxpayer did not generate invoices or payment summaries. • The taxpayer was liveried as a representative of the delivery company. • The taxpayer did not outwardly appear to be working on his own behalf and worked exclusively for one delivery company at a time. • The taxpayer was reliant on the delivery company to generate and allocate jobs to him. • The taxpayer had no control over the rates paid or the total cost for each job. • The taxpayer did not maintain an accounting system for the jobs. • The taxpayer did not generate invoices or payment summaries. The Tribunal considered that the following facts did not meaningfully inform the character of the relationship: • The taxpayer had some freedom to accept or reject individual jobs, but the basis on which he did so was really a matter of objective practical efficiency which served both his own interests and that of the delivery company. • The conceivable, but unexpressed, contractual permissibility of delegation, because the objective circumstances tend to contradict its likely, or likely to be tolerated, occurrence. • The taxpayer had some freedom to accept or reject individual jobs, but the basis on which he did so was really a matter of objective practical efficiency which served both his own interests and that of the delivery company. • The conceivable, but unexpressed, contractual permissibility of delegation, because the objective circumstances tend to contradict its likely, or likely to be tolerated, occurrence. The Tribunal also had regard to the fact that the taxpayer supplied, operated and maintained his own van, which was a commercial transport vehicle. The Tribunal noted that there was the (theoretical) possibility that the taxpayer's remuneration could be influenced by his own endeavours and efficiency. The Tribunal thought these factors, and the form of the regular accounting in the 'payment summary' documents, favoured the view that the taxpayer was an independent contractor. Ultimately, the Tribunal found that the taxpayer was conducting an enterprise as an independent contractor. | Entitlement to input tax credits - June 2016 quarter: The Tribunal noted that the amended assessment for the June 2016 activity statement was based wholly on a determination that the taxpayer was not conducting an enterprise. It did not address, and could not meaningfully address, the accuracy of the contents of the contentious activity statement. The Tribunal observed that there were reasons to doubt the accuracy of the contents of the activity statement including: • the discrepancy between the 'total sales' and the arithmetic total of all the payments made to the taxpayer • the use of the amounts paid to the taxpayer as the 'total sales' value, rather than the total invoice amount, and • the unexplained/unexamined basis for the 'GST on purchases' value. • the discrepancy between the 'total sales' and the arithmetic total of all the payments made to the taxpayer • the use of the amounts paid to the taxpayer as the 'total sales' value, rather than the total invoice amount, and • the unexplained/unexamined basis for the 'GST on purchases' value. For the above reasons, the Tribunal set aside the amended assessment decision and remitted that aspect back to the Commissioner.", "ATO_View_of_Decision": "The ATO observes that determining whether a worker is an employee or independent contractor is highly factually dependent and requires the consideration of many factors. The decision of the Tribunal was open to it on the facts and evidence before it, which it observed was opaque in certain important respects. | However, the ATO does not accept that the Tribunal decision is authority for the proposition that the fact that a worker supplies his or her own vehicle is a matter that always or generally is to be given decisive or predominant weight in assessing whether a worker is an independent contractor or employee. | The ATO is seeking an appropriate case to clarify the law concerning the significance of the fact that a worker supplies his or her own vehicle in assessing whether a worker is a contractor or an employee.", "Administrative_Treatment": "None.", "Related_Documents": "None | 2019 ATC 10-487 | The Act | [2013] FCAFC 3 | (2013) 209 FCR 146 | 2001 ATC 4508 | 2011 ATC 20-258 | 2010 ATC 20-184 | (1986) 160 CLR 16", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 The Act", "Case_References": "ACE Insurance Ltd v Trifunovski [2013] FCAFC 3 (2013) 209 FCR 146 Australian Air Express Pty Limited v Langford [2005] NSWCA 96 Hollis v Vabu Pty Ltd [2001] HCA 44 (2001) 207 CLR 21 2001 ATC 4508 (2001) 47 ATR 559 Humberstone v Northern Timber Mills [1949] HCA 49 On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 (2011) 214 FCR 82 2011 ATC 20-258 (2011) 83 ATR 137 Hollis v Vabu Pty Ltd [2001] HCA 44 (2001) 207 CLR 21 2001 ATC 4508 (2001) 47 ATR 559 Queensland Stations Pty Ltd v Federal Commissioner of Taxation [1945] HCA 13 The Trustee for the SR & K Hall Family Trust and Commissioner of Taxation [2013] AATA 681 (2013) 96 ATR 930 Ready Mixed Concrete (South East) Ltd v Minister of Pensions & National Insurance [1968] 2 QB 497 Roy Morgan Research Pty Ltd v Commissioner of Taxation [2010] FCAFC 52 (2010) 184 FCR 448 2010 ATC 20-184 (2010) 76 ATR 264 Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1 (1986) 160 CLR 16 Australian Air Express Pty Limited v. Langford [2005] NSWCA 96", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2017/3327/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Schweitzer and Commissioner of Taxation", "Venue_Reference_No": "2017/0583", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 May 2019", "Date_Published": "4 October 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "At issue before the Tribunal was whether the Commissioner had the power to release the Applicant from a variety of tax-related liabilities (including liabilities subject to judgment) and, if so, whether the power to release should be exercised in the Applicant's favour.", "Overview_of_Facts": "The Applicant sought release from: • tax-related liabilities in respect of the years of income ending 30 June 1991 to 30 June 1999 (inclusive), which were the subject of a judgment obtained by the Commissioner on 10 December 2003, and • consequential interest on the judgment debt. | • tax-related liabilities in respect of the years of income ending 30 June 1991 to 30 June 1999 (inclusive), which were the subject of a judgment obtained by the Commissioner on 10 December 2003, and • consequential interest on the judgment debt. | Issues decided by the Tribunal | The Tribunal held that: 1. The Commissioner has the power to release a taxpayer's liability to income tax imposed in respect of income years both before and after that ending on 30 June 1998. 2. The Commissioner does not have the power to release a taxpayer's liability to interest imposed under former section 170AA of the Income Tax Assessment Act (1936) (ITAA 1936). 3. The obtaining of judgment against a taxpayer for a sum that reflects the amount of the taxpayer's tax-related liability causes the tax-related liability to cease to exist. The Commissioner does not have the power to release a taxpayer's judgment debt nor does he have the power to release the tax-related liability the subject of the judgment, as that tax-related liability ceased to exist upon judgment having being obtained. 4. The Applicant did not establish that she would suffer serious hardship even if required to satisfy all the tax-related liabilities from which she sought release. 5. Even if the Applicant were to suffer financial hardship, taking into account the Applicant's facts and circumstances, the discretion to release should not be exercised. | 1. The Commissioner has the power to release a taxpayer's liability to income tax imposed in respect of income years both before and after that ending on 30 June 1998. 2. The Commissioner does not have the power to release a taxpayer's liability to interest imposed under former section 170AA of the Income Tax Assessment Act (1936) (ITAA 1936). 3. The obtaining of judgment against a taxpayer for a sum that reflects the amount of the taxpayer's tax-related liability causes the tax-related liability to cease to exist. The Commissioner does not have the power to release a taxpayer's judgment debt nor does he have the power to release the tax-related liability the subject of the judgment, as that tax-related liability ceased to exist upon judgment having being obtained. 4. The Applicant did not establish that she would suffer serious hardship even if required to satisfy all the tax-related liabilities from which she sought release. 5. Even if the Applicant were to suffer financial hardship, taking into account the Applicant's facts and circumstances, the discretion to release should not be exercised. | Commissioner's power under Division 340 to release a taxpayer's income tax liabilities | Division 340 of Schedule 1 to the Taxation Administration Act 1953 (TAA) concerns the Commissioner's powers in cases of hardship. Subsection 340-5(1) makes provision for an individual to apply to the Commissioner to release them from a liability in whole or in part, with the Commissioner empowered to grant the release if the individual would suffer serious hardship if they were required to satisfy the liability. However for the rules in Division 340 to be engaged, section 340-10 must apply to the liability. Subsection 340-10(1) specifies five kinds of liabilities to which the section applies and subsection 340-10(2) in the form of a table specifies other liabilities to which the section also applies. Table item 6 identifies liability to 'tax' (a term defined to include income tax) arising under, among other provisions, section 4-1 of the Income Tax Assessment Act 1997 (ITAA 1997). The Commissioner submitted two alternative constructions of that item for the Tribunal's consideration. The first construction was based on the text of table item 6 when read with section 4-1 of the ITAA 1997. For present purposes, section 4-1 of the ITAA 1997 provides that income tax is payable by each individual. However that section is limited to assessments for the 1997-98 year of income and later years of income by virtue of section 4-1 of the Income Tax (Transitional Provisions) Act 1997 . | The second construction gave effect to the intention of section 340-10 of Schedule 1 to the TAA to include, within the scope of Division 340, income tax liabilities arising before the 1997-98 year of income. | The Tribunal accepted the second construction and found that the Commissioner, and subsequently a Tribunal upon review, had the power under Division 340 of Schedule 1 to the TAA to release an income tax liability that was imposed under the Income Tax Act 1986 and assessed under either the ITAA 1936 or the ITAA 1997. | Commissioner's power under Division 340 to release a taxpayer's liability to interest imposed under former section 170AA of the ITAA 1936 | The Applicant submitted to the Tribunal that the reference to 'general interest charge' (GIC) in table item 3 of subsection 340-10(2) in Schedule 1 to the TAA included a liability for 'interest' imposed under former section 170AA of the ITAA 1936. | The Tribunal rejected the Applicant's submission and found that the liability specified in table item 3 is GIC which is only able to be imposed in relation to periods commencing on or after 1 July 1999. Further, the Tribunal also found that there was nothing in the Taxation Laws Amendment Act (No. 3) 1999 that deemed interest incurred under former section 170AA up to the year of income ending 30 June 1998 to be GIC. | Accordingly, the Tribunal considered that there was no basis upon which the reference to a liability to GIC in table item 3 could be read to include interest imposed under former section 170AA. | Consequently, the Tribunal concluded that the Commissioner, and subsequently a Tribunal upon review, did not have the power under Division 340 of Schedule 1 to the TAA to release a taxpayer's liability to interest imposed under former section 170AA. | Release of liabilities the subject of a judgment for recovery | Contrary to the submissions of both parties, the Tribunal found that the obtaining of judgment against a taxpayer for a sum that reflects the amount of the taxpayer's tax-related liability causes the tax-related liability to cease to exist. This finding has the consequence that, according to the Tribunal, the Commissioner does not have the power to release a taxpayer's judgment debt nor the power to release a tax-related liability the subject of a judgment obtained by the Commissioner, as that tax-related liability ceased to exist upon judgment having being obtained. | In reaching this view the Tribunal relied on the principles set out in Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21 (Chamberlain) and also followed DP Block's decision in Rollason and Commissioner of Taxation [2006] AATA 962 (Rollason) which itself was based on a reading of Chamberlain as standing for the proposition that when a tax debt is merged into a judgment debt it is the latter which is the relevant debt. | In Chamberlain , the Deputy Commissioner of Taxation had obtained judgment for the amount of $25,557.92 for the 1975-1982 years of income despite issuing a writ for an amount of $255,579.20 for those years. Having obtained judgment for the amount of $25,557.92, the Deputy Commissioner of Taxation issued a further writ for the amount of $230,021.28 in respect of the same assessments. The High Court found that as the Deputy Commissioner of Taxation had not had the previous judgment set aside, he was for all practical purposes suing again in respect of the same cause of action and that the principle of res judicata precluded him from doing so. | The decision in Chamberlain was also considered by the Full Federal Court in Chemical Trustee Limited v Deputy Commissioner of Taxation [2014] FCAFC 27 (Chemical Trustee) , where the appellant sought to prevent the Deputy Commissioner of Taxation from pursuing a recovery proceeding for income tax in relation to an amended notice of assessment issued in respect of the same year of income as a previous notice of assessment in respect to which a judgment for recovery had been obtained. The Court unanimously found that the appropriate application of the decision in Chamberlain was that the right of action in respect of the relevant notice of assessment was merged into the judgment, not the underlying tax liability itself. In coming to this conclusion the Full Federal Court noted that if a judgment for recovery subsumed the underlying tax-related liability it could potentially thwart the operation of Part IVC of the TAA (providing taxpayers with a statutory mechanism for challenging their assessed liability to tax). | Despite the Full Federal Court's decision in Chemical Trustee , the Tribunal followed the decision in Rollason and held that the component of the Applicant's tax-related liabilities that were the subject of the judgment obtained by the Commissioner could not be released by the Commissioner or, by extension, the Tribunal upon review. | Serious hardship and the exercise of discretion | The Tribunal found that the applicant had not discharged the onus of establishing that satisfying the relevant tax-related liabilities would cause her to suffer serious hardship. | Notwithstanding this finding, the Tribunal also proceeded to conclude that, had it been established that serious hardship would be suffered, the discretion to release the Applicant's tax-related liabilities should not be exercised given the relevant facts and circumstances in this particular case.", "Issues_Decided": "The Tribunal held that: 1. The Commissioner has the power to release a taxpayer's liability to income tax imposed in respect of income years both before and after that ending on 30 June 1998. 2. The Commissioner does not have the power to release a taxpayer's liability to interest imposed under former section 170AA of the Income Tax Assessment Act (1936) (ITAA 1936). 3. The obtaining of judgment against a taxpayer for a sum that reflects the amount of the taxpayer's tax-related liability causes the tax-related liability to cease to exist. The Commissioner does not have the power to release a taxpayer's judgment debt nor does he have the power to release the tax-related liability the subject of the judgment, as that tax-related liability ceased to exist upon judgment having being obtained. 4. The Applicant did not establish that she would suffer serious hardship even if required to satisfy all the tax-related liabilities from which she sought release. 5. Even if the Applicant were to suffer financial hardship, taking into account the Applicant's facts and circumstances, the discretion to release should not be exercised. 1. The Commissioner has the power to release a taxpayer's liability to income tax imposed in respect of income years both before and after that ending on 30 June 1998. 2. The Commissioner does not have the power to release a taxpayer's liability to interest imposed under former section 170AA of the Income Tax Assessment Act (1936) (ITAA 1936). 3. The obtaining of judgment against a taxpayer for a sum that reflects the amount of the taxpayer's tax-related liability causes the tax-related liability to cease to exist. The Commissioner does not have the power to release a taxpayer's judgment debt nor does he have the power to release the tax-related liability the subject of the judgment, as that tax-related liability ceased to exist upon judgment having being obtained. 4. The Applicant did not establish that she would suffer serious hardship even if required to satisfy all the tax-related liabilities from which she sought release. 5. Even if the Applicant were to suffer financial hardship, taking into account the Applicant's facts and circumstances, the discretion to release should not be exercised. | Commissioner's power under Division 340 to release a taxpayer's income tax liabilities: Division 340 of Schedule 1 to the Taxation Administration Act 1953 (TAA) concerns the Commissioner's powers in cases of hardship. Subsection 340-5(1) makes provision for an individual to apply to the Commissioner to release them from a liability in whole or in part, with the Commissioner empowered to grant the release if the individual would suffer serious hardship if they were required to satisfy the liability. However for the rules in Division 340 to be engaged, section 340-10 must apply to the liability. Subsection 340-10(1) specifies five kinds of liabilities to which the section applies and subsection 340-10(2) in the form of a table specifies other liabilities to which the section also applies. Table item 6 identifies liability to 'tax' (a term defined to include income tax) arising under, among other provisions, section 4-1 of the Income Tax Assessment Act 1997 (ITAA 1997). The Commissioner submitted two alternative constructions of that item for the Tribunal's consideration. The first construction was based on the text of table item 6 when read with section 4-1 of the ITAA 1997. For present purposes, section 4-1 of the ITAA 1997 provides that income tax is payable by each individual. However that section is limited to assessments for the 1997-98 year of income and later years of income by virtue of section 4-1 of the Income Tax (Transitional Provisions) Act 1997 . The second construction gave effect to the intention of section 340-10 of Schedule 1 to the TAA to include, within the scope of Division 340, income tax liabilities arising before the 1997-98 year of income. The Tribunal accepted the second construction and found that the Commissioner, and subsequently a Tribunal upon review, had the power under Division 340 of Schedule 1 to the TAA to release an income tax liability that was imposed under the Income Tax Act 1986 and assessed under either the ITAA 1936 or the ITAA 1997. | Commissioner's power under Division 340 to release a taxpayer's liability to interest imposed under former section 170AA of the ITAA 1936: The Applicant submitted to the Tribunal that the reference to 'general interest charge' (GIC) in table item 3 of subsection 340-10(2) in Schedule 1 to the TAA included a liability for 'interest' imposed under former section 170AA of the ITAA 1936. The Tribunal rejected the Applicant's submission and found that the liability specified in table item 3 is GIC which is only able to be imposed in relation to periods commencing on or after 1 July 1999. Further, the Tribunal also found that there was nothing in the Taxation Laws Amendment Act (No. 3) 1999 that deemed interest incurred under former section 170AA up to the year of income ending 30 June 1998 to be GIC. Accordingly, the Tribunal considered that there was no basis upon which the reference to a liability to GIC in table item 3 could be read to include interest imposed under former section 170AA. Consequently, the Tribunal concluded that the Commissioner, and subsequently a Tribunal upon review, did not have the power under Division 340 of Schedule 1 to the TAA to release a taxpayer's liability to interest imposed under former section 170AA. | Release of liabilities the subject of a judgment for recovery: Contrary to the submissions of both parties, the Tribunal found that the obtaining of judgment against a taxpayer for a sum that reflects the amount of the taxpayer's tax-related liability causes the tax-related liability to cease to exist. This finding has the consequence that, according to the Tribunal, the Commissioner does not have the power to release a taxpayer's judgment debt nor the power to release a tax-related liability the subject of a judgment obtained by the Commissioner, as that tax-related liability ceased to exist upon judgment having being obtained. In reaching this view the Tribunal relied on the principles set out in Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21 (Chamberlain) and also followed DP Block's decision in Rollason and Commissioner of Taxation [2006] AATA 962 (Rollason) which itself was based on a reading of Chamberlain as standing for the proposition that when a tax debt is merged into a judgment debt it is the latter which is the relevant debt. In Chamberlain , the Deputy Commissioner of Taxation had obtained judgment for the amount of $25,557.92 for the 1975-1982 years of income despite issuing a writ for an amount of $255,579.20 for those years. Having obtained judgment for the amount of $25,557.92, the Deputy Commissioner of Taxation issued a further writ for the amount of $230,021.28 in respect of the same assessments. The High Court found that as the Deputy Commissioner of Taxation had not had the previous judgment set aside, he was for all practical purposes suing again in respect of the same cause of action and that the principle of res judicata precluded him from doing so. The decision in Chamberlain was also considered by the Full Federal Court in Chemical Trustee Limited v Deputy Commissioner of Taxation [2014] FCAFC 27 (Chemical Trustee) , where the appellant sought to prevent the Deputy Commissioner of Taxation from pursuing a recovery proceeding for income tax in relation to an amended notice of assessment issued in respect of the same year of income as a previous notice of assessment in respect to which a judgment for recovery had been obtained. The Court unanimously found that the appropriate application of the decision in Chamberlain was that the right of action in respect of the relevant notice of assessment was merged into the judgment, not the underlying tax liability itself. In coming to this conclusion the Full Federal Court noted that if a judgment for recovery subsumed the underlying tax-related liability it could potentially thwart the operation of Part IVC of the TAA (providing taxpayers with a statutory mechanism for challenging their assessed liability to tax). Despite the Full Federal Court's decision in Chemical Trustee , the Tribunal followed the decision in Rollason and held that the component of the Applicant's tax-related liabilities that were the subject of the judgment obtained by the Commissioner could not be released by the Commissioner or, by extension, the Tribunal upon review. | Serious hardship and the exercise of discretion: The Tribunal found that the applicant had not discharged the onus of establishing that satisfying the relevant tax-related liabilities would cause her to suffer serious hardship. Notwithstanding this finding, the Tribunal also proceeded to conclude that, had it been established that serious hardship would be suffered, the discretion to release the Applicant's tax-related liabilities should not be exercised given the relevant facts and circumstances in this particular case.", "ATO_View_of_Decision": "Release of income tax liabilities | The Commissioner considers that the Tribunal's decision, that the Commissioner has the power to release a taxpayer's liability to income tax imposed in respect of income years both before and after that ending on 30 June 1998, gives effect to the intent and policy of the release provisions contained in Division 340 of Schedule 1 to the TAA. As mentioned, this was one of two alternative constructions submitted by the Commissioner for the Tribunal's consideration. | Release of interest liabilities | The Commissioner considers that the Tribunal's decision, that the Commissioner does not have the power to release a taxpayer's liability to interest imposed under former section 170AA of the ITAA 1936, is a construction reasonably open on the words of the statute. | This aspect of the decision is nonetheless likely to have minimal future impact as it only excludes from release interest imposed under former section 170AA of the ITAA 1936 prior to 1 July 1999. | Release of liabilities subject to judgment for recovery | As submitted to the Tribunal in this case, the Commissioner considers that the decision of the Tribunal in Rollason cannot stand with that of the later decision of the Full Federal Court in Chemical Trustee and the latter authority is binding. | To be clear, the Commissioner considers that an underlying tax-related liability does not cease to exist upon the entry of judgment against the taxpayer for that tax-related liability. | This interpretation allows for taxpayers to seek review of the underlying tax-related liability pursuant to Part IVC of the TAA even where judgment has been obtained for recovery of the tax debt. It also allows the Commissioner to consider and exercise various discretionary powers in relation to tax-related liabilities although judgment has been obtained for recovery of the tax debt. For example, the power to permit payment by instalments under section 255-15 in Schedule 1 of the TAA or the release provisions pursuant to Division 340 of that same Schedule. | The continued existence of the underlying liability as a tax-related liability even after judgment has been obtained also accords with other decisions including Deputy Commissioner of Taxation (Cth) v Moorebank Pty Ltd [1988] HCA 29; Pollack, P.J. v Deputy Commissioner of Taxation [1991] FCA 651; Deputy Commissioner of Taxation (Commonwealth) v Zarzycki, Vera [1990] VicSC 311; and Mazuran, R.M. v Deputy Commissioner of Taxation of the Commonwealth of Australia [1990] FCA 462. | Although the Commissioner disagrees with the Tribunal's decision in respect of this issue, as the Tribunal's overall decision was in the Commissioner's favour and as the Applicant chose not to appeal to the Federal Court from the Tribunal's decision, the Commissioner was unable to challenge the Tribunal's conclusions on this issue. | Serious hardship and the exercise of discretion | The Tribunal's reasoning and conclusion are consistent with the position taken by the Commissioner in this matter.", "Administrative_Treatment": "Not applicable.", "Related_Documents": "None | [2019] AATA 1100 | Income Tax Act 1986 | ITAA 1997 4-1 | IT(TP)A 1997 4-1 | TAA 1953 Pt IVC | TAA 1953 Sch 1 255-15 | TAA 1953 Sch 1 Div 340 | TAA 1953 Sch 1 340-5(1) | TAA 1953 Sch 1 340-5(2) | TAA 1953 Sch 1 340-10 | TAA 1953 Sch 1 340-10(2) | Taxation Laws Amendment (No. 3) Act 1999 | 88 ATC 4323 | [2014] FCAFC 27 | (2014) 308 ALR 366 | 88 ATC 4443 | 90 ATC 4707 | 91 ATC 4925 | 90 ATC 4814 | 2006 ATC 2529", "Legislative_References": "Income Tax Act 1986 ITAA 1936 former 170AA ITAA 1997 4-1 IT(TP)A 1997 4-1 TAA 1953 Pt IVC TAA 1953 Sch 1 255-15 TAA 1953 Sch 1 Div 340 TAA 1953 Sch 1 340-5(1) TAA 1953 Sch 1 340-5(2) TAA 1953 Sch 1 340-10 TAA 1953 Sch 1 340-10(2) Taxation Laws Amendment (No. 3) Act 1999", "Case_References": "Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21 (1988) 164 CLR 502 88 ATC 4323 19 ATR 1060 78 ALR 271 Chemical Trustee Limited v Deputy Commissioner of Taxation [2014] FCAFC 27 (2014) 96 ATR 32 (2014) 308 ALR 366 Deputy Commissioner of Taxation (Cth) v Moorebank Pty Ltd [1988] HCA 29 (1988) 165 CLR 55 88 ATC 4443 19 ATR 1156 78 ALR 641 Deputy Commissioner of Taxation (Commonwealth) v Zarzycki, Vera [1990] VicSC 311 96 ALR 146 21 ATR 575 90 ATC 4707 Pollack, P.J. v Deputy Commissioner of Taxation [1991] FCA 651 (1991) 32 FCR 40 (1991) 103 ALR 133 91 ATC 4925 (1991) 22 ATR 670 Mazuran, R.M. v Deputy Commissioner of Taxation of the Commonwealth of Australia [1990] FCA 462 90 ATC 4814 (1990) 21 ATR 758 Rollason and Commissioner of Taxation [2006] AATA 962 2006 ATC 2529 (2006) 64 ATR 1210", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2017/0583/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products."}
{"Case_Name": "Wainwright and Commissioner of Taxation", "Venue_Reference_No": "2016/5850-5851", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "5 March 2019", "Date_Published": "25 July 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "At issue in this decision was whether amounts were to be included in the taxpayers' assessable income under Division 304 of the Income Tax Assessment Act 1997 (ITAA 1997) with respect to superannuation benefits paid otherwise than in accordance with the payment standards prescribed under the Superannuation Industry (Supervision) Regulations 1994 (SISR).", "Overview_of_Facts": "Mr and Mrs Wainwright (the taxpayers) were trustees of a self-managed super fund (the Fund). The taxpayers purchased a property (Property 1) in their own names for $700,000 on 28 September 2007. The taxpayers used cash from the Fund's bank account to pay for the property including an additional amount of $24,995.00 to pay the stamp duty for the transaction. | As trustees of the Fund, the taxpayers entered into a contract on 28 September 2007 to acquire a farming property from Mr Wainwright for $1.1 million (Property 2). The $700,000 used to acquire Property 1 was treated by the parties as the payment of the Fund's deposit for purchasing Property 2. The taxpayers were not able to complete the contract concerning Property 2 on 31 January 2009 and the $700,000 deposit was not repaid to the Fund. | The taxpayers experienced a decline in their newsagency business. In or around June 2009 they returned to dairy farming, which coincided with a drought. The drought was broken by flash flooding in January 2011 and the dairy market began to decline in January 2011. The taxpayers were forced to sell their dairy herd, and were required to sell their properties to pay their debts. | The taxpayers did not declare the superannuation benefits received from the Fund in their assessable incomes for the 2008 and 2009 income years. The Commissioner issued amended income tax assessments, including the following amounts as assessable income: 2008 income year Mr and Mrs Wainwright: $12,497 each, representing the amount accessed to pay the stamp duty in relation to Property 1. 2009 income year Mr Wainwright: $700,000, representing the benefit of not seeking to recover the deposit paid by the Fund in relation to Property 2. | 2008 income year Mr and Mrs Wainwright: $12,497 each, representing the amount accessed to pay the stamp duty in relation to Property 1. 2009 income year Mr Wainwright: $700,000, representing the benefit of not seeking to recover the deposit paid by the Fund in relation to Property 2. | Administrative penalties for recklessness and shortfall interest charges were imposed. | Mr and Mrs Wainwright were disqualified from being trustees of the Fund under section 126A of the Superannuation Industry (Supervision) Act 1993 (SISA). | Issues decided by the Tribunal | 2008 income year | The Tribunal affirmed the amended assessments for the 2008 income year. The Tribunal decided at [74] that the payment withdrawn from the Fund's bank account ($24,995) to pay for the stamp duty on the acquisition of Property 1 was a superannuation benefit for the purposes of subsection 304-10(1) of the ITAA 1997. Further, the Tribunal also decided at [74] that the taxpayers had not met any applicable condition of release prescribed by the SISR prior to receipt of the payment and that the Fund had not been maintained for the sole purpose of providing benefits to the taxpayers upon retirement pursuant to section 62 of the SISA. | The Tribunal upheld the Commissioner's opinion that the taxpayers' actions resulted in 'evasion' for the purposes of amending the taxpayers' assessments for the 2007 income year (at [73]). The Tribunal also affirmed the Commissioner's decisions concerning the imposition of penalties and interest (at [95] to [96]). | 2009 income year | The Tribunal set aside the Commissioner's decision with respect to the 2009 income year and decided that the Commissioner should have exercised his discretion under subsection 304-10(4) of the ITAA 1997 to exclude the amount of $700,000 from Mr Wainwright's assessable income. | The Tribunal confirmed at [53] to [55] that the decision by the taxpayers as trustees of the Fund not to take any action against Mr Wainwright to recover the $700,000 paid as a deposit gave rise to a superannuation benefit to Mr Wainwright pursuant to subsection 304-10(1) of the ITAA. | However, having regard to the evidence, the Tribunal decided that the Commissioner should have exercised the discretion under subsection 304-10(4) of the ITAA 1997 to decide that it was unreasonable to include the $700,000 in Mr Wainwright's assessable income for the following reasons as set out at [87]: (a) the transaction involved was a legitimate arm's length, documented transaction (b) the taxpayer had no intention of deceiving, evading or cheating, and the transaction was entered after receiving professional advice (c) the taxpayer became unable at the relevant time to complete the contract he had undertaken through no fault of his own (d) the benefit he received in 2009 resulted from facts that arose after he had entered into a legitimate transaction and resulted from events principally beyond his control. It is easy to assert that being unable to complete the contract to transfer [Property 2] he should have refunded the money to the Fund, but he didn't have it. There was nothing both proper and practical that he could do. The taxpayer fell on hard times because of drought, floods, the global financial crisis and a decline in the dairy industry (e) impecuniosity took over and he became unable to obtain wise professional advice and the financial advice he received was less than optimal (f) there were other consequences flowing from his conduct in that he and his wife were disqualified from being trustees of the Fund. | (a) the transaction involved was a legitimate arm's length, documented transaction (b) the taxpayer had no intention of deceiving, evading or cheating, and the transaction was entered after receiving professional advice (c) the taxpayer became unable at the relevant time to complete the contract he had undertaken through no fault of his own (d) the benefit he received in 2009 resulted from facts that arose after he had entered into a legitimate transaction and resulted from events principally beyond his control. It is easy to assert that being unable to complete the contract to transfer [Property 2] he should have refunded the money to the Fund, but he didn't have it. There was nothing both proper and practical that he could do. The taxpayer fell on hard times because of drought, floods, the global financial crisis and a decline in the dairy industry (e) impecuniosity took over and he became unable to obtain wise professional advice and the financial advice he received was less than optimal (f) there were other consequences flowing from his conduct in that he and his wife were disqualified from being trustees of the Fund.", "Issues_Decided": "2008 income year: The Tribunal affirmed the amended assessments for the 2008 income year. The Tribunal decided at [74] that the payment withdrawn from the Fund's bank account ($24,995) to pay for the stamp duty on the acquisition of Property 1 was a superannuation benefit for the purposes of subsection 304-10(1) of the ITAA 1997. Further, the Tribunal also decided at [74] that the taxpayers had not met any applicable condition of release prescribed by the SISR prior to receipt of the payment and that the Fund had not been maintained for the sole purpose of providing benefits to the taxpayers upon retirement pursuant to section 62 of the SISA. The Tribunal upheld the Commissioner's opinion that the taxpayers' actions resulted in 'evasion' for the purposes of amending the taxpayers' assessments for the 2007 income year (at [73]). The Tribunal also affirmed the Commissioner's decisions concerning the imposition of penalties and interest (at [95] to [96]). | 2009 income year: The Tribunal set aside the Commissioner's decision with respect to the 2009 income year and decided that the Commissioner should have exercised his discretion under subsection 304-10(4) of the ITAA 1997 to exclude the amount of $700,000 from Mr Wainwright's assessable income. The Tribunal confirmed at [53] to [55] that the decision by the taxpayers as trustees of the Fund not to take any action against Mr Wainwright to recover the $700,000 paid as a deposit gave rise to a superannuation benefit to Mr Wainwright pursuant to subsection 304-10(1) of the ITAA. However, having regard to the evidence, the Tribunal decided that the Commissioner should have exercised the discretion under subsection 304-10(4) of the ITAA 1997 to decide that it was unreasonable to include the $700,000 in Mr Wainwright's assessable income for the following reasons as set out at [87]: (a) the transaction involved was a legitimate arm's length, documented transaction (b) the taxpayer had no intention of deceiving, evading or cheating, and the transaction was entered after receiving professional advice (c) the taxpayer became unable at the relevant time to complete the contract he had undertaken through no fault of his own (d) the benefit he received in 2009 resulted from facts that arose after he had entered into a legitimate transaction and resulted from events principally beyond his control. It is easy to assert that being unable to complete the contract to transfer [Property 2] he should have refunded the money to the Fund, but he didn't have it. There was nothing both proper and practical that he could do. The taxpayer fell on hard times because of drought, floods, the global financial crisis and a decline in the dairy industry (e) impecuniosity took over and he became unable to obtain wise professional advice and the financial advice he received was less than optimal (f) there were other consequences flowing from his conduct in that he and his wife were disqualified from being trustees of the Fund. (a) the transaction involved was a legitimate arm's length, documented transaction (b) the taxpayer had no intention of deceiving, evading or cheating, and the transaction was entered after receiving professional advice (c) the taxpayer became unable at the relevant time to complete the contract he had undertaken through no fault of his own (d) the benefit he received in 2009 resulted from facts that arose after he had entered into a legitimate transaction and resulted from events principally beyond his control. It is easy to assert that being unable to complete the contract to transfer [Property 2] he should have refunded the money to the Fund, but he didn't have it. There was nothing both proper and practical that he could do. The taxpayer fell on hard times because of drought, floods, the global financial crisis and a decline in the dairy industry (e) impecuniosity took over and he became unable to obtain wise professional advice and the financial advice he received was less than optimal (f) there were other consequences flowing from his conduct in that he and his wife were disqualified from being trustees of the Fund.", "ATO_View_of_Decision": "The ATO observes that this case is highly factual. The decision of the Tribunal concerning the exercise of the Commissioner's discretion under subsection 304-10(4) of the ITAA 1997 was open to it on the facts and evidence before it. In making this decision, the Tribunal identified a series of factors, including some events which occurred after the relevant superannuation benefit was provided by the Fund. In considering these factors, the Tribunal did not refer to the weight or degree of relevance it had given or applied, to events that had occurred after the superannuation benefits were provided by the Fund. The Commissioner considers that little weight should be given to events that occur after superannuation benefits have been provided when deciding whether to exercise the discretion. | The Commissioner will develop a Law Administration Practice Statement to provide further clarity on the exercise of the discretion set out in subsection 304-10(4) of the ITAA 1997.", "Administrative_Treatment": "None", "Related_Documents": "None | 2019 ATC 10-492 | 304-10 | 304-10(4) | 304-10(5) | 170(1) | 62 | 126A", "Legislative_References": "Income Tax Assessment Act 1997 304-10 304-10(4) 304-10(5) Income tax Assessment Act 1936 170(1) Superannuation (Industry) Supervision Act 1993 62 126A", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2016/5850-5851/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Aussiegolfa Pty Ltd (Trustee) v Federal Commissioner of Taxation", "Venue_Reference_No": "VID 54 of 2018", "Venue": "Federal Court of Australia", "Judgment_Date": "10 August 2018", "Date_Published": "3 December 2018", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "At issue in this decision was the application of the in-house asset provisions and sole purpose test in the Superannuation Industry (Supervision) Act 1993 (SISA) to a managed investment scheme (MIS) facilitating a 'simulated direct investment' in real property, including whether a distinct trust was created in respect of a particular investment by the trustee of a self-managed superannuation fund (SMSF) in the MIS.", "Overview_of_Facts": "The matter concerned the investment by Aussiegolfa Pty Ltd (Aussiegolfa) as trustee for the Benson Family Superannuation Fund (BFSF) in units in a MIS called the DomaCom Fund (DomaCom). It was an appeal from the decision of the Federal Court dismissing a claim for declaratory relief regarding the application of the SISA to the investment. Aussiegolfa sought declarations that the investment was not an in-house asset under subsection 71(1) of the SISA and did not involve a breach of the sole purpose test in section 62 of the SISA. | In the alternative to his primary position that the asset was an in-house asset, the Commissioner made a determination under paragraph 71(4)(b) of the SISA, to 'deem' Aussiegolfa's investment to be an in-house asset. This determination was set aside by the Administrative Appeals Tribunal (AAT) on the basis that the Federal Court had found the asset was an in-house asset, and the determination could only be made if the asset was not an in-house asset. The Commissioner also filed a 'contingent' appeal in respect of this decision of the AAT. | DomaCom is a registered MIS which facilitates fractional property investment. Each property acquired by DomaCom is held in a separate class of units, known as a sub-fund. | DomaCom is governed by a constitution which sets out the governing rules for the fund and provides for the creation of sub-funds. The Product Disclosure Statement (PDS) and Supplementary Product Disclosure Statement (SPDS), provided to potential investors in DomaCom, advise that investing in a sub-fund simulates direct investment in the specified property held by the sub-fund. Consistent with this advice, the returns to unitholders of the sub-fund that holds the specified property arise solely from that property and investors in other sub-funds have no right to any return sourced from that property. | Aussiegolfa in its trustee capacity resolved to invest in a residential property in Burwood, Victoria (Burwood Property) by acquiring, together with two related parties, 100% of the units in a sub-fund (Burwood Sub-Fund). The sole member of the BFSF was Mr Benson. | The funds committed to the Burwood Sub-Fund in subscription for the units were used to buy the Burwood Property. | While the Burwood Sub-Fund held the property, it was leased twice at market rent initially to tenants unrelated to the BFSF. In April 2017, a lease over the property was entered into with Mr Benson's daughter at the same rent as those previous tenants with the lease commencing in February 2018. | Issues decided by the court | In-house assets | The Court decided that the investment of the BFSF in the Burwood Sub-Fund was an investment in a 'related trust' for the purposes of Part 8 of the SISA which was not a 'widely held unit trust' (at [1], [16], [157] and [184]). Accordingly, the investment was an in-house asset under subsection 71(1) of the SISA. If the market value ratio of the BFSF's in-house assets exceeded 5% at the end of the income year, the trustee of the BFSF would be required to take action under section 82 of the SISA to ensure that one or more of the fund's in-house assets are disposed of to at least the value of the excess amount (at [101]). The Court observed that whether the investment was in a related trust turned on whether there was a separate trust associated with the Burwood Sub-Fund and this in turn was to be assessed by the general law conception of a trust. Further, the product disclosure statements made by DomaCom constituted secondary evidence of the rights and obligations attaching to the units in the Burwood Sub-Fund. | In that context Moshinsky J (with whom Besanko J agreed) observed that when the provisions of the Constitution were considered as a whole 'they allowed for, indeed facilitated, the creation of a distinct trust associated with a particular class of units' (at [145]). Further, the relevant PDS and SPDS 'point decisively in favour of the view that a distinct trust was created with respect to the Burwood Sub-Fund units' (at [147]) - that 'one [was] left with a clear and unmistakable impression that there was an intention to create a distinct trust' (at [149]). Steward J surveyed authorities that had considered in a variety of contexts the question of when a sub-fund can constitute a distinct settlement or trust. His Honour agreed that the terms governing the Burwood Sub-Fund 'evidences an intention to create a distinct trust very much separate from any other sub-funds or trusts created by the DomaCom Constitution' (at [219]). | Commissioner's determination under subsection 71(4) of the SISA | As the Court concluded that the BFSF's investment in the Burwood Sub-Fund was an in-house asset (being an investment in a related trust not otherwise excluded from the definition), the Court likewise concluded that the Tribunal had correctly set aside the determination. | Moshinsky J (with whom Besanko J agreed) noted, however that, had the investment not been an in-house asset but for the determination, he saw no error in the AAT reasons which focused on the substance and practical effect of the investment as a basis for assessing the merits of a determination under subsection 71(4) of the SISA. | Sole purpose test | The Court held that, on the facts and circumstances before it, the leasing of the Burwood property to the member's daughter did not cause Aussiegolfa to contravene the sole purpose test (at [1], [16] and [184]). | The Court did not find sufficient evidence to infer that the leasing constituted a collateral purpose for maintaining the fund. Moshinsky J (with whom Besanko J agreed) observed that there did not appear to be any financial or other non-incidental benefit to be obtained by the daughter leasing the property rather than another lessee. Nor did there appear to be any financial or other non-incidental benefit to be obtained by the member due to the property being leased to his daughter rather than another tenant. The 'comfort or convenience' the daughter received by residing in the property was viewed at best as an incidental benefit (at [177]). | In the absence of a financial or non-incidental benefit being obtained, it was concluded that the fund would be maintained solely for core purposes and ancillary purposes set out in section 62 of the SISA. | Moshinsky J noted at [178] that this conclusion would be different if: • there was evidence that the rent received by the fund was less than market value, or • there was evidence that providing accommodation to the member's daughter had influenced the fund's investment policy. | • there was evidence that the rent received by the fund was less than market value, or • there was evidence that providing accommodation to the member's daughter had influenced the fund's investment policy.", "Issues_Decided": "In-house assets: The Court decided that the investment of the BFSF in the Burwood Sub-Fund was an investment in a 'related trust' for the purposes of Part 8 of the SISA which was not a 'widely held unit trust' (at [1], [16], [157] and [184]). Accordingly, the investment was an in-house asset under subsection 71(1) of the SISA. If the market value ratio of the BFSF's in-house assets exceeded 5% at the end of the income year, the trustee of the BFSF would be required to take action under section 82 of the SISA to ensure that one or more of the fund's in-house assets are disposed of to at least the value of the excess amount (at [101]). The Court observed that whether the investment was in a related trust turned on whether there was a separate trust associated with the Burwood Sub-Fund and this in turn was to be assessed by the general law conception of a trust. Further, the product disclosure statements made by DomaCom constituted secondary evidence of the rights and obligations attaching to the units in the Burwood Sub-Fund. In that context Moshinsky J (with whom Besanko J agreed) observed that when the provisions of the Constitution were considered as a whole 'they allowed for, indeed facilitated, the creation of a distinct trust associated with a particular class of units' (at [145]). Further, the relevant PDS and SPDS 'point decisively in favour of the view that a distinct trust was created with respect to the Burwood Sub-Fund units' (at [147]) - that 'one [was] left with a clear and unmistakable impression that there was an intention to create a distinct trust' (at [149]). Steward J surveyed authorities that had considered in a variety of contexts the question of when a sub-fund can constitute a distinct settlement or trust. His Honour agreed that the terms governing the Burwood Sub-Fund 'evidences an intention to create a distinct trust very much separate from any other sub-funds or trusts created by the DomaCom Constitution' (at [219]). | Commissioner's determination under subsection 71(4) of the SISA: As the Court concluded that the BFSF's investment in the Burwood Sub-Fund was an in-house asset (being an investment in a related trust not otherwise excluded from the definition), the Court likewise concluded that the Tribunal had correctly set aside the determination. Moshinsky J (with whom Besanko J agreed) noted, however that, had the investment not been an in-house asset but for the determination, he saw no error in the AAT reasons which focused on the substance and practical effect of the investment as a basis for assessing the merits of a determination under subsection 71(4) of the SISA. | Sole purpose test: The Court held that, on the facts and circumstances before it, the leasing of the Burwood property to the member's daughter did not cause Aussiegolfa to contravene the sole purpose test (at [1], [16] and [184]). The Court did not find sufficient evidence to infer that the leasing constituted a collateral purpose for maintaining the fund. Moshinsky J (with whom Besanko J agreed) observed that there did not appear to be any financial or other non-incidental benefit to be obtained by the daughter leasing the property rather than another lessee. Nor did there appear to be any financial or other non-incidental benefit to be obtained by the member due to the property being leased to his daughter rather than another tenant. The 'comfort or convenience' the daughter received by residing in the property was viewed at best as an incidental benefit (at [177]). In the absence of a financial or non-incidental benefit being obtained, it was concluded that the fund would be maintained solely for core purposes and ancillary purposes set out in section 62 of the SISA. Moshinsky J noted at [178] that this conclusion would be different if: • there was evidence that the rent received by the fund was less than market value, or • there was evidence that providing accommodation to the member's daughter had influenced the fund's investment policy. • there was evidence that the rent received by the fund was less than market value, or • there was evidence that providing accommodation to the member's daughter had influenced the fund's investment policy.", "ATO_View_of_Decision": "Sub-fund as a separate trust | The decision provides valuable guidance on the factors that might be considered in determining whether a new trust has been created at general law. | We note that the finding that the Burwood Sub-Fund constituted a separate trust turned on the particular facts of the arrangement. | Whether classes of a trust are in fact separate trusts will depend on the particular facts and circumstances of each case having regard to factors considered by the Court, including the relevant governing and disclosure documents, the 'terms of issue' of the class and the general law concept of a trust. | While the decision provides useful guidance on the factors that may be considered in determining whether a separate trust has been created, the ATO does not expect that this case will have a significant impact on traditional multi-class managed funds. For example, a single trust with multiple classes will be entitled to make the Attribution Managed Investment Trust multi-class election under section 276-20 of the Income Tax Assessment Act 1997, where the requirements of that section are otherwise satisfied. | Commissioner's determination under subsection 71(4) of the SISA | The Commissioner notes that the Court's decision in relation to the determination was predicated on the finding that the Burwood Sub-Fund units were in-house assets. If the units were not in-house assets but for the determination, both Pagone J at first instance, and Moshinsky J on appeal (Besanko J agreeing), indicated they would have upheld the determination (at [181]). | The ATO will continue to consider issuing a determination under subsection 71(4) of the SISA as appropriate in circumstances where the trustee of a SMSF enters into an arrangement to acquire an asset that would otherwise be an in-house asset under section 71 of the SISA if directly held by the SMSF. | Sole purpose test | The Commissioner considers that the decision of the Court is referrable to the particular facts of the case. An important aspect of the factual arrangement was that: • the Burwood Property had been leased to two tenants unrelated to the BFSF for two years prior to the premises being leased to the daughter of the member of the BFSF • the daughter paid equivalent market rent to that paid by the two previous tenants, and • there was no suggestion that the leasing of the Burwood Property to the daughter influenced the BFSF investment policy. | • the Burwood Property had been leased to two tenants unrelated to the BFSF for two years prior to the premises being leased to the daughter of the member of the BFSF • the daughter paid equivalent market rent to that paid by the two previous tenants, and • there was no suggestion that the leasing of the Burwood Property to the daughter influenced the BFSF investment policy. | We do not consider that the case is authority for the proposition that a superannuation fund trustee can never contravene the sole purpose test when leasing an asset to a related party simply because market-value rent is received. | It is the purpose of making and maintaining a fund's investments that is central to identifying if there is a contravention of the sole purpose test. We note the observations of the court that a collateral purpose, and a contravention of section 62 of the SISA, could well be present if, for example, the circumstances indicated that leasing to a related party had influenced the fund's investment policy. | For example, in the Commissioner's view a superannuation fund trustee will contravene the sole purpose test if the fund acquires residential premises for the collateral purpose of leasing the premises to an associate of the fund, even where the associate pays rent at market value.", "Administrative_Treatment": "We will review our public advice and guidance on the sole purpose test to see if we can more clearly illustrate factors which may be important in determining whether a fund has been maintained for a collateral purpose.", "Related_Documents": "Self-Managed Superannuation Funds Ruling SMSFR 2008/2 Self Managed Superannuation Funds: the application of the sole purpose test in section 62 of the Superannuation Industry (Supervision) Act 1993 to the provision of benefits other than retirement, employment termination or death benefits | 2018 ATC 20-664 | Pt 8 | 62 | 71 | 71(1) | 71(4) | 71(4)(b) | 82 | 276-20", "Legislative_References": "Superannuation Industry (Supervision) Act 1993 Pt 8 62 71 71(1) 71(4) 71(4)(b) 82 Income Tax Assessment Act 1997 276-20", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID54of2018/00001", "Unmatched_Content": ""}
{"Case_Name": "Comptroller General of Customs v Zappia", "Venue_Reference_No": "S91/2018", "Venue": "High Court", "Judgment_Date": "14 November 2018", "Date_Published": "17 January 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This Decision impact statement outlines the ATO's response to this case which concerns whether a person who was employed as the manager of a warehouse storing dutiable goods met the description of a person who 'has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control', under subsection 35A(1) of the Customs Act 1901 (Customs Act). | Under delegation from the Department of Home Affairs, the ATO administers excise equivalent goods imported into Australia and warehoused under the Customs Act, and the administration of the warehouse licences issued under the Customs Act, if the warehouses store excise equivalent goods.", "Overview_of_Facts": "Zaps Transport (Aust) Pty Ltd (Zaps) held a customs storage licence which permitted it to store dutiable goods in its warehouse before customs duty was paid. John Zappia was the sole director of Zaps and Domenic Zappia, his son, was employed as the general manager and warehouse manager of Zaps. | In accordance with a standard condition of Zaps' warehouse licence, Zaps had notified the ATO that Domenic and John Zappia were persons who participated in the management or control of the warehouse. Domenic Zappia had the authority to direct what was to happen to the goods in the warehouse on a day-to-day basis. He made the operational decisions, attended to the documentation required for Customs' purposes, and handled some of the paperwork and communications with the ATO. He was required to refer anything 'big' - that might require legal advice or have tax implications - to his father for resolution. In May 2015 tobacco products were stolen from the warehouse in a break-in which occurred when none of Zaps' employees were present. | A Collector of Customs served notices of demand under section 35A of the Customs Act on Zaps, John Zappia and Domenic Zappia for an amount equal to the amount of the customs duty which would have been payable on the stolen goods if they had been entered for home consumption on the day of the demand. Zaps, John Zappia and Domenic Zappia each applied to the Administrative Appeals Tribunal (Tribunal) for review of the decisions to demand payment from them. The Tribunal affirmed each decision of the Collector. | Domenic Zappia appealed from the Tribunal. No appeal was brought on behalf of or by John Zappia, who was bankrupt, or by Zaps, which was in liquidation. The Full Federal Court, by majority, allowed the appeal and set aside the decision of the Tribunal. The Full Federal Court concluded that the 'kind of control' over goods exercised by an employee of a warehouse licence holder, acting in their capacity as an employee, does not meet the level of control required by subsection 35A(1) of the Customs Act. | Issues decided by the court | The issue considered by the High Court was whether an employee of the holder of a warehouse licence can meet the description of 'a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control' in subsection 35A(1) of the Customs Act. | The High Court unanimously held that an employee could meet that description, and that the facts found by the Tribunal were sufficient to establish that Domenic Zappia was a person who had the possession, custody or control of the stolen goods and who failed to keep those goods safely. | The decision affirmed that section 35A of the Customs Act is to be read in light of the statutory purpose of subjecting dutiable goods to customs control, which is to ensure that customs duty is paid before the goods are delivered into home consumption. | In construing section 35A, the majority of the High Court held that none of the terms 'possession', 'custody' or 'control' has a fixed legal meaning. The reference to those terms in section 35A is to a degree of power or authority in relation to dutiable goods which is sufficient to enable a person to meet the obligations to keep the goods safely or account for the goods to the satisfaction of a Collector. Such power or authority need not be exclusive or paramount. A person who possesses power or authority in relation to those goods to that degree is a person who comes within the ambit of section 35A, irrespective of the manner in which that person might choose to exercise that power or authority. Several persons, such as directors, shareholders, officers or employees, may each possess power or authority to the requisite degree within a chain of command or hierarchy of responsibility. | Nettle J agreed with the majority and made an additional observation that the object of subsection 35A(1) is the practical one of motivating persons with the ability de facto to keep dutiable goods safely, and to account for them to the satisfaction of a Collector, to do just that. As such, the provision is not concerned so much with the legal relationship of those persons to the goods in their possession, custody or control as with the ability of those persons to prevent those goods passing into home consumption without the payment of duty.", "Issues_Decided": "The issue considered by the High Court was whether an employee of the holder of a warehouse licence can meet the description of 'a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to customs control' in subsection 35A(1) of the Customs Act. The High Court unanimously held that an employee could meet that description, and that the facts found by the Tribunal were sufficient to establish that Domenic Zappia was a person who had the possession, custody or control of the stolen goods and who failed to keep those goods safely. The decision affirmed that section 35A of the Customs Act is to be read in light of the statutory purpose of subjecting dutiable goods to customs control, which is to ensure that customs duty is paid before the goods are delivered into home consumption. In construing section 35A, the majority of the High Court held that none of the terms 'possession', 'custody' or 'control' has a fixed legal meaning. The reference to those terms in section 35A is to a degree of power or authority in relation to dutiable goods which is sufficient to enable a person to meet the obligations to keep the goods safely or account for the goods to the satisfaction of a Collector. Such power or authority need not be exclusive or paramount. A person who possesses power or authority in relation to those goods to that degree is a person who comes within the ambit of section 35A, irrespective of the manner in which that person might choose to exercise that power or authority. Several persons, such as directors, shareholders, officers or employees, may each possess power or authority to the requisite degree within a chain of command or hierarchy of responsibility. Nettle J agreed with the majority and made an additional observation that the object of subsection 35A(1) is the practical one of motivating persons with the ability de facto to keep dutiable goods safely, and to account for them to the satisfaction of a Collector, to do just that. As such, the provision is not concerned so much with the legal relationship of those persons to the goods in their possession, custody or control as with the ability of those persons to prevent those goods passing into home consumption without the payment of duty.", "ATO_View_of_Decision": "The High Court's decision is consistent with our view of subsection 35A(1) of the Customs Act, and also subsection 60(1) of the Excise Act 1901 , which applies to excisable goods in materially identical terms. We will continue to issue notices of demand under these subsections as appropriate.", "Administrative_Treatment": "None.", "Related_Documents": "None | [2018] HCA 54 | 30 | 35A | 35A(1) | 36 | 37 | Pt V | 60(1) | (1962) 107 CLR 279 | (1979) 143 CLR 499 | (1938) 60 CLR 97 | [2017] AATA 202", "Legislative_References": "Customs Act 1901 30 35A 35A(1) 36 37 Pt V Excise Act 1901 60(1)", "Case_References": "Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279 Commissioner of Stamps (SA) v Telegraph Investment Co Pty Ltd (1995) 184 CLR 453 Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 Goben Pty Ltd v Chief Executive Officer of Customs [No 2] (1996) 68 FCR 301 Moama Refinery Ltd v Chief Executive Officer of Customs (2001) 115 FCR 205 R v Lyon (1906) 3 CLR 770 Wing On & Co Ltd v Collector of Customs (NSW) (1938) 60 CLR 97 Re Zaps Transport (Aust) Pty Ltd and Comptroller General of Customs [2017] AATA 202 Zappia v Comptroller General of Customs (2017) 254 FCR 363", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S91-2018/00001", "Unmatched_Content": "This decision has no impact on any related advice and guidance."}
{"Case_Name": "Coventry and Commissioner of Taxation", "Venue_Reference_No": "2017/2593", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "12 January 2018", "Date_Published": "22 March 2018", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether foreign employment income of the taxpayer in the year ended 30 June 2015 is exempt from tax in Australia pursuant to section 23AG of the Income Tax Assessment Act 1936.", "Overview_of_Facts": "The taxpayer was an employee of the Australian Department of Foreign Affairs and Trade (DFAT) and was posted to Islamabad in Pakistan for more than 91 continuous days in the income year ended 30 June 2015. | His official title was 'Counsellor Development Cooperation / Head of Aid' and he was responsible for managing the Australian Aid Program in Pakistan. The Australian Aid Program operated in Pakistan under a bilateral agreement on development cooperation. The work undertaken by the taxpayer was related solely to the delivery of that Aid Program and his salary and wages were reported by DFAT as official development assistance while he was working in Pakistan for DFAT. | The taxpayer contended that his salary and wage income was exempt foreign employment income relying on section 23AG of the Income Tax Assessment Act 1936. | The taxpayer's salary and wages from his posting were exempt in Pakistan by reason of the Vienna Convention on Diplomatic Relations 1961. If this was the only reason for the exemption in Pakistan, subsection 23AG(2) would operate to deny the exemption under subsection 23AG(1). The taxpayer contended that his salary and wages were also exempt in Pakistan by reason of the terms of the Agreement Between the Government of Australia and the Government of the Islamic Republic of Pakistan on Development Co-Operation (the Agreement). If the salary and wages are also exempt under the Agreement, they remain exempt under subsection 23AG(1). | The purpose of the Agreement was set out in Article 1 as follows: Both Governments shall co-operate in a Program in support of the developmental needs of Pakistan while promoting mutual economic links. | Article 2 of the Agreement set out the activities of the program of development co-operation and included 'any other form of assistance reportable as Official Development Assistance'. | Article 10 of the Agreement provided that the Government of the Islamic Republic of Pakistan grants an exemption from income tax on salaries and allowances to 'Australian project personnel'. The term 'Australian project personnel' was defined in Article 3 as: ...Australian nationals or permanent residents or other person who are not national or permanent residents of Pakistan who are working in Pakistan on an activity under this Agreement and whose salaries or other costs are funded from the contribution of the Government of Australia to the activity. | The taxpayer applied to the Administrative Appeals Tribunal for review following his objection being disallowed by the Commissioner. | What was at issue was whether the taxpayer met the requirements to be considered 'Australian project personnel' and in particular whether the taxpayer was working 'on an activity' and whether their salaries and costs were 'funded from the contribution of the Government of Australia to the activity'. | Issues decided by the tribunal | The Tribunal's approach to interpreting the Agreement was to interpret it consistent with Article 31 of the Vienna Convention on the Law of Treaties (1969) - in good faith and in accordance with the ordinary meaning to be given to the terms in light of its object and purpose. The Tribunal held: • the work performed by the taxpayer satisfied the definition of 'activity' in the Agreement and there was no requirement that a person be working on a single or specific activity • the fact that the taxpayer's salary and wages were paid from a cost centre referred to as 'departmental' expenditure did not prevent them answering the description of being 'funded from the contribution of the Government of Australia' to the activity, and • the taxpayer's salary and costs were funded from the contribution of the Government of Australia to the activity. | • the work performed by the taxpayer satisfied the definition of 'activity' in the Agreement and there was no requirement that a person be working on a single or specific activity • the fact that the taxpayer's salary and wages were paid from a cost centre referred to as 'departmental' expenditure did not prevent them answering the description of being 'funded from the contribution of the Government of Australia' to the activity, and • the taxpayer's salary and costs were funded from the contribution of the Government of Australia to the activity.", "Issues_Decided": "The Tribunal's approach to interpreting the Agreement was to interpret it consistent with Article 31 of the Vienna Convention on the Law of Treaties (1969) - in good faith and in accordance with the ordinary meaning to be given to the terms in light of its object and purpose. The Tribunal held: • the work performed by the taxpayer satisfied the definition of 'activity' in the Agreement and there was no requirement that a person be working on a single or specific activity • the fact that the taxpayer's salary and wages were paid from a cost centre referred to as 'departmental' expenditure did not prevent them answering the description of being 'funded from the contribution of the Government of Australia' to the activity, and • the taxpayer's salary and costs were funded from the contribution of the Government of Australia to the activity. • the work performed by the taxpayer satisfied the definition of 'activity' in the Agreement and there was no requirement that a person be working on a single or specific activity • the fact that the taxpayer's salary and wages were paid from a cost centre referred to as 'departmental' expenditure did not prevent them answering the description of being 'funded from the contribution of the Government of Australia' to the activity, and • the taxpayer's salary and costs were funded from the contribution of the Government of Australia to the activity.", "ATO_View_of_Decision": "The Commissioner agrees with the approach taken by the Tribunal to interpreting the Agreement. | The Commissioner accepts the view of the Tribunal that: • there was no requirement that a person be working on a single or specific activity, and • the fact that salary and wages are paid from 'departmental' expenses does not mean they cannot be funded from the contribution of the Government of Australia within the meaning of the Agreement. | • there was no requirement that a person be working on a single or specific activity, and • the fact that salary and wages are paid from 'departmental' expenses does not mean they cannot be funded from the contribution of the Government of Australia within the meaning of the Agreement. | The Commissioner will apply these principles in determining whether a person is exempt from income tax in another country by reason of a Development Agreement or similar Agreement where the objects, purpose and terminology are not materially different to the Agreement considered in this case. | The Commissioner accepts that on the facts of the matter it was open for the Tribunal to find that the activities of the taxpayer in Pakistan fell within the definition of the relevant terms in the Agreement. | Accordingly the Commissioner has decided not to appeal the decision.", "Administrative_Treatment": "Nil", "Related_Documents": "None | 2018 ATC 10-472 | 23AG | 23AG(1) | 23AG(2)", "Legislative_References": "Income tax Assessment Act 1936 23AG 23AG(1) 23AG(2)", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2017/2593/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Denmark Community Windfarm Ltd v Commissioner of Taxation", "Venue_Reference_No": "WAD 113 of 2016", "Venue": "Federal Court of Australia", "Judgment_Date": "5 February 2018", "Date_Published": "25 May 2018", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to these cases which concern whether a Commonwealth Grant (Grant) received by the taxpayer under the Renewable Remote Power Generation Program (RRPGP) constitutes an assessable recoupment under subsections 20-20(2) and 20-20(3) of the Income Tax Assessment Act 1997 (ITAA 1997).", "Overview_of_Facts": "At all relevant times, the taxpayer was a small business entity. | In the 2011 year of income, the Western Australian Coordinator of Energy agreed to provide the taxpayer with a Grant under the RRPGP. The Grant was provided to the taxpayer in respect of 50% of the 'Eligible Project Costs', being capital costs, to be incurred by it in the construction of two wind turbines in Denmark, Western Australia. | The Grant was payable in instalments on the completion of identified project milestones. | The taxpayer was duly paid the Grant in the 2013 and 2014 years of income. | The taxpayer sought a private ruling on the issues of whether the Grant was assessable under sections 6-5, 15-10 of the ITAA 1997 or as an assessable recoupment under Subdivision 20-A of the ITAA 1997. The Commissioner ruled that the Grant was not included in assessable income under section 6-5 or 15-10 of the ITAA 1997 but was paid by way of indemnity and therefore an assessable recoupment under Subdivision 20-A of the ITAA 1997. The taxpayer lodged its income tax returns for the 2013 and 2014 years of income by including the Grant it received as an assessable recoupment in accordance with the private ruling. | The taxpayer subsequently objected to its assessments for the 2013 and 2014 years of income in respect of the inclusion of the Grant as an assessable recoupment in accordance with subsections 20-20(2) or 20-20(3) of the ITAA 1997. The Commissioner disallowed the taxpayer's objection. | The taxpayer appealed the Commissioner's decision to the Federal Court. The Federal Court found in favour of the Commissioner. The taxpayer subsequently appealed this decision to the Full Federal Court. | Issues decided by the court | Subsection 20-20(2) of the ITAA 1997 | The first issue before the Federal Court was whether the three requirements under subsection 20-20(2) of the ITAA 1997 were established to characterise the Grant as an assessable recoupment, namely, that: 1. the taxpayer received the Grant as recoupment of a loss or outgoing; 2. the taxpayer received the Grant by way of insurance or indemnity; and 3. the taxpayer can deduct an amount for the loss or outgoing for the current year, or has deducted or can deduct an amount for it for an earlier income year under any provision of the ITAA 1997. | 1. the taxpayer received the Grant as recoupment of a loss or outgoing; 2. the taxpayer received the Grant by way of insurance or indemnity; and 3. the taxpayer can deduct an amount for the loss or outgoing for the current year, or has deducted or can deduct an amount for it for an earlier income year under any provision of the ITAA 1997. | As to the first requirement, the Federal Court held that the Grant, being a portion of the 'Eligible Project Costs', had been received as a recoupment of an outgoing, even though it was treated as being on capital account. [47] | As to the second requirement, the Federal Court noted that the word 'indemnity' is not defined in the ITAA 1997 and properly bears its ordinary meaning. [48] By reference to dictionary definitions and the case of Batchelor v Federal Commissioner of Taxation (2014) 219 FCR 453, it noted that the ordinary meaning of the word 'indemnity' includes 'a sum of money paid to compensate a person for liability, loss or expense incurred by the person' or 'compensation for damage or loss sustained' and 'something paid by way of such compensation'. [50] As such, it held that the Grant was received by the taxpayer as compensation for an 'expense' incurred by it and so fell within the meaning of the word 'indemnity'. [53] | The fact that the taxpayer was required to satisfy certain specified requirements before the instalments of the Grant would be paid did not preclude it from being characterised as an indemnity. [52] Nor did the fact that the Grant was not paid to the taxpayer pursuant to a contract of indemnity. [54] | As to the third requirement, the Federal Court found that the 'Eligible Project Costs' constituted expenditure on capital account and that such expenditure can properly be claimed as a deduction under Division 40 (described as 'Capital allowances') or under Subdivision 328-D (described as 'Capital allowances for small business entities') of the ITAA 1997. [55] The Court also cited sections 20-40 and 20-45 of the ITAA 1997 which both contain an example of a taxpayer who has an assessable recoupment and who has claimed corresponding deductions for depreciation. These sections therefore envisage deductions for decline in value and the taxpayer's contention that deductions claimed for decline in value were not captured by section 20-20 because the amount claimed can never be 'the loss or outgoing' but rather an amount attributed to the decline in value in that year, was not accepted. [55] | Although the Federal Court accepted that there is a difference in the wording of a deduction 'for the outgoing' as distinct from 'in respect of the outgoing', as contended by the taxpayer, such a contention created an unduly technical and narrow distinction in the present case. [63] Were the taxpayer's contention correct, there would be no circumstance for the inclusion of Division 40 in section 20-30 of the ITAA 1997. [63] | As all three requirements were established, the Federal Court held that the Grant the taxpayer received was an assessable recoupment under subsection 20-20(2) of the ITAA 1997. | Subsection 20-20(3) of the ITAA 1997 | The second issue before the Federal Court was whether the two requirements under subsection 20-20(3) of the ITAA 1997 were also established to characterise the Grant as an assessable recoupment, namely, that: 1. the taxpayer received the Grant as recoupment of a loss or outgoing; and 2. the taxpayer can deduct an amount for the loss or outgoing for the current year or has deducted or can deduct an amount for it for an earlier income year under a provision listed in section 20-30 of the ITAA 1997. | 1. the taxpayer received the Grant as recoupment of a loss or outgoing; and 2. the taxpayer can deduct an amount for the loss or outgoing for the current year or has deducted or can deduct an amount for it for an earlier income year under a provision listed in section 20-30 of the ITAA 1997. | As already noted, the Federal Court held that the Grant had been received as recoupment of an outgoing and therefore the first requirement was established. | As to the second requirement, the Federal Court held that as the taxpayer 'can deduct' an amount for the outgoing under Division 40, being a provision explicitly listed in section 20-30, the second requirement was also established. [58] The Federal Court found that it did not matter that the taxpayer had in fact elected to claim the deduction under Subdivision 328-D, rather than under Division 40, as the words of subsection 20-20(3) refers to the capacity for a deduction rather than the actual deduction under a specific provision. [63] | Accordingly, the Federal Court held that the Grant was also an assessable recoupment under subsection 20-20(3) of the ITAA 1997. | Full Federal Court | On 31 May 2017, the taxpayer appealed the Federal Court's decision to the Full Federal Court. On 5 February 2018, the Full Federal Court dismissed the taxpayer's appeal. | The two main issues before the Full Federal Court were whether: 1. the Grant was received 'by way of insurance or indemnity'; and 2. the taxpayer could have deducted an amount 'for the loss or outgoing'. | 1. the Grant was received 'by way of insurance or indemnity'; and 2. the taxpayer could have deducted an amount 'for the loss or outgoing'. | As to the first issue, the taxpayer argued that the word 'indemnity' is to be construed as part of the composite phrase 'insurance or indemnity'. The Full Federal Court found, however, that this did not affect the meaning to be given to the word 'indemnity' and agreed with the primary judge that the word is to be given its ordinary meaning. [40] | As to the second issue, the taxpayer argued that the phrase 'for the loss or outgoing' is narrower than the phrase 'in respect of the loss or outgoing'. The Full Federal Court noted that the taxpayer placed too much weight on the distinction between the word 'for' and the phrase 'in respect of'. It held that in the context of subsections 20-20(2) and 20-20(3) of the ITAA 1997, the phrase 'for the loss or outgoing' is sufficiently broad to pick up a depreciation deduction under Division 40 or Subdivision 328-D of the ITAA 1997 where the outgoing was the cost of the depreciating asset. [42] The inclusion of Division 40 in the table in section 20-30 strongly pointed against the taxpayer's construction. [44] | The Full Federal Court held that if the Grant was not an assessable recoupment under subsection 20-20(2) of the ITAA 1997, it would be an assessable recoupment under subsection 20-20(3). [50]", "Issues_Decided": "Subsection 20-20(2) of the ITAA 1997: The first issue before the Federal Court was whether the three requirements under subsection 20-20(2) of the ITAA 1997 were established to characterise the Grant as an assessable recoupment, namely, that: 1. the taxpayer received the Grant as recoupment of a loss or outgoing; 2. the taxpayer received the Grant by way of insurance or indemnity; and 3. the taxpayer can deduct an amount for the loss or outgoing for the current year, or has deducted or can deduct an amount for it for an earlier income year under any provision of the ITAA 1997. 1. the taxpayer received the Grant as recoupment of a loss or outgoing; 2. the taxpayer received the Grant by way of insurance or indemnity; and 3. the taxpayer can deduct an amount for the loss or outgoing for the current year, or has deducted or can deduct an amount for it for an earlier income year under any provision of the ITAA 1997. As to the first requirement, the Federal Court held that the Grant, being a portion of the 'Eligible Project Costs', had been received as a recoupment of an outgoing, even though it was treated as being on capital account. [47] As to the second requirement, the Federal Court noted that the word 'indemnity' is not defined in the ITAA 1997 and properly bears its ordinary meaning. [48] By reference to dictionary definitions and the case of Batchelor v Federal Commissioner of Taxation (2014) 219 FCR 453, it noted that the ordinary meaning of the word 'indemnity' includes 'a sum of money paid to compensate a person for liability, loss or expense incurred by the person' or 'compensation for damage or loss sustained' and 'something paid by way of such compensation'. [50] As such, it held that the Grant was received by the taxpayer as compensation for an 'expense' incurred by it and so fell within the meaning of the word 'indemnity'. [53] The fact that the taxpayer was required to satisfy certain specified requirements before the instalments of the Grant would be paid did not preclude it from being characterised as an indemnity. [52] Nor did the fact that the Grant was not paid to the taxpayer pursuant to a contract of indemnity. [54] As to the third requirement, the Federal Court found that the 'Eligible Project Costs' constituted expenditure on capital account and that such expenditure can properly be claimed as a deduction under Division 40 (described as 'Capital allowances') or under Subdivision 328-D (described as 'Capital allowances for small business entities') of the ITAA 1997. [55] The Court also cited sections 20-40 and 20-45 of the ITAA 1997 which both contain an example of a taxpayer who has an assessable recoupment and who has claimed corresponding deductions for depreciation. These sections therefore envisage deductions for decline in value and the taxpayer's contention that deductions claimed for decline in value were not captured by section 20-20 because the amount claimed can never be 'the loss or outgoing' but rather an amount attributed to the decline in value in that year, was not accepted. [55] Although the Federal Court accepted that there is a difference in the wording of a deduction 'for the outgoing' as distinct from 'in respect of the outgoing', as contended by the taxpayer, such a contention created an unduly technical and narrow distinction in the present case. [63] Were the taxpayer's contention correct, there would be no circumstance for the inclusion of Division 40 in section 20-30 of the ITAA 1997. [63] As all three requirements were established, the Federal Court held that the Grant the taxpayer received was an assessable recoupment under subsection 20-20(2) of the ITAA 1997. | Subsection 20-20(3) of the ITAA 1997: The second issue before the Federal Court was whether the two requirements under subsection 20-20(3) of the ITAA 1997 were also established to characterise the Grant as an assessable recoupment, namely, that: 1. the taxpayer received the Grant as recoupment of a loss or outgoing; and 2. the taxpayer can deduct an amount for the loss or outgoing for the current year or has deducted or can deduct an amount for it for an earlier income year under a provision listed in section 20-30 of the ITAA 1997. 1. the taxpayer received the Grant as recoupment of a loss or outgoing; and 2. the taxpayer can deduct an amount for the loss or outgoing for the current year or has deducted or can deduct an amount for it for an earlier income year under a provision listed in section 20-30 of the ITAA 1997. As already noted, the Federal Court held that the Grant had been received as recoupment of an outgoing and therefore the first requirement was established. As to the second requirement, the Federal Court held that as the taxpayer 'can deduct' an amount for the outgoing under Division 40, being a provision explicitly listed in section 20-30, the second requirement was also established. [58] The Federal Court found that it did not matter that the taxpayer had in fact elected to claim the deduction under Subdivision 328-D, rather than under Division 40, as the words of subsection 20-20(3) refers to the capacity for a deduction rather than the actual deduction under a specific provision. [63] Accordingly, the Federal Court held that the Grant was also an assessable recoupment under subsection 20-20(3) of the ITAA 1997. | Full Federal Court: On 31 May 2017, the taxpayer appealed the Federal Court's decision to the Full Federal Court. On 5 February 2018, the Full Federal Court dismissed the taxpayer's appeal. The two main issues before the Full Federal Court were whether: 1. the Grant was received 'by way of insurance or indemnity'; and 2. the taxpayer could have deducted an amount 'for the loss or outgoing'. 1. the Grant was received 'by way of insurance or indemnity'; and 2. the taxpayer could have deducted an amount 'for the loss or outgoing'. As to the first issue, the taxpayer argued that the word 'indemnity' is to be construed as part of the composite phrase 'insurance or indemnity'. The Full Federal Court found, however, that this did not affect the meaning to be given to the word 'indemnity' and agreed with the primary judge that the word is to be given its ordinary meaning. [40] As to the second issue, the taxpayer argued that the phrase 'for the loss or outgoing' is narrower than the phrase 'in respect of the loss or outgoing'. The Full Federal Court noted that the taxpayer placed too much weight on the distinction between the word 'for' and the phrase 'in respect of'. It held that in the context of subsections 20-20(2) and 20-20(3) of the ITAA 1997, the phrase 'for the loss or outgoing' is sufficiently broad to pick up a depreciation deduction under Division 40 or Subdivision 328-D of the ITAA 1997 where the outgoing was the cost of the depreciating asset. [42] The inclusion of Division 40 in the table in section 20-30 strongly pointed against the taxpayer's construction. [44] The Full Federal Court held that if the Grant was not an assessable recoupment under subsection 20-20(2) of the ITAA 1997, it would be an assessable recoupment under subsection 20-20(3). [50]", "ATO_View_of_Decision": "The decisions of the Federal Court and Full Federal Court are consistent with the ATO View in relation to the application of subsections 20-20(2) and 20-20(3) of the ITAA 1997. | This decision impact statement does not consider the issue of whether the Grant should have been assessable under section 6-5 or section 15-10 of the ITAA 1997 as it was not considered by the Courts.", "Administrative_Treatment": "The ATO plans to update TD 2006/31 as the alternative view expressed in Appendix 2 of TD 2006/31 was also rejected by the Federal Court and the Full Federal Court.", "Related_Documents": "TD 2006/31 | 2018 ATC 20-646 | section 6-5 | section 8-1 | section 15-10 | section 20-20 | section 20-25 | section 20-30 | section 20-40 | section 20-45 | section 40-15 | section 40-180 | section 40-185 | section 328-110 | section 328-175 | section 14ZZ | section 14ZZO | 2015 ATC 10-395 | 2014 ATC 20-450 | 97 ATC 4317 | (1951) 84 CLR 105", "Legislative_References": "Income Tax Assessment Act 1997 section 6-5 section 8-1 section 15-10 section 20-20 section 20-25 section 20-30 section 20-40 section 20-45 section 40-15 section 40-180 section 40-185 section 328-110 section 328-175 Taxation Administration Act 1953 section 14ZZ section 14ZZO", "Case_References": "Falk v Federal Commissioner of Taxation [2015] AATA 392 2015 ATC 10-395 (2015) 101 ATR 445 Batchelor v Federal Commissioner of Taxation (2014) 219 FCR 453 2014 ATC 20-450 (2014) 98 ATR 153 Federal Commissioner of Taxation v Rowe (1997) 187 CLR 266 (1997) 35 ATR 432 97 ATC 4317 Federal Commissioner of Taxation v Wade (1951) 84 CLR 105 (1951) 9 ATD 337", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD113of2016/00001", "Unmatched_Content": ""}
{"Case_Name": "Divas Beverages Holdings Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 1439/2016", "Venue": "Federal Court of Australia", "Judgment_Date": "27 April 2018", "Date_Published": "18 June 2018", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "At issue before the Court was whether the proposed products to be manufactured fell within the definition of 'wine', specifically, whether the proposed products were 'grape wine' or a 'grape wine product', in subsection 31-1 of A New Tax System (Wine Equalisation Tax) Act 1999 (the WET Act).", "Overview_of_Facts": "The applicant sought approval to acquire duty free spirits to manufacture 'VKAT' and 'VKAT Raspberry' using two alternative production methods. First, the starting point for either alternative is the acquisition of 'low-sugar juice'. Secondly, low sugar juice is then blended with either 'liquid sugar' (Liquid Sugar VKAT) or grape concentrate (Grape Concentrate VKAT) resulting in a 'blend'. Both blends undergo the same subsequent processes. | Thirdly, the blend is fermented to approximately 2% alcohol content by the addition of yeast, nutrients and the application of heat (if necessary) to create a 'fermented product'. | Fourthly, processes commonly used in wine making are applied to the fermented product to remove colour, odour and taste from the fermented product, resulting in the 'unfortified product'. | Fifthly, grape spirit is then added to fortify the unfortified product to an alcohol content of approximately 22%. | The last and sixth stage of the process involves a final filtration resulting in a bottled product, which is a clear colourless, odourless and neutral tasting alcoholic beverage. | VKAT Raspberry is manufactured by blending VKAT (88% by volume) with further liquid sugar, colourings and non-alcoholic flavourings (12% by volume). | Issues decided by the court | The Court held that: 1. The test of whether a 'beverage' is wine is to be applied to the finished product and not to the liquid as it exists during the stages of production. 2. The statutory definition of grape wine does not impose any requirements as to the appearance, state or other characteristics of the final product, other than the requirement that the beverage is to be produced from the fermentation of fresh grapes or products derived solely from fresh grapes. 3. There is no residual operation of an 'essential character' test in relation to determining whether a beverage is grape wine after the amendments to the WET Act. 4. The application of processes commonplace in wine making to the fermented product does not prevent the finished product from being the product of the fermentation of fresh grapes or products derived solely from fresh grapes. 5. Liquid Sugar VKAT is not grape wine because one of the products fermented, liquid sugar, is not derived from grapes. Liquid Sugar VKAT is also not a grape wine product because it does not contain at least 700 millilitres of grape wine per litre. 6. Grape Concentrate VKAT is grape wine because: a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes. | 1. The test of whether a 'beverage' is wine is to be applied to the finished product and not to the liquid as it exists during the stages of production. 2. The statutory definition of grape wine does not impose any requirements as to the appearance, state or other characteristics of the final product, other than the requirement that the beverage is to be produced from the fermentation of fresh grapes or products derived solely from fresh grapes. 3. There is no residual operation of an 'essential character' test in relation to determining whether a beverage is grape wine after the amendments to the WET Act. 4. The application of processes commonplace in wine making to the fermented product does not prevent the finished product from being the product of the fermentation of fresh grapes or products derived solely from fresh grapes. 5. Liquid Sugar VKAT is not grape wine because one of the products fermented, liquid sugar, is not derived from grapes. Liquid Sugar VKAT is also not a grape wine product because it does not contain at least 700 millilitres of grape wine per litre. 6. Grape Concentrate VKAT is grape wine because: a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes. | a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes.", "Issues_Decided": "The Court held that: 1. The test of whether a 'beverage' is wine is to be applied to the finished product and not to the liquid as it exists during the stages of production. 2. The statutory definition of grape wine does not impose any requirements as to the appearance, state or other characteristics of the final product, other than the requirement that the beverage is to be produced from the fermentation of fresh grapes or products derived solely from fresh grapes. 3. There is no residual operation of an 'essential character' test in relation to determining whether a beverage is grape wine after the amendments to the WET Act. 4. The application of processes commonplace in wine making to the fermented product does not prevent the finished product from being the product of the fermentation of fresh grapes or products derived solely from fresh grapes. 5. Liquid Sugar VKAT is not grape wine because one of the products fermented, liquid sugar, is not derived from grapes. Liquid Sugar VKAT is also not a grape wine product because it does not contain at least 700 millilitres of grape wine per litre. 6. Grape Concentrate VKAT is grape wine because: a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes. 1. The test of whether a 'beverage' is wine is to be applied to the finished product and not to the liquid as it exists during the stages of production. 2. The statutory definition of grape wine does not impose any requirements as to the appearance, state or other characteristics of the final product, other than the requirement that the beverage is to be produced from the fermentation of fresh grapes or products derived solely from fresh grapes. 3. There is no residual operation of an 'essential character' test in relation to determining whether a beverage is grape wine after the amendments to the WET Act. 4. The application of processes commonplace in wine making to the fermented product does not prevent the finished product from being the product of the fermentation of fresh grapes or products derived solely from fresh grapes. 5. Liquid Sugar VKAT is not grape wine because one of the products fermented, liquid sugar, is not derived from grapes. Liquid Sugar VKAT is also not a grape wine product because it does not contain at least 700 millilitres of grape wine per litre. 6. Grape Concentrate VKAT is grape wine because: a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes. a. both low sugar juice and grape concentrate are products derived solely from fresh grapes; and b. the application of the post fermentation processes involving common wine making techniques does not have the result that Grape Concentrate VKAT is not grape wine merely because of the application of those processes.", "ATO_View_of_Decision": "The Commissioner accepts the Court's decision.", "Administrative_Treatment": "The advice provided on ato.gov.au regarding ' Clear or characterless grape-based products ' (QC 46919), which was published following a consultation paper (17 November 2014) has been withdrawn.", "Related_Documents": "None | 2018 ATC 20-654 | The Act | 90 ATC 4553 | [1967] 2 NSWR 47 | [2011] FCA 360 | (2011) 83 ATR 47 | Explanatory Memorandum", "Legislative_References": "A New Tax System (Wine Equalisation Tax) Act 1999 The Act Excise Act 1901 The Act Excise Tariff Act 1921 The Act", "Case_References": "Bristol-Myers Co v FCT (1990) 23 FCR 126 (1990) 21 ATR 417 90 ATC 4553 Deputy Commissioner of Taxation v Pepsi-Cola Metropolitan Bottling Co Inc (1967) 10 FLR 101 (1967) 14 ATD 433 [1967] 2 NSWR 47 Esso Australia Ltd v FCT [2011] FCA 360 (2011) 83 ATR 47", "Subject_References": "", "Other_References": "Explanatory Memorandum to A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999 (Cth) ato.gov.au - 'Clear or characterless grape-based products' QC 46919", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1439/2016/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products."}
{"Case_Name": "Pintarich v Deputy Commissioner of Taxation", "Venue_Reference_No": "TAD 41 of 2017", "Venue": "Federal Court of Australia", "Judgment_Date": "25 May 2018", "Date_Published": "4 April 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether, in circumstances where there has been no mental process of reaching a conclusion as to whether to remit general interest charge (GIC) by an ATO officer, can the terms of a letter issued to the taxpayer nonetheless manifest the making of a decision?", "Overview_of_Facts": "The taxpayer is a property developer. | The taxpayer failed to lodge his income tax returns for the years ended 30 June 2010, 30 June 2011, 30 June 2012 and 30 June 2013 (the relevant income tax years) by the required due dates. | On 11 August 2014, the ATO issued a final notice demanding the lodgment of returns for the relevant income tax years (the relevant returns). On 23 October 2014 an officer from the ATO contacted the taxpayer's tax agent advising of the ATO's intention to prosecute the taxpayer for the non-lodgment of the relevant returns. The taxpayer lodged the relevant returns on 27 October 2014. | On 4 November 2014, notices of assessment for the income tax years ended 30 June 2010, 30 June 2011 and 30 June 2012 issued to the taxpayer. These assessments were for the amounts of $807,797.95, $3,264.40 and $7,703.25 respectively. | On 10 November 2014, a notice of assessment for the income tax year ended 30 June 2013 issued to the taxpayer for an amount of $2,474.15. | On 10 November 2014, the ATO issued a statement of account to the taxpayer showing that the taxpayer owed $1,156,787.72 in respect of assessments for the relevant income tax years together with accrued GIC thereon as a result of the failure to pay income tax for these years by the relevant due dates. | On 24 November 2014, the taxpayer's tax agent wrote to the ATO seeking a full remission of the GIC. | On 2 December 2014, the ATO and the taxpayer's tax agent had a number of exchanges by telephone and email. During those exchanges the ATO sought further information about the taxpayer's circumstances that were relevant to the ATO's consideration of the GIC remission request. | On 4 December 2014, the taxpayer's tax agent responded to the ATO's enquiries by email. | On 5 December 2014, the ATO and the taxpayer reached an agreement whereby the taxpayer would pay the primary tax debt of $821,762.75 by 30 January 2015 whilst the ATO considered a full remission of the GIC (approximately $344,000) under section 8AAG of the Taxation Administration Act 1953 (TAA). An ATO officer made a contemporaneous file note of the discussion with the taxpayer on 5 December 2014 as follows: We put forward that we require the primary tax of '821,762.75 paid in full whilst we consider the remission of general interest charge currently $344,216.13. | The same ATO officer similarly recorded his subsequent conversation with the tax agent later on 5 December 2014 as follows: Discussed with Drew the recent conversation with Joe Pintarich and discussions around obtaining payment in full of the primary tax component of $821,762.75 whilst we reviewed the request for remission of GIC. | In response to the request by the taxpayer's agent for a lump sum arrangement and payment slips, an ATO officer caused a letter dated 8 December 2014 to issue to the taxpayer part of which was in the following terms: Payment Arrangement for your Income Tax Account ... Thank you for your recent promise to pay your outstanding account. We agree to accept a lump sum payment of $839,115.43 on or before 30 January 2015. This payout figure is inclusive of an estimated general interest charge (GIC) amount calculated to 30 January 2015... | The letter was prepared by a process under which the ATO officer entered specific variables relevant to the agreed payment arrangement - however the system generated letter did not allow the officer to customise either the text or the GIC calculation imputed in the letter, nor otherwise view or alter the letter before it issued. | The reference to GIC in the 8 December 2014 letter was to GIC accruing on the primary tax debt of $821,762.75 from the date of the letter to the expected date of payment of that primary tax amount on 30 January 2015. It was not a reference to GIC that had accrued prior to 8 December 2014 which was the subject of the GIC remission request. The taxpayer paid the amount specified in the letter on 30 January 2015. | Following the issue of the 8 December 2014 letter, on 11 December 2014, 7 January 2015, 14 January 2015 and 5 February 2015 the taxpayer received statements for his income tax account which showed that no amount of GIC had been remitted. | On 23 December 2014, an ATO officer contacted the taxpayer's tax agent and spoke to the receptionist. The receptionist advised that the taxpayer's tax agents were not available until 5 January 2015. The ATO officer requested that the tax agent call the ATO on their return and that the ATO still required further information regarding: • reasons for outstanding Business Activity Statement due 28 October 2014 • why the taxpayer wasn't in a position to finalise his taxation obligations from the disposition of assets until only very recently • reason for the late lodgment of the income tax returns for the income tax years ended 30 June 2010, 30 June 2011 and 30 June 2012 • to make sure that the payment under the payment arrangement would be paid on 30 January 2015 as agreed. | • reasons for outstanding Business Activity Statement due 28 October 2014 • why the taxpayer wasn't in a position to finalise his taxation obligations from the disposition of assets until only very recently • reason for the late lodgment of the income tax returns for the income tax years ended 30 June 2010, 30 June 2011 and 30 June 2012 • to make sure that the payment under the payment arrangement would be paid on 30 January 2015 as agreed. | On 9 January 2015, the taxpayer's agent called the ATO seeking to ascertain the progress of the GIC remission request. As part of that conversation the ATO officer asked the tax agent a number of questions about the taxpayer's circumstances that were relevant to the ATO's ongoing consideration of the taxpayer's GIC remission request. Those matters included: • why the taxpayer's September business activity statement, which was due to be lodged on 28 October 2014, had been lodged late • why the taxpayer was unable to bring his taxation affairs up to date until recently • why other creditors had been paid in preference to the ATO • from which sources would the payment due on 30 January 2015 would come • why the taxpayer had tax debts that were not paid promptly in the past. | • why the taxpayer's September business activity statement, which was due to be lodged on 28 October 2014, had been lodged late • why the taxpayer was unable to bring his taxation affairs up to date until recently • why other creditors had been paid in preference to the ATO • from which sources would the payment due on 30 January 2015 would come • why the taxpayer had tax debts that were not paid promptly in the past. | The ATO officer continued to consider the remission request and on 15 May 2015 made a decision to not remit in full the GIC. Whilst reserving his position to maintain that a decision to remit GIC had occurred on 8 December 2014, the taxpayer lodged two subsequent GIC remission requests. On each occasion different ATO officers considered the taxpayer's circumstances and each determined that full remission of the taxpayer's GIC was not justified. The last such decision was communicated in a letter dated 13 May 2016. | On 10 June 2016, the taxpayer filed an application in the Federal Court under the Administrative Decisions (Judicial Review) Act 1977 seeking to set aside the 13 May 2016 decision on the basis that, by letter dated 8 December 2014, the ATO had already made a decision to remit the GIC and therefore any subsequent remission decisions were ultra vires, or beyond power, because the power to remit GIC had already been exercised and was spent. | The taxpayer's application was dismissed at first instance [1] (by Tracey J). | A further appeal was also dismissed by the majority of the Full Federal Court (Moshinsky & Derrington JJ with Kerr J in dissent). | On 17 October 2018, special leave was refused by the High Court (Gageler & Keane JJ) on the basis that the Full Court's decision was not attended with sufficient doubt to warrant the grant of special leave. | Issues decided by the court | The issue decided by the Court was whether the terms of the letter dated 8 December 2014 constituted or manifested a decision by the ATO under section 8AAG of the TAA to remit GIC, notwithstanding that the decision-maker had not undertaken any mental process of reaching a conclusion on whether to remit GIC. | The primary judge [2] and a majority of the Full Court resolved the issue in the negative, concluding that no decision had been made to remit GIC under section 8AAG of the TAA, because 'there needs to be both a mental process of reaching a conclusion and an objective manifestation of that conclusion'. [3] In coming to that conclusion the majority noted the unchallenged finding of fact that no such mental process had been engaged in by the ATO decision-maker. | While the majority of the Full Court said that it would follow from 'the natural reading of the letter' that 'the letter communicated that a decision had been made to remit all GIC payable by the [appellant]' [4] , the majority also acknowledged that 'the letter did not expressly deal with the application to remit GIC and the letter is susceptible of more than one interpretation'. [5]", "Issues_Decided": "The issue decided by the Court was whether the terms of the letter dated 8 December 2014 constituted or manifested a decision by the ATO under section 8AAG of the TAA to remit GIC, notwithstanding that the decision-maker had not undertaken any mental process of reaching a conclusion on whether to remit GIC. The primary judge [2] and a majority of the Full Court resolved the issue in the negative, concluding that no decision had been made to remit GIC under section 8AAG of the TAA, because 'there needs to be both a mental process of reaching a conclusion and an objective manifestation of that conclusion'. [3] In coming to that conclusion the majority noted the unchallenged finding of fact that no such mental process had been engaged in by the ATO decision-maker. While the majority of the Full Court said that it would follow from 'the natural reading of the letter' that 'the letter communicated that a decision had been made to remit all GIC payable by the [appellant]' [4] , the majority also acknowledged that 'the letter did not expressly deal with the application to remit GIC and the letter is susceptible of more than one interpretation'. [5]", "ATO_View_of_Decision": "The majority's conclusion is consistent with long-standing authority. [6] It confirms that for there to be a decision under section 8AAG of the TAA there needs to be both a mental process of reaching a conclusion on the application to remit GIC as well as an overt act communicating the decision. The High Court (Gageler & Keane JJ) held that the Full Court's decision was not attended with sufficient doubt to warrant the grant of special leave to appeal to the High Court. | GIC serves to compensate the Australian Government for the impact of late payment of taxes and is imposed to deny the minority of late payers an advantage over those who pay on time. [7] In the present case the ATO considered on three separate occasions whether the taxpayer's circumstances warranted an exercise of the discretion in section 8AAG of the TAA to grant a full remission of the GIC. On each of those three occasions different ATO officers considered the taxpayer's circumstances and each determined that full remission of the taxpayer's GIC was not warranted. | It is accepted that a taxpayer should be able to rely on the accuracy and clarity of any communication with the ATO, whether written or verbal. The ATO issues vast numbers of correspondence each year and has even more verbal interactions with taxpayers. The particular template used by the ATO officer in this case was used 82,217 times in the 12 months to October 2018. In those circumstances, there will be some instances where a communication from the ATO might not have been as clear as it could be. The template used by the ATO officer in this matter is an example of such a communication which could have been more clearly expressed. | Nonetheless, the ATO remains committed to continually improving the clarity and useability of all its standard correspondence. As part of an ongoing continuous improvement process, and to reduce the likelihood of similar issues arising arise in the future, the ATO has removed the unclear language in the specific template used in this matter, and replaced it with language that is more appropriate for all circumstances when this template is issued. Additionally, the ATO has reviewed its procedures and communication to staff in relation to the entering of payment arrangements to ensure appropriate letters are used. In the longer term the ATO will undertake a complete review of all payment plan letters with a view to expanding the range of scenarios incorporated in its automatically generated letters. | However, documents and other forms of communications should be interpreted within the context in which they were made as measured against the objective facts and evidence. Whether a particular document evidences a decision is not a task left to the interpretation of the terms of such a document in isolation. Ultimately the meaning of a document will turn on the particular facts. The present case is an example of situations where it is necessary to make a more fulsome survey of all of the facts and evidence. | In the present case the surrounding facts, both before and after the issue of the letter, demonstrate why it was neither open, nor reasonable, for the taxpayer to maintain that a decision to remit GIC had occurred on 8 December 2014. This is particularly so, where, as the majority recognised, that the 8 December 2014 letter [8] ... did not expressly deal with the application to remit GIC and the letter was susceptible of more than one interpretation. | In fact, at first instance the primary judge considered that only a 'strained reading' of the 8 December 2014 letter would support the taxpayer's contentions. [9] | The 8 December 2014 letter issued following discussions between the ATO officer, the taxpayer and his tax agent on 5 December 2014. The ATO officer who prepared the 8 December 2014 letter did so in response to the tax agent's specific request for a lump sum arrangement and payment slips to facilitate payment of the taxpayer's primary tax debt. At first instance, the primary judge accepted the ATO officer's evidence that those conversations were to the effect that the taxpayer should pay the primary tax debt by 30 January 2015 whilst the ATO considered the remission of the GIC. | Noting that these discussions with the taxpayer and his agent occurred on a Friday and the 8 December 2014 letter issued on a Monday, the primary judge noted that it seemed unlikely that the ATO officer would have proceeded to make a decision to remit GIC over the weekend. Nor was the ATO officer's subsequent conduct consistent with him having made such a decision. [10] | Whilst on appeal maintaining his challenge to the primary judge's conclusion that the 8 December 2014 letter did not constitute or manifest a decision to remit GIC, the taxpayer did not challenge any of the primary judge's findings of fact. [11] | Subsequent to the issue of the 8 December 2014 letter, the written and verbal interactions between the ATO, the taxpayer and his tax agent were inconsistent with the taxpayer's claimed reliance on the letter as being a decision to remit all of the GIC. Those interactions included: • the issue of three separate statements of account to the taxpayer on 11 December 2014, 7 January 2015 and 14 January 2015 which each showed that no amount of GIC had been remitted • the telephone conversation on 23 December 2014 where the ATO officer left a request with the tax agent's receptionist for the tax agent call the ATO and indicated that there was some further information that the ATO still required, and • the telephone conversation on 9 January 2015, initiated by the taxpayer's tax agent and seeking to ascertain the progress of the GIC remission request. As part of that conversation, the ATO officer asked the tax agent a number of questions regarding the taxpayer's affairs that were clearly relevant and directed to the ATO's ongoing consideration of the taxpayer's GIC remission request. | • the issue of three separate statements of account to the taxpayer on 11 December 2014, 7 January 2015 and 14 January 2015 which each showed that no amount of GIC had been remitted • the telephone conversation on 23 December 2014 where the ATO officer left a request with the tax agent's receptionist for the tax agent call the ATO and indicated that there was some further information that the ATO still required, and • the telephone conversation on 9 January 2015, initiated by the taxpayer's tax agent and seeking to ascertain the progress of the GIC remission request. As part of that conversation, the ATO officer asked the tax agent a number of questions regarding the taxpayer's affairs that were clearly relevant and directed to the ATO's ongoing consideration of the taxpayer's GIC remission request. | Whilst concerns about the fairness of the majority's conclusion were expressed in the judgment of Kerr J in dissent [12] , the majority's decision did no more than express what has long been the proper operation of the law. Nor did the facts involve the use of automated 'intelligent' decision-making systems such as to lay down the application of some wider legal principle to such systems. In this matter the decision-making responsibility rested with an individual ATO officer to properly consider the facts of the case and determine, in the exercise of the discretion in section 8AAG of the TAA, whether to remit any part of the GIC. | The facts demonstrate that no such decision was made on 8 December 2014 and a more fulsome survey of all of the facts and evidence explains why the ATO took the position it did in response to the taxpayer's application.", "Administrative_Treatment": "None", "Related_Documents": "None | High Court | [2018] HCASL 322 | Full Federal Court | 2018 ATC 20-657 | 8AAG | The Act | [2017] FCA 944", "Legislative_References": "Taxation Administration Act 1953 8AAG Administrative Decisions (Judicial Review) Act 1977 The Act", "Case_References": "Comcare v Moon [2003] FCA 569 (2003) 75 ALD 160 Dunstan v Higham [2016] ACTCA 20 (2016) 310 FLR 58 [2016] ALMD 5062 [2016] ALMD 5088 Minister for Immigration and Citizenship v SZQOY [2012] FCAFC 131 (2012) 206 FCR 25 [2013] ALMD 1869 (2012) 132 ALD 1 (2012) 294 ALR 84 He v Minister for Immigration and Border Protection [2017] FCAFC 206 (2017) 255 FCR 41 [2018] ALMD 3545 Pintarich v Deputy Commissioner of Taxation [2017] FCA 944 Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79 2108 ATC 20-657 Semunigus v Minister for Immigration and Multicultural Affairs [1999] FCA 422 Semunigus v Minister for Immigration and Multicultural Affairs [2000] FCA 240 (2000) 96 FCR 533 (2000) 60 ALD 383", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/TAD41of2017/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance. | Footnotes: [1] Pintarich v Deputy Commissioner of Taxation [2017] FCA 944. | [2] Pintarich v Deputy Commissioner of Taxation [2017] FCA 944, paragraph 44 (per Tracey J). | [3] Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79, paragraph 140 (per Moshinsky and Derrington JJ). | [4] Ibid, paragraphs 136 and 140. | [6] Semunigus v Minister for Immigration and Multicultural Affairs [1999] FCA 422, paragraph 19; Semunigus v Minister for Immigration and Multicultural Affairs [2000] FCA 240, paragraph 11 (per Spender J), paragraph 55 (per Higgins J), paragraph 101 (per Madgwick J); Minister for Immigration and Citizenship v SZQOY [2012] FCAFC 131, paragraphs 29, 33, and 50; He v Minister for Immigration and Border Protection [2017] FCAFC 206, paragraph 79; Dunstan v Higham [2016] ACTCA 20, paragraphs 72-74 (per Murrell CJ, Penfold and Rangiah JJ). See also Comcare v Moon [2003] FCA 569, paragraph 58 (per Mansfield J). | [7] The ATO Annual report for 2017-18 notes that 89.5% of tax is paid by the due date. | [8] Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79, paragraph 152 (per Moshinsky and Derrington JJ). | [9] Pintarich v Deputy Commissioner of Taxation [2017] FCA 944, paragraph 47 (per Tracey J). | [10] Pintarich v Deputy Commissioner of Taxation [2017] FCA 944, paragraph 46 (per Tracey J). | [11] Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79, paragraph 83 (per Moshinsky and Derrington JJ). | [12] Pintarich v Deputy Commissioner of Taxation [2018] FCAFC 79, paragraphs 55, 65, 75 and 77 (per Kerr J)."}
{"Case_Name": "Sandini Pty Ltd atf the Karratha Rigging Unit Trust & Ors v Ellison & Ors v Commissioner of Taxation of the Commonwealth of Australia & Ors", "Venue_Reference_No": "P22 of 2018 (High Court of Australia)", "Venue": "High Court", "Judgment_Date": "14 September 2018", "Date_Published": "27 November 2018", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case concerns the availability of marriage breakdown roll-over under Subdivision 126-A of the Income Tax Assessment Act 1997 (ITAA 1997) where an asset owned by the trustee of a trust controlled by one former spouse was transferred to the trustee of a trust controlled by the other former spouse.", "Overview_of_Facts": "On 21 September 2010, the Family Court made orders by consent under section 79 of the Family Law Act 1975 that within seven days, Sandini Pty Ltd (Sandini) as trustee of the Ellison Family Trust, do all acts and things and sign all documents necessary to transfer to the wife 2,115,000 Mineral Resources Limited (MIN) shares. | Sandini was not the trustee of the Ellison Family Trust. Sandini was the trustee of the Karratha Rigging Unit Trust (KRUT) and, in that capacity, owned over 35 million MIN shares. | On 29 September 2010, Ms Ellison asked that the MIN shares be transferred to Wavefront Asset Pty Ltd (Wavefront) as trustee of the Felstead Family Trust rather than to her. The share transfer was completed on 30 September 2010 and registered on 4 October 2010. | Issues decided by the court | Did the Family Court order result in a change of ownership of the MIN shares for the purposes of CGT event A1? | The majority of the Full Court held that the Family Court order did not result in a change of ownership of the MIN shares. Rather, CGT event A1 in section 104-10 of the ITAA 1997 happened either on the execution of the share transfer form or, at the latest, the registration of that transfer. [1] | In reaching this decision the majority observed that the orders were ineffective because Sandini was not the trustee of the Ellison Family Trust, and could not be ordered to do anything. [2] | Although it was not necessary to decide, the majority did consider whether an order applying to Sandini as trustee of the KRUT might have resulted in an immediate change of ownership of the MIN shares. | Were the roll-over requirements in section 126-15 of the ITAA 1997 satisfied when CGT event A1 happened to the MIN shares? | The 'involvement' issue | The Court determined that rollover under section 126-15 applies only if the transferee is one of the parties to the marriage (a spouse or former spouse). [3] | As the shares were not transferred to Ms Ellison, this requirement was not satisfied. | The 'because of' issue | The Court considered that a CGT event will occur because of a Family Court order if the order requires the event to occur and it does occur. [4] | In this case, the Family Court order was 'inefficacious in all relevant respects'. It required Sandini, in a non-existent capacity, to do things. The fact that Mr and Ms Ellison may have agreed that Sandini do things in another capacity does not mean that the orders had any effect. [5] | As the shares were not transferred because of the order, this requirement was not satisfied. | Did section 103-10 of the ITAA 1997 apply so that subsection 104-10(2) of the ITAA 1997 and/or paragraph 126-15(1)(a) of the ITAA 1997 are deemed to apply to Ms Ellison because she directed the transfer of the MIN shares to Wavefront? | The Court accepted the Commissioner's submission that section 103-10 of the ITAA 1997 does not operate at large to apply the whole of Parts 3-1 or 3-3 of the ITAA 1997 to a person if money or other property has been applied for that person's benefit or as that person directs. Rather it operates so that provisions which are engaged by the receipt of money or property (such as section 124-95 of the ITAA 1997) apply if money has been applied for the benefit of a person or as they direct. [6]", "Issues_Decided": "Did the Family Court order result in a change of ownership of the MIN shares for the purposes of CGT event A1?: The majority of the Full Court held that the Family Court order did not result in a change of ownership of the MIN shares. Rather, CGT event A1 in section 104-10 of the ITAA 1997 happened either on the execution of the share transfer form or, at the latest, the registration of that transfer. [1] In reaching this decision the majority observed that the orders were ineffective because Sandini was not the trustee of the Ellison Family Trust, and could not be ordered to do anything. [2] Although it was not necessary to decide, the majority did consider whether an order applying to Sandini as trustee of the KRUT might have resulted in an immediate change of ownership of the MIN shares. | Were the roll-over requirements in section 126-15 of the ITAA 1997 satisfied when CGT event A1 happened to the MIN shares?: The 'involvement' issue The Court determined that rollover under section 126-15 applies only if the transferee is one of the parties to the marriage (a spouse or former spouse). [3] As the shares were not transferred to Ms Ellison, this requirement was not satisfied. The 'because of' issue The Court considered that a CGT event will occur because of a Family Court order if the order requires the event to occur and it does occur. [4] In this case, the Family Court order was 'inefficacious in all relevant respects'. It required Sandini, in a non-existent capacity, to do things. The fact that Mr and Ms Ellison may have agreed that Sandini do things in another capacity does not mean that the orders had any effect. [5] As the shares were not transferred because of the order, this requirement was not satisfied. | Did section 103-10 of the ITAA 1997 apply so that subsection 104-10(2) of the ITAA 1997 and/or paragraph 126-15(1)(a) of the ITAA 1997 are deemed to apply to Ms Ellison because she directed the transfer of the MIN shares to Wavefront?: The Court accepted the Commissioner's submission that section 103-10 of the ITAA 1997 does not operate at large to apply the whole of Parts 3-1 or 3-3 of the ITAA 1997 to a person if money or other property has been applied for that person's benefit or as that person directs. Rather it operates so that provisions which are engaged by the receipt of money or property (such as section 124-95 of the ITAA 1997) apply if money has been applied for the benefit of a person or as they direct. [6]", "ATO_View_of_Decision": "Change of ownership | CGT event A1 in section 104-10 of the ITAA 1997 is triggered by a change of ownership of a CGT asset. The type of change that is relevant will depend on the type of ownership the holder of the CGT asset has and what the purported acquirer obtains and whether, for example, their ownership is recognised at law or in equity. Most transactions give rise to clear changes in ownership without needing to address considerations that arise because ownership has been divided. | It is clear that CGT event A1 in section 104-10 of the ITAA 1997 does not happen if: • there is a mere change in the trustee of a trust (as subsection 960-100(2) of the ITAA 1997 provides that the trustee of a trust is taken to be an entity consisting of the person who is the trustee at any given time) • a person transfers legal ownership but continues to be the beneficial owner (an exception in CGT event A1 itself). | • there is a mere change in the trustee of a trust (as subsection 960-100(2) of the ITAA 1997 provides that the trustee of a trust is taken to be an entity consisting of the person who is the trustee at any given time) • a person transfers legal ownership but continues to be the beneficial owner (an exception in CGT event A1 itself). | Consistent with the decision of the majority of the Full Court, we consider that triggering CGT event A1 in section 104-10 of the ITAA 1997 does not require a change in legal as well as beneficial ownership. | Further, we consider that a change in beneficial ownership does not occur unless the purported acquirer of the CGT asset has full dominion over it that a court of equity would enforce. This is akin to the rights to specific performance a purchaser of land obtains upon paying the settlement sum. It is not sufficient for a change in beneficial ownership that the purported acquirer of the CGT asset has some form of proprietary interest, or equitable or beneficial interest in the asset falling short of beneficial ownership, and the purported seller has retained rights to deal with the asset, including powers of disposition over it. | Effect of Family Court order | CGT event A1 in section 104-10 of the ITAA 1997, rather than CGT event E1 in section 104-55 of the ITAA 1997, happens if an order creates a trust over an asset because the change of ownership happens by operation of law. CGT event E1 does not happen as there is no relevant 'you' as contemplated by that event. | Other | We note the Court's conclusions that: • roll-over is only available under section 126-15 of the ITAA 1997 if the transferee is a spouse or former spouse • a CGT event occurs because of a Family Court order if the order requires the event to occur and it does occur, and • section 103-10 of the ITAA 1997 does not operate at large to apply the whole of Parts 3-1 or 3-3 of the ITAA 1997 to a person if money or other property has been applied for that person's benefit or as that person directs. | • roll-over is only available under section 126-15 of the ITAA 1997 if the transferee is a spouse or former spouse • a CGT event occurs because of a Family Court order if the order requires the event to occur and it does occur, and • section 103-10 of the ITAA 1997 does not operate at large to apply the whole of Parts 3-1 or 3-3 of the ITAA 1997 to a person if money or other property has been applied for that person's benefit or as that person directs.", "Administrative_Treatment": "We are reviewing our public advice and guidance products to determine what effect (if any) the decision may have on them. To date we have identified that the following public rulings might be affected: • Taxation Determination TD 1999/48 Income tax: capital gains: if a court makes an order under the Family Law Act 1975 declaring or altering a spouse's interest in property, do CGT events happen to CGT assets of the spouse for the purpose of section 126-5 or 126-15 of the Income Tax Assessment Act 1997 We will consider updating TD 1999/48 to address - comments of the Court about the effect of an order under section 79 of the Family Law Act 1975 (for example, in some instances, a CGT event might happen when an order is made) - the 'because of' issue considered by the Court. • Taxation Ruling TR 2014/5 Income tax: matrimonial property proceedings and payments of money or transfers of property by a private company to a shareholder (or their associate) We will consider updating the Ruling to address comments of the Court about the effect of an order under section 79 of the Family Law Act 1975 (for example, in some instances, a CGT event might happen when an order is made). • The Guide to capital gains tax 2018 . | • Taxation Determination TD 1999/48 Income tax: capital gains: if a court makes an order under the Family Law Act 1975 declaring or altering a spouse's interest in property, do CGT events happen to CGT assets of the spouse for the purpose of section 126-5 or 126-15 of the Income Tax Assessment Act 1997 We will consider updating TD 1999/48 to address - comments of the Court about the effect of an order under section 79 of the Family Law Act 1975 (for example, in some instances, a CGT event might happen when an order is made) - the 'because of' issue considered by the Court. • Taxation Ruling TR 2014/5 Income tax: matrimonial property proceedings and payments of money or transfers of property by a private company to a shareholder (or their associate) We will consider updating the Ruling to address comments of the Court about the effect of an order under section 79 of the Family Law Act 1975 (for example, in some instances, a CGT event might happen when an order is made). • The Guide to capital gains tax 2018 . | - comments of the Court about the effect of an order under section 79 of the Family Law Act 1975 (for example, in some instances, a CGT event might happen when an order is made) - the 'because of' issue considered by the Court.", "Related_Documents": "Taxation Determination TD 1999/48 Income tax: capital gains: if a court makes an order under the Family Law Act 1975 | Taxation Ruling TR 2014/5 Income tax: matrimonial property proceedings and payments of money or transfers of property by a private company to a shareholder (or their associate) | Guide to capital gains tax 2018 | High Court of Australia | [2018] HCA Trans 190 | Full Federal Court | 2018 ATC 20-651 | Pt 3-1 | Pt 3-3 | 103-10 | 104-10(2) | 124-95 | 126-A | 126-5 | 126-15 | 126-15(1)(a) | 960-100(2) | (1948) 77 CLR 143 | 98 ATC 4634 | (1989) 168 CLR 242 | (1989) 89 ALR 522 | [1989] HCA 63 | (1976) 137 CLR 177 | 88 ATC 4995 | [1993] EWCA Civ 11 | [2008] HCA 56 | [2003] FCAFC 93 | (2003) 130 FCR 12 | 84 ATC 4793 | (2001) 49 ATR 324 | (1982) 158 CLR 327 | (1982) 44 ALR 63 | 2017 ATC 20-610 | [2017] FCA 905 | (1988) 165 CLR 489 | (1988) 81 ALR 463 | [2006] NSWSC 1379 | [1999] HCA 53 | (1999) 201 CLR 351", "Legislative_References": "Income Tax Assessment Act 1997 Pt 3-1 Pt 3-3 103-10 104-10(2) 124-95 126-A 126-5 126-15 126-15(1)(a) 960-100(2) Family Law Act 1975 (Cth) 79", "Case_References": "Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) [1948] HCA 28 (1948) 77 CLR 143 Bellinz Pty Ltd v Commissioner of Taxation (Cth) (1998) 84 FCR 154 (1998) 155 ALR 220 155 ALR 220 98 ATC 4634 Chan v Cresdon Pty Ltd (1989) 168 CLR 242 (1989) 89 ALR 522 [1989] HCA 63 Chang v Registrar of Titles (1976) 8 ALR 285 (1976) 137 CLR 177 [1976] HCA 1 Ellison v Sandini Pty Ltd [2018] FCAFC 44 2018 ATC 20-651 Herdegen v Federal Commissioner of Taxation [1988] FCA 699 (1988) 84 ALR 271 (1998) 20 ATR 24 88 ATC 4995 Hunter v Moss [1993] EWCA Civ 11 [1994] 3 All ER 215 [1994] 1 WLR 452 Jones v Daniel [2004] FCAFC 278 (2004) 141 FCR 148 (2004) 212 ALR 588 Kennon v Spry [2008] HCA 56 (2008) 238 CLR 366 (2008) 251 ALR 257 Kent v Vessel 'Maria Luisa' (No 2) [2003] FCAFC 93 (2003) 130 FCR 12 KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288 (1984) 56 ALR 337 (1984) 15 ATR 1214 84 ATC 4793 [1984] HCA 63 Lavin v Toppi [ 2015] HCA 4 (2015) 254 CLR 459 (2015) 316 ALR 366 Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 371 (2007) 62 ASCR 522 Mullane v Mullane [1983] HCA 4 (1983) 158 CLR 436 (1983) 44 ALR 291 Official Trustee in Bankruptcy v Mateo [2003] FCAFC 26 (2003) 127 FCR 217 (2003) 202 ALR 571 Pearson & Ors v Lehman Brothers Finance SA & Ors [2010] EWHC 2914 Pilmer v The Duke Group Ltd (in liq) [2001] HCA 31 (2001) 207 CLR 165 (2001) 49 ATR 324 Priest v Ross Asset Management Limited (in liq) [2016] NZHC 1803 R v Toohey; Ex Parte Meneling Station Pty Ltd [1982] HCA 69 (1982) 158 CLR 327 (1982) 44 ALR 63 R v Australian Broadcasting Tribunal; Ex parte Hardiman (1980) 29 ALR 289 (1980) 144 CLR 13 [1980] HCA 13 Sandini Pty Ltd v Commissioner of Taxation [2017] FCA 287 2017 ATC 20-610 (2017) 105 ATR 495 (2017) 251 FCR 543 Sandini Pty Ltd v Commissioner of Taxation (No 2) [2017] FCA 905 Stern v McArthur (1988) 165 CLR 489 (1988) 81 ALR 463 Telstra Corporation Ltd v The Commonwealth [2008] HCA 7 (2008) 234 CLR 210 Wende v Horwath (NSW) Pty Limited [2014] NSWCA 170 (2014) 86 NSWLR 674 White v Shortall [2006] NSWSC 1379 (2006) 68 NSWLR 650 Yanner v Eaton [1999] HCA 53 (1999) 201 CLR 351 (1999) 166 ALR 258", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/P22of2018/00001", "Unmatched_Content": "Footnotes: [1] Refer to Sandini [2018] FCAFC 44 at 173 and 174. | [2] ibid at paragraphs 171 and 194. | [3] ibid at paragraph 156. | [4] Ibid at paragraph 190. | [5] ibid at paragraph 194. | [6] ibid at paragraphs 207 and 208."}
{"Case_Name": "Cable & Wireless Australia & Pacific Holding BV (in liquidatie) v Commissioner of Taxation", "Venue_Reference_No": "NSD 318 of 2016", "Venue": "Federal Court of Australia", "Judgment_Date": "", "Date_Published": "24 January 2018", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case was concerned with the treatment of an amount debited to a 'buy-back reserve' account as part of an off-market share buy-back by Cable & Wireless Optus Ltd (now known as Singtel Optus Australia Pty Ltd (Optus)). The central issue was whether a debit to the buy-back reserve account in this case was a debit to a 'share capital account' within the meaning of former section 6D of the Income Tax Assessment Act 1936 (ITAA 1936). If it was considered to be a debit to the share capital account for the purposes of section 159GZZZP of the ITAA 1936, then it would be argued that the amount of dividend withholding tax that had been withheld at the time of the transaction was withheld 'in error'.", "Overview_of_Facts": "Prior to 6 September 2001, Cable & Wireless Australia & Pacific Holding BV (CWAP), a company incorporated in the Netherlands and not a resident of Australia, was a shareholder in Optus. On 18 May 2001, Singapore Telecommunications Limited (SingTel) through its wholly owned subsidiary made a takeover offer for a majority of the shares in Optus. An accepting shareholder could elect to accept either a purchase of its shares, or a buy-back by Optus. In the context of a buy-back, the Implementation Agreement mandated that Optus had to account for the transaction in a particular way, relevantly, by making debits to the account labelled 'share capital' and an account labelled 'buy-back reserve'. The debit to the share capital account was to be made on a pro-rata basis. | On 6 September 2001, Optus, in an off-market buy-back bought back 1,642,101,319 shares (including 1,639,849,948 shares owned by CWAP), for total consideration of $6,225,502,631.68. The buy-back was accounted for as follows (in accordance with the Implementation Agreement): Dr Contributed equity $2,306,705,228.16 Dr Buy-back reserve $3,918,797,343.42 Cr Debt due to Optus shareholders $6,225,502,631.68 | On 30 October 2001, Optus issued SingTel with shares for an amount of $6,229,387,472.78. | The statement of financial position published by Optus for the financial year ended 31 March 2002 disclosed a decrease in contributed equity consistent with the accounting treatment above. | Dividend withholding tax was paid to the Commissioner on the basis that the amount debited to the buy-back reserve was a dividend pursuant to section 159GZZZP of the ITAA 1936. | On 6 March 2013, Optus undertook a capital reduction in accordance with Part 2J.1 of the Corporations Act 2001 (Cth). As part of this reduction of capital, the debit entry on the buy-back reserve account was 'set off' against the share capital account. | CWAP, relying on the High Court's decision in Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55 (Consolidated Media), contended that a component of the purchase price debited to the buy-back reserve was an amount debited against an amount standing to the credit of Optus' share capital account, with the consequence that part of the total withheld amount was withheld and paid to the Commissioner in error. | In Cable & Wireless Australia & Pacific Holding BV (in liquidatie) v Commissioner of Taxation [2016] FCA 78, Pagone J held that the buy-back reserve was not an account of share capital and that the withholding tax amount was not withheld in error. His Honour said that the decision in Consolidated Media does not carry with it the conclusion that all accounts labelled as buy-back reserve accounts are share capital accounts within the meaning of section 6D and section 159GZZZP of the ITAA 1936. The substance and form of the buy-back was different from that considered in Consolidated Media. CWAP then appealed to the Full Federal Court. | The Full Federal Court, comprised of Allsop CJ, Middleton and Beach JJ, unanimously dismissed the taxpayer's appeal. The Court agreed with the conclusion of the primary judge. | Cable and Wireless sought but was refused special leave to appeal the decision of the Full Federal Court to the High Court (S147/2017). | Issues decided by the court | The primary issue before the court was the characterisation of the 'buy back reserve' account given the commercial arrangements between the parties and the accounting treatment adopted by Optus. | The Court viewed the case as an application of the meaning of 'share capital account' as expounded in Consolidated Media. A share capital account could be an account, whether debited or credited with one or more amounts, that was a 'record of a transaction into which the company had entered in relation to its share capital'. Alternatively or as well, it could be an account, whether debited or credited with one or more amounts, that was a 'record of the financial position of the company in relation to its share capital' [at paragraph 90]. The Court observed that care needs to be taken not to decontextualize these descriptions from the factual circumstances the High Court (in Consolidated Media) was addressing [91]. | The Court distinguished the facts in Consolidated Media from the present case. In Consolidated Media, the entire debit to the buy-back reserve was intended to reflect a reduction of capital, commercially, economically and legally. In the present case, there was a separate debit on the share capital account for that purpose. The debit on the buy-back reserve account was not intended to and did not reflect such a reduction. It was a charge on total equity [92]. | In the present case the 'contributed equity' or share capital account did not require for its understanding any reference to the buy-back reserve (or the debiting thereof) to be made [116]. Furthermore, while the share capital amount increased as a result of SingTel subscribing shares subsequent to the buy-back, this later subscription does not govern the character of the earlier buy-back [134]. | The Court observed that capital or shareholders' capital connotes the value of the assets contributed to the company by those who subscribe for its shares; it is this concept rather than the assets themselves (such as subscription money) that is being referred to. A share capital account is not as such an asset account [94]. | The Court distinguished the concept of 'capital' from 'equity'. The latter usually describes a surplus of assets over liabilities. In this case, the debit on the buy-back reserve account was not in form or in substance a charge on contributed equity (or share capital) [95]. The rulings sought and obtained from the Commissioner, the Implementation Agreement and the relevant financial accounts and statements all reflected the commercial, economic, and legal reality that the debit to the buy-back reserve account was not and was not seen to be a reduction or a return of capital. The reduction of capital in 2013 reflected and assumed that prior reality [118]. | In relation to section 258E of the Corporations Act 2001, which authorised the reduction in share capital in the present case, the Court observed that the provision does not state or necessarily imply that on a buy-back there is necessarily a reduction of share capital and that the buy-back consideration must all be 'paid for out of share capital'. It only authorises a reduction if some of it is 'paid for out of share capital'. The phrase 'paid for out of share capital' refers to a debiting or charging of share capital of the type identified in Optus' accounts. The concept 'paid for' is not literally referring to payment as such, as a share capital account is not an asset account. The court emphasised this point in addressing the appellant's argument that the absence of any positive equity account (apart from share capital) meant that the amount debited to the buy-back reserve account must have been paid for out of the share capital account and accordingly there had been a reduction of capital also constituted by that debit entry [99].", "Issues_Decided": "The primary issue before the court was the characterisation of the 'buy back reserve' account given the commercial arrangements between the parties and the accounting treatment adopted by Optus. The Court viewed the case as an application of the meaning of 'share capital account' as expounded in Consolidated Media. A share capital account could be an account, whether debited or credited with one or more amounts, that was a 'record of a transaction into which the company had entered in relation to its share capital'. Alternatively or as well, it could be an account, whether debited or credited with one or more amounts, that was a 'record of the financial position of the company in relation to its share capital' [at paragraph 90]. The Court observed that care needs to be taken not to decontextualize these descriptions from the factual circumstances the High Court (in Consolidated Media) was addressing [91]. The Court distinguished the facts in Consolidated Media from the present case. In Consolidated Media, the entire debit to the buy-back reserve was intended to reflect a reduction of capital, commercially, economically and legally. In the present case, there was a separate debit on the share capital account for that purpose. The debit on the buy-back reserve account was not intended to and did not reflect such a reduction. It was a charge on total equity [92]. In the present case the 'contributed equity' or share capital account did not require for its understanding any reference to the buy-back reserve (or the debiting thereof) to be made [116]. Furthermore, while the share capital amount increased as a result of SingTel subscribing shares subsequent to the buy-back, this later subscription does not govern the character of the earlier buy-back [134]. The Court observed that capital or shareholders' capital connotes the value of the assets contributed to the company by those who subscribe for its shares; it is this concept rather than the assets themselves (such as subscription money) that is being referred to. A share capital account is not as such an asset account [94]. The Court distinguished the concept of 'capital' from 'equity'. The latter usually describes a surplus of assets over liabilities. In this case, the debit on the buy-back reserve account was not in form or in substance a charge on contributed equity (or share capital) [95]. The rulings sought and obtained from the Commissioner, the Implementation Agreement and the relevant financial accounts and statements all reflected the commercial, economic, and legal reality that the debit to the buy-back reserve account was not and was not seen to be a reduction or a return of capital. The reduction of capital in 2013 reflected and assumed that prior reality [118]. In relation to section 258E of the Corporations Act 2001, which authorised the reduction in share capital in the present case, the Court observed that the provision does not state or necessarily imply that on a buy-back there is necessarily a reduction of share capital and that the buy-back consideration must all be 'paid for out of share capital'. It only authorises a reduction if some of it is 'paid for out of share capital'. The phrase 'paid for out of share capital' refers to a debiting or charging of share capital of the type identified in Optus' accounts. The concept 'paid for' is not literally referring to payment as such, as a share capital account is not an asset account. The court emphasised this point in addressing the appellant's argument that the absence of any positive equity account (apart from share capital) meant that the amount debited to the buy-back reserve account must have been paid for out of the share capital account and accordingly there had been a reduction of capital also constituted by that debit entry [99].", "ATO_View_of_Decision": "The ATO accepts this decision.", "Administrative_Treatment": "N/A", "Related_Documents": "None | 2017 ATC 20-617 | Former section 6D | Section 159GZZZP | Section 18-70 of Schedule 1 | 2012 ATC 20-361 | (1948) 77 CLR 143", "Legislative_References": "Income Tax Assessment Act 1936 Former section 6D Section 159GZZZP Taxation Administration Act 1953 Section 18-70 of Schedule 1", "Case_References": "Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55 (2012) 84 ATR 1 2012 ATC 20-361 Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD318of2016/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Commissioner of Taxation v Hacon Pty Ltd", "Venue_Reference_No": "QUD 328 of 2017", "Venue": "Federal Court of Australia", "Judgment_Date": "23 November 2017", "Date_Published": "14 September 2018", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The matter was a judicial review of the Commissioner's decision to decline to make a private ruling. | The decision concerns the ability of the Commissioner to exercise his discretion to decline to make a private ruling where the correctness of the ruling would depend on assumptions about future events or other matters. The decision also concerns the interaction between the Commissioner's discretion to so decline and the statutory obligation imposed on the Commissioner to request further information from the ruling applicant.", "Overview_of_Facts": "The taxpayers applied for a private ruling on the application of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) to a proposed restructure of their business. | The Commissioner exercised his discretion under paragraph 357-110(1)(a) of Schedule 1 of the Taxation Administration Act 1953 (TAA 1953) to decline to make a private ruling where the correctness of the ruling would depend on which assumptions were made about a future event or other matter. | In a letter setting out the reasons for his decision to decline to rule, the Commissioner identified a non-exhaustive list of events and matters about which he considered he would have to make assumptions in order to correctly make the private ruling. | The taxpayers applied to the Federal Court for judicial review of the Commissioner's decision. Justice Logan decided the matter in favour of the taxpayers, determining that the Commissioner's letter (together with an earlier letter) evidenced that the Commissioner considered he needed further information to make the private ruling. Accordingly, Justice Logan held that the Commissioner was required to request that information under subsection 357-105(1) of Schedule 1 to the TAA 1953 and failing to do so was an error of law for the purposes of the Administrative Decisions (Judicial Review) Act 1977 and also a jurisdictional error for the purposes of section 39B of the Judiciary Act 1903. | The Commissioner was successful in his appeal of the matter to the Full Federal Court. | Issues decided by the court | Assumptions in making a private ruling | The primary issue before the Full Court was whether the Commissioner was entitled to exercise his discretion under paragraph 357-110(1)(a) of Schedule 1 of the TAA 1953 to decline to make a ruling or whether he was instead required to request further information from the taxpayers pursuant to subsection 357-105(1) of Schedule 1 of the TAA 1953. | The Full Court determined that the obligation in subsection 357-105(1) required the Commissioner to request information from a taxpayer only where the absence of that particular information would otherwise prevent the making of the private ruling. However, the Full Court considered that the obligation to request information did not arise in circumstances where the Commissioner considered the correctness of a private ruling would depend on assumptions about future events or other matters. In those circumstances the Commissioner was entitled either to make those assumptions or to exercise his discretion to decline to rule. | In reaching its conclusion, the Full Court found that each of the seven matters identified in the Commissioner's decision letter may well have been information. However, none of those matters, either individually or collectively, were information of the kind referred to by the words of subsection 357-105(1). That is, although the matters were information, they were not 'information required to make a private ruling' because they were also assumptions about either a future event or other matter and the Commissioner's discretion to decline to rule under paragraph 357-110(1)(a) was therefore enlivened. In other words, subsection 357-105(1) operates, in effect, subject to paragraph 357-110(1)(a). | In reaching this conclusion the Full Court considered there was no strict dichotomy between the word 'information' in subsection 357-105(1) and the word 'assumptions' in paragraph 357-110(1)(a). The word 'information' could include both facts yet to occur and assumptions about future events. Similarly, there was no reason to read 'assumptions' as being limited to events or matters that do not yet exist or are unknown. | Effectiveness of an application for private ruling | By way of obiter dictum, the Full Court rejected an alternative argument advanced by the Commissioner that he was entitled not to deal with the private ruling application on the basis that it did not ask the Commissioner to rule on how he considered a relevant provision would apply to a particular person. | The Full Court considered that an application for private ruling will not of itself be ineffective merely because the Commissioner requires something more to make the ruling requested by the applicant. An application for private ruling is effective if the Commissioner is able to deal with it. In the present case, the Commissioner was able to, and did, deal with the application by way of communicating to the taxpayer the difficulties that he perceived and then giving the taxpayer an opportunity to address those difficulties.", "Issues_Decided": "Assumptions in making a private ruling: The primary issue before the Full Court was whether the Commissioner was entitled to exercise his discretion under paragraph 357-110(1)(a) of Schedule 1 of the TAA 1953 to decline to make a ruling or whether he was instead required to request further information from the taxpayers pursuant to subsection 357-105(1) of Schedule 1 of the TAA 1953. The Full Court determined that the obligation in subsection 357-105(1) required the Commissioner to request information from a taxpayer only where the absence of that particular information would otherwise prevent the making of the private ruling. However, the Full Court considered that the obligation to request information did not arise in circumstances where the Commissioner considered the correctness of a private ruling would depend on assumptions about future events or other matters. In those circumstances the Commissioner was entitled either to make those assumptions or to exercise his discretion to decline to rule. In reaching its conclusion, the Full Court found that each of the seven matters identified in the Commissioner's decision letter may well have been information. However, none of those matters, either individually or collectively, were information of the kind referred to by the words of subsection 357-105(1). That is, although the matters were information, they were not 'information required to make a private ruling' because they were also assumptions about either a future event or other matter and the Commissioner's discretion to decline to rule under paragraph 357-110(1)(a) was therefore enlivened. In other words, subsection 357-105(1) operates, in effect, subject to paragraph 357-110(1)(a). In reaching this conclusion the Full Court considered there was no strict dichotomy between the word 'information' in subsection 357-105(1) and the word 'assumptions' in paragraph 357-110(1)(a). The word 'information' could include both facts yet to occur and assumptions about future events. Similarly, there was no reason to read 'assumptions' as being limited to events or matters that do not yet exist or are unknown. | Effectiveness of an application for private ruling: By way of obiter dictum, the Full Court rejected an alternative argument advanced by the Commissioner that he was entitled not to deal with the private ruling application on the basis that it did not ask the Commissioner to rule on how he considered a relevant provision would apply to a particular person. The Full Court considered that an application for private ruling will not of itself be ineffective merely because the Commissioner requires something more to make the ruling requested by the applicant. An application for private ruling is effective if the Commissioner is able to deal with it. In the present case, the Commissioner was able to, and did, deal with the application by way of communicating to the taxpayer the difficulties that he perceived and then giving the taxpayer an opportunity to address those difficulties.", "ATO_View_of_Decision": "The decision confirms the Commissioner's view that he is entitled to decline to make a private ruling where the correctness of the ruling would depend on assumptions about future events or other matters, and that the Commissioner is not obligated to first request that information from the taxpayer in those circumstances.", "Administrative_Treatment": "The ATO currently intends to publish further guidance for tax officers about the Commissioner's discretion to decline to make a private ruling. | The ATO considers that, where possible, taxpayers should be provided with certainty in respect of prospective arrangements. However, in some circumstances, such as where the application of the law is particularly dependent on assumptions about future events or matters (for example, section 177D of the ITAA 1936) a private ruling may not be an appropriate way for the Commissioner to provide the taxpayer with certainty.", "Related_Documents": "PS LA 2008/3 Provision of advice and guidance by the ATO | 2017 ATC 20-639 | Schedule 1 | Part IVA | Section 177D | The act", "Legislative_References": "Taxation Administration Act 1953 Schedule 1 Subsection 357-105(1) Paragraph 357-110(1)(a) Income Tax Assessment Act 1936 Part IVA Section 177D Administrative Decisions (Judicial Review) Act 1977 The act Judiciary Act 1903 Section 39B", "Case_References": "Bellinz v Commissioner of Taxation (Cth) (1998) 84 FCR 154 Corporate Business Centres International Pty Ltd v Federal Commissioner of Taxation [2004] FCA 458 (2004) 137 FCR 108 CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397 Lamont v Federal Commissioner of Taxation [2005] FCA 513 (2005) 144 FCR 312 Nicovations Australia Pty Ltd v Secretary, Department of Health [2016] FCA 394 (2016) 338 ALR 429", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD328of2017/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Jayasinghe", "Venue_Reference_No": "S27/2016", "Venue": "High Court", "Judgment_Date": "9 August 2017", "Date_Published": "27 March 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a taxpayer held an office in an international organisation within the meaning of subparagraph 6(1)(d)(i) of the International Organisations (Privileges and Immunities) Act 1963 (IOPI Act) such that the taxpayer was entitled to an exemption from taxation on salaries and emoluments received from the international organisation under item 2 of Part 1 of the Fourth Schedule to the IOPI Act.", "Overview_of_Facts": "The taxpayer was engaged as a project manager by the United Nations Office for Project Services (UNOPS) during the 2010 and 2011 income years. | The taxpayer's engagement was set out in a number of agreements. The agreements treated the taxpayer as an independent contractor of UNOPS. The taxpayer was paid a monthly fee by UNOPS upon certification of his work. | The taxpayer argued that his earnings from UNOPS were exempt from taxation under item 2 of Part 1 of the Fourth Schedule to the IOPI Act as he was an officeholder within the meaning of subparagraph 6(1)(d)(i) of the IOPI Act. Further the taxpayer claimed that TD 92/153 applied to him as he was not an expert or consultant and the Commissioner was bound under subsection 357-60(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) to treat him as a person who holds an office in an international organisation. | Regulation 3 of the United Nations (Privileges and Immunities) Regulations 1986 identifies the UN as an international organisation to which the IOPI Act applies. | Paragraph 6(1)(d)(i) of the IOPI Act allows for privileges to be granted to office holders of international organisations. It provides: Subject to this section, the regulations may, either without restriction or to the extent or subject to the conditions prescribed by the regulations: ... (d) confer: (i) upon a person who holds an office in an international organisation to which this Act applies (not being an office prescribed by the regulations to be a high office) all or any of the privileges and immunities specified in Part 1 of the Fourth Schedule; and ... | ... (d) confer: (i) upon a person who holds an office in an international organisation to which this Act applies (not being an office prescribed by the regulations to be a high office) all or any of the privileges and immunities specified in Part 1 of the Fourth Schedule; and ... | (i) upon a person who holds an office in an international organisation to which this Act applies (not being an office prescribed by the regulations to be a high office) all or any of the privileges and immunities specified in Part 1 of the Fourth Schedule; and | The Fourth Schedule to the IOPI Act contains a number of privileges and immunities granted to officers and former officers of international organisations. An exemption from taxation on salaries and emoluments received from international organisations is provided at item 2 of Part 1. | Subsection 357-60(1) of Schedule 1 to the TAA 1953 states that: (1) Subject to subsection (5), a ruling binds the Commissioner in relation to you (whether or not you are aware of the ruling) if: (a) the ruling applies to you; and (b) you rely on the ruling by acting (or omitting to act) in accordance with the ruling. | (1) Subject to subsection (5), a ruling binds the Commissioner in relation to you (whether or not you are aware of the ruling) if: (a) the ruling applies to you; and (b) you rely on the ruling by acting (or omitting to act) in accordance with the ruling. | (a) the ruling applies to you; and (b) you rely on the ruling by acting (or omitting to act) in accordance with the ruling. | TD 92/153 provided at paragraph 2 that: The Department of Foreign Affairs and Trade, who administer the IO(P+I)A and regulations, take the view that the phrase 'person who holds an office' in relation to a prescribed international organisation covers those people who work as employees for that organisation. They do not accept, however, that the phrase includes either: • persons who are locally engaged by the organisation and paid at an hourly rate; or • persons engaged by the organisation as experts or consultants. We agree with those views. | • persons who are locally engaged by the organisation and paid at an hourly rate; or • persons engaged by the organisation as experts or consultants. | Issues decided by the court | The main issues before the High Court were whether: 1. the taxpayer held an office in an international organisation within the meaning of subparagraph 6(1)(d)(i) of the IOPI Act; and 2. TD 92/153 bound the Commissioner to exempt the taxpayer from taxation on the income he received from UNOPS by operation of subsection 357-60(1) of Schedule 1 to the TAA 1953. | 1. the taxpayer held an office in an international organisation within the meaning of subparagraph 6(1)(d)(i) of the IOPI Act; and 2. TD 92/153 bound the Commissioner to exempt the taxpayer from taxation on the income he received from UNOPS by operation of subsection 357-60(1) of Schedule 1 to the TAA 1953. | The High Court unanimously held that the taxpayer did not hold an office in an international organisation and that the taxpayer was engaged as an expert by UNOPS for the purposes of TD 92/153. Accordingly the taxpayer was not exempt from taxation on the income he received from UNOPS. | On the first issue, the Court observed that the word 'office' must be read in its context. When read in context of subsection 6(1) of the IOPI Act, the word 'office' in the composite phrase 'holds an office in an international organisation' cannot be 'defined by reference to permanence or succession' as was the principle relied upon in Great Western Railway Co v Bater [1920] 3 KB 266 at 274 when determining the meaning of 'office' in a different statutory context. [at 31-34] | The Court stated that subparagraph 6(1)(d)(i) of the IOPI Act concerns the incidents of the relationship between a person and an international organisation. The inquiry as to whether a person 'holds an office' should thereby be directed to the 'substance of the terms upon which a person is engaged' and 'the relationship between that engagement and the organisation's performance of its functions'. [at 37] | The Court directed attention to the structure of the organisation and the place of the person within the structure as well as the duties and authority associated with the person's position. It explained that where a person's terms of engagement places them outside the organisational structure and does not provide them with any defined duties or authority in relation to the organisation and its functions, it would be difficult to conclude they held an office within the organisation. [at 38] | The Court explained that this construction of subparagraph 6(1)(d)(i) of the IOPI Act is consistent with the statutory purposes of the IOPI Act as per their decision in Macoun v Commissioner of Taxation [2015] HCA 44, paragraph 54. In particular it is consistent with the way the IOPI Act achieves its purposes by conferring its privileges and immunities not for the benefit of, or personal to, the persons connected with an international organisation, but rather to assist the international organisation in the 'performance of [its] functions'. [at 39] | In considering the incidents of the relationship between the taxpayer and UNOPS, the Court found that the terms of agreement under which the taxpayer was engaged by UNOPS as determinative of the conclusion that the taxpayer did not 'hold on an office' in the UN within the meaning of subparagraph 6(1)(d)(i) of the IOPI Act. [at 42] | On the second issue, the Court found that a natural construction of TD 92/153 precludes a person who is either locally engaged by the organisation and paid at an hourly rate or engaged by the organisation as an expert or consultant from being a 'person who holds an office'. | The Court rejected the Full Federal Court's approach in Federal Commissioner of Taxation v Jayasinghe [2016] FCAFC 79 to TD 92/153 in Jayasinghe v Federal Commissioner of Taxation [2015] AATA 456 of treating the question of whether a person was an employee as the sole criterion. | The Court held that whether the taxpayer was engaged as an expert within the meaning of TD 92/153 depended on the terms of his engagement. Consistent with the examination of the terms of his engagement agreement with UNOPS under the first issue, the Court found that the taxpayer was engaged as an expert. The fact the taxpayer was also engaged to perform the functional role of 'Project Manager' did not prevent such a conclusion. [at 57]", "Issues_Decided": "The main issues before the High Court were whether: 1. the taxpayer held an office in an international organisation within the meaning of subparagraph 6(1)(d)(i) of the IOPI Act; and 2. TD 92/153 bound the Commissioner to exempt the taxpayer from taxation on the income he received from UNOPS by operation of subsection 357-60(1) of Schedule 1 to the TAA 1953. 1. the taxpayer held an office in an international organisation within the meaning of subparagraph 6(1)(d)(i) of the IOPI Act; and 2. TD 92/153 bound the Commissioner to exempt the taxpayer from taxation on the income he received from UNOPS by operation of subsection 357-60(1) of Schedule 1 to the TAA 1953. The High Court unanimously held that the taxpayer did not hold an office in an international organisation and that the taxpayer was engaged as an expert by UNOPS for the purposes of TD 92/153. Accordingly the taxpayer was not exempt from taxation on the income he received from UNOPS. On the first issue, the Court observed that the word 'office' must be read in its context. When read in context of subsection 6(1) of the IOPI Act, the word 'office' in the composite phrase 'holds an office in an international organisation' cannot be 'defined by reference to permanence or succession' as was the principle relied upon in Great Western Railway Co v Bater [1920] 3 KB 266 at 274 when determining the meaning of 'office' in a different statutory context. [at 31-34] The Court stated that subparagraph 6(1)(d)(i) of the IOPI Act concerns the incidents of the relationship between a person and an international organisation. The inquiry as to whether a person 'holds an office' should thereby be directed to the 'substance of the terms upon which a person is engaged' and 'the relationship between that engagement and the organisation's performance of its functions'. [at 37] The Court directed attention to the structure of the organisation and the place of the person within the structure as well as the duties and authority associated with the person's position. It explained that where a person's terms of engagement places them outside the organisational structure and does not provide them with any defined duties or authority in relation to the organisation and its functions, it would be difficult to conclude they held an office within the organisation. [at 38] The Court explained that this construction of subparagraph 6(1)(d)(i) of the IOPI Act is consistent with the statutory purposes of the IOPI Act as per their decision in Macoun v Commissioner of Taxation [2015] HCA 44, paragraph 54. In particular it is consistent with the way the IOPI Act achieves its purposes by conferring its privileges and immunities not for the benefit of, or personal to, the persons connected with an international organisation, but rather to assist the international organisation in the 'performance of [its] functions'. [at 39] In considering the incidents of the relationship between the taxpayer and UNOPS, the Court found that the terms of agreement under which the taxpayer was engaged by UNOPS as determinative of the conclusion that the taxpayer did not 'hold on an office' in the UN within the meaning of subparagraph 6(1)(d)(i) of the IOPI Act. [at 42] On the second issue, the Court found that a natural construction of TD 92/153 precludes a person who is either locally engaged by the organisation and paid at an hourly rate or engaged by the organisation as an expert or consultant from being a 'person who holds an office'. The Court rejected the Full Federal Court's approach in Federal Commissioner of Taxation v Jayasinghe [2016] FCAFC 79 to TD 92/153 in Jayasinghe v Federal Commissioner of Taxation [2015] AATA 456 of treating the question of whether a person was an employee as the sole criterion. The Court held that whether the taxpayer was engaged as an expert within the meaning of TD 92/153 depended on the terms of his engagement. Consistent with the examination of the terms of his engagement agreement with UNOPS under the first issue, the Court found that the taxpayer was engaged as an expert. The fact the taxpayer was also engaged to perform the functional role of 'Project Manager' did not prevent such a conclusion. [at 57]", "ATO_View_of_Decision": "The decision of the High Court is consistent with the Commissioner's view.", "Administrative_Treatment": "The ATO has issued Draft Taxation Ruling TR 2019/D1 Income tax: income of international organisations and persons connected with them that is exempt from income tax to take into account the decisions in this case and Macoun v Commissioner of Taxation [2015] HCA 44 (also concerning exemption of income under the IOPI Act), and the views previously expressed in TD 92/153 and Taxation Ruling TR 92/14. TD 92/153 and TR 92/14 have been withdrawn as a consequence. | TD 92/153 and TR 92/14 have been withdrawn as a consequence. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).", "Related_Documents": "TD 92/153 | TR 92/14 | 2017 ATC 20-627 | Sch 1 357-60 | 6(1)(d)(i) | Fourth Sch Pt 1 | [1920] 3 KB 266 | 2015 ATC 10-398 | 2015 ATC 20-543", "Legislative_References": "Taxation Administration Act 1953 Sch 1 357-60 International Organisations (Privileges and Immunities) Act 1963 6(1)(d)(i) Fourth Sch Pt 1 United Nations (Privileges and Immunities) Regulations 1986 3", "Case_References": "Great Western Railway Co v Bater [1920] 3 KB 266 Jayasinghe v Commissioner of Taxation (2015) 101 ATR 476 [2015] AATA 456 [2017] ALMD 3793 2015 ATC 10-398 Macoun v Commissioner of Taxation [2015] HCA 44 (2015) 102 ATR 263 2015 ATC 20-543 (2015) 257 CLR 519 (2015) 326 ALR 452", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S27/2016/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products."}
{"Case_Name": "Hawkins v Commissioner of Taxation", "Venue_Reference_No": "NSD 986 of 2017", "Venue": "Federal Court of Australia", "Judgment_Date": "24 October 2017", "Date_Published": "25 June 2018", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2017] FCA 1247", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD986of2017/00001", "Unmatched_Content": "Hawkins v Commissioner of Taxation [2017] FCA 1247 | The adverse aspects of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au"}
{"Case_Name": "Lewski v Commissioner of Taxation", "Venue_Reference_No": "VID 1496 of 2016", "Venue": "Federal Court of Australia", "Judgment_Date": "18 September 2017", "Date_Published": "14 December 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned, among other things, the calculation and assessment of trust net income.", "Overview_of_Facts": "The Commissioner determined that certain tax losses were not available in working out the net income of the ACE No 4 Trust (the ACE Trust) and the Arjod Trading Trust (the Arjod Trust) for the income years ended 30 June 2006 and 30 June 2007, respectively. The tax losses of the ACE Trust arose from deductions that the trustees claimed were incurred under contracts entered into on 30 June 1999. The Commissioner considered that the amounts had not been so incurred. | The taxpayer was a beneficiary of both trusts at all relevant times. | On 14 May 2013, the Commissioner issued amended assessments to the taxpayer for the income years ended 30 June 2006 and 30 June 2007 on the basis that she was presently entitled to a share of the income of the ACE Trust (2006) and the Arjod Trust (2007) and thus was assessable on that share of net income (as adjusted) under subsection 97(1) of the Income Tax Assessment Act 1936 (ITAA 1936). | The trustee resolutions appointing the income of each trust were similarly worded and consisted of two parts. • Firstly, under a 'distribution of income' resolution each trustee resolved to pay, apply and set aside the 'income' of the trust. In the 2006 year, the taxpayer was made entitled to 100% of the income of the ACE Trust. In the 2007 year, to the extent that the Arjod Trust had income in excess of $3.5m, she was made entitled to that excess. The trust income was, in each case, determined to include all amounts (including capital gains) taken into account in calculating the net income of the trust. • Secondly, each trustee also resolved that should the Commissioner disallow a deduction or include an amount as assessable income of the trust, there would be a deemed distribution of such amounts to a corporate beneficiary (the 'variation of income' resolution). | • Firstly, under a 'distribution of income' resolution each trustee resolved to pay, apply and set aside the 'income' of the trust. In the 2006 year, the taxpayer was made entitled to 100% of the income of the ACE Trust. In the 2007 year, to the extent that the Arjod Trust had income in excess of $3.5m, she was made entitled to that excess. The trust income was, in each case, determined to include all amounts (including capital gains) taken into account in calculating the net income of the trust. • Secondly, each trustee also resolved that should the Commissioner disallow a deduction or include an amount as assessable income of the trust, there would be a deemed distribution of such amounts to a corporate beneficiary (the 'variation of income' resolution). | On the 5 July 2013, the taxpayer objected to the amended assessments and those objections were determined on 9 July 2015. The taxpayer purported to disclaim her entitlements in the ACE and Arjod Trusts on 15 December 2015, some three months after she had initiated proceedings in the AAT. | The Commissioner was successful before the Tribunal ( TVKS and Commissioner of Taxation [2016] AATA 1010 (Forgie DP)). The taxpayer appealed to the Federal Court. The appeal was heard by the Full Court. | Issues decided by the court | The issues before the Court included: a) whether amounts payable under certain contracts were incurred on 30 June 1999 by the trustee of the ACE Trust (Incurred Issue), and b) whether the trustee resolutions created in the taxpayer a present entitlement to income of the trusts as at 30 June (Trust Resolution Issue). | a) whether amounts payable under certain contracts were incurred on 30 June 1999 by the trustee of the ACE Trust (Incurred Issue), and b) whether the trustee resolutions created in the taxpayer a present entitlement to income of the trusts as at 30 June (Trust Resolution Issue). | Depending on the view taken in respect of the previous issues and whether leave was granted to the taxpayer to raise new grounds, the following issues also arose: c) whether the taxpayer had effectively disclaimed her entitlements under the trusts by executing the deeds of disclaimer (Disclaimer Issue), and d) whether a resolution made by the trustee of the ACE Trust with respect to the 2006 year to distribute 'income' rather than the 'net income' (defined in the deed to mean the tax net income) was authorised by the trust deed or was made ultra vires ( Ultra Vires Issue). | c) whether the taxpayer had effectively disclaimed her entitlements under the trusts by executing the deeds of disclaimer (Disclaimer Issue), and d) whether a resolution made by the trustee of the ACE Trust with respect to the 2006 year to distribute 'income' rather than the 'net income' (defined in the deed to mean the tax net income) was authorised by the trust deed or was made ultra vires ( Ultra Vires Issue). | The Tribunal had refused the taxpayer leave under section 14ZZK of the Taxation Administration Act 1953 (TAA) to argue the disclaimer and ultra vires issues. | Incurred Issue | The Court found that the relevant amounts were incurred for the purposes of subsection 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) upon the execution of the contracts on 30 June 1999 rather than on 31 October 1999 (the 'Settlement Date' / 'Completion Date'). Accordingly, those amounts properly contributed to tax losses that were carried forward from the 1999 year and were available to reduce the net income of the ACE Trust in 2006. | Trust Resolution Issue | The Court first considered whether the 'variation of income' resolutions were authorised by the trust deeds. The Court 'incline[d] to the view' that it was open to the trustees of each trust to distribute all or part of the net income of the trusts on alternative bases. | The Court rejected the Commissioner's position that the distribution and variation of income resolutions should be read as separate and sequential as a matter of construction such that the variation of income resolution had no work to do because all of the income had been dealt with by the distribution resolution. | In the Court's view the resolutions were interdependent with the result that the taxpayer's trust law entitlement to income under the distribution resolution was contingent, since it depended on the occurrence of an event that may or may not take place (namely the disallowance of a deduction or the inclusion of additional assessable income). If the Commissioner included an additional amount in the trust's assessable income, that amount (as trust income) went to another entity, not the taxpayer. Consequently, although the resolutions created an income entitlement in the taxpayer for trust purposes, the taxpayer did not have a vested and indefeasible interest in any income of the trusts as at 30 June and therefore was not presently entitled to any trust income for the purposes of subsection 97(1) of the ITAA 1936. | If the 'variation of income' resolution was not validly made, the Court considered that the result for the taxpayer would be unchanged because the variation of income resolution could not be severed from the distribution resolution. That is, the interdependence of the two resolutions would cause both to fail, with the consequence that the taxpayer had no vested and indefeasible interest in any income of the trusts as at 30 June. | Leave to raise new grounds Issue | Ultimately it was unnecessary for the Court to determine whether the Tribunal was wrong to decline to permit the taxpayer to rely on grounds other than those raised in the objection. The Court expressed doubt that the Commissioner's inability to raise an assessment against, or recover from, another taxpayer should weigh heavily in the decision not to grant leave. The Court observed that this would seem ordinarily to be outside the range of considerations for the grant of leave. The Court also observed that it was difficult to see how the Commissioner was prejudiced by the introduction of the new contention in relation to the Ultra Vires issue, as the taxpayer raised it several months prior to the Tribunal hearing. | Disclaimer Issue | Although it was not necessary to decide the matter, the Court observed that the taxpayer had not validly disclaimed her trust entitlements due to the passage of time that had elapsed between her becoming aware of them and the date of the purported disclaimer. | In that regard, the taxpayer was taken to have gained knowledge of her entitlements when her 'agent' did. The Court noted that it was open for the Tribunal to find that the taxpayer had given 'unfettered' authority to her husband to handle all of her financial affairs and act as her agent in relation to them. As her husband participated in the making of the resolutions that created the taxpayer's entitlements, the taxpayer had knowledge of them from the 2006 and 2007 years. | Ultra Vires Issue | When read in context with the trust deed and the previous resolutions, the correct construction of the 'distribution of income' resolution was that the trustee's intention in dealing with 'income' under the resolutions was to distribute the 'net income' of the trust. Where there is the possibility of two constructions, one of which results in validity and the other invalidity, the Court considered it in accordance with established principle that the construction which preserves validity is to be preferred.", "Issues_Decided": "The issues before the Court included: a) whether amounts payable under certain contracts were incurred on 30 June 1999 by the trustee of the ACE Trust (Incurred Issue), and b) whether the trustee resolutions created in the taxpayer a present entitlement to income of the trusts as at 30 June (Trust Resolution Issue). a) whether amounts payable under certain contracts were incurred on 30 June 1999 by the trustee of the ACE Trust (Incurred Issue), and b) whether the trustee resolutions created in the taxpayer a present entitlement to income of the trusts as at 30 June (Trust Resolution Issue). Depending on the view taken in respect of the previous issues and whether leave was granted to the taxpayer to raise new grounds, the following issues also arose: c) whether the taxpayer had effectively disclaimed her entitlements under the trusts by executing the deeds of disclaimer (Disclaimer Issue), and d) whether a resolution made by the trustee of the ACE Trust with respect to the 2006 year to distribute 'income' rather than the 'net income' (defined in the deed to mean the tax net income) was authorised by the trust deed or was made ultra vires ( Ultra Vires Issue). c) whether the taxpayer had effectively disclaimed her entitlements under the trusts by executing the deeds of disclaimer (Disclaimer Issue), and d) whether a resolution made by the trustee of the ACE Trust with respect to the 2006 year to distribute 'income' rather than the 'net income' (defined in the deed to mean the tax net income) was authorised by the trust deed or was made ultra vires ( Ultra Vires Issue). The Tribunal had refused the taxpayer leave under section 14ZZK of the Taxation Administration Act 1953 (TAA) to argue the disclaimer and ultra vires issues. | Incurred Issue: The Court found that the relevant amounts were incurred for the purposes of subsection 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) upon the execution of the contracts on 30 June 1999 rather than on 31 October 1999 (the 'Settlement Date' / 'Completion Date'). Accordingly, those amounts properly contributed to tax losses that were carried forward from the 1999 year and were available to reduce the net income of the ACE Trust in 2006. | Trust Resolution Issue: The Court first considered whether the 'variation of income' resolutions were authorised by the trust deeds. The Court 'incline[d] to the view' that it was open to the trustees of each trust to distribute all or part of the net income of the trusts on alternative bases. The Court rejected the Commissioner's position that the distribution and variation of income resolutions should be read as separate and sequential as a matter of construction such that the variation of income resolution had no work to do because all of the income had been dealt with by the distribution resolution. In the Court's view the resolutions were interdependent with the result that the taxpayer's trust law entitlement to income under the distribution resolution was contingent, since it depended on the occurrence of an event that may or may not take place (namely the disallowance of a deduction or the inclusion of additional assessable income). If the Commissioner included an additional amount in the trust's assessable income, that amount (as trust income) went to another entity, not the taxpayer. Consequently, although the resolutions created an income entitlement in the taxpayer for trust purposes, the taxpayer did not have a vested and indefeasible interest in any income of the trusts as at 30 June and therefore was not presently entitled to any trust income for the purposes of subsection 97(1) of the ITAA 1936. If the 'variation of income' resolution was not validly made, the Court considered that the result for the taxpayer would be unchanged because the variation of income resolution could not be severed from the distribution resolution. That is, the interdependence of the two resolutions would cause both to fail, with the consequence that the taxpayer had no vested and indefeasible interest in any income of the trusts as at 30 June. | Leave to raise new grounds Issue: Ultimately it was unnecessary for the Court to determine whether the Tribunal was wrong to decline to permit the taxpayer to rely on grounds other than those raised in the objection. The Court expressed doubt that the Commissioner's inability to raise an assessment against, or recover from, another taxpayer should weigh heavily in the decision not to grant leave. The Court observed that this would seem ordinarily to be outside the range of considerations for the grant of leave. The Court also observed that it was difficult to see how the Commissioner was prejudiced by the introduction of the new contention in relation to the Ultra Vires issue, as the taxpayer raised it several months prior to the Tribunal hearing. | Disclaimer Issue: Although it was not necessary to decide the matter, the Court observed that the taxpayer had not validly disclaimed her trust entitlements due to the passage of time that had elapsed between her becoming aware of them and the date of the purported disclaimer. In that regard, the taxpayer was taken to have gained knowledge of her entitlements when her 'agent' did. The Court noted that it was open for the Tribunal to find that the taxpayer had given 'unfettered' authority to her husband to handle all of her financial affairs and act as her agent in relation to them. As her husband participated in the making of the resolutions that created the taxpayer's entitlements, the taxpayer had knowledge of them from the 2006 and 2007 years. | Ultra Vires Issue: When read in context with the trust deed and the previous resolutions, the correct construction of the 'distribution of income' resolution was that the trustee's intention in dealing with 'income' under the resolutions was to distribute the 'net income' of the trust. Where there is the possibility of two constructions, one of which results in validity and the other invalidity, the Court considered it in accordance with established principle that the construction which preserves validity is to be preferred.", "ATO_View_of_Decision": "In relation to the 'variation of income' resolution issue, it was open to the Court to find that the taxpayer was not presently entitled at 30 June 2006 and 30 June 2007 to any trust income as a matter of construction of the relevant resolutions and deeds. The decision highlights that trustee resolutions may not produce the results that were anticipated at the time they were made. We anticipate that in contested cases involving 'variation of income' resolutions we will have to raise a number of alternative assessments to deal with the range of possible interpretations of the relevant deed and resolutions. | The ATO considers that the inability to issue an assessment against another taxpayer may be a relevant consideration for the grant of leave to raise new grounds of objection under sections 14ZZK and 14ZZO of the TAA. In appropriate cases we will continue to argue against the grant of leave where it is considered that there is a relevant prejudice to the Commissioner. | The ATO will seek to test the position about the consequence of a valid disclaimer in other cases.", "Administrative_Treatment": "We are considering the changes that may need to be made to Taxation Determination TD 2012/22 (in particular Examples 6 and 7) in light of the decision regarding the 'variation of income' resolution. Outcomes may vary depending on whether income entitlements are expressed as a percentage share or a specific amount and also whether a variation resolution seeks to deal with both decreases and increases by the Commissioner. | Having determined the proper construction of the resolutions before it, the Court did not go on to identify how it considered the net income fell to be assessed. We think that where a resolution is a valid exercise of a trustee's power to deal with income under the deed but operates to create an entitlement for trust purposes that is not vested and indefeasible as at year end, there will be no scope for a default beneficiary clause to operate. The result would seem to be an assessment of the trustee under section 99A of the ITAA 1936. | We will consult with practitioners on any changes to the Determination.", "Related_Documents": "ATO ID 2010/85 | 2017 ATC 20-630 | 8-1(1) | 95 | 97(1) | 99A | 14ZZK | 14ZZO", "Legislative_References": "Income Tax Assessment Act 1997 8-1(1) Income Tax Assessment Act 1936 95 97(1) 99A Taxation Administration Act 1953 14ZZK 14ZZO", "Case_References": "Aon Risk Services Australia Pty Ltd v Australian National University [2009] HCA 27 (2009) 239 CLR 253 BRK (Bris) Pty Ltd v Federal Commissioner of Taxation (2001) 46 ATR 347 Commissioner of Taxation (Cth) v CityLink Melbourne Ltd [2006] HCA 35 (2006) 228 CLR 1 Commissioner of Taxation v Raymor (NSW) Pty Ltd (1990) 24 FCR 90 Commissioner of Taxation v Woolcombers (WA) Pty Ltd (1993) 47 FCR 561 Federal Commissioner of Taxation v Malouf [2009] FCAFC 44 (2009) 174 FCR 581 Federal Commissioner of Taxation v Ramsden [2005] FCAFC 39 (2005) 58 ATR 485 JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd [1985] VR 891 Lighthouse Philatelics Pty Ltd v Commissioner of Taxation (1991) 32 FCR 148 Nemesis Australia Pty Ltd v Commissioner of Taxation [2005] FCA 1273 (2005) 150 FCR 152 Ramsden v Federal Commissioner of Taxation [2004] FCA 632 (2004) 56 ATR 42 TVKS and Commissioner of Taxation [2016] AATA 1010 Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415 Whitlock v Brew [1968] HCA 71 (1968) 118 CLR 445", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1496of2016/00001", "Unmatched_Content": ""}
{"Case_Name": "MSAUS Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "2012/1228; 2012/1265", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 August 2017", "Date_Published": "17 December 2018", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which decides that certain purchasers of residential premises in a property development did not have increasing adjustments for GST purposes, despite the Full Federal Court holding otherwise in an earlier case.", "Overview_of_Facts": "MSAUS bought residential premises subject to an existing lease, agreeing the supply was GST-free as a going concern. If the lease was input taxed however, special conditions in the contract sought to apply the margin scheme. The Full Federal Court and the High Court had previously considered the GST consequences surrounding the sale of other leased residential premises in the same development. In South Steyne [1] , the Full Federal Court held that identical conditions were ineffective to apply the margin scheme. The AAT had also reached a similar conclusion in the Hotel Apartment Purchaser case. [2] In MBI Properties , the High Court found that a different purchaser in the same circumstances made an input taxed supply and was subject to an increasing adjustment. [3] Unlike the other decided cases, MSAUS and the vendor later entered into 'deeds of rectification' to remove retrospectively the going concern clause from their sale contract. | Issues decided by the tribunal | The AAT decided it wasn't bound by South Steyne . It held that the special conditions were effective to apply the margin scheme, and that there was no increasing adjustment. Incidental comments were made about the 'deeds of rectification'. | Rectification by order - McCabe DP commented on a 2016 deed seeking to rectify the sale contract made 10 years earlier. He said it 'would have been preferable' had MSAUS sought orders from the Supreme Court. Orders of this kind would rectify the sale contract retrospectively, 'bind third parties', and avoid the 'current uncertainty'. [4] However, McCabe DP accepted there was no certainty a court would have ordered rectification in the circumstances of the MSAUS case, 'especially if the Commissioner opposed that outcome'. [5] | Rectification by deed - McCabe DP said that, even if the contract could be rectified by deed, it was an 'interesting question' as to how margin scheme requirements could be met in any case. [6]", "Issues_Decided": "The AAT decided it wasn't bound by South Steyne . It held that the special conditions were effective to apply the margin scheme, and that there was no increasing adjustment. Incidental comments were made about the 'deeds of rectification'. Rectification by order - McCabe DP commented on a 2016 deed seeking to rectify the sale contract made 10 years earlier. He said it 'would have been preferable' had MSAUS sought orders from the Supreme Court. Orders of this kind would rectify the sale contract retrospectively, 'bind third parties', and avoid the 'current uncertainty'. [4] However, McCabe DP accepted there was no certainty a court would have ordered rectification in the circumstances of the MSAUS case, 'especially if the Commissioner opposed that outcome'. [5] Rectification by deed - McCabe DP said that, even if the contract could be rectified by deed, it was an 'interesting question' as to how margin scheme requirements could be met in any case. [6]", "ATO_View_of_Decision": "Despite the tension between this decision upholding the effectiveness of the margin scheme conditions unmodified by the rectification deeds, and the decisions finding identical conditions ineffective in South Steyne and Hotel Apartment Purchaser [7] , the broader public interest is not served by an appeal. Clarification of how the special conditions in the MSAUS contract operated is unlikely to assist the community, given the consideration already given to them in other decided cases. Additionally, the High Court's decision in MBI Properties, that purchasers of leased residential premises make supplies by way of lease and can be subject to increasing adjustments, remains binding authority of general application notwithstanding this decision. | Further, as the Commissioner understands it, 'rectification by deed' for the purpose of changing how the tax law has applied to an earlier transaction is not established as a general principle. [8] Accordingly, the Commissioner is not bound to accept at face value a deed of this kind executed by private parties. In the absence of court orders, the public interest does not compel the Commissioner unilaterally agreeing to change how the tax law has already applied to an earlier transaction. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation [2009] FCAFC 155 (at [3, 50]). | [2] Hotel Apartment Purchaser v Commissioner of Taxation [2013] AATA 567. | [3] Federal Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49 (at [46]). | [4] MSAUS Pty Ltd v Commissioner of Taxation [2017] AATA 1408 (at [41]). | [5] Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 (at 384), CSD v Carlenka Pty Ltd (1995) 41 NSWLR 329 (at 345), cited. | [6] MSAUS Pty Ltd v Commissioner of Taxation [2017] AATA 1408 (at [44]), Davis v Federal Commissioner of Taxation [2000] FCA 44 (at [57]), quoted. | [7] Hotel Apartment Purchaser v Commissioner of Taxation [2013] AATA 567. | [8] cf Baxter v Federal Commissioner of Taxation [2002] FCA 1256 (at [25-26]), Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184 (at [10, 148-149]).", "Administrative_Treatment": "", "Related_Documents": "None | 2017 ATC 10-463 | 38-325 | 75-5 | 135-5 | 2014 ATC 20-474 | 2009 ATC 20-145 | 2002 ATC 4917 | 2000 ATC 4201 | 2013 ATC 1-055", "Legislative_References": "ANTS(GST)A 1999 38-325 75-5 135-5", "Case_References": "Federal Commissioner of Taxation v MBI Properties Pty Ltd (2014) 254 CLR 376 [2014] HCA 49 92 ATR 241 2014 ATC 20-474 South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation (2009) 180 FCR 409 [2009] FCA 13 2009 ATC 20-145 74 ATR 41 Baxter v Federal Commissioner of Taxation [2002] FCA 1256 2002 ATC 4917 (2002) 51 ATR 209 Davis v Federal Commissioner of Taxation [2000] FCA 44 2000 ATC 4201 (2000) 44 ATR 140 Re Hotel Apartment Purchaser and Federal Commissioner of Taxation 2013 ATC 1-055 [2013] AATA 567 Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184 Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 CSD v Carlenka Pty Ltd (1995) 41 NSWLR 329", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/1228/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Panayi v Deputy Commissioner of Taxation", "Venue_Reference_No": "S152 of 2017", "Venue": "Supreme Court", "Judgment_Date": "14 September 2017", "Date_Published": "14 March 2018", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns the application of the lockdown director penalties provisions as introduced by the Tax Laws Amendment Act 2012.", "Overview_of_Facts": "The ATO commenced proceedings to recover liabilities due under the director penalty regime against the taxpayer in his capacity as director of a company. The taxpayer defended the proceedings on grounds inter alia that he was not a director of the company at the relevant time and that the liability had been remitted when members of the company resolved that it be wound up voluntarily. The success of this argument depended on the application of section 269-30 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA) in its unamended form as in force before 30 June 2012. | The primary judge applying the decision of the Western Australian Court of Appeal in Roche v Deputy Commissioner of Taxation [2015] WASCA 196 at [56] -[58], rejected the arguments and held that the amended form of section 269-30 of Schedule 1 to the TAA applied to the appellant's penalty because the appellant, as a director of the company, did not stop being under the relevant obligation under section 269-15 of Schedule 1 to the TAA until after 30 June 2012, the date of commencement of item 9 of the Tax Laws Amendment Act 2012. Applying that section as amended, subsection (1) did not apply to effect a remission of the appellant's penalty because the company did not give the Commissioner any notification under section 16-150 of Schedule 1 to the TAA within the period of three months after the due date for the payment of any of the withheld amounts. | Issues decided by the court | The issue in the appeal as relevant to the special leave application was limited to: • whether the primary judge erred in applying the amended form of section 269-30 of Schedule 1 to the TAA. | • whether the primary judge erred in applying the amended form of section 269-30 of Schedule 1 to the TAA. | The Court of Appeal held that an amendment that prospectively alters a person's unexercised opportunity to have a liability remitted does not engage the common law presumption that statutes do not have a retrospective operation. | The High Court refused to grant special leave and dismissed the application with costs.", "Issues_Decided": "The issue in the appeal as relevant to the special leave application was limited to: • whether the primary judge erred in applying the amended form of section 269-30 of Schedule 1 to the TAA. • whether the primary judge erred in applying the amended form of section 269-30 of Schedule 1 to the TAA. The Court of Appeal held that an amendment that prospectively alters a person's unexercised opportunity to have a liability remitted does not engage the common law presumption that statutes do not have a retrospective operation. The High Court refused to grant special leave and dismissed the application with costs.", "ATO_View_of_Decision": "The decision accords with the ATO's view of the application of the lockdown director penalties provisions as introduced by the Tax Laws Amendment Act 2012.", "Administrative_Treatment": "", "Related_Documents": "None | 2017 ATC 20-618 | 56 | 5B | 206F | 533 | 1274B | 3 | 59 | 69 | 91 | 269-15 | 269-20 | 269-30 | 269-35 | Sch 1 | 51.38 | 51.53 | 2000 ATC 4141 | 2011 ATC 20-265 | [2000] NSWCA 29", "Legislative_References": "Civil Procedure Act 2005 (NSW) 56 Corporations Act 2001 5B 206F 533 1274B Evidence Act 1995 (NSW) 3 59 69 91 Taxation Administration Act 1953 269-15 269-20 269-30 269-35 Tax Laws Amendment (2012 Measures No 2) Act 2012 3 Sch 1 Div 3 Items 8, 9 Uniform Civil Procedure Rules 2005 (NSW) 51.38 51.53", "Case_References": "Abbott v Minister for Lands [1895] AC 425 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 [2009] HCA 41 Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15 (1993) 177 CLR 485 Colley v Futurebrand FHA Pty Ltd (2005) 63 NSWLR 291 [2005] NSWCA 223 Deputy Commissioner of Taxation of the Commonwealth of Australia v Woodhams (2000) 199 CLR 370 [2000] HCA 10 (2000) 43 ATR 757 2000 ATC 4141 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 Federal Commissioner of Taxation v SNF (Australia) Pty Ltd (2011) 193 FCR 149 [2011] FCAFC 74 2011 ATC 20-265 (2011) 82 ATR 680 Gray t/as Clarence Valley Plumbing Services v Ware Building Pty Ltd [2013] NSWCA 271 Maxwell v Murphy [1957] HCA 7 (1957) 96 CLR 261 Perish v R (2016) 92 NSWLR 161 [2016] NSWCCA 89 Roche v Deputy Commissioner of Taxation [2015] WASCA 196 Seltsam Pty Ltd v McGuinness (2000) 49 NSWLR 262 [2000] NSWCA 29", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S152of2017/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Uber B.V. v Commissioner of Taxation", "Venue_Reference_No": "NSD 904/2015", "Venue": "Federal Court of Australia", "Judgment_Date": "17 February 2017", "Date_Published": "17 February 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2017 ATC 20-608", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD904/2015/00001", "Unmatched_Content": "Uber B.V. v Commissioner of Taxation [2017] FCA 110 2017 ATC 20-608 | The decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Whitby Land Company Pty Ltd (Trustee) v Deputy Commissioner of Taxation", "Venue_Reference_No": "NSD 54 of 2016", "Venue": "Federal Court of Australia", "Judgment_Date": "30 January 2017", "Date_Published": "14 December 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to the case which concerns the validity of assessments issued to a trustee.", "Overview_of_Facts": "The applicant was the trustee of a discretionary trust. Because the Commissioner had insufficient information to determine whether beneficiaries were presently entitled to all of the trust income for the 2011 to 2014 income years, the Commissioner issued alternative assessments. In respect of each of those years the trustee was assessed under section 99A and section 98 of the Income Tax Assessment Act 1936 (ITAA 1936). | The trustee challenged the validity of the Commissioner's assessment under section 39 of the Judiciary Act 1903 on the basis that the assessments were 'tentative and provisional' because they imposed two different liabilities on the applicant in its single capacity as trustee of the trust. | Issues decided by the court | The Court ruled that the assessments were valid. | The Court rejected the fundamental premise of the applicant's case which was that the assessments of it were an exercise of power under section 166 of the ITAA 1936. Because the assessment of a trustee does not involve the assessment of taxable income (within the meaning of section 4-15 of the Income Tax Assessment Act 1997 (ITAA 1997) section 166 cannot be engaged. Rather the Court characterised sections 98 and 99 of the ITAA 1936 as provisions under which a trustee is made liable to pay tax and found that the power to raise assessments under these provisions stems from section 169 of the ITAA 1936. | Further the Court held that the strictures of 'one income, one taxpayer, one tax' are not engaged by the scheme embodied in Division 6 of the ITAA 1936 in respect of the liabilities of a trustee. | The Court also stated that the making of alternative assessments to address two possible factual scenarios did not make the assessments 'tentative and provisional'. It is the uncertainty with regard to the operation of the trust which the Commissioner hedged by issuing alternative assessments, but the net trust income and amount of income tax payable were clearly specified under each assessment. The 'primary' assessments were based on the assumption that beneficiaries were all presently entitled. The 'alternative' assessments were protective measures in the event that the original view of how the trust operated proved to be incorrect.", "Issues_Decided": "The Court ruled that the assessments were valid. The Court rejected the fundamental premise of the applicant's case which was that the assessments of it were an exercise of power under section 166 of the ITAA 1936. Because the assessment of a trustee does not involve the assessment of taxable income (within the meaning of section 4-15 of the Income Tax Assessment Act 1997 (ITAA 1997) section 166 cannot be engaged. Rather the Court characterised sections 98 and 99 of the ITAA 1936 as provisions under which a trustee is made liable to pay tax and found that the power to raise assessments under these provisions stems from section 169 of the ITAA 1936. Further the Court held that the strictures of 'one income, one taxpayer, one tax' are not engaged by the scheme embodied in Division 6 of the ITAA 1936 in respect of the liabilities of a trustee. The Court also stated that the making of alternative assessments to address two possible factual scenarios did not make the assessments 'tentative and provisional'. It is the uncertainty with regard to the operation of the trust which the Commissioner hedged by issuing alternative assessments, but the net trust income and amount of income tax payable were clearly specified under each assessment. The 'primary' assessments were based on the assumption that beneficiaries were all presently entitled. The 'alternative' assessments were protective measures in the event that the original view of how the trust operated proved to be incorrect.", "ATO_View_of_Decision": "The Court's decision is consistent with the Commissioner's view of the law. The Commissioner will continue to issue assessments under sections 98, 99, and 99A of the ITAA 1936 as appropriate, in accordance with the position in PS LA 2006/7.", "Administrative_Treatment": "None.", "Related_Documents": "None | 2017 ATC 20-605 | 6 | 95AAA | 96 - 97 | 98 - 98B | 99 | 99A | 100 | 102 | 161AA | 166 | 167 | 169 | 170 | 173 - 175A | 177 | 254 | 4-1 | 4-10 | 4-15 | 9-1 | 960-100 | 995-1 | 12 | 28 | The Act | (1944) 70 CLR 362 | (1928) 42 CLR 39 | [1930] HCA 45 | (1948) 77 CLR 78 | (1926) 37 CLR 368 | (1932) 48 CLR 192 | Law Administration Practice Statement 2006/7", "Legislative_References": "Income Tax Assessment Act 1936 6 95AAA 96 - 97 98 - 98B 99 99A 100 102 161AA 166 167 169 170 173 - 175A 177 254 Income Tax Assessment Act 1997 4-1 4-10 4-15 9-1 960-100 995-1 Income Tax Rates Act 1986 12 28 Judiciary Act 1903 39B Taxation Administration Act 1953 The Act", "Case_References": "Cadbury-Fry-Pascall Pty Ltd v Commissioner of Taxation [1944] HCA 31 (1944) 70 CLR 362 Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55 (2012) 250 CLR 503 Commissioner of Taxation v Futuris Corp Ltd [2008] HCA 32 (2008) 237 CLR 146 Commissioner of Taxation v Hoffnung & Co Ltd (1928) 42 CLR 39 Commissioner of Taxation v Stokes [1996] FCA 1128 (1996) 72 FCR 160 Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23 (1995) 183 CLR 168 Federal Commissioner of Taxation v Prestige Motors Pty Ltd [1994] HCA 39 (1994) 181 CLR 1 Futuris Corporation Ltd v Commissioner of Taxation [2007] FCAFC 93 (2007) 159 FCR 257 Howey v Commissioner of Taxation [1930] HCA 45 (1930) 44 CLR 289 Lever Bros Pty Ltd v Commissioner of Taxation [1948] HCA 25 (1948) 77 CLR 78 Prestige Motors Pty Ltd v Commissioner of Taxation [1993] FCA 580 (1993) 47 FCR 138 R v Deputy Federal Commissioner of Taxation (SA); ex parte Hooper [1926] HCA 3 (1926) 37 CLR 368 Richardson v Commissioner of Taxation [1932] HCA 67 (1932) 48 CLR 192 Syme v Commissioner of Taxes [1914] AC 1013 Trustees, Executors & Agency Co Ltd v Commissioner of Land Tax [1915] HCA 35 (1915) 20 CLR 21 William Kuhnel & Co Ltd v Deputy Commissioner of Taxation (SA) [1923] ArgusLawRp 104 (1923) 33 CLR 349", "Subject_References": "", "Other_References": "Law Administration Practice Statement 2006/7", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD54of2016/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "BCI Finances Pty Limited (In Liquidation) & Ors v Binetter (No 4)", "Venue_Reference_No": "SAD 5 of 2015", "Venue": "Federal Court of Australia", "Judgment_Date": "18 November 2016", "Date_Published": "9 February 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2016] FCA 1351", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/SAD5of2015/00001", "Unmatched_Content": "BCI Finances Pty Limited (In Liquidation) & Ors v Binetter (No 4) [2016] FCA 1351 | The adverse aspects of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au"}
{"Case_Name": "Bell Group NV (in Liquidation) & Anor v The State of Western Australia", "Venue_Reference_No": "S248/2015, P63/2015 and P4/2016", "Venue": "High Court", "Judgment_Date": "16 May 2016", "Date_Published": "24 June 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns the validity of the Bell Group Companies (Finalisation of Matters and Distribution Proceeds) Act 2015 (the Bell Act).", "Overview_of_Facts": "In November 2015 the Parliament of Western Australia enacted the Bell Act - an 'Act to provide a legislative framework for the dissolution, and administration of the property, of The Bell Group Ltd (In Liquidation) and certain of its subsidiaries and for related purposes'. | When the Bell Act was enacted, each WA Bell Company was in liquidation or deregistered. | None of the windings up of the companies in liquidation had concluded prior to 27 November 2015, which was the day on which Part 3 of the Bell Act came into operation. | The Plaintiffs each brought proceedings stating a special case and questions of law arising for the opinion of the Full Court under rule 27.08.1 of the High Court Rules 2004 (Cth). | The questions of law included whether the Bell Act or certain provisions of the Bell Act are invalid by the operation of section 109 of the Constitution because of inconsistency with one or more provisions of the Income Tax Assessment Act 1936 (ITAA 1936), the Taxation Administration Act 1953 (TAA), the Corporations Act 2001 and subsection 39(2) of the Judiciary Act 1903. | The Commissioner of Taxation sought, and was granted, leave to intervene in each proceedings in relation to the questions of inconsistency between the Bell Act and the Tax Acts. | The Attorney-General of the Commonwealth intervened pursuant to section 78A of the Judiciary Act 1903 in each proceeding. | Issues decided by the court | Having found that the plaintiffs had standing to seek relief in respect of the alleged invalidity of the Bell Act, the High Court found that the Bell Act was invalid in its entirety. | The High Court unanimously held that the Bell Act was invalid because of section 109 inconsistency with Commonwealth taxation laws. | The plurality of 6 justices held that the Bell Act is inconsistent with: • section 177 of the ITAA 1936 (now Item 2 of the table in subsection 350-10(1) of the TAA); • sections 208 and 29 of the ITAA 1936 (now section 255-5 of Schedule 1 to the TAA); • section 215 of the ITAA 1936 (now section 260-5 of Schedule 1 to the TAA); • section 254 of the ITAA 1936. | • section 177 of the ITAA 1936 (now Item 2 of the table in subsection 350-10(1) of the TAA); • sections 208 and 29 of the ITAA 1936 (now section 255-5 of Schedule 1 to the TAA); • section 215 of the ITAA 1936 (now section 260-5 of Schedule 1 to the TAA); • section 254 of the ITAA 1936. | His Honour Justice Gageler decided the case on the basis that the Bell Act is inconsistent with sections 215 and 254 of the ITAA 1936, without needing to address other possible grounds of inconsistency with Commonwealth taxation laws.", "Issues_Decided": "Having found that the plaintiffs had standing to seek relief in respect of the alleged invalidity of the Bell Act, the High Court found that the Bell Act was invalid in its entirety. The High Court unanimously held that the Bell Act was invalid because of section 109 inconsistency with Commonwealth taxation laws. The plurality of 6 justices held that the Bell Act is inconsistent with: • section 177 of the ITAA 1936 (now Item 2 of the table in subsection 350-10(1) of the TAA); • sections 208 and 29 of the ITAA 1936 (now section 255-5 of Schedule 1 to the TAA); • section 215 of the ITAA 1936 (now section 260-5 of Schedule 1 to the TAA); • section 254 of the ITAA 1936. • section 177 of the ITAA 1936 (now Item 2 of the table in subsection 350-10(1) of the TAA); • sections 208 and 29 of the ITAA 1936 (now section 255-5 of Schedule 1 to the TAA); • section 215 of the ITAA 1936 (now section 260-5 of Schedule 1 to the TAA); • section 254 of the ITAA 1936. His Honour Justice Gageler decided the case on the basis that the Bell Act is inconsistent with sections 215 and 254 of the ITAA 1936, without needing to address other possible grounds of inconsistency with Commonwealth taxation laws.", "ATO_View_of_Decision": "The Commissioner sought and was granted, leave to intervene in each proceeding in relation to the question of inconsistency between the Bell Act and the Commonwealth Taxation Acts. | The Commissioner notes the decision of the Court is consistent with the submissions to the Court made by the Commonwealth Solicitor-General on his behalf.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | None. | Implications for impacted Law Administration Practice Statements | None.", "Related_Documents": "None | [2016] HCA 21 | 177 | 254 | Schedule 1; 350-10(1) | Schedule 1; 260-45 | 2008 ATC 20-039 | 2009 ATC 20-125 | 2015 ATC 20-548", "Legislative_References": "Constitution 109 Income Tax Assessment Act 1936 177 208 209 215 254 Taxation Administration Act 1953 Schedule 1; 350-10(1) Schedule 1; 260-45 Schedule 1; 350-10(1) Bell Group Companies (Finalisation of Matters and Distributions of Proceeds) Act 2015 (WA)", "Case_References": "Jemena Asset Management (3) Pty Ltd v Coinvest Ltd (2011) 244 CLR 508 Victoria v The Commonwealth (\"The Kakariki\") (1937) 58 CLR 618 [1937] HCA 82 Telstra Corporation Ltd v Worthing (1999) 197 CLR 61 [1999] HCA 12 Dickson v The Queen (2010) 241 CLR 491 Metal Trades Industry Association v Amalgamated Metal Workers' and Shipwrights' Union (1983) 152 CLR 632 [1983] HCA 28 APLA Ltd v Legal Services Commissioner (NSW) (2005) 224 CLR 322 [2005] HCA 44 Momcilovic v The Queen (2011) 245 CLR 1 [2011] HCA 34 Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 [2008] HCA 32 2008 ATC 20-039 (2008) 69 ATR 41 Bruton Holdings Pty Ltd (In liq) v Federal Commissioner of Taxation (2009) 239 CLR 346 [2009] HCA 32 2009 ATC 20-125 (2009) 72 ATR 856 Federal Commissioner of Taxation v Australian Building Systems Pty Ltd (In liq) (2015) 90 ALJR 151 326 ALR 590 [2015] HCA 48 2015 ATC 20-548 Wenn (1948) 77 CLR 84 Sportsbet Pty Ltd v New South Wales (2012) 249 CLR 298 [2012] HCA 13 The Commonwealth v Cigamatic Pty Ltd (In liq) (1962) 108 CLR 372 [1962] HCA 40 Australian Mutual Provident Society v Goulden (1986) 160 CLR 330 [1986] HCA 24 Stock Motor Ploughs Ltd v Forsyth (1932) 48 CLR 128", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S248/2015P63/2015P4/2016/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Blank v Commissioner of Taxation", "Venue_Reference_No": "S144 of 2016", "Venue": "High Court", "Judgment_Date": "9 November 2016", "Date_Published": "13 January 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether an amount paid to a taxpayer was ordinary income as a reward for services and therefore assessable pursuant to section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).", "Overview_of_Facts": "Between November 1991 and 31 December 2006, the taxpayer was employed by Glencore International AG (GI) or one of its subsidiaries within the Glencore Group and worked variously in South Africa, Switzerland, Hong Kong and, from early 2002, in Australia. | The taxpayer became a tax resident of Australia on 2 January 2002 and retained that status at all relevant times thereafter. | Over the course of his employment with the Glencore Group, the taxpayer participated in a number of employee profit participation arrangements operated by the Group. Participation was governed by two 'stapled' agreements: • a 'Shareholders' Agreement' with Glencore Holding AG ('GH', one of the two ultimate holding companies in the Glencore group); and • a 'Profit Participation Agreement' with GI. | • a 'Shareholders' Agreement' with Glencore Holding AG ('GH', one of the two ultimate holding companies in the Glencore group); and • a 'Profit Participation Agreement' with GI. | The agreements underwent a number of amendments and revisions during the period the taxpayer participated in the profit participation arrangements. Relevantly, the governing documents at the time the taxpayer terminated his employment were the Shareholders' Agreement 2005 (SA 2005) and the Incentive Profit Participation Agreement 2005 (IPPA 2005). | Over the period 1993 to 2003, the taxpayer subscribed to 1,600 shares in GH. Under the IPPA 2005 this entitled him to an equal number of profit participation units (PPUs). The PPUs were used to allocate a portion of GI's adjusted balance sheet profits to the taxpayer each year. The annual profit allocations were aggregated over the period during which the taxpayer was taken to have held the PPUs, up to and including the last day of the month in which he gave notice of the termination of his employment. | The taxpayer terminated his employment with the Glencore Group on 31 December 2006. Pursuant to a declaration of assignment and general release which the taxpayer executed on 15 March 2007, and in accordance with the IPPA 2005, the taxpayer became entitled to receive from GI an amount of USD 160,033,328.25 (the Amount) payable in 20 quarterly instalments. The taxpayer did not return the Amount as ordinary income; instead he returned it as the proceeds from the disposal of a capital asset. | The Commissioner successfully argued both at first instance and on appeal to the Full Federal Court that the Amount was deferred compensation for the taxpayer's employment and assessable as ordinary income upon receipt. | The taxpayer sought, and obtained, special leave to appeal to the High Court. | Issues decided by the court | The primary issue decided by the Court was the proper characterisation of the Amount in the hands of the taxpayer. This, in turn, depended on the proper construction of the IPPA 2005. (a) The Commissioner contended that the Amount to which the taxpayer became entitled upon the termination of his employment was payable to the taxpayer as deferred compensation for his employment and that the PPUs and associated rights were issued solely for the purposes of calculating the amount of deferred compensation. (b) The taxpayer, on the other hand, contended that the Amount was paid as consideration for the disposal of the PPUs and associated rights being anterior proprietary rights that had been conferred upon the taxpayer as a reward for his employment and which were assessable when issued to the taxpayer, either as ordinary income or under paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936), and which thereafter were held by the taxpayer on capital account. | (a) The Commissioner contended that the Amount to which the taxpayer became entitled upon the termination of his employment was payable to the taxpayer as deferred compensation for his employment and that the PPUs and associated rights were issued solely for the purposes of calculating the amount of deferred compensation. (b) The taxpayer, on the other hand, contended that the Amount was paid as consideration for the disposal of the PPUs and associated rights being anterior proprietary rights that had been conferred upon the taxpayer as a reward for his employment and which were assessable when issued to the taxpayer, either as ordinary income or under paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936), and which thereafter were held by the taxpayer on capital account. | By joint judgment, the High Court unanimously agreed with the approach taken by Edmonds J at first instance and the majority of the Full Federal Court. The High Court held that the Amount to which the taxpayer became entitled upon the termination of his employment was deferred compensation for services rendered as an employee and therefore assessable as income according to ordinary concepts. The fact that the Amount was paid after termination of the contract of service, by a person other than the taxpayer's employer, and separately to ordinary wages, salary or bonuses, did not detract from this characterisation. | The Court disagreed with the taxpayer's contention that his associated rights under the agreements were assets of a proprietary nature, analogous to options. The Court characterised the Amount, not as proceeds from the exploitation of any anterior set of rights, but as the performance of the promise to pay money under the IPPA 2005 on satisfaction of the conditions on which that performance depended. The Court distinguished the taxpayer's rights from the options considered in Abbott v Philbin [1961] AC 352 on the basis that, in that case, the employee's rights were unconditional and could be exercised at any time. By contrast, any rights or claims the taxpayer had acquired were 'merely executory' and neither vested nor accrued. Nor could they be turned to pecuniary account - the taxpayer's ability to assign his rights and claims to an entity under his complete control did not 'bring home' the value of those rights prior to them having vested. | The Court observed that if the taxpayer's contention was correct, and the value of executory and conditional promises to pay money in relation to employment or services rendered were assessable under paragraph 26(e) of the ITAA 1936, then every employee would be rendered an accruals-based taxpayer taxable on their wages and salary before they received it. Their Honours noted that such a conclusion could not be correct. | Alternative contentions | By notice of cross contention, the Commissioner argued, in the alternative, that: • the Amount was assessable income under the second limb of the Federal Commissioner of Taxation v Myer Emporium (1987) HCA 18; or • each instalment of the Amount was assessable as either an eligible termination payment under subsection 27A(1) of the ITAA 1936, or an employment termination payment under subparagraph 82-130(1)(a)(i) of the ITAA 1997. | • the Amount was assessable income under the second limb of the Federal Commissioner of Taxation v Myer Emporium (1987) HCA 18; or • each instalment of the Amount was assessable as either an eligible termination payment under subsection 27A(1) of the ITAA 1936, or an employment termination payment under subparagraph 82-130(1)(a)(i) of the ITAA 1997. | As the Court held in favour of the Commissioner on the primary issue, these alternative contentions did not arise. | Application to cross appeal: CGT cost base | Given the Court determined that the Amount was not in the nature of a capital gain it was unnecessary for the Court to consider the Commissioner's application for special leave to cross-appeal from the Full Court in relation to the cost base of the PPUs and associated rights. | Application to cross appeal: timing question | The taxpayer was a receipts based taxpayer and therefore the Amount was assessable upon actual or constructive receipt. | The Commissioner sought special leave to cross-appeal from the Full Federal Court's decision on the basis that if the Amount was assessable income under section 6-5 of the ITAA 1997, then the taxpayer derived two instalments of the Amount in the 2007 income year because those instalments were 'applied or dealt with' on his behalf, or as he directed, in that year, within the meaning of subsection 6-5(4) of the ITAA 1997. | The Commissioner's contention was that an agreement had been reached prior to 17 March 2007 to vary the payment terms for the first two instalments. | The High Court refused special leave on the basis that the question was one of fact not involving a principle of general application.", "Issues_Decided": "The primary issue decided by the Court was the proper characterisation of the Amount in the hands of the taxpayer. This, in turn, depended on the proper construction of the IPPA 2005. (a) The Commissioner contended that the Amount to which the taxpayer became entitled upon the termination of his employment was payable to the taxpayer as deferred compensation for his employment and that the PPUs and associated rights were issued solely for the purposes of calculating the amount of deferred compensation. (b) The taxpayer, on the other hand, contended that the Amount was paid as consideration for the disposal of the PPUs and associated rights being anterior proprietary rights that had been conferred upon the taxpayer as a reward for his employment and which were assessable when issued to the taxpayer, either as ordinary income or under paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936), and which thereafter were held by the taxpayer on capital account. (a) The Commissioner contended that the Amount to which the taxpayer became entitled upon the termination of his employment was payable to the taxpayer as deferred compensation for his employment and that the PPUs and associated rights were issued solely for the purposes of calculating the amount of deferred compensation. (b) The taxpayer, on the other hand, contended that the Amount was paid as consideration for the disposal of the PPUs and associated rights being anterior proprietary rights that had been conferred upon the taxpayer as a reward for his employment and which were assessable when issued to the taxpayer, either as ordinary income or under paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936), and which thereafter were held by the taxpayer on capital account. By joint judgment, the High Court unanimously agreed with the approach taken by Edmonds J at first instance and the majority of the Full Federal Court. The High Court held that the Amount to which the taxpayer became entitled upon the termination of his employment was deferred compensation for services rendered as an employee and therefore assessable as income according to ordinary concepts. The fact that the Amount was paid after termination of the contract of service, by a person other than the taxpayer's employer, and separately to ordinary wages, salary or bonuses, did not detract from this characterisation. The Court disagreed with the taxpayer's contention that his associated rights under the agreements were assets of a proprietary nature, analogous to options. The Court characterised the Amount, not as proceeds from the exploitation of any anterior set of rights, but as the performance of the promise to pay money under the IPPA 2005 on satisfaction of the conditions on which that performance depended. The Court distinguished the taxpayer's rights from the options considered in Abbott v Philbin [1961] AC 352 on the basis that, in that case, the employee's rights were unconditional and could be exercised at any time. By contrast, any rights or claims the taxpayer had acquired were 'merely executory' and neither vested nor accrued. Nor could they be turned to pecuniary account - the taxpayer's ability to assign his rights and claims to an entity under his complete control did not 'bring home' the value of those rights prior to them having vested. The Court observed that if the taxpayer's contention was correct, and the value of executory and conditional promises to pay money in relation to employment or services rendered were assessable under paragraph 26(e) of the ITAA 1936, then every employee would be rendered an accruals-based taxpayer taxable on their wages and salary before they received it. Their Honours noted that such a conclusion could not be correct. | Alternative contentions: By notice of cross contention, the Commissioner argued, in the alternative, that: • the Amount was assessable income under the second limb of the Federal Commissioner of Taxation v Myer Emporium (1987) HCA 18; or • each instalment of the Amount was assessable as either an eligible termination payment under subsection 27A(1) of the ITAA 1936, or an employment termination payment under subparagraph 82-130(1)(a)(i) of the ITAA 1997. • the Amount was assessable income under the second limb of the Federal Commissioner of Taxation v Myer Emporium (1987) HCA 18; or • each instalment of the Amount was assessable as either an eligible termination payment under subsection 27A(1) of the ITAA 1936, or an employment termination payment under subparagraph 82-130(1)(a)(i) of the ITAA 1997. As the Court held in favour of the Commissioner on the primary issue, these alternative contentions did not arise. | Application to cross appeal: CGT cost base: Given the Court determined that the Amount was not in the nature of a capital gain it was unnecessary for the Court to consider the Commissioner's application for special leave to cross-appeal from the Full Court in relation to the cost base of the PPUs and associated rights. | Application to cross appeal: timing question: The taxpayer was a receipts based taxpayer and therefore the Amount was assessable upon actual or constructive receipt. The Commissioner sought special leave to cross-appeal from the Full Federal Court's decision on the basis that if the Amount was assessable income under section 6-5 of the ITAA 1997, then the taxpayer derived two instalments of the Amount in the 2007 income year because those instalments were 'applied or dealt with' on his behalf, or as he directed, in that year, within the meaning of subsection 6-5(4) of the ITAA 1997. The Commissioner's contention was that an agreement had been reached prior to 17 March 2007 to vary the payment terms for the first two instalments. The High Court refused special leave on the basis that the question was one of fact not involving a principle of general application.", "ATO_View_of_Decision": "The Commissioner notes that the decision of the Court is consistent with the submissions made to the Court by the Commonwealth Solicitor-General on the Commissioner's behalf.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | None. | Implications for impacted Law Administration Practice Statements | None.", "Related_Documents": "This decision has no impact for ATO precedential documents. | 2016 ATC 20-587 | 26(e) | 6-5(1) | 6-5(4) | 82-130(1)(a)(i) | (1969) 120 CLR 365 | 2014 ATC 20-442 | 2015 ATC 20-536 | (1944) 69 CLR 389 | (1974) 74 ATC 4192 | (1988) 89 ATC 4051 | [1961] AC 352 | 2007 ATC 4223 | 2010 ATC 20-210 | (1940) 6 ATD 5 | (1940) 2 AITR 109 | [1966] HCA 48 | (1966) 117 CLR 514 | 71 ATC 4195 | 2014 ATC 20-455 | [1952] HCA 65 | (1952) 86 CLR 540 | (1952) 10 ATD 82 | 75 ATC 4213", "Legislative_References": "Income Tax Assessment Act 1936 26(e) 27A(1) Income Tax Assessment Act 1997 6-5(1) 6-5(4) 82-130(1)(a)(i)", "Case_References": "Olsson v Dyson (1969) 120 CLR 365 Blank v Federal Commissioner of Taxation [2014] FCA 87 2014 ATC 20-442 (2014) 95 ATR 1 Blank v Federal Commissioner of Taxation [2015] FCAFC 154 2015 ATC 20-536 Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331 Mutual Acceptance Co Ltd v Federal Commissioner of Taxation [1944] HCA 34 (1944) 69 CLR 389 (1944) 7 ATD 506 Donaldson v Federal Commissioner of Taxation (Cth) [1974] 1 NSWLR 627 (1974) 4 ATR 530 (1974) 74 ATC 4192 Federal Commissioner of Taxation v McArdle (1988) 19 ATR 1901 (1988) 89 ATC 4051 Abbott v Philbin [1961] AC 352 Commissioner of Taxation v McNeil [2007] HCA 5 (2007) 229 CLR 656 (2007) 64 ATR 431 2007 ATC 4223 Tagget v Federal Commissioner of Taxation [2010] FCAFC 109 (2010) 188 FCR 128 2010 ATC 20-210 (2010) 80 ATR 399 Permanent Trustee Company of New South Wales Ltd v Federal Commissioner of Taxation (1940) 64 CLR 663 (1940) 6 ATD 5 (1940) 2 AITR 109 Scott v Federal Commissioner of Taxation [1966] HCA 48 (1966) 117 CLR 514 (1966) 14 ATD 286 Brent v Federal Commissioner of Taxation [1971] HCA 48 (1971) 125 CLR 418 (1971) 2 ATR 563 71 ATC 4195 Blank v Federal Commissioner of Taxation (No 2) [2014] FCA 517 2014 ATC 20-455 (2014) 98 ATR 379 Neilson v Overseas Projects Corporation of Victoria Ltd (2005) 223 CLR 331 Federal Commissioner of Taxation v Dixon [1952] HCA 65 (1952) 86 CLR 540 (1952) 10 ATD 82 Henry v Foster (1931) 16 TC 605 Dewhurst v Hunter (1932) 16 TC 637 Reseck v Federal Commissioner of Taxation [1975] HCA 38 (1975) 133 CLR 45 (1975) 5 ATR 538 75 ATC 4213", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S144of2016/00001", "Unmatched_Content": ""}
{"Case_Name": "Bywater Investments Ltd & Ors v Commissioner of Taxation", "Venue_Reference_No": "S134 & S135 of 2016", "Venue": "High Court", "Judgment_Date": "16 November 2016", "Date_Published": "15 March 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether four foreign incorporated taxpayers were Australian residents within the meaning of subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), and therefore subject to Australian income tax on their ordinary income under the Income Tax Assessment Act 1997.", "Overview_of_Facts": "The Bywater Investments Limited & Ors v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation [2016] HCA 45 (Bywater) cases involved four taxpayers. All were foreign incorporated companies. The taxpayers disputed their assessments on a number of grounds including that they were not Australian residents for tax purposes under the central management and control test of residency in paragraph (b) of subsection 6(1) of the ITAA 1936. | The taxpayers entered artificial arrangements to give the impression that they were all managed and controlled offshore, either by Mr Peter Borgas in Switzerland or by the corporate services firm, Asiaciti, in Samoa. Under these arrangements, the role of the directors was to merely record and implement decisions of the company in relation to its transactions and policies that were made by Mr Vanda Gould in Sydney in a mechanical fashion. | Issues decided by the court | There were two issues considered by the High Court: | 1) Whether the appellants companies were resident in Australia within the meaning of subsection 6(1) of the ITAA 1936 because their central management and control was in Australia. | 2) If three of the appellants' central management and control was in Australia, whether their place of effective management was, for the purpose of the relevant double tax agreements, in Australia, the UK or Switzerland [1] . | Central management and control | The High Court unanimously found that the appellants' central management and control was in Australia. The decision clarified three key matters relevant to determining whether a foreign incorporated company is resident under the central management and control test of residency contained in paragraph (b) of subsection 6(1) of the ITAA 1936: • The decision confirms the long standing principle that where a company's central management and control is located is a question of fact to be determined by the reality of what happens. It is not determined by reference to legal formalities, or restrictions on who may exercise it or where it may be exercised, and may be exercised by persons without any legal authority to manage or control a company. • The court unanimously rejected the argument that Esquire Nominees [2] is authority for the proposition that a foreign incorporated company will have its central management and control outside Australia and will be non-resident if it has a local board who rubberstamps and implements decisions that are made in Australia. If a company's directors merely rubberstamp decisions made by others they do not exercise central management and control, rather it is those who actually make the decisions as a matter of fact. • The approach the Commissioner took in TR 2004/15 in relation to the earlier High Court decision in Malayan Shipping [3] can no longer be sustained. At [57] the majority of the court clearly agreed with Williams J's rejection of the contention that where a company has its central management and control in Australia it must, to be a resident of Australia, in addition also carry on its business operations in Australia. Therefore if a company carrying on business has its central management and control in Australia it will necessarily carry on business in Australia. That is so even when the only business carried on in Australia consists of that central management and control, and trading operations are conducted outside this country. | • The decision confirms the long standing principle that where a company's central management and control is located is a question of fact to be determined by the reality of what happens. It is not determined by reference to legal formalities, or restrictions on who may exercise it or where it may be exercised, and may be exercised by persons without any legal authority to manage or control a company. • The court unanimously rejected the argument that Esquire Nominees [2] is authority for the proposition that a foreign incorporated company will have its central management and control outside Australia and will be non-resident if it has a local board who rubberstamps and implements decisions that are made in Australia. If a company's directors merely rubberstamp decisions made by others they do not exercise central management and control, rather it is those who actually make the decisions as a matter of fact. • The approach the Commissioner took in TR 2004/15 in relation to the earlier High Court decision in Malayan Shipping [3] can no longer be sustained. At [57] the majority of the court clearly agreed with Williams J's rejection of the contention that where a company has its central management and control in Australia it must, to be a resident of Australia, in addition also carry on its business operations in Australia. Therefore if a company carrying on business has its central management and control in Australia it will necessarily carry on business in Australia. That is so even when the only business carried on in Australia consists of that central management and control, and trading operations are conducted outside this country. | Place of effective management | Only Gordon J found it necessary to consider where the taxpayer's place of effective management was located. In a separate judgement Gordon J found the taxpayer's place of effective management was in Australia for the purpose of the UK and Swiss Double Tax Agreements. In relation to where the place of effective management of a company is located, Gordon J observed that: • the meaning of place of effective management in double tax agreements must be interpreted in accordance with principles of customary international law or treaties governing the interpretation of treaties such as the Vienna Convention on the Law of Treaties. [4] • For the purpose of the UK and Swiss Agreements, where a company's place of effective management is located is a question of fact and substance, and is not determined by reference to legal formalities, or restrictions on who may exercise it or where it may be exercised. The location of a company's formal organs of governance is not determinative. [5] • The tests of the place of effective management and that of central management and control are different concepts. While a company's place of effective management may be in the same place where its central management and control is located, this cannot be assumed. [6] | • the meaning of place of effective management in double tax agreements must be interpreted in accordance with principles of customary international law or treaties governing the interpretation of treaties such as the Vienna Convention on the Law of Treaties. [4] • For the purpose of the UK and Swiss Agreements, where a company's place of effective management is located is a question of fact and substance, and is not determined by reference to legal formalities, or restrictions on who may exercise it or where it may be exercised. The location of a company's formal organs of governance is not determinative. [5] • The tests of the place of effective management and that of central management and control are different concepts. While a company's place of effective management may be in the same place where its central management and control is located, this cannot be assumed. [6]", "Issues_Decided": "There were two issues considered by the High Court:: 1) Whether the appellants companies were resident in Australia within the meaning of subsection 6(1) of the ITAA 1936 because their central management and control was in Australia. 2) If three of the appellants' central management and control was in Australia, whether their place of effective management was, for the purpose of the relevant double tax agreements, in Australia, the UK or Switzerland [1] . Central management and control The High Court unanimously found that the appellants' central management and control was in Australia. The decision clarified three key matters relevant to determining whether a foreign incorporated company is resident under the central management and control test of residency contained in paragraph (b) of subsection 6(1) of the ITAA 1936: • The decision confirms the long standing principle that where a company's central management and control is located is a question of fact to be determined by the reality of what happens. It is not determined by reference to legal formalities, or restrictions on who may exercise it or where it may be exercised, and may be exercised by persons without any legal authority to manage or control a company. • The court unanimously rejected the argument that Esquire Nominees [2] is authority for the proposition that a foreign incorporated company will have its central management and control outside Australia and will be non-resident if it has a local board who rubberstamps and implements decisions that are made in Australia. If a company's directors merely rubberstamp decisions made by others they do not exercise central management and control, rather it is those who actually make the decisions as a matter of fact. • The approach the Commissioner took in TR 2004/15 in relation to the earlier High Court decision in Malayan Shipping [3] can no longer be sustained. At [57] the majority of the court clearly agreed with Williams J's rejection of the contention that where a company has its central management and control in Australia it must, to be a resident of Australia, in addition also carry on its business operations in Australia. Therefore if a company carrying on business has its central management and control in Australia it will necessarily carry on business in Australia. That is so even when the only business carried on in Australia consists of that central management and control, and trading operations are conducted outside this country. • The decision confirms the long standing principle that where a company's central management and control is located is a question of fact to be determined by the reality of what happens. It is not determined by reference to legal formalities, or restrictions on who may exercise it or where it may be exercised, and may be exercised by persons without any legal authority to manage or control a company. • The court unanimously rejected the argument that Esquire Nominees [2] is authority for the proposition that a foreign incorporated company will have its central management and control outside Australia and will be non-resident if it has a local board who rubberstamps and implements decisions that are made in Australia. If a company's directors merely rubberstamp decisions made by others they do not exercise central management and control, rather it is those who actually make the decisions as a matter of fact. • The approach the Commissioner took in TR 2004/15 in relation to the earlier High Court decision in Malayan Shipping [3] can no longer be sustained. At [57] the majority of the court clearly agreed with Williams J's rejection of the contention that where a company has its central management and control in Australia it must, to be a resident of Australia, in addition also carry on its business operations in Australia. Therefore if a company carrying on business has its central management and control in Australia it will necessarily carry on business in Australia. That is so even when the only business carried on in Australia consists of that central management and control, and trading operations are conducted outside this country. Place of effective management Only Gordon J found it necessary to consider where the taxpayer's place of effective management was located. In a separate judgement Gordon J found the taxpayer's place of effective management was in Australia for the purpose of the UK and Swiss Double Tax Agreements. In relation to where the place of effective management of a company is located, Gordon J observed that: • the meaning of place of effective management in double tax agreements must be interpreted in accordance with principles of customary international law or treaties governing the interpretation of treaties such as the Vienna Convention on the Law of Treaties. [4] • For the purpose of the UK and Swiss Agreements, where a company's place of effective management is located is a question of fact and substance, and is not determined by reference to legal formalities, or restrictions on who may exercise it or where it may be exercised. The location of a company's formal organs of governance is not determinative. [5] • The tests of the place of effective management and that of central management and control are different concepts. While a company's place of effective management may be in the same place where its central management and control is located, this cannot be assumed. [6] • the meaning of place of effective management in double tax agreements must be interpreted in accordance with principles of customary international law or treaties governing the interpretation of treaties such as the Vienna Convention on the Law of Treaties. [4] • For the purpose of the UK and Swiss Agreements, where a company's place of effective management is located is a question of fact and substance, and is not determined by reference to legal formalities, or restrictions on who may exercise it or where it may be exercised. The location of a company's formal organs of governance is not determinative. [5] • The tests of the place of effective management and that of central management and control are different concepts. While a company's place of effective management may be in the same place where its central management and control is located, this cannot be assumed. [6]", "ATO_View_of_Decision": "The ATO accepts the decision.", "Administrative_Treatment": "Taxation Ruling 2004/15 has been withdrawn and replaced by new Taxation Ruling TR 2017/D2 Foreign Incorporated Companies: Central Management and Control test of residency. | [1] The Agreement between the Government of the Commonwealth of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of Double taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, as affected by the 2000 United Kingdom notes; and the Agreement between the Government of the of Australia and the Swiss Federal Council for the avoidance of Double taxation with Respect to Taxes on Income and the Protocol to that Agreement. | [2] Esquire Nominees Ltd v FCT [1973] HCA 67; (1973) 129 CLR 177 | [3] Malayan Shipping Company Ltd. v FCT (1946) 71 CLR 156 | [4] At [149] | [5] At [165] | [6] At [163]", "Related_Documents": "Taxation Ruling TR 2004/15 Income tax: residence of companies not incorporated in Australia - carrying on business in Australia and central management and control | TR 2017/D2 | 2016 ATC 20-589 | 6(1) | Sch 1 | 15 | The Agreement between the Government of the Commonwealth of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of Double taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, as affected by the 2000 United Kingdom notes | The Agreement between the Government of the of Australia and the Swiss Federal Council for the avoidance of Double taxation with Respect to Taxes on Income and the Protocol to that Agreement | (1973) 73 ATC 4114 | (1946) 71 CLR 156 | (1946) 72 CLR 262 | [1906] AC 455 | (1941) 64 CLR 241 | (1946) 71 CLR 623 | [1960] AC 351", "Legislative_References": "Income Tax Assessment Act 1936 6(1) International Tax Agreements Act 1995 Sch 1 15 The Agreement between the Government of the Commonwealth of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of Double taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, as affected by the 2000 United Kingdom notes The Agreement between the Government of the of Australia and the Swiss Federal Council for the avoidance of Double taxation with Respect to Taxes on Income and the Protocol to that Agreement", "Case_References": "Hua Wang Bank Berhad & Ors. v Commissioner of Taxation [2014] FCA 1392 Bywater Investments & Ors. v Commissioner of Taxation [2015] FCAFC 71 Esquire Nominees v The Commissioner of Taxation of the Commonwealth of Australia (1973) 129 CLR 177 (1973) 73 ATC 4114 (1973) 4 ATR 75 Cesena Sulphur Company v Nicholson [1876] 1 Ex D 428 Malayan Shipping Company Ltd. v Federal Commissioner of Taxation (1946) 71 CLR 156 (1946) 8 ATD 75 Waterloo Pastoral Co. Ltd. v Federal Commissioner of Taxation (1946) 72 CLR 262 (1946) 8 ATD 165 DeBeers Consolidated Mines Limited v Howe [1906] AC 455 Koitaki Para Rubber Estates Limited v Federal Commissioner of Taxation (1941) 64 CLR 241 (1941) 6 ATD 82 Northern Australian Pastoral v Federal Commissioner of Taxation (1946) 71 CLR 623 (1946) 8 ATD 121 Wood v Holden [2006] 1 WLR 1393 Unit Construction Co. Ltd. v Bullock [1960] AC 351 Smallwood v Revenue and Customs Commissioners [2010] EWCA (Civ) 778 [2010] Simon's Tax Cases 2045 (2010) 80 Tax Cas 536 [2010] BTC 637 [2010] WTLR 1771 [2010] S.T.I. 2174 (2010) 154(27) SJLB 30", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S134andS135of2016/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products."}
{"Case_Name": "Charara v Commissioner of Taxation", "Venue_Reference_No": "NSD429/2015", "Venue": "Federal Court of Australia", "Judgment_Date": "", "Date_Published": "24 June 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/47/2016/00001", "Unmatched_Content": "Charara v Commissioner of Taxation [2016] FCA 451 | The adverse aspects of the decision have no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Commissioner of Taxation v AP Energy Investments Ltd", "Venue_Reference_No": "WAD 367 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "25 May 2016", "Date_Published": "7 September 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "The taxpayer, AP Energy Investments Pty Ltd (AP Energy), is a non-resident of Australia for taxation purposes. | AP Energy (over the period December 2006 to January 2008) had purchased shares in Abra Mining Limited (Abra) an ASX listed base metals exploration and development company. | On 3 December 2007 AP Energy disposed of a number of the shares it held in Abra making a net capital gain in respect of the disposal. | The Commissioner assessed AP Energy on the capital gain (for the year ended 30 June 2008). The assessment was made on the basis the shares in Abra were an indirect Australian Real Property Interest at the time of the CGT event and therefore the gain was not disregarded under subsection 855-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997). | AP Energy objected to the assessment and appealed to the Administrative Appeals Tribunal (AAT). | In AP Energy Investments Limited and Commissioner of Taxation [2013] AATA 626, the AAT found that Abra did not pass the principal asset test in section 855-30 of the ITAA 1997 at the time of the CGT event and therefore the taxpayer could disregard the capital gain pursuant to subsection 855-10(1) of the ITAA 1997. | The Commissioner appealed the AAT decision to the Federal Court. | Issues Decided by the Court | The primary issue before the Court was whether the value of Abra's taxable Australian real property (TARP) and other (non-TARP) assets, as accepted by the AAT, had been determined in accordance with the valuation hypothesis required by section 855-30 of the ITAA 1997 as set out in paragraphs [51] to [55] of the Commissioner of Taxation v Resource Capital Fund 111 LP [2014] FCAFC 37 (RCF FC). | In particular, the question was whether the AAT, in accepting the taxpayer's 'sunk cost' method of valuation of Abra's mining and exploration information, had adopted a valuation approach that was the same as Edmonds J in Resource Capital Fund 111 LP v Commissioner of Taxation [2013] FCA 363 (RCF) and was therefore inconsistent with the proper construction of section 855-30 of the ITAA 1997. | The Court dismissed the Commissioner's appeal, finding that there was no failing by the AAT in its examination of the evidence and in its reasoning why the valuation approach advocated by the taxpayer's expert was to be preferred over the Commissioner's expert valuation. The Court also found that the AAT decision was not inconsistent with a proper construction of section 855-30 of the ITAA 1997. The Court noted that whilst the Full Federal Court in RCF FC accepted that in a simultaneous sale of SBM's assets the hypothetical purchaser would expect to acquire the mining information for less than it's re-creation cost with little or no delay, it did not go so far as to reject any particular methodology for ascertaining the market value of mining information. It was therefore open to the AAT (on the advice of AP Energy's expert) to accept the sunk cost method of valuation of Abra's mining and exploration information.", "Issues_Decided": "The primary issue before the Court was whether the value of Abra's taxable Australian real property (TARP) and other (non-TARP) assets, as accepted by the AAT, had been determined in accordance with the valuation hypothesis required by section 855-30 of the ITAA 1997 as set out in paragraphs [51] to [55] of the Commissioner of Taxation v Resource Capital Fund 111 LP [2014] FCAFC 37 (RCF FC). In particular, the question was whether the AAT, in accepting the taxpayer's 'sunk cost' method of valuation of Abra's mining and exploration information, had adopted a valuation approach that was the same as Edmonds J in Resource Capital Fund 111 LP v Commissioner of Taxation [2013] FCA 363 (RCF) and was therefore inconsistent with the proper construction of section 855-30 of the ITAA 1997. The Court dismissed the Commissioner's appeal, finding that there was no failing by the AAT in its examination of the evidence and in its reasoning why the valuation approach advocated by the taxpayer's expert was to be preferred over the Commissioner's expert valuation. The Court also found that the AAT decision was not inconsistent with a proper construction of section 855-30 of the ITAA 1997. The Court noted that whilst the Full Federal Court in RCF FC accepted that in a simultaneous sale of SBM's assets the hypothetical purchaser would expect to acquire the mining information for less than it's re-creation cost with little or no delay, it did not go so far as to reject any particular methodology for ascertaining the market value of mining information. It was therefore open to the AAT (on the advice of AP Energy's expert) to accept the sunk cost method of valuation of Abra's mining and exploration information.", "ATO_View_of_Decision": "The Commissioner considers the decision in this matter to be the consequence of the particular expert valuation evidence adduced before the AAT by the parties. | Therefore, in our view, the valuation approach that was accepted by the AAT in this case should not be taken to be precedent for the valuation of mining and exploration information where the test entity is either an explorer (as the test entity was in this case) or an active miner. | The Commissioner notes the decision of the Full Federal Court in RCF FC provides that the correct hypothesis upon which to value an entity's assets for the purposes of section 855-30 of the ITAA 1997 is a simultaneous sale of all of the entity's assets as a bundle to a single purchaser.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | Not applicable. | Implications for impacted Law Administration Practice Statements | Not applicable.", "Related_Documents": "None | 2016 ATC 20-568 | Div 855 | 2013 ATC 10-335 | 90 ATC 4088 | 2014 ATC 20-451 | 2015 ATC 20-513 | 2013 ATC 20-386 | (1907) 5 CLR 418", "Legislative_References": "Income Tax Asessment Act 1997 Div 855 Administrative Appeals Tribunal Act 1975 44", "Case_References": "AP Energy Investments Limited and Commissioner of Taxation [2013] AATA 626 2013 ATC 10-335 (2013) 97 ATR 639 Commissioner of State Taxation (WA) v Nischu Pty Ltd (1991) 4 WAR 437 Commissioner of Taxation v Dalco (1990) 168 CLR 614 90 ATC 4088 (1990 20 ATR 1370 Commissioner of Taxation v Haritos [2015] HCA TRANS 337 Commissioner of Taxation v Resource Capital Fund III LP (2014) 225 FCR 290 Commissioner of Taxation of the Commonwealth of Australia v Resource Capital Fund III LP (No. 2) [2014] FCAFC 54 2014 ATC 20-451 (2014) 98 ATR 136 Haritos v Commissioner of Taxation (2015) 233 FCR 315 2015 ATC 20-513 Resource Capital Fund III LP v Commissioner of Taxation [2013] FCA 363 2013 ATC 20-386 (2013) 95 ATR 504 Spencer v Commonwealth (1907) 5 CLR 418", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD367of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Commissioner of Taxation v Seven Network Ltd", "Venue_Reference_No": "NSD 87/2016", "Venue": "Federal Court of Australia", "Judgment_Date": "23 May 2016", "Date_Published": "29 August 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2016 ATC 20-570", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD87/2016/00001", "Unmatched_Content": "Commissioner of Taxation v Seven Network Ltd [2016] FCAFC 70 2016 ATC 20-570 (2016) 241 FCR 1 (2016) 103 ATR 253 | The adverse aspect of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au"}
{"Case_Name": "Commissioner of Taxation v Vasiliades", "Venue_Reference_No": "VID 426-428 of 2016", "Venue": "Federal Court of Australia", "Judgment_Date": "8 December 2016", "Date_Published": "7 June 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The Full Court of the Federal Court, by majority, found that the Commissioner was entitled to security for costs in respect of the taxpayer's Part IVC appeal, confirming that the Court's power to award security under section 56 of the Federal Court Act was a broad judicial discretion and not confined by any rule or strong predilection in respect of any particular factor.", "Overview_of_Facts": "In February 2015, the taxpayer brought proceedings under Part IVC of the Taxation Administration Act 1953 against the Commissioner in respect of amended assessments issued to him for the 2007, 2008 and 2009 years. | In November 2015, the Commissioner applied for, and was granted, security for costs, by Registrar Ryan. The application was granted on the basis that the taxpayer was a non-resident and there was no evidence that he had assets in Australia. | The taxpayer applied to the Federal Court for a review of the registrar's orders (de novo). In April 2016, Davies J set aside the Registrar's decision ([2016] FCA 420), relying primarily on the \"essentially defensive nature\" of the taxpayer's proceedings to refuse security. | The Commissioner sought leave to appeal the decision. It was common ground that the Commissioner, in accordance with House v The King [1936] HCA 40, would need to show an error of law in the exercise of discretion by her Honour. Arguments regarding the grant of leave and whether to allow the appeal were heard concurrently. | Issues decided by the court | Kenny and Edelman JJ, in a joint judgment, granted leave to appeal, allowed the appeal and re-exercised the discretion, restoring the orders of Registrar Ryan. | Their Honours held, at [95], that: ... the primary judge erred in refusing security for costs on the basis there was a rule, or a very strong predilection, against ordering security for costs against a party bringing a proceeding that was essentially defensive in nature. | Kenny and Edelman JJ did not agree with the proposition Davies J drew from the High Court decision of Willey v Synan [1935] HCA 76 and applied in reaching her conclusion. At [86], their Honours said: [In Willey v Synan, t]he High Court did not say, however, that an exercise of discretion to award security for costs was cut down or necessarily limited by the fact that a person bringing the proceedings was in substance a defendant. Nor did it say that this factor necessarily prevailed over all other factors in every case....It seems to us that Willey v Synan stands for the proposition that the justice of the case must be kept in mind in any exercise of the discretion and this will depend on the particular circumstances of the case.... [T]he purpose of an order for security is to ensure that there is a fund available for the benefit of a successful respondent, to mitigate the injustice that would arise if a successful respondent, who has not chosen to incur the expense of the litigation, cannot recover costs from the party who chose to bring the proceedings in the first place. | At [91], their Honours endorsed the \"multifactorial approach\" to the discretion approved by Allsop CJ and Middleton J in Madgwick v Kelly [2013] FCAFC 61; an approach consistent with comments of McHugh J in PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36. | Their Honours said that the \"wide discretion that [section 56] clearly confers does not lend itself to an overly \"mechanical\" approach...and precludes limitation by the application of judge-made rules in its exercise\" (at [90]). The majority observed that fairness lies at the heart of the exercise of the discretion and that much will depend on the facts of the individual case. | In re-exercising the discretion in favour of the Commissioner, the majority noted: • at [107], that the defensive element of Part IVC proceedings was merely one factor to take into account with other relevant factors, and • at [108], that the taxpayer is an Australian non-resident without apparent assets in Australia is a significant factor militating in favour of an award of security. It was open to the taxpayer to adduce evidence as to the location of his assets and he had chosen not to do so. | • at [107], that the defensive element of Part IVC proceedings was merely one factor to take into account with other relevant factors, and • at [108], that the taxpayer is an Australian non-resident without apparent assets in Australia is a significant factor militating in favour of an award of security. It was open to the taxpayer to adduce evidence as to the location of his assets and he had chosen not to do so. | Dowsett J dissented, endorsing the decision of Davies J. | The taxpayer was refused Special Leave to appeal to the High Court on 12 May 2017 by Kiefel CJ and Keane J.", "Issues_Decided": "Kenny and Edelman JJ, in a joint judgment, granted leave to appeal, allowed the appeal and re-exercised the discretion, restoring the orders of Registrar Ryan. Their Honours held, at [95], that: ... the primary judge erred in refusing security for costs on the basis there was a rule, or a very strong predilection, against ordering security for costs against a party bringing a proceeding that was essentially defensive in nature. Kenny and Edelman JJ did not agree with the proposition Davies J drew from the High Court decision of Willey v Synan [1935] HCA 76 and applied in reaching her conclusion. At [86], their Honours said: [In Willey v Synan, t]he High Court did not say, however, that an exercise of discretion to award security for costs was cut down or necessarily limited by the fact that a person bringing the proceedings was in substance a defendant. Nor did it say that this factor necessarily prevailed over all other factors in every case....It seems to us that Willey v Synan stands for the proposition that the justice of the case must be kept in mind in any exercise of the discretion and this will depend on the particular circumstances of the case.... [T]he purpose of an order for security is to ensure that there is a fund available for the benefit of a successful respondent, to mitigate the injustice that would arise if a successful respondent, who has not chosen to incur the expense of the litigation, cannot recover costs from the party who chose to bring the proceedings in the first place. At [91], their Honours endorsed the \"multifactorial approach\" to the discretion approved by Allsop CJ and Middleton J in Madgwick v Kelly [2013] FCAFC 61; an approach consistent with comments of McHugh J in PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36. Their Honours said that the \"wide discretion that [section 56] clearly confers does not lend itself to an overly \"mechanical\" approach...and precludes limitation by the application of judge-made rules in its exercise\" (at [90]). The majority observed that fairness lies at the heart of the exercise of the discretion and that much will depend on the facts of the individual case. In re-exercising the discretion in favour of the Commissioner, the majority noted: • at [107], that the defensive element of Part IVC proceedings was merely one factor to take into account with other relevant factors, and • at [108], that the taxpayer is an Australian non-resident without apparent assets in Australia is a significant factor militating in favour of an award of security. It was open to the taxpayer to adduce evidence as to the location of his assets and he had chosen not to do so. • at [107], that the defensive element of Part IVC proceedings was merely one factor to take into account with other relevant factors, and • at [108], that the taxpayer is an Australian non-resident without apparent assets in Australia is a significant factor militating in favour of an award of security. It was open to the taxpayer to adduce evidence as to the location of his assets and he had chosen not to do so. Dowsett J dissented, endorsing the decision of Davies J. The taxpayer was refused Special Leave to appeal to the High Court on 12 May 2017 by Kiefel CJ and Keane J.", "ATO_View_of_Decision": "The Commissioner agrees with the majority's view that the decision to grant security for costs under section 56 of the Federal Court of Australia Act 1976 is, in any proceeding (including a Part IVC proceeding) at the discretion of the Court, and that the presence or absence of certain facts does not dictate an outcome one way or the other. | The decision is consistent with the recent Federal Court decisions of Hii v Commissioner of Taxation (No. 3) [2016] FCA 58 and Oswal v Commissioner of Taxation (No. 2) [2015] FCA 1143, where non-resident taxpayers without assets in the jurisdiction were required to give security for costs in bringing proceedings under Part IVC.", "Administrative_Treatment": "Nil", "Related_Documents": "None | [2016] FCAFC 170 | r 19.01 | [2016] FCA 58 | [1936] HCA 40 | [2013] FCAFC 61 | [2015] FCA 1143 | (2015) 102 ATR 220 | [2016] FCA 420", "Legislative_References": "Federal Court of Australia Act 1976 s 56 Federal Court Rules 2011 r 19.01", "Case_References": "Hii v Commissioner of Taxation (No 3) [2016] FCA 58 House v The King [1936] HCA 40 Madgwick v Kelly [2013] FCAFC 61 Oswal v Commissioner of Taxation (No 2) [2015] FCA 1143 (2015) 102 ATR 220 PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36 Vasiliades v Commissioner of Taxation [2016] FCA 420 Willey v Synan [1935] HCA 76", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID426-428of2016/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Elecnet (Aust) Pty Ltd (as trustee for the Electrical Industry Severance Scheme) v Commissioner of Taxation", "Venue_Reference_No": "M104 of 2016", "Venue": "High Court", "Judgment_Date": "21 December 2016", "Date_Published": "23 February 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the EISS is a unit trust for the purposes of Division 6C of Part III of the Income Tax Assessment Act 1936 (ITAA 1936).", "Overview_of_Facts": "ElecNet is the trustee of a trust known as the Electrical Industry Severance Scheme (the EISS). | Under the EISS, employers within the electrical contracting industry may become members of the scheme and, upon doing so, become obliged to make payments to ElecNet. These payments are credited by ElecNet to accounts in the name of each of the employees in respect of whom a payment is made. The Deed contemplates that, at such time as an employee's employment is terminated, ElecNet is to make a severance or redundancy payment to that employee. In this way, the EISS serves to protect, and allow the portability of, benefits payable to employees upon termination of employment. | ElecNet requested a private ruling from the Commissioner as to whether the EISS is a public trading trust for the purposes of Division 6C of Part III of the ITAA 1936 (Division 6C). If the EISS were a public trading trust, then its net income would be taxed at the rate of tax applicable to a company, not at the rate otherwise applicable under section 99A of the ITAA 1936. | The Commissioner ruled that the EISS is not a public trading trust for the purposes of Division 6C on the ground that the EISS is not a unit trust within the common meaning of that expression. | ElecNet argued that having regard to the inclusive definition of 'unit' in section 102M of the ITAA 1936 that the EISS is a unit trust for the purposes of Division 6C. | Issues decided by the court | The only issue before the Court was whether the EISS is a unit trust for the purposes of Division 6C. The Court held at [69] that the rights conferred on employees 'by the Deed were not such as to support the conclusion that the EISS is a unit trust for the purposes of Division 6C.' | In coming to that conclusion the Court considered 'the effect of the terms of the Deed and the construction of the terms of the provisions of Div 6C by reference to their text, context and purpose.' [42] | Effect of the Deed | In considering the effect of the Deed, the Court stated at [52]: 'Under the terms of the Deed, the making of a Severance Payment or other payment to a Worker, and the determination of the quantum of that payment, do not operate by reference to the Worker's ownership of units, but by reference to the contributions which happen to have been paid over time into that Worker's Account with ElecNet, and the determination by ElecNet to regard the Worker as an Active Worker. The extent of the entitlement of any Worker is not measurable as a percentage of the prescribed trust estate by reference to the terms of the Deed; rather, it depends upon the course of contributions paid on behalf of that Worker over time and the Worker's circumstances. In addition, it is to strain language too far to say that the Worker \"holds\" the entry in his or her account as a unit. Each Worker can no more be said to be a unitholder in respect of the amounts credited to him or her in ElecNet's books of account than a beneficiary of the estate of a deceased person could be described as a unitholder in respect of the moneys held on that person's behalf in the trust account of the estate's solicitor.' | Division 6C: textual considerations | Importantly, the Court found at [56] that there \"is no reason in the text or context of Div 6C to attribute to the undefined expression \"unit trust\" any meaning other than the meaning evident from the language of Div 6C. That meaning accords with the common usage of the expression \"unit trust\". As the Commissioner rightly observed, there is no reported case, in Australia or elsewhere, in which the expression \"unit trust\" has been applied other than in circumstances where, under the applicable trust deed, the beneficial interest in the trust fund is divided into units, which when created or issued are to be held by the persons for whom the trustee maintains and administers the trust estate. | In relation to the argument that the EISS was a unit trust based on the definition of unit the Court found at [54] that the 'inclusive definition of \"unit\" in s 102M is expressed to relate only to beneficial interests in income or property of a prescribed trust estate. By definition, a prescribed trust estate must be (or have been) a trust estate that is a public trading trust the interests in which are held by unitholders. Jessup J was right to hold that the inclusive definition of \"unit\" does not expand the meaning of \"unit trust\" for the purposes of Div 6C.' | And at [55], 'The inclusive definition of \"unit\" does not encompass an interest that would not otherwise be identifiable as a unit in relation to a prescribed trust estate merely because it is a beneficial interest in any of the income or property of the trust estate. Rather, the inclusive definition of \"unit\" ensures that a beneficial interest is a \"unit\" for the purposes of Div 6C, however it might be so described, and even if it is limited to only part of the property or income of the trust estate.' | Purpose of Division 6C | Finally the Court noted that 'a consideration of the purpose of Div 6C is not at odds with, but confirmatory of, the conclusion suggested by the text of the statute.' [58] | After a detailed consideration of its legislative history the Court observed at [62] that the 'purpose of Div 6C is to treat unit trusts for tax purposes as analogous to the relationship between companies and shareholders. The relationship established by the Deed between ElecNet and a Worker is not analogous to that between a company and a shareholder. To observe, as Jessup J did, that the entitlement of any Worker under the EISS is not \"unitised\" is to note an important respect in which an entitlement under the EISS cannot be regarded as analogous to a share in a company. The making of a contribution by a Member to ElecNet is not analogous to a subscription to the capital of an enterprise which is to generate income from which profits may be distributed to the subscribers.' Further, a payment to a Worker by ElecNet under cl 8 of the Deed is not even tenuously analogous to a dividend paid to a shareholder in a company, because both the making of a payment to a Worker, and the quantum of any such payment, depend on the exercise of a discretion by the trustee having regard to circumstances personal to the potential recipient. | The Court also expressed its concern at [63] that characterising the EISS as a 'unit trust for the purposes of Div 6C may have the unintended and, from the perspective of the recipients, unattractive consequence that Severance Payments made to Workers under the Scheme may be taxable in the hands of the recipients as unit trust dividends' (rather than as employment termination payments under Division 82 or redundancy payments or similar under Division 83 Income Tax Assessment Act 1997).", "Issues_Decided": "The only issue before the Court was whether the EISS is a unit trust for the purposes of Division 6C. The Court held at [69] that the rights conferred on employees 'by the Deed were not such as to support the conclusion that the EISS is a unit trust for the purposes of Division 6C.' In coming to that conclusion the Court considered 'the effect of the terms of the Deed and the construction of the terms of the provisions of Div 6C by reference to their text, context and purpose.' [42] | Effect of the Deed: In considering the effect of the Deed, the Court stated at [52]: 'Under the terms of the Deed, the making of a Severance Payment or other payment to a Worker, and the determination of the quantum of that payment, do not operate by reference to the Worker's ownership of units, but by reference to the contributions which happen to have been paid over time into that Worker's Account with ElecNet, and the determination by ElecNet to regard the Worker as an Active Worker. The extent of the entitlement of any Worker is not measurable as a percentage of the prescribed trust estate by reference to the terms of the Deed; rather, it depends upon the course of contributions paid on behalf of that Worker over time and the Worker's circumstances. In addition, it is to strain language too far to say that the Worker \"holds\" the entry in his or her account as a unit. Each Worker can no more be said to be a unitholder in respect of the amounts credited to him or her in ElecNet's books of account than a beneficiary of the estate of a deceased person could be described as a unitholder in respect of the moneys held on that person's behalf in the trust account of the estate's solicitor.' | Division 6C: textual considerations: Importantly, the Court found at [56] that there \"is no reason in the text or context of Div 6C to attribute to the undefined expression \"unit trust\" any meaning other than the meaning evident from the language of Div 6C. That meaning accords with the common usage of the expression \"unit trust\". As the Commissioner rightly observed, there is no reported case, in Australia or elsewhere, in which the expression \"unit trust\" has been applied other than in circumstances where, under the applicable trust deed, the beneficial interest in the trust fund is divided into units, which when created or issued are to be held by the persons for whom the trustee maintains and administers the trust estate. In relation to the argument that the EISS was a unit trust based on the definition of unit the Court found at [54] that the 'inclusive definition of \"unit\" in s 102M is expressed to relate only to beneficial interests in income or property of a prescribed trust estate. By definition, a prescribed trust estate must be (or have been) a trust estate that is a public trading trust the interests in which are held by unitholders. Jessup J was right to hold that the inclusive definition of \"unit\" does not expand the meaning of \"unit trust\" for the purposes of Div 6C.' And at [55], 'The inclusive definition of \"unit\" does not encompass an interest that would not otherwise be identifiable as a unit in relation to a prescribed trust estate merely because it is a beneficial interest in any of the income or property of the trust estate. Rather, the inclusive definition of \"unit\" ensures that a beneficial interest is a \"unit\" for the purposes of Div 6C, however it might be so described, and even if it is limited to only part of the property or income of the trust estate.' | Purpose of Division 6C: Finally the Court noted that 'a consideration of the purpose of Div 6C is not at odds with, but confirmatory of, the conclusion suggested by the text of the statute.' [58] After a detailed consideration of its legislative history the Court observed at [62] that the 'purpose of Div 6C is to treat unit trusts for tax purposes as analogous to the relationship between companies and shareholders. The relationship established by the Deed between ElecNet and a Worker is not analogous to that between a company and a shareholder. To observe, as Jessup J did, that the entitlement of any Worker under the EISS is not \"unitised\" is to note an important respect in which an entitlement under the EISS cannot be regarded as analogous to a share in a company. The making of a contribution by a Member to ElecNet is not analogous to a subscription to the capital of an enterprise which is to generate income from which profits may be distributed to the subscribers.' Further, a payment to a Worker by ElecNet under cl 8 of the Deed is not even tenuously analogous to a dividend paid to a shareholder in a company, because both the making of a payment to a Worker, and the quantum of any such payment, depend on the exercise of a discretion by the trustee having regard to circumstances personal to the potential recipient. The Court also expressed its concern at [63] that characterising the EISS as a 'unit trust for the purposes of Div 6C may have the unintended and, from the perspective of the recipients, unattractive consequence that Severance Payments made to Workers under the Scheme may be taxable in the hands of the recipients as unit trust dividends' (rather than as employment termination payments under Division 82 or redundancy payments or similar under Division 83 Income Tax Assessment Act 1997).", "ATO_View_of_Decision": "The Court's decision is consistent with the Commissioner's view of the law.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | None. | Implications for impacted Law Administration Practice Statements | None.", "Related_Documents": "None | High Court | 2016 ATC 20-600 | Full Federal Court | 2015 ATC 20-550 | Federal Court | 2015 ATC 20-507 | 96 | 97 | 98 | 101 | 102 | 102M | 102N | 102P | 102Q | 102R | 102S | 102T | 177E | 12(9) | 23 | 25 | Sch 5, Pt 2 | Sch 5, Pt 3 | Sch 3, item 8 | (1908) 6 CLR 469 | (2013) 2013 ATC 10-332 | [1986] VR 90 | (1954) 90 CLR 598 | (2010) 2010 ATC 20-170 | (2015) 2015 ATC 20-550 | [1971] AC 424 | (1967) 41 ALJR 232 | (1967) 14 ATD 519 | (1966) 117 CLR 514 | [1966] HCA 48 | [2010] HCA 36", "Legislative_References": "Income Tax Assessment Act 1936 96 97 98 101 102 102E 102F 102G 102H 102J 102K 102M 102N 102P 102Q 102R 102S 102T 177E Income Tax Rates Act 1986 12(9) 23 25 Taxation Laws Amendment Act (No 4) 1985 16 Income Tax Laws Amendment Act (No 3) 1981 10 Tax Laws Amendment (New Tax System for Managed Investment Trusts) Act 2016 Sch 5, Pt 2 Sch 5, Pt 3 Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 Sch 3, item 8", "Case_References": "Attorney-General for NSW v Brewery Employes Union of NSW (1908) 6 CLR 469 [1908] HCA 94 BERT Pty Ltd as trustee for the BERT Fund No. 2 v Commissioner of Taxation [2013] AATA 584 (2013) 2013 ATC 10-332 (2013) 95 ATR 457 Caboche v Ramsay (1993) 119 ALR 215 Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 [1998] HCA 4 Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 90 Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 [1954] HCA 16 (1954) 10 ATD 328 CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98 ElecNet (Aust) Pty Ltd (as Trustee for the Electrical Industry Severance Scheme) v Federal Commissioner of Taxation [2015] FCA 456 2015 ATC 20-507 Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481 [2010] HCA 10 (2010) 75 ATR 1 (2010) 2010 ATC 20-170 Federal Commissioner of Taxation v Elecnet (Aust) Pty Ltd (2015) 239 FCR 359 (2015) 2015 ATC 20-550 In re Baden's Deed Trusts [1971] AC 424 Macaura v Northern Assurance Co Ltd [1925] AC 619 Mahony v Commissioner of Taxation (1967) 41 ALJR 232 (1967) 14 ATD 519 MSP Nominees Pty Ltd v Commissioner of Stamps (SA) (1999) 198 CLR 494 [1999] HCA 51 Portland v Topham [1864] 11 HL Cas 32 11 ER 1242 Scott v Federal Commissioner of Taxation (1966) 117 CLR 514 [1966] HCA 48 (1966) 14 ATD 286 Vatcher v Paull [1915] AC 372 Redman v Permanent Trustee Co of New South Wales Ltd (1916) 22 CLR 84 [1916] HCA 47 Re Burton; Wily v Burton (1994) 126 ALR 557 Finch v Telstra Super Pty Ltd (2010) 242 CLR 254 [2010] HCA 36", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M104of2016/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Financial Synergy Holdings Pty Ltd v Federal Commissioner of Taxation", "Venue_Reference_No": "VID 88 of 2015; M46 of 2016", "Venue": "Federal Court of Australia", "Judgment_Date": "10 March 2016", "Date_Published": "17 January 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the deeming rule in subsection 122-70(3) of the Income Tax Assessment Act 1997 (ITAA 1997) operates only to preserve the pre-CGT status of an asset subject to a Subdivision 122-A roll-over or also determines the time the asset is acquired for the purpose of calculating its cost base under paragraph 110-25(2)(b) of the ITAA 1997.", "Overview_of_Facts": "A trustee of a family trust acquired units in the Financial Synergy Unit Trust (the unit trust) before 20 September 1985 (pre-CGT units). The market value of the units in the unit trust as at 1 July 1985 was $1,560,649. | On 29 June 2007 the trustee disposed of all of its pre-CGT units to Financial Synergy Holdings Pty Ltd (the taxpayer) in consideration of the issue of 30 million shares at $1 each by the taxpayer. The trustee chose to obtain CGT roll-over relief under Subdivision 122-A of the ITAA 1997 in respect of this disposal. | The taxpayer formed a consolidated group with effect from 1 July 2007, comprising itself, the unit trust and number of other entities. The cost base of the units in the unit trust determined under paragraph 110-25(2)(b) of the ITAA 1997 became the amount in item 1 in the table in subsection 705-65 of the ITAA 1997 for step 1 in working out the allocable cost amount for the unit trust as an entity joining a consolidated group. The taxpayer lodged tax returns for the 2008 to 2013 income years on the basis that the cost base of the pre-CGT units acquired on 29 June 2007 was $30 million. | In Financial Synergy Holdings Pty Ltd v Commissioner of Taxation [2015] FCA 53 the primary judge held that the time of acquisition for the purpose of calculating the cost base of the pre-CGT units under paragraph 110-25(2)(b) of the ITAA 1997 was deemed by subsection 122-70(3) of the ITAA 1997 to be before 20 September 1985 rather than the actual date of acquisition of 29 June 2007. | Issues decided by the court | The main issue before the Full Federal Court was whether the cost base of the units was the market value of the taxpayer's shares issued in consideration for the pre-CGT units as at 29 June 2007 or at a date before 20 September 1985 by virtue of subsection 122-70(3) of the ITAA 1997. | Middleton and Davies JJ (with Logan J agreeing) concluded that the time of acquisition of the units in the unit trust was 29 June 2007 because: • the reference to an acquisition time of an asset being \"before 20 September 1985\" in subsection 122-70(3) of the ITAA 1997 is used in contradistinction to an asset being acquired on or after 20 September 1985 which is provided with a cost base under subsection 122-70(2). The legislative scheme is to exempt pre-CGT assets from the operation of the CGT provisions. The purpose served by subsection 122-70(3) is to preserve the pre-CGT status of an asset which has been rolled-over. The function of the deeming provision does not need to extend beyond that purpose in the context of Division 122: Commissioner of Taxation v Comber (1986) 10 FCR 88 at 96 [34] ; • the definition of 'acquire' in section 995-1 of the ITAA 1997 does not extend the ambit of the deeming provision. The time deemed by subsection 122-70(3) does not govern the time of acquisition for the purposes of applying the meaning of 'acquire' under section 995-1 and subsection 110-25(2). Subdivision 109-B is not an operative part of the ITAA 1997 and does not of its own force govern the time of acquisition for the purposes of subsection 110-25(2) [35]; and • the legislature specifically introduced section 716-855 of the ITAA 1997 to contain a special rule for consolidated groups in relation to Subdivision 126-B roll-overs and it was telling against the Commissioner's construction that there was no such cognate provision in respect of a Division 122 roll-over [36]. | • the reference to an acquisition time of an asset being \"before 20 September 1985\" in subsection 122-70(3) of the ITAA 1997 is used in contradistinction to an asset being acquired on or after 20 September 1985 which is provided with a cost base under subsection 122-70(2). The legislative scheme is to exempt pre-CGT assets from the operation of the CGT provisions. The purpose served by subsection 122-70(3) is to preserve the pre-CGT status of an asset which has been rolled-over. The function of the deeming provision does not need to extend beyond that purpose in the context of Division 122: Commissioner of Taxation v Comber (1986) 10 FCR 88 at 96 [34] ; • the definition of 'acquire' in section 995-1 of the ITAA 1997 does not extend the ambit of the deeming provision. The time deemed by subsection 122-70(3) does not govern the time of acquisition for the purposes of applying the meaning of 'acquire' under section 995-1 and subsection 110-25(2). Subdivision 109-B is not an operative part of the ITAA 1997 and does not of its own force govern the time of acquisition for the purposes of subsection 110-25(2) [35]; and • the legislature specifically introduced section 716-855 of the ITAA 1997 to contain a special rule for consolidated groups in relation to Subdivision 126-B roll-overs and it was telling against the Commissioner's construction that there was no such cognate provision in respect of a Division 122 roll-over [36].", "Issues_Decided": "The main issue before the Full Federal Court was whether the cost base of the units was the market value of the taxpayer's shares issued in consideration for the pre-CGT units as at 29 June 2007 or at a date before 20 September 1985 by virtue of subsection 122-70(3) of the ITAA 1997. Middleton and Davies JJ (with Logan J agreeing) concluded that the time of acquisition of the units in the unit trust was 29 June 2007 because: • the reference to an acquisition time of an asset being \"before 20 September 1985\" in subsection 122-70(3) of the ITAA 1997 is used in contradistinction to an asset being acquired on or after 20 September 1985 which is provided with a cost base under subsection 122-70(2). The legislative scheme is to exempt pre-CGT assets from the operation of the CGT provisions. The purpose served by subsection 122-70(3) is to preserve the pre-CGT status of an asset which has been rolled-over. The function of the deeming provision does not need to extend beyond that purpose in the context of Division 122: Commissioner of Taxation v Comber (1986) 10 FCR 88 at 96 [34] ; • the definition of 'acquire' in section 995-1 of the ITAA 1997 does not extend the ambit of the deeming provision. The time deemed by subsection 122-70(3) does not govern the time of acquisition for the purposes of applying the meaning of 'acquire' under section 995-1 and subsection 110-25(2). Subdivision 109-B is not an operative part of the ITAA 1997 and does not of its own force govern the time of acquisition for the purposes of subsection 110-25(2) [35]; and • the legislature specifically introduced section 716-855 of the ITAA 1997 to contain a special rule for consolidated groups in relation to Subdivision 126-B roll-overs and it was telling against the Commissioner's construction that there was no such cognate provision in respect of a Division 122 roll-over [36]. • the reference to an acquisition time of an asset being \"before 20 September 1985\" in subsection 122-70(3) of the ITAA 1997 is used in contradistinction to an asset being acquired on or after 20 September 1985 which is provided with a cost base under subsection 122-70(2). The legislative scheme is to exempt pre-CGT assets from the operation of the CGT provisions. The purpose served by subsection 122-70(3) is to preserve the pre-CGT status of an asset which has been rolled-over. The function of the deeming provision does not need to extend beyond that purpose in the context of Division 122: Commissioner of Taxation v Comber (1986) 10 FCR 88 at 96 [34] ; • the definition of 'acquire' in section 995-1 of the ITAA 1997 does not extend the ambit of the deeming provision. The time deemed by subsection 122-70(3) does not govern the time of acquisition for the purposes of applying the meaning of 'acquire' under section 995-1 and subsection 110-25(2). Subdivision 109-B is not an operative part of the ITAA 1997 and does not of its own force govern the time of acquisition for the purposes of subsection 110-25(2) [35]; and • the legislature specifically introduced section 716-855 of the ITAA 1997 to contain a special rule for consolidated groups in relation to Subdivision 126-B roll-overs and it was telling against the Commissioner's construction that there was no such cognate provision in respect of a Division 122 roll-over [36].", "ATO_View_of_Decision": "The Full Federal Court has clarified the scope of the deeming rule in subsection 122-70(3) of the ITAA 1997. This deeming rule only applies for the purpose of exempting pre-CGT assets from the operation of the CGT provisions. The deeming rule does not determine the acquisition time for the purpose of calculating the cost base of a pre-CGT asset under paragraph 110-25(2)(b) of the ITAA 1997. | Implications for advice or guidance | ATO ID 2014/14 was withdrawn on 13 January 2017. This ATO ID contained a view that subsection 122-70(3) of the ITAA 1997 determines the acquisition time of a pre-CGT asset for the purpose of calculating its cost base under paragraph 110-25(2)(b) of the ITAA 1997. That view was found to be incorrect by the Full Federal Court in this case. | Implications for impacted Law Administration Practice Statements | Nil | Date of Amendment Part Comment 17 January 2017 Implications for impacted advice or guidance Updated to advise the withdrawal of ATO ID 2014/14.", "Administrative_Treatment": "", "Related_Documents": "ATO ID 2014/14 | Federal Court | 2016 ATC 20-557 | High Court | Div 109 | Div 110 | Subdiv 109-B | Subdiv 110-A | Subdiv 122-A | Subdiv 126-B | 102-20 | 104-5 | 104-10 | 109-5 | 109-50 | 109-55 | 110-25(2) | 122-15 | 122-20 | 122-40 | 122-70 | 701-1 | 701-10 | 705-10 | 705-60 | 705-65 | 716-855 | 950-100 | 950-150 | 995-1(1) | 86 ATC 4171 | 81 ATC 4292", "Legislative_References": "Income Tax Assessment Act 1997 Div 109 Div 110 Subdiv 109-B Subdiv 110-A Subdiv 122-A Subdiv 126-B 102-20 104-5 104-10 109-5 109-50 109-55 110-25(2) 122-15 122-20 122-40 122-70 701-1 701-10 705-10 705-60 705-65 716-855 950-100 950-150 995-1(1)", "Case_References": "Commissioner of Taxation v Comber (1986) 10 FCR 88 (1986) 17 ATR 413 86 ATC 4171 Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 (1981) 11 ATR 949 81 ATC 4292", "Subject_References": "", "Other_References": "ATO ID 2014/14", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID88of2015/M46of2016/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision including any precedential documents and Law Administration Practice Statements"}
{"Case_Name": "FLZY and Commissioner of Taxation", "Venue_Reference_No": "2014/2542", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "27 May 2016", "Date_Published": "29 July 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2016 ATC 1-081", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014/2542/00001", "Unmatched_Content": "Title [2016] AATA 348 2016 ATC 1-081 | The adverse aspect of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au"}
{"Case_Name": "Hill and Commissioner of Taxation", "Venue_Reference_No": "2015/2604", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "22 July 2016", "Date_Published": "21 October 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2016 ATC 10-430", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2015/2604/00001", "Unmatched_Content": "Hill and Commissioner of Taxation [2016] AATA 514 2016 ATC 10-430 | The aspects of the decision have no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au"}
{"Case_Name": "Lee Group Charters Pty Ltd v Commissioner of Taxation; Keri Lee Charters Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "QUD 615 of 2015", "Venue": "Federal Court of Australia", "Judgment_Date": "7 April 2016", "Date_Published": "2 June 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether excess boating deductions could be offset against other assessable income of the taxpayers.", "Overview_of_Facts": "Lee Group Charters Pty Ltd (LGC) acquired a boat, the Keri Lee 1, in 2005 and exchanged it for another, the Keri Lee II, in 2006. In 2009, the Keri Lee II was exchanged as a part of a transaction under which a related entity, Keri Lee Charters Pty Ltd (KLC), acquired another boat, the Keri Lee III. | The shares in LGC and KLC (the taxpayers) were owned by the trustee of a family trust controlled by Mr Trevor Lee (Mr Lee). | For each of the boats, commercial registration was obtained, advertising was conducted and a crew and chartering agent employed. Business plans tendered in evidence showed, on projected rates of revenue and cost, that LGC and KLC expected to realise profits from chartering the boats. Included in projections of charter revenue were payments to be made by Mr Lee, his family and friends for their use of the boat. | For all relevant years from the income year ended 30 June 2006 to the income year ended 30 June 2012, the taxpayers derived income from the chartering of the boats and claimed deductions, substantially in excess of that income, for depreciation, superannuation, rent, interest, repairs and maintenance. For those years the major part of the charter income, and in some years all charter income, was received from Mr Lee, his family and friends. In LGC's and KLC's tax returns, the excess of deductions was fully offset by other assessable income. | The Commissioner made amended assessments for the taxpayers for the income years ended 30 June 2009 to 30 June 2012 increasing their taxable incomes by the amount that the claimed deductions exceeded charter income. | Before the Court, the Commissioner's case was that the excess deductions were to be 'quarantined' under section 26-47 of the Income Tax Assessment Act 1997 (ITAA 1997). | Note: all subsequent legislative references are to the ITAA 1997, unless otherwise noted. | Issues decided by the court/Tribunal | His Honour Justice Logan decided that the excess deductions were not subject to the operation of section 26-47 as, on the facts of the case, the exception in paragraph 26-47(3)(b) for 'using a boat (or holding it) mainly for letting it on hire in the ordinary course of a *business that you *carry on' applied [at paragraph 130]. | His Honour identified that reaching a conclusion as to whether or not a particular activity amounted to the carrying on of a business involved questions of fact and degree [at paragraph 11], and that the nature and scope of a business must be identified in order to ascertain what is in its ordinary course [at paragraph 13]. | His Honour concluded that, on the whole of evidence including the 'generally reliable evidence' of Mr Lee, each boat was used and held exclusively for letting on hire in the ordinary course of a business being carried on by LGC and KLC [at paragraphs 18 and 129].", "Issues_Decided": "His Honour Justice Logan decided that the excess deductions were not subject to the operation of section 26-47 as, on the facts of the case, the exception in paragraph 26-47(3)(b) for 'using a boat (or holding it) mainly for letting it on hire in the ordinary course of a *business that you *carry on' applied [at paragraph 130]. His Honour identified that reaching a conclusion as to whether or not a particular activity amounted to the carrying on of a business involved questions of fact and degree [at paragraph 11], and that the nature and scope of a business must be identified in order to ascertain what is in its ordinary course [at paragraph 13]. His Honour concluded that, on the whole of evidence including the 'generally reliable evidence' of Mr Lee, each boat was used and held exclusively for letting on hire in the ordinary course of a business being carried on by LGC and KLC [at paragraphs 18 and 129].", "ATO_View_of_Decision": "The ATO agrees that a conclusion that a particular activity amounts to the carrying on of a business, the anterior conclusion that a person has a profit making purpose, and a conclusion as to the what is in the ordinary course of the business found, all involve questions of fact and degree. His Honour accepted that the testimony of Mr Lee was honest and reliable [at paragraph 18] and, on that premise, it was open to draw the factual conclusions made. | The ATO will continue to administer the law in other cases that concern the question of whether a business is being carried on, and what is in the ordinary course of that business, according to their particular facts. | The ATO notes that the decision of the Court is confined to the operation of section 26-47; neither section 8-1 nor Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) were in issue. | The ATO also observes that the conclusions reached by His Honour were supported by the fact that the taxpayers and the charterer Mr Lee were separate legal persons, and that significant related party chartering was expected and later happened. The ATO would consider the application of Part IVA of the ITAA 1936 in an appropriate case where the evidence demonstrates that structuring activity has been undertaken to obtain tax benefits under a scheme.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | Nil. | Implications for impacted Law Administration Practice Statements | Nil.", "Related_Documents": "None | 2016 ATC 20-561 | section 26-47", "Legislative_References": "Income Tax Assessment Act 1997 section 26-47", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD615of2015/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Millar & Anor v Commissioner of Taxation", "Venue_Reference_No": "S191 of 2016 (HCA)", "Venue": "High Court", "Judgment_Date": "", "Date_Published": "21 April 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case. The case concerned whether Mr and Mrs Millar (the taxpayers) had discharged their onus of proving the amount of $600,000 which was received by way of a purported loan arrangement with the Hua Wang Bank Berhad (HWBB) was not a sham, and whether the taxpayers could deduct the interest payments under section 26-25 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).", "Overview_of_Facts": "In June 2000, the taxpayers wanted to purchase an apartment on the Queensland Sunshine Coast for $1.1 million. The taxpayers' long-time accountant and financial advisor Mr Vanda Gould (Mr Gould) proposed that the taxpayers borrow $600,000 from Hua Wang Bank Berhad (HWBB) provided that they place the equivalent amount, drawn from their Australian superannuation fund, on deposit with HWBB. | HWBB is a bank incorporated in Samoa in 1994 and was beneficially owned and controlled by Mr Gould. Mr Gould prepared all of the transaction documents and all the taxpayers' dealings with HWBB were solely through him. | In October 2000, the taxpayers transferred $600,000 from their Australian superannuation fund to HWBB to put on deposit. HWBB then transferred the same amount to the taxpayers' solicitor to assist with financing the purchase of the apartment. | The Commissioner argued that the real transaction was that the taxpayers had impermissibly accessed their Australian superannuation fund to purchase an apartment. The Commissioner included the amount of $600,000 in the taxpayers' assessable income and also disallowed the deductions claimed by the taxpayers for capitalised interest on the loan. | Issues decided by the court | Decision at First Instance | The Administrative Appeals Tribunal (AAT) decided that the taxpayers failed to discharge their onus of showing that the amount of $600,000 received by them was not a benefit received from their superannuation fund because it was received by way of loan; in other words, the Tribunal was not persuaded that the loan was not a sham. | Issues decided by the Full Federal Court | Sham | The principal issue on appeal to the Full Federal Court concerned the finding of the Tribunal, upheld on appeal by the primary judge Justice Griffiths of the Federal Court; that the taxpayers had failed to discharge their burden of proof that the loan entered into by them was not a sham. | The majority of the Full Federal Court Justice Pagone and Justice Davies, in separate judgments, concluded that there was no legal error in the Tribunal's approach and findings. Justice Logan dissented. | The majority cited and relied upon the High Court decision in Raftland and that central to the concept of sham is an inquiry into whether the parties intended to give effect to the legal arrangements set out in their apparent agreement, understood only according to its terms [43]. Where the transactional documents cannot be taken on face value because of apparent discrepancies between legal rights created and the actual dealings or because of any other evidence, the taxpayer is required to establish that the parties did intend the documents to have the purported legal effect [45]. | The majority had regard to the evidence before the Tribunal: - there were gaps and inconsistencies in the loan documentation; - the taxpayers knew very little of the transaction they thought they were entering into with HWBB; - Mr Gould was the architect and governing mind of the transaction. The taxpayers did not call Mr Gould to give evidence, or any other witness who could give a sufficient explanation of the gaps and inconsistencies in the loan documentation. | - there were gaps and inconsistencies in the loan documentation; - the taxpayers knew very little of the transaction they thought they were entering into with HWBB; - Mr Gould was the architect and governing mind of the transaction. The taxpayers did not call Mr Gould to give evidence, or any other witness who could give a sufficient explanation of the gaps and inconsistencies in the loan documentation. | The majority upheld that the Tribunal was not bound to find that the taxpayers did not have a shamming intention because they simply believed what they had been told by Mr Gould about the loan. On the evidence available, the tribunal had not been satisfied that the transaction documents taken at face value did represent the real agreement between the parties. The majority reasoned that, in the circumstances of this case, the Tribunal was not in error in looking at the subsequent conduct of the parties as evidence of their intention. The evidence which the taxpayers were able to give fell short of disproving sham because they could not prove without further evidence that the purported loan documents represented the real agreement between the parties [45]. | Further, Mr Gould's intention had become relevant because he was the person who knew something about the transaction. He might have been able to explain the discrepancies. In the majority's view, the Tribunal did not wrongly substitute Mr Gould's intention for that of the taxpayers in determining that the taxpayers had not discharged their burden of proof [84]. | Withholding tax | On the Commissioner's notice of contention, which was only necessary to decide if the appeal was allowed, the issue raised before the primary judge and the majority of the Full Federal Court, was whether the taxpayers were required by section 12-245 when read in conjunction with section 11-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA) to pay withholding tax on the interest that was capitalised under the terms of the loan agreement between the taxpayers and HWBB. | The majority, Justice Pagone and Justice Davies, upheld the decision of the primary judge to find that capitalised interest is taken to have been 'paid' within the meaning of section 11-5 of the TAA, giving rise to an obligation to pay interest withholding tax pursuant to section 12-245 of the TAA. | Even if the loan agreement between the taxpayers and HWBB was not a sham, the majority concluded that the Tribunal nevertheless should have decided that capitalised interest claimed by the taxpayers as deductions was precluded from deduction by the operation of section 26-25 of the ITAA 1997, because the taxpayers failed to pay interest withholding tax to the Commissioner. Justice Logan dissented. | The taxpayers sought special leave to appeal the decision of the Full Federal Court to the High Court. The application for special leave was heard on the papers and refused by the High Court.", "Issues_Decided": "Decision at First Instance: The Administrative Appeals Tribunal (AAT) decided that the taxpayers failed to discharge their onus of showing that the amount of $600,000 received by them was not a benefit received from their superannuation fund because it was received by way of loan; in other words, the Tribunal was not persuaded that the loan was not a sham. | Issues decided by the Full Federal Court: Sham The principal issue on appeal to the Full Federal Court concerned the finding of the Tribunal, upheld on appeal by the primary judge Justice Griffiths of the Federal Court; that the taxpayers had failed to discharge their burden of proof that the loan entered into by them was not a sham. The majority of the Full Federal Court Justice Pagone and Justice Davies, in separate judgments, concluded that there was no legal error in the Tribunal's approach and findings. Justice Logan dissented. The majority cited and relied upon the High Court decision in Raftland and that central to the concept of sham is an inquiry into whether the parties intended to give effect to the legal arrangements set out in their apparent agreement, understood only according to its terms [43]. Where the transactional documents cannot be taken on face value because of apparent discrepancies between legal rights created and the actual dealings or because of any other evidence, the taxpayer is required to establish that the parties did intend the documents to have the purported legal effect [45]. The majority had regard to the evidence before the Tribunal: - there were gaps and inconsistencies in the loan documentation; - the taxpayers knew very little of the transaction they thought they were entering into with HWBB; - Mr Gould was the architect and governing mind of the transaction. The taxpayers did not call Mr Gould to give evidence, or any other witness who could give a sufficient explanation of the gaps and inconsistencies in the loan documentation. - there were gaps and inconsistencies in the loan documentation; - the taxpayers knew very little of the transaction they thought they were entering into with HWBB; - Mr Gould was the architect and governing mind of the transaction. The taxpayers did not call Mr Gould to give evidence, or any other witness who could give a sufficient explanation of the gaps and inconsistencies in the loan documentation. The majority upheld that the Tribunal was not bound to find that the taxpayers did not have a shamming intention because they simply believed what they had been told by Mr Gould about the loan. On the evidence available, the tribunal had not been satisfied that the transaction documents taken at face value did represent the real agreement between the parties. The majority reasoned that, in the circumstances of this case, the Tribunal was not in error in looking at the subsequent conduct of the parties as evidence of their intention. The evidence which the taxpayers were able to give fell short of disproving sham because they could not prove without further evidence that the purported loan documents represented the real agreement between the parties [45]. Further, Mr Gould's intention had become relevant because he was the person who knew something about the transaction. He might have been able to explain the discrepancies. In the majority's view, the Tribunal did not wrongly substitute Mr Gould's intention for that of the taxpayers in determining that the taxpayers had not discharged their burden of proof [84]. Withholding tax On the Commissioner's notice of contention, which was only necessary to decide if the appeal was allowed, the issue raised before the primary judge and the majority of the Full Federal Court, was whether the taxpayers were required by section 12-245 when read in conjunction with section 11-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA) to pay withholding tax on the interest that was capitalised under the terms of the loan agreement between the taxpayers and HWBB. The majority, Justice Pagone and Justice Davies, upheld the decision of the primary judge to find that capitalised interest is taken to have been 'paid' within the meaning of section 11-5 of the TAA, giving rise to an obligation to pay interest withholding tax pursuant to section 12-245 of the TAA. Even if the loan agreement between the taxpayers and HWBB was not a sham, the majority concluded that the Tribunal nevertheless should have decided that capitalised interest claimed by the taxpayers as deductions was precluded from deduction by the operation of section 26-25 of the ITAA 1997, because the taxpayers failed to pay interest withholding tax to the Commissioner. Justice Logan dissented. The taxpayers sought special leave to appeal the decision of the Full Federal Court to the High Court. The application for special leave was heard on the papers and refused by the High Court.", "ATO_View_of_Decision": "The decision of the Full Federal Court is consistent with the Commissioner's view.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | None. | Implications for impacted Law Administration Practice Statements | The decision has no impact on Law Administrative Practice Statements.", "Related_Documents": "None | Administrative Appeals Tribunal | 2015 ATC 10-384 | Federal Court | 2015 ATC 20-531 | Full Federal Court | 2016 ATC 20-578 | High Court | section 26-25 | section 11-5 | section 12-245 in Subdivision 12-F in Schedule 1 | (2008) 2008 ATC 20-029", "Legislative_References": "Income Tax Assessment Act 1997 (Cth) section 26-25 Income Tax Assessment Act 1936 (Cth) section 221YK Taxation Administration Act 1953 (Cth) section 11-5 section 12-245 in Subdivision 12-F in Schedule 1", "Case_References": "Raftland Pty Ltd v Commissioner of Taxation (2008) 238 CLR 516 [2008] HCA 21 (2008) 68 ATR 170 (2008) 2008 ATC 20-029", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S191of2016/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Rigoli v Commissioner of Taxation", "Venue_Reference_No": "VID 475 of 2015", "Venue": "Federal Court of Australia", "Judgment_Date": "14 March 2016", "Date_Published": "12 August 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the taxpayer discharged his burden of proving that default assessments were excessive and whether the Tribunal discharged its review function.", "Overview_of_Facts": "During the 1994 to 2001 income years, the taxpayer carried on business in partnership. The partnership did not keep business records. The taxpayer did not lodge income tax returns for any of those years, and the Commissioner made default assessments under section 167 of the Income Tax Assessment Act 1936 (ITAA 1936) of the amount upon which, in his judgment, income tax ought to be levied for each year. The taxpayer objected to the assessments on the simple ground that he had 'no taxable income'. | The taxpayer applied for review of the objection decision by the Administrative Appeals Tribunal (Tribunal). The Tribunal's decision was the subject of two appeals reported as Commissioner of Taxation v Rigoli [2013] FCA 784 and Rigoli v Commissioner of Taxation [2014] FCAFC 29 before being remitted to the Tribunal for further hearing. | Before the Tribunal on remitter, the taxpayer sought to discharge his burden of proof under section 14ZZK Taxation Administration Act 1953 by relying (in part) on the affidavit of an accountant (the Kompos report). The Commissioner had produced the Kompos report to show the basis on which he formed a judgment about the amounts on which income tax ought be levied for the purpose of making the default assessments. | The Tribunal concluded that the taxpayer did not discharge his burden of proof and affirmed the Commissioner's objection decisions. In doing so, the Tribunal found that the Kompos report 'was not intended to and did not establish, even on the basis of an estimate, the actual taxable income of Mr Rigoli from all sources for the income years in question.' | The taxpayer appealed to the Federal Court. The decision of the primary judge is reported as Rigoli v Commissioner of Taxation [2015] FCA 803. The primary judge dismissed the appeal. | The taxpayer then appealed to the Full Court. | Issues decided by the court | The issues decided by the Full Court were: • Whether the primary judge erred by declining to hold that the Tribunal had erred in excluding consideration of the Kompos report per se because it was not evidence led by the taxpayer; and • Whether the primary judge erred by declining to hold that the Tribunal had erred in concluding that the Kompos report did not provide a sufficient probative evidentiary basis for findings as to the taxpayer's actual taxable income. • The Full Court affirmed the decision of the primary judge and dismissed the appeal. | • Whether the primary judge erred by declining to hold that the Tribunal had erred in excluding consideration of the Kompos report per se because it was not evidence led by the taxpayer; and • Whether the primary judge erred by declining to hold that the Tribunal had erred in concluding that the Kompos report did not provide a sufficient probative evidentiary basis for findings as to the taxpayer's actual taxable income. • The Full Court affirmed the decision of the primary judge and dismissed the appeal.", "Issues_Decided": "The issues decided by the Full Court were: • Whether the primary judge erred by declining to hold that the Tribunal had erred in excluding consideration of the Kompos report per se because it was not evidence led by the taxpayer; and • Whether the primary judge erred by declining to hold that the Tribunal had erred in concluding that the Kompos report did not provide a sufficient probative evidentiary basis for findings as to the taxpayer's actual taxable income. • The Full Court affirmed the decision of the primary judge and dismissed the appeal. • Whether the primary judge erred by declining to hold that the Tribunal had erred in excluding consideration of the Kompos report per se because it was not evidence led by the taxpayer; and • Whether the primary judge erred by declining to hold that the Tribunal had erred in concluding that the Kompos report did not provide a sufficient probative evidentiary basis for findings as to the taxpayer's actual taxable income. • The Full Court affirmed the decision of the primary judge and dismissed the appeal.", "ATO_View_of_Decision": "The Court's decision is consistent with the Commissioner's view of the Tribunal's decision and with the Commissioner's view on what is required by a taxpayer to discharge the burden of proving that an assessment issued under section 167 of the ITAA 1936 is excessive.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | None. | Implications for impacted Law Administration Practice Statements | None.", "Related_Documents": "None | Full Federal Court | 2016 ATC 20-556 | Federal Court | 2015 ATC 20-522 | Administrative Appeals Tribunal | 2015 ATC 10-388 | 167 | 14ZZK | 90 ATC 4088 | 2013 ATC 20-407 | (1952) 86 CLR 183 | (2004) 57 ATR 28 | 93 ATC 5200 | 2014 ATC 20-446", "Legislative_References": "Administrative Appeals Tribunal Act 1975 44 Income Tax Assessment Act 1936 167 Taxation Administration Act 1953 14ZZK", "Case_References": "Commissioner of Taxation v Dalco (1990) 168 CLR 614 (1990) 20 ATR 1370 90 ATC 4088 Commissioner of Taxation v Rigoli [2013] FCA 784 2013 ATC 20-407 George v Federal Commissioner of Taxation [1952] HCA 21 (1952) 86 CLR 183 (1952) 9 ATD 421 5 AITR 360 Kimche v Federal Commissioner of Taxation [2004] FCA 1108 (2004) 57 ATR 28 Ma v Commissioner of Taxation [1992] FCA 359 (1992) 37 FCR 225 (1992) 23 ATR 485 Martin v Federal Commissioner of Taxation [1993] FCA 621 (1993) 27 ATR 282 93 ATC 5200 Rigoli v Commissioner of Taxation [2014] FCAFC 29 2014 ATC 20-446", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID475of2015/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements."}
{"Case_Name": "Smits v Lillas & Loel Solicitors and Ors", "Venue_Reference_No": "B53/2016", "Venue": "High Court", "Judgment_Date": "14 December 2016", "Date_Published": "31 January 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/B53/2016/00001", "Unmatched_Content": "Smits v Lillas & Loel Solicitors and Ors [2016] HCASL 339 | The adverse aspect of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au"}
{"Case_Name": "Tech Mahindra Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 1699/2015", "Venue": "Federal Court of Australia", "Judgment_Date": "22 September 2016", "Date_Published": "29 August 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The sole issue in the appeal concerns the proper construction of Article 12(4) of the Agreement Between The Government Of Australia And The Government Of The Republic Of India For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To Taxes On Income [1991] ATS 49. The Commissioner did not seek to challenge the finding of Justice Perry in the first instance that Article 7 would not apply to those payments and that only certain payments in question constituted 'royalties' as defined in Article 12(3).", "Overview_of_Facts": "The taxpayer was incorporated in India and was a non-resident of Australia for taxation purposes. | The taxpayer established offices in Australia, which comprised a 'permanent establishment' for the purposes of the Agreement Between The Government of Australia And The Government Of The Republic of India For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion With Respect To Taxes On Income [1991] ATS 49 (Indian Agreement 1991). | In the relevant period, the taxpayer provided information technology services to large scale enterprises in Australia. | In the performance of its contracts, the taxpayer provided services through staff located in the Australian offices or staff located in the Indian offices. | In Tech Mahindra Limited v Commissioner of Taxation [2015] FCA 1982, Justice Perry concluded that a portion of the payments satisfied the definition of 'royalties' under Article 12(3)(g). Services that satisfied the definition in Article 12(3)(g) included the development and customisation of software, software maintenance activities whereby software fixes required a change to the source code, and enhancement activities being work undertaken in coding upgrades. Where an activity was interdependent on another activity which satisfied Article 12(3)(g), the former activity also satisfied Article 12(3)(g). | Her Honour concluded that Article 12(4) was not engaged to deny the operation of Articles 12(1) and 12(2) on the basis that the services performed in India were not 'effectively connected' to the permanent establishment. | The taxpayer appealed the Federal Court decision to the Full Federal Court. | In Tech Mahindra Limited and Commissioner of Taxation [2016] FCAFC 130, Robertson, Davies and Wigney JJ agreed with Perry J that Article 12(4) of the Indian Treaty was not engaged. | Tech Mahindra sought special leave to appeal the decision of the Full Federal Court to the High Court, (S244 of 2016). Gageler and Gordon JJ refused Tech Mahindra Limited's special leave. | Issues decided by the court | The co-extensive operation of Article 12 and Article 7 give content and meaning to the phrase 'effectively connected with' in Article 12(4). The primary judge was correct in holding that the phrase 'effectively connected with the permanent establishment' is intended to encapsulate the test of connection under Article 7(1)(a), which justifies the allocation of taxing rights to a Contracting State in respect of the business profits of a non-resident that are attributable to the permanent establishment in that Contracting State. Article 12(4) is engaged where the royalties in question are able to be taxed by the source State under Article 7(1)(a) as part of business profits attributable to a permanent establishment in that state. | In the relevant year the payments in question were not attributable to the taxpayer's permanent establishment in Australia.", "Issues_Decided": "The co-extensive operation of Article 12 and Article 7 give content and meaning to the phrase 'effectively connected with' in Article 12(4). The primary judge was correct in holding that the phrase 'effectively connected with the permanent establishment' is intended to encapsulate the test of connection under Article 7(1)(a), which justifies the allocation of taxing rights to a Contracting State in respect of the business profits of a non-resident that are attributable to the permanent establishment in that Contracting State. Article 12(4) is engaged where the royalties in question are able to be taxed by the source State under Article 7(1)(a) as part of business profits attributable to a permanent establishment in that state. In the relevant year the payments in question were not attributable to the taxpayer's permanent establishment in Australia.", "ATO_View_of_Decision": "Article 12(4) is engaged where the royalties in question are able to be taxed by the source State under Article 7(1)(a) as part of business profits attributable to a permanent establishment in that state. In other circumstances, the source country's taxing right in Article 12 remains unaffected. | In the present case it was common ground that the payments referrable to the provision of those services were not attributable to the taxpayer's permanent establishment in Australia so the payments were brought to tax under Article 12 as income.", "Administrative_Treatment": "N/A", "Related_Documents": "N/A | 2016 ATC 20-582 | 2005 ATC 4398 | 2014 ATC 20-467", "Legislative_References": "Agreement between the Government of Australia and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income 1991 [1991] ATS 49, Art 7 and Art 12 International Tax Agreements Act 1953 11Z Vienna Convention on the Law of Treaties [1974] ATS 2 Art 31", "Case_References": "McDermott Industries (Aust) Pty Ltd v Commissioner of Taxation [2005] FCAFC 67 (2005) 142 FCR 134 2005 ATC 4398 Task Technology Pty Ltd v Federal Commissioner of Taxation [2014] FCAFC 113 (2014) 224 FCR 355 2014 ATC 20-467 (2014) 99 ATR 275", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1699/2015/00001", "Unmatched_Content": "Note: On 23 November 2022, the Treasury Laws Amendment (Australia-India Economic Cooperation and Trade Agreement Implementation) Bill 2022 received royal assent. The amendment applies to income years commencing on or after 29 December 2022. Whilst this Decision Impact Statement is not impacted by the amendment, a fact pattern similar to the facts of Tech Mahindra Limited v Commissioner of Taxation would be impacted by the amendment for income years commencing on or after 29 December 2022. | This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "WTPG and Commissioner of Taxation", "Venue_Reference_No": "2015/6427", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "30 November 2016", "Date_Published": "23 February 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerns whether travel expenses incurred by a person for their spouse to accompany them to a work related conference as their carer are deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), denied under section 26-30 of the ITAA 1997, and whether the Commissioner's decision breached the Disability Discrimination Act 1992.", "Overview_of_Facts": "During the income year ending 30 June 2014, the Applicant paid for his wife to travel with him to London so that she could be his personal carer while he attended two work-related conferences. The Applicant suffers from medical conditions that mean he is unable to walk any distance without assistance and cannot stand for any length of time. | The Applicant's employer was aware of his disabilities but did not provide him with a carer or assistant to travel with him. None of the employer's other staff members were willing to accompany him to act as his carer. | The Applicant's wife acted as his carer both on the flights to and from the United Kingdom and during his time there. During that time, she helped him to dress, assisted him with his personal hygiene, showering and toilet needs and supported him when he was walking and standing. Her assistance was necessary to enable the Applicant to travel to, and attend, both conferences. The Applicant's wife did not perform any tasks relating to the duties he performed in the course of employment. She was not employed by the Applicant's employer and did not receive any payment for the assistance that she gave him. | The Applicant sought a private ruling on whether the travel expenses, being his wife's airfares amounting to $9,767.52, were deductible for the 2014 year. The Commissioner made a private ruling that the travel expenses were not deductible. | The Applicant objected to the private ruling and the Commissioner agreed to treat the objection as an objection to the Applicant's assessment (which had been issued) and disallowed it in full. The Applicant applied to the Tribunal for review of that objection decision primarily on the ground that it constitutes discrimination under the Disability Discrimination Act 1992. | It is noted that the Tribunal decision refers to the objection decision relating to the private ruling. However this is not considered to affect the decision, as the facts relied on by the Tribunal were agreed by the parties. | Issues decided by the court | The issues before the Tribunal were whether: • the travel expenses were deductible in the 2014 year under section 8-1 of the ITAA 1997 • section 26-30 of the ITAA 1997 operates to deny the Applicant a deduction for travel expenses • the Commissioner's objection decision was in breach of the Disability Discrimination Act 1992. | • the travel expenses were deductible in the 2014 year under section 8-1 of the ITAA 1997 • section 26-30 of the ITAA 1997 operates to deny the Applicant a deduction for travel expenses • the Commissioner's objection decision was in breach of the Disability Discrimination Act 1992. | Application of section 8-1 of ITAA 1997 | The Tribunal concluded that the travel expenses were not deductible, as paragraph 8-1(1)(a) of the ITAA 1997 was not satisfied. The Tribunal found that the expenses were incurred in the course of enabling the Applicant to undertake his duties rather than in the course of his undertaking those duties. The Tribunal noted that the Applicant did not pay his wife's expenses so that she could carry out tasks associated with his employment so that he could be said to have incurred the expenditure in the course of gaining his assessable income. | Although the Tribunal did not need to then consider whether the travel expenses were of a private or domestic nature under paragraph 8-1(1)(b) of the ITAA 1997, the Tribunal concluded that the principles in Re Frisch and the Federal Commissioner of Taxation [2008] AATA 462, (2008) 72 ALJR 1 applied in the present case. The nature of the personal assistance required by the Applicant equated with the expenses being of a private or domestic nature. | Application of section 26-30 of ITAA 1997 | The Tribunal was not required to make a finding on the operation of section 26-30 of the ITAA 1997, as it had concluded that the travel expenses were not deductible under section 8-1 of ITAA 1997. However, the Tribunal considered that section 26-30 of the ITAA 1997 imposes a blanket prohibition upon claiming a relative's travel expenses as a deduction, but it is a prohibition that is ameliorated if the relative performed substantial duties as the taxpayer's employer's employee or as the taxpayer's employee and it is reasonable to conclude that the relative would have accompanied the taxpayer even without the personal relationship between them. | Discrimination under the Disability Discrimination Act 1992: | The Tribunal also held that that the Commissioner's objection decision was not in breach of the Disability Discrimination Act 1992. There was no discrimination within the meaning of that Act in the Commissioner's application of section 8-1 of the ITAA 1997.", "Issues_Decided": "The issues before the Tribunal were whether: • the travel expenses were deductible in the 2014 year under section 8-1 of the ITAA 1997 • section 26-30 of the ITAA 1997 operates to deny the Applicant a deduction for travel expenses • the Commissioner's objection decision was in breach of the Disability Discrimination Act 1992. • the travel expenses were deductible in the 2014 year under section 8-1 of the ITAA 1997 • section 26-30 of the ITAA 1997 operates to deny the Applicant a deduction for travel expenses • the Commissioner's objection decision was in breach of the Disability Discrimination Act 1992. | Application of section 8-1 of ITAA 1997: The Tribunal concluded that the travel expenses were not deductible, as paragraph 8-1(1)(a) of the ITAA 1997 was not satisfied. The Tribunal found that the expenses were incurred in the course of enabling the Applicant to undertake his duties rather than in the course of his undertaking those duties. The Tribunal noted that the Applicant did not pay his wife's expenses so that she could carry out tasks associated with his employment so that he could be said to have incurred the expenditure in the course of gaining his assessable income. Although the Tribunal did not need to then consider whether the travel expenses were of a private or domestic nature under paragraph 8-1(1)(b) of the ITAA 1997, the Tribunal concluded that the principles in Re Frisch and the Federal Commissioner of Taxation [2008] AATA 462, (2008) 72 ALJR 1 applied in the present case. The nature of the personal assistance required by the Applicant equated with the expenses being of a private or domestic nature. | Application of section 26-30 of ITAA 1997: The Tribunal was not required to make a finding on the operation of section 26-30 of the ITAA 1997, as it had concluded that the travel expenses were not deductible under section 8-1 of ITAA 1997. However, the Tribunal considered that section 26-30 of the ITAA 1997 imposes a blanket prohibition upon claiming a relative's travel expenses as a deduction, but it is a prohibition that is ameliorated if the relative performed substantial duties as the taxpayer's employer's employee or as the taxpayer's employee and it is reasonable to conclude that the relative would have accompanied the taxpayer even without the personal relationship between them. Discrimination under the Disability Discrimination Act 1992: The Tribunal also held that that the Commissioner's objection decision was not in breach of the Disability Discrimination Act 1992. There was no discrimination within the meaning of that Act in the Commissioner's application of section 8-1 of the ITAA 1997.", "ATO_View_of_Decision": "The Tribunal's reasoning is consistent with the Commissioner's view on the deductibility of travel expenses under section 8-1 of the ITAA 1997, and the operation of section 26-30 of the ITAA 1997. | The Commissioner considers that the Tribunal's decision that that there was no discrimination within the meaning of the Disability Discrimination Act 1992 in the Commissioner's application of section 8-1 is correct.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | None. | Implications for impacted Law Administration Practice Statements | None.", "Related_Documents": "None | 2016 ATC 1-086 | 8-1 | 26-30 | (1961) 106 CLR 60 | 2001 ATC 4027 | 2010 ATC 20-221 | 71 ATC 4161 | 72 ATC 4174 | [1958] HCA 5 | (1958) 100 CLR 478 | (1958) 11 ATD 404 | [1998] HCA 28 | (1998) 194 CLR 355 | 153 ALR 490 | 2008 ATC 10-031 | (1982) 82 ATC 141 | (1991) 172 CLR 1", "Legislative_References": "Income Tax Assessment Act 1997 8-1 26-30 Income Tax Assessment Act 1936 51 Disability Discrimination Act 1992 5 6 29 47", "Case_References": "Abbott v Transport Accident Commission [1991] 2 VR 116 Commissioner of Taxation v Finn [1961] HCA 61 (1961) 106 CLR 60 Commissioner of Taxation v Payne [2001] HCA 3 (2001) 202 CLR 93 177 ALR 270 (2001) 75 ALJR 442 46 ATR 228 2001 ATC 4027 Federal Commissioner of Taxation v Anstis [2010] HCA 40 (2010) 241 CLR 443 272 ALR 1 76 ATR 735 85 ALJR 122 2010 ATC 20-221 Federal Commissioner of Taxation v Maddalena (1971) 2 ATR 541 45 ALJR 426 71 ATC 4161 Fortescue Metals Group Limited v The Commonwealth of Australia [2013] HCA 34 (2013) 250 CLR 548 300 ALR 26 87 ALJR 935 89 ATR 1 Lodge v Commissioner of Taxation [1972] HCA 49 (1972) 128 CLR 171 3 ATR 254 46 ALJR 575 72 ATC 4174 Lunney v Federal Commissioner of Taxation [1958] HCA 5 (1958) 100 CLR 478 (1958) 11 ATD 404 Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28 (1998) 194 CLR 355 72 ALJR 841 153 ALR 490 Purvis v New South Wales [2003] HCA 62 (2003) 217 CLR 92 202 ALR 133 78 ALJR 1 77 ALD 570 Re Frisch and Federal Commissioner of Taxation [2008] AATA 462 (2008) 72 ATR 551 2008 ATC 10-031 Re Gilbert and Federal Commissioner of Taxation (1982) 82 ATC 141 (1982) 25 CTBR (NS) 715 Saraswati v The Queen [1991] HCA 21 (1991) 172 CLR 1 100 ALR 193 65 ALJR 402", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2015/6427/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Amies v Commissioner of Taxation", "Venue_Reference_No": "2015/4708", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "2 October 2015", "Date_Published": "12 November 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to an Administrative Appeals Tribunal decision to set aside the Commissioner of Taxation's decision to refuse the issue of a departure authorisation certificate (DAC) to Ms Amies and substitute its decision to issue a DAC on condition of specified security being given to the Commissioner.", "Overview_of_Facts": "In February 2015, the Commissioner of Taxation made assessments and amended assessments of the taxable income of Ms Amies for the 2003-2007 income tax years. The primary tax, penalties and interest resulting from those assessments exceeded 3 million dollars. | The assessments were based on the Commissioner's contentions that Ms Amies was involved with a cross-jurisdictional network of companies and trusts located in tax havens to disguise her interest in certain funds, which were invested in Australian financial assets which yielded taxable income. | The Commissioner commenced recovery proceedings against Ms Amies in April 2015. In May 2015, Ms Amies objected against the assessments. | The Commissioner issued a departure prohibition order to Ms Amies on 1 June 2015 under section 14S of the Taxation Administration Act 1953 (Cth) (TAA), prohibiting her departure from Australia for a foreign country. | In July 2015, the Commissioner obtained interim freezing orders against the assets of Ms Amies and also disallowed Ms Amies' objection against her income tax assessments. Ms Amies requested the Commissioner to issue a DAC to allow her to travel in October 2015 to Italy to attend a friend's wedding. She also applied to the Administrative Appeals Tribunal for review of the objection decision in August 2015, and that review has been listed for hearing in February 2016. | The Commissioner made a decision refusing to grant the DAC in September 2015 after extensive negotiations concerning security under subparagraph 14U(1)(b)(i) of the TAA for Ms Amies return. | Ms Amies applied for a review of that decision. | Issues decided by the court | The Tribunal (Deputy President PE Hack SC) set aside the Commissioner's decision refusing the issue of the DAC and substituted its decision to issue a DAC upon the condition that Ms Amies gives security to the Commissioner in the amount of $200,000 and that she consent to the freezing orders continuing to have effect until the hearing and determination by the Tribunal of Ms Amies application for review. | Deputy President Hack concluded, on the basis of the facts before the Tribunal, that the risk that Ms Amies might not return to Australia was slight and that pursuant to subparagraph 14U(1)(b)(i) of the TAA he would require Ms Amies to give security in the amount of $200,000. He also stated: In the dealings between the parties to date, the Commissioner appears to have required security for the whole of the tax in dispute. That seems unrealistic to me - what is required is not security for the debt but security for Ms Amies' return to Australia. So much is accepted in the Commissioner's policy document, Practice Statement Law Administration 2011/18 at paragraph 157.. | The facts presented to the Tribunal by Ms Amies included her family, business and emotional ties in Australia. | Deputy President Hack also stated that in the event that Ms Amies was not able to give security in the terms proposed, he would not have been satisfied with a departure certificate being issued on humanitarian grounds.", "Issues_Decided": "The Tribunal (Deputy President PE Hack SC) set aside the Commissioner's decision refusing the issue of the DAC and substituted its decision to issue a DAC upon the condition that Ms Amies gives security to the Commissioner in the amount of $200,000 and that she consent to the freezing orders continuing to have effect until the hearing and determination by the Tribunal of Ms Amies application for review. Deputy President Hack concluded, on the basis of the facts before the Tribunal, that the risk that Ms Amies might not return to Australia was slight and that pursuant to subparagraph 14U(1)(b)(i) of the TAA he would require Ms Amies to give security in the amount of $200,000. He also stated: In the dealings between the parties to date, the Commissioner appears to have required security for the whole of the tax in dispute. That seems unrealistic to me - what is required is not security for the debt but security for Ms Amies' return to Australia. So much is accepted in the Commissioner's policy document, Practice Statement Law Administration 2011/18 at paragraph 157.. The facts presented to the Tribunal by Ms Amies included her family, business and emotional ties in Australia. Deputy President Hack also stated that in the event that Ms Amies was not able to give security in the terms proposed, he would not have been satisfied with a departure certificate being issued on humanitarian grounds.", "ATO_View_of_Decision": "The ATO accepts that the decision, decided on the basis of the facts presented to the Tribunal at the hearing, is in accordance with established principles and that it was open to the Tribunal to make the factual findings it ultimately made.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | Nil | Implications for impacted Law Administration Practice Statements | Nil", "Related_Documents": "This decision has no impact for ATO Rulings/Determinations. | This decision has no impact for ATO precedential documents or Law Administration Practice Statements. | [2015] AATA 777 | 14S | 14U", "Legislative_References": "Taxation Administration Act 1953 (Cth) 14S 14U", "Case_References": "", "Subject_References": "Tax administration Recovery of tax Departure prohibition & authorisation", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2015/4708/00001", "Unmatched_Content": ""}
{"Case_Name": "Aquatic Air Pty Ltd v Siewert & Anor", "Venue_Reference_No": "2012/169096", "Venue": "Supreme Court of NSW", "Judgment_Date": "27 July 2015", "Date_Published": "17 February 2020", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether supplies of air ambulance services were GST-free pursuant to subsection 38-10(5) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).", "Overview_of_Facts": "The defendants, Dieter and Lieselotte Siewert (the Siewerts), were the owners of a number of aviation companies (the Aviation Companies), including Wingaway Air Pty Ltd (Wingaway), through which Mr Siewert conducted various aviation operations, including the provision of air ambulance services to regional hospitals and area health services. | Wingaway had a fleet of aircraft specifically fitted for medical care. The company was engaged by hospitals to transport patients who were under the hospital's care (usually from home to hospital, or between hospitals). Upon doing so, Wingaway would invoice the relevant health service for the services that had been performed which would be paid by the health service. | When the Siewerts purchased Wingaway, they were informed by their vendor that the provision of ambulance services to hospitals was GST-exempt; reliance was placed on an ATO private ruling issued on 25 October 2000 to Wingaway National Pty Ltd, a separate entity that was related to the previous owner of Wingaway Air Pty Ltd. The Siewerts continued to operate the business on the assumption that the supplies made by Wingaway were GST-free. | On 23 July 2012, the Commissioner issued notices of amended assessment to Wingaway for over $2.9m for unpaid GST, penalties and interest in respect of the period 1 July 2008 to 31 May 2012. The assessments were founded on the footing that the supplies made by Wingaway did not fall within the scope of subsection 38-10(5) of the GST Act, and thus were not GST-free. | On 28 May 2012, AT Air Group Pty Ltd commenced proceedings against the Siewerts seeking, inter alia , damages for misrepresentation in respect of the share sale agreement. Aquatic alleged, amongst other things, that the Siewerts had misrepresented the true GST liability of Wingaway when the agreement between the parties was entered. | Issues Decided by the Court | The issue for determination by the Court was whether the Siewerts had made a misrepresentation in respect of Wingaway's true GST liability as at 30 June 2011. Brereton J decided that no representation or misrepresentation had been made by the Siewerts in this regard. His Honour went on to observe that, contrary to the Notices of Amended Assessment issued by the Commissioner, Wingaway did not have a GST liability for the relevant period because it's activities fell within the ambit of subsection 38-10(5) of the GST Act. | His Honour noted that the Commissioner's Assessments were predicated on two primary bases: (a) that Wingaway did not hold an Air Operator's Certificate (AOC) and therefore could not have been providing air ambulance services; and (b) that the services rendered by Wingaway were provided to the hospitals, not to the individuals being transported, and thus, was not provided in the course of the treatment of the recipient of the supply. | (a) that Wingaway did not hold an Air Operator's Certificate (AOC) and therefore could not have been providing air ambulance services; and (b) that the services rendered by Wingaway were provided to the hospitals, not to the individuals being transported, and thus, was not provided in the course of the treatment of the recipient of the supply. | His Honour disagreed with the Commissioner's reasoning and observed that: (a) there is no requirement in the GST legislation for an air ambulance service to hold an AOC; and (b) the recipients of the services rendered by Wingaway were the patients transported by Wingaway and not the hospitals that arranged the service. The services rendered were therefore provided in course of the treatment of the recipient of the supply in accordance with subsection 38-10(5) of the GST Act. | (a) there is no requirement in the GST legislation for an air ambulance service to hold an AOC; and (b) the recipients of the services rendered by Wingaway were the patients transported by Wingaway and not the hospitals that arranged the service. The services rendered were therefore provided in course of the treatment of the recipient of the supply in accordance with subsection 38-10(5) of the GST Act. | Accordingly, his Honour concluded that the supplies rendered by Wingaway fell within the ambit of subsection 38-10(5) of the GST Act and were GST-free. | On appeal, the Court of Appeal did not proffer any view as to the correctness of Brereton J's observations as to Wingaway's liability for GST.", "Issues_Decided": "The issue for determination by the Court was whether the Siewerts had made a misrepresentation in respect of Wingaway's true GST liability as at 30 June 2011. Brereton J decided that no representation or misrepresentation had been made by the Siewerts in this regard. His Honour went on to observe that, contrary to the Notices of Amended Assessment issued by the Commissioner, Wingaway did not have a GST liability for the relevant period because it's activities fell within the ambit of subsection 38-10(5) of the GST Act. His Honour noted that the Commissioner's Assessments were predicated on two primary bases: (a) that Wingaway did not hold an Air Operator's Certificate (AOC) and therefore could not have been providing air ambulance services; and (b) that the services rendered by Wingaway were provided to the hospitals, not to the individuals being transported, and thus, was not provided in the course of the treatment of the recipient of the supply. (a) that Wingaway did not hold an Air Operator's Certificate (AOC) and therefore could not have been providing air ambulance services; and (b) that the services rendered by Wingaway were provided to the hospitals, not to the individuals being transported, and thus, was not provided in the course of the treatment of the recipient of the supply. His Honour disagreed with the Commissioner's reasoning and observed that: (a) there is no requirement in the GST legislation for an air ambulance service to hold an AOC; and (b) the recipients of the services rendered by Wingaway were the patients transported by Wingaway and not the hospitals that arranged the service. The services rendered were therefore provided in course of the treatment of the recipient of the supply in accordance with subsection 38-10(5) of the GST Act. (a) there is no requirement in the GST legislation for an air ambulance service to hold an AOC; and (b) the recipients of the services rendered by Wingaway were the patients transported by Wingaway and not the hospitals that arranged the service. The services rendered were therefore provided in course of the treatment of the recipient of the supply in accordance with subsection 38-10(5) of the GST Act. Accordingly, his Honour concluded that the supplies rendered by Wingaway fell within the ambit of subsection 38-10(5) of the GST Act and were GST-free. On appeal, the Court of Appeal did not proffer any view as to the correctness of Brereton J's observations as to Wingaway's liability for GST.", "ATO_View_of_Decision": "The observations made by Brereton J as to Wingaway's liability for GST were obiter dicta. This is because his Honour had previously held that the relevant 'representation' had not been made by the Siewerts. It was therefore unnecessary for his Honour to consider whether, if the representation had been made, it was correct. | Accordingly, the Commissioner does not consider that he is bound to administer the GST Act in a manner consistent with the observations of Brereton J in respect of subsection 38-10(5) of the GST Act. | The Commissioner respectfully disagrees with his Honour's identification of the recipients of the supplies made by Wingaway. The Commissioner's view in respect of tripartite arrangements is set out in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies . Consistent with GSTR 2006/9, the Commissioner considers that the recipients of the supplies made by Wingaway were the hospitals with which Wingaway contracted. The Commissioner will continue to apply the law in the manner set out in GSTR 2006/9. | The Commissioner accepts Brereton J's finding that holding an AOC is not a precondition to satisfying subsection 38-10(5) of the GST Act.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | ATO Interpretative Decision ATO ID 2005/185 was withdrawn on 8 December 2017. | Implications for impacted Law Administration Practice Statements | The decision has no impact on Law Administration Practice Statements. | Date of amendment Part Comment 17 February 2020 Administrative treatment Updated to reflect the withdrawal of ATO ID 2005/185. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).", "Related_Documents": "ATO Interpretative Decision ATO ID 2005/185: GST and supply of air ambulance | GSTR 2006/9: Goods and services tax: supplies | [2015] NSWSC 928 | 38-10", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 38-10", "Case_References": "Aquatic Air Pty Ltd v Siewert & Anor [2015] NSWSC 928 Aquatic Air Pty Ltd v Siewert [2016] NSWCA 318", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/169096/00001", "Unmatched_Content": ""}
{"Case_Name": "AusNet Transmission Group Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "M35 of 2014", "Venue": "High Court", "Judgment_Date": "5 August 2015", "Date_Published": "23 September 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to the High Court decision that certain statutory imposts paid by AusNet Transmission Group Pty Ltd (AusNet) to the State of Victoria in connection with the purchase of an electricity transmission business were not deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).", "Overview_of_Facts": "In 1993, the Victorian Government disaggregated the State owned electricity business into generation, transmission and distribution businesses. The Government established National Electricity (renamed Power Net Victoria (PNV)) to carry on the transmission business. In 1995, pursuant to powers granted by the Electricity Industry Act 1993 (Vic.), the Governor-in-Council made a Tariff Order which imposed a cap on the revenue PNV could derive from certain services. | Before privatising the transmission business (in 1997), the Government was advised that some of the assumptions which underpinned the Tariff Order were no longer correct. The revenue cap was higher than necessary to enable a reasonable return on capital. The Government was advised that the excess revenue should be recovered by imposing a 'special licence fee'. Section 163AA of the Electricity Industry Act 1993 (Vic.) was enacted to allow statutory imposts, payable to the Treasurer of Victoria, to be imposed until the Tariff Order expired in December 2000. | On 12 October 1997, AusNet acquired the transmission business from PNV. The assets acquired included a transmission licence. | The Asset Sale Agreement was subject to conditions precedent, including that the State procure the publication in the Government Gazette of an order imposing section 163AA imposts. On 28 October 1997, the Governor in Council made the relevant order. AusNet also made a contractual promise under the Asset Sale Agreement to pay the imposts. | The Asset Sale Agreement completed on 6 November 1997. | In the income years 1999 to 2001, AusNet made impost payments in the total sum of $177,500,000. AusNet claimed deductions for these payments under section 8-1 of the ITAA 1997. The Commissioner disallowed the deductions on the basis that they were not incurred in gaining or producing AusNet's assessable income or that the impost payments were outgoings of capital or of a capital nature. | The primary judge affirmed the Commissioner's position. AusNet's appeal to the Full Federal Court was dismissed by the majority. | Issues decided by the court/Tribunal | The majority (French CJ, Kiefel, Bell and Gaegler JJ) dismissed AusNet's appeal. | In a joint decision, French CJ, Kiefel and Bell JJ decided that the imposts \"were part of the consideration for the acquisition of the business\" and therefore of a capital nature. | In a separate judgment, Gageler J concluded that the impost payments, together with the amount AusNet was willing to bid to acquire the transmission business, were 'in a real commercial sense the price which AusNet committed to pay to the State in order to acquire the assets of PNV.' | These conclusions did not require the majority to consider the Commissioner's Notice of Contention, which sought to affirm the primary judge's decision that the impost payments were not deductible because they were not a cost of AusNet deriving its income. | Nettle J dissented finding that the impost payments were incurred by AusNet in gaining or producing its assessable income and were not on capital account. His Honour was of the view that the impost payments were an annual obligation intrinsically connected with the transmission licence and were paid for the maintenance of the means of producing AusNet's assessable income.", "Issues_Decided": "The majority (French CJ, Kiefel, Bell and Gaegler JJ) dismissed AusNet's appeal. In a joint decision, French CJ, Kiefel and Bell JJ decided that the imposts \"were part of the consideration for the acquisition of the business\" and therefore of a capital nature. In a separate judgment, Gageler J concluded that the impost payments, together with the amount AusNet was willing to bid to acquire the transmission business, were 'in a real commercial sense the price which AusNet committed to pay to the State in order to acquire the assets of PNV.' These conclusions did not require the majority to consider the Commissioner's Notice of Contention, which sought to affirm the primary judge's decision that the impost payments were not deductible because they were not a cost of AusNet deriving its income. Nettle J dissented finding that the impost payments were incurred by AusNet in gaining or producing its assessable income and were not on capital account. His Honour was of the view that the impost payments were an annual obligation intrinsically connected with the transmission licence and were paid for the maintenance of the means of producing AusNet's assessable income.", "ATO_View_of_Decision": "The decision was in accordance with established principles.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | N/A | Implications for impacted Law Administration Practice Statements | N/A", "Related_Documents": "N/A | [2015] HCA 25 | 2015 ATC 20-521; | 163A | 163AA | paragraph 8-1(2)(a) | (1959) 101 CLR 30 | 2013 ATC 20-416 | (1946) 72 CLR 634 | (1965) 112 CLR 386 | (1952) 85 CLR 423 | [1926] AC 205 | (1937) 56 CLR 290 | (1953) 89 CLR 428 | (1938) 61 CLR 337 | [1935] AC 431 | (1938) 60 CLR 263 | (1988) 165 CLR 462 | (1958) 100 CLR 117 | (1938) 59 CLR 729 | (1913) 16 CLR 120 | (1961) 106 CLR 517 | (1944) 71 CLR 596 | (1952) 85 CLR 306 | (1952) 9 ATD 372 | (1934) 51 CLR 568 | (1966) 114 CLR 537", "Legislative_References": "Electricity Industry Act 1993 (Vic) 163A 163AA Income Tax Assessment Act 1997 paragraph 8-1(2)(a)", "Case_References": "John Fairfax & Sons Pty Ltd v FCT (1959) 101 CLR 30 [1959] HCA 4 SPI PowerNet Pty Ltd v FCT 2013 ATC 20-416 SPI PowerNet Pty Ltd v FCT (2014) 220 FCR 355 Inland Revenue Commissioners v British Salmson Aero Engines Ltd [1938] 2 KB 482 Hallstroms Pty Ltd v FCT (1946) 72 CLR 634 [1946] HCA 34 BP Australia Ltd v FCT (1965) 112 CLR 386 Vallambrosa Rubber Co Ltd v Inland Revenue [1910] SC 519 Broken Hill Theatres Pty Ltd v FCT (1952) 85 CLR 423 British Insulated and Helsby Cables v Atherton [1926] AC 205 Henriksen v Grafton Hotel Ltd [1942] 2 KB 184 Royal Insurance Co v Watson [1897] AC 1 W Nevill & Co Ltd v FCT (1937) 56 CLR 290 Tata Hydro-Electric Agencies, Bombay v Income-tax Commissioner, Bombay Presidency and Aden [1937] AC 685 Colonial Mutual Life Assurance Society Ltd v FCT (1953) 89 CLR 428 [1953] HCA 68 Cliffs International Inc v FCT (1979) 142 CLR 140 Law Shipping Co v Inland Revenue [1924] SC 74 Sun Newspapers Ltd v FCT (1938) 61 CLR 337 Van den Berghs Ltd v Clark [1935] AC 431 Federal Cmr of Taxation v South Australian Battery Makers Pty Ltd (1978) 140 CLR 645 Federal Commissioner of Taxation v Citylink Melbourne Ltd (2006) 228 CLR 1 [2006] HCA 35 Queanbeyan City Council v ACTEW Corporation Ltd (2011) 244 CLR 530 Matthews v Chicory Marketing Board (Vict) (1938) 60 CLR 263 Parton v Milk Board (Vict) (1949) 80 CLR 229 Air Caledonie International v Commonwealth (1988) 165 CLR 462 Harper v Minister for Sea Fisheries (1989) 168 CLR 314 Browns Transport Pty Ltd v Kropp (1958) 100 CLR 117 GP International Pipecoaters Pty Ltd v FCT (1990) 170 CLR 124 City Link Melbourne Ltd v Commissioner of Taxation (2004) 141 FCR 69 Western Gold Mines NL v Commissioner of Taxation (WA) (1938) 59 CLR 729 Moffatt v Webb (1913) 16 CLR 120 Commissioner of Taxation v Morgan (1961) 106 CLR 517 Emu Bay Railway Co Ltd v FCT (1944) 71 CLR 596 Federal Cmr of Taxation v Midland Railway Co of Western Australia Ltd (1952) 85 CLR 306 (1952) 9 ATD 372 Nilsen Development Laboratories Pty Ltd v FCT (1981) 144 CLR 616 Egerton-Warburton v DFCT (1934) 51 CLR 568 H R Sinclair & Son Pty Ltd v FCT (1966) 114 CLR 537 Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317", "Subject_References": "Income tax Deductions Capital or a capital nature", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M35of2014/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Bazzard v Commissioner of Taxation", "Venue_Reference_No": "2015/1783", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "7 July 2015", "Date_Published": "14 August 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2015] AATA 502", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2015/1783/00001", "Unmatched_Content": "Bazzard v Commissioner of Taxation [2015] AATA 502 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation) Commissioner of Taxation v Ginette Dawn Muller and Joanne Emily Dunn as Liquidators of Australian Building Systems Pty Ltd", "Venue_Reference_No": "B19/2015; B20/2015", "Venue": "High Court", "Judgment_Date": "10 December 2015", "Date_Published": "23 March 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The High Court considered the point where a trustee or agent comes under the retention obligation in paragraph 254(1)(d) of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of income, profits or gains (IPG) derived by them in their representative capacity.", "Overview_of_Facts": "In the course of winding up Australian Building Systems Pty Ltd (ABS), the liquidators arranged for the sale of property which gave rise to a capital gain. | The liquidators applied for a private ruling as follows: • whether section 254 of ITAA 1936 obliges the liquidators 'to account' to the Commissioner for any capital gains tax liability out of the proceeds of sale of an asset; and • if so, whether the liquidators are obliged to retain a sufficient amount to pay the tax liability when the capital gain crystallises or only when an assessment is made. | • whether section 254 of ITAA 1936 obliges the liquidators 'to account' to the Commissioner for any capital gains tax liability out of the proceeds of sale of an asset; and • if so, whether the liquidators are obliged to retain a sufficient amount to pay the tax liability when the capital gain crystallises or only when an assessment is made. | The Commissioner ruled that the liquidator's obligation 'to account' out of the sale proceeds of the asset arose when the capital gain was crystallised and not when an assessment was issued. | The liquidators also made an application to the Federal Court for declarations that the liquidators are not required 'to account to the Commissioner' under section 254 of the ITAA 1936 but rather distribute such amounts that the Commissioner would receive in the ordinary course of the liquidation in accordance with section 556 and section 501 of the Corporations Act 2001. | Issues decided by the court | 1. Whether a trustee, within the meaning of section 6 of the ITAA 1936 (including a liquidator) is subject to the requirements of section 254 of the ITAA 1936 only in relation to IPG for which the trustee is assessable to tax under Part III, Division 6 of the ITAA 1936? | 2. Whether a 'trustee' or 'agent' within the meaning of section 6 of the ITAA 1936 is subject to the obligations in section 254 of the ITAA 1936 only in relation to IPG for which they are assessable under some other provision of the revenue law or whether section 254 of the ITAA 1936 creates by its own force an ancillary or secondary liability in relation to the IPG derived by the trustee or agent? | 3. Whether, following the derivation of IPG but prior to an assessment for tax being made in respect of the IPG, paragraph 254(1)(d) of the ITAA 1936 requires and authorises the agent or trustee to retain money in their hands sufficient to pay any tax on the IPG? | The first two issues were not contested by the taxpayer. The High Court held unanimously that the decision of Edmonds and Collier JJ in the Full Federal Court in relation to these issues was incorrect: • In respect to issue (1), the essential premise of the majority of the Full Court was misconceived and not consonant with the High Court's earlier decision in Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481. A trustee for the purposes of the subsection is not restricted to situations where there is a trust estate. • In respect of issue (2), on its plain reading, section 254 of the ITAA 1936 is a provision that both imposes a liability and also assists in the process of collection. | • In respect to issue (1), the essential premise of the majority of the Full Court was misconceived and not consonant with the High Court's earlier decision in Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481. A trustee for the purposes of the subsection is not restricted to situations where there is a trust estate. • In respect of issue (2), on its plain reading, section 254 of the ITAA 1936 is a provision that both imposes a liability and also assists in the process of collection. | In relation to issue (3), the High Court (in a 3-2 split) found against the Commissioner: a. French CJ and Kiefel J (in a joint judgment) and Gageler J (in a separate judgment) found that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 only applies if an assessment has first issued in respect of the IPG. b. Keane J and Gordon J (in separately delivered judgments) held that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 applied earlier and from the moment that a trustee or agent derived IPG. | a. French CJ and Kiefel J (in a joint judgment) and Gageler J (in a separate judgment) found that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 only applies if an assessment has first issued in respect of the IPG. b. Keane J and Gordon J (in separately delivered judgments) held that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 applied earlier and from the moment that a trustee or agent derived IPG.", "Issues_Decided": "1. Whether a trustee, within the meaning of section 6 of the ITAA 1936 (including a liquidator) is subject to the requirements of section 254 of the ITAA 1936 only in relation to IPG for which the trustee is assessable to tax under Part III, Division 6 of the ITAA 1936? 2. Whether a 'trustee' or 'agent' within the meaning of section 6 of the ITAA 1936 is subject to the obligations in section 254 of the ITAA 1936 only in relation to IPG for which they are assessable under some other provision of the revenue law or whether section 254 of the ITAA 1936 creates by its own force an ancillary or secondary liability in relation to the IPG derived by the trustee or agent? 3. Whether, following the derivation of IPG but prior to an assessment for tax being made in respect of the IPG, paragraph 254(1)(d) of the ITAA 1936 requires and authorises the agent or trustee to retain money in their hands sufficient to pay any tax on the IPG? The first two issues were not contested by the taxpayer. The High Court held unanimously that the decision of Edmonds and Collier JJ in the Full Federal Court in relation to these issues was incorrect: • In respect to issue (1), the essential premise of the majority of the Full Court was misconceived and not consonant with the High Court's earlier decision in Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481. A trustee for the purposes of the subsection is not restricted to situations where there is a trust estate. • In respect of issue (2), on its plain reading, section 254 of the ITAA 1936 is a provision that both imposes a liability and also assists in the process of collection. • In respect to issue (1), the essential premise of the majority of the Full Court was misconceived and not consonant with the High Court's earlier decision in Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481. A trustee for the purposes of the subsection is not restricted to situations where there is a trust estate. • In respect of issue (2), on its plain reading, section 254 of the ITAA 1936 is a provision that both imposes a liability and also assists in the process of collection. In relation to issue (3), the High Court (in a 3-2 split) found against the Commissioner: a. French CJ and Kiefel J (in a joint judgment) and Gageler J (in a separate judgment) found that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 only applies if an assessment has first issued in respect of the IPG. b. Keane J and Gordon J (in separately delivered judgments) held that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 applied earlier and from the moment that a trustee or agent derived IPG. a. French CJ and Kiefel J (in a joint judgment) and Gageler J (in a separate judgment) found that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 only applies if an assessment has first issued in respect of the IPG. b. Keane J and Gordon J (in separately delivered judgments) held that the retention obligation in paragraph 254(1)(d) of the ITAA 1936 applied earlier and from the moment that a trustee or agent derived IPG.", "ATO_View_of_Decision": "The Commissioner accepts that a trustee or agent has no obligation to retain monies under paragraph 254(1)(d) of the ITAA 1936 until an assessment has first issued in respect of the IPG. | The decision reflects the Commissioner's view that section 254 of the ITAA 1936 does not require the trustee to be assessable to tax under Part III, Division 6 of the ITAA 1936 in order for the retention obligation to be imposed. | The decision also reflects the Commissioner's view that section 254 of the ITAA 1936 is both an assessing and a collection provision. | The Commissioner agrees with the obiter comments made by Gordon J at [207] concerning the operation of section 556 of the Corporations Law, and will act accordingly.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | Draft TD 2012/D6 and Draft TD 2012/D7. | The High Court's decision in favour of the liquidator is inconsistent with the views set out in Draft TD 2012/D6 and Draft TD 2012/D7. Consequently, the Commissioner has withdrawn these draft taxation determinations following the High Court's decision. TD 2012/D6 has been withdrawn without replacement because the Commissioner accepts that a trustee or agent has no obligation to retain monies under paragraph 254(1)(d) of the ITAA 1936 until an assessment has been issued in respect of the IPG. The Commissioner's view on the issues covered by TD 2012/D7 is currently being considered in light of the High Court decision. The Commissioner will look to provide a replacement public advice product for TD 2012/D7 or to test the Commissioner's view in an appropriate case. | Implications for impacted Law Administration Practice Statements | None.", "Related_Documents": "TD 2012/D6 | TD 2012/D7 | [2015] HCA 48 | 2015 ATC 20-548 | Section 254 | Section 255 | Part III | Division 6 | Section 5-5 | Section 104-10 | Section 501 | Section 556 | 2009 ATC 20-134 | (2014) 2014 ATC 20-444 | (2006) 64 ATR 524 | [2006] FCA 1493 | (1963) 109 CLR 243 | (1963) 13 ATD 202 | 2007 ATC 5302 | 2009 ATC 20-125 | 98 ATC 4097 | 81 ATC 4429 | (1931) 46 CLR 41 | 2010 ATC 20-172 | (1958) 100 CLR 32 | 95 ATC 4067 | 2014 ATC 20-468 | 2010 ATC 20-170 | 2008 ATC 20-073 | 2005 ATC 4255 | 94 ATC 4570 | 2013 ATC 20-422 | (1952) 86 CLR 183 | (1952) 10 ATD 65 | [1930] HCA 45 | (1920) 28 CLR 373 | (1979) 144 CLR 633 | (1979) 24 ALR 175 | (1979) 144 CLR 360 | (1979) 54 ALJR 87 | (1979) 27 ALR 129 | (1979) 4 ACLR 575 | [1980] CLC 40-602 | (1998) 194 CLR 355 | (1998) 153 ALR 490 | [1998] HCA 28 | (1914) 18 CLR 519 | (1901) 1 SR (NSW) (L) 4 | 69 ATC 4084 | [1945] HCA 37 | [2008] HCA 5 | (2008) 242 ALR 383", "Legislative_References": "Income Tax Assessment Act 1936 Section 254 Section 255 Part III Division 6 Income Tax Assessment Act 1997 Section 5-5 Section 104-10 Corporations Act 2001 Section 501 Section 556", "Case_References": "Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41 (2009) 239 CLR 27 2009 ATC 20-134 73 ATR 256 Anderson's Industries Ltd v Federal Commissioner of Taxation (1932) 47 CLR 354 [1932] HCA 6 Australian Building Systems Pty Ltd (ACN 094 238 678) (in liq) v Commissioner of Taxation [2014] FCA 116 (2014) 2014 ATC 20-444 (2014) 97 ACSR 614 Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (2006) 64 ATR 524 [2006] FCA 1493 Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 (1963) 13 ATD 202 9 AITR 207 Benedict v Olde; in the matter of ATS (Asia Pacific) Pty Ltd [2011] FCA 1008 Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 [2007] HCA 54 (2007) 67 ATR 1 2007 ATC 5302 Brooke v Inland Revenue Commissioners [1917] KB 61 Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2009) 239 CLR 346 (2009) 72 ATR 856 2009 ATC 20-125 Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 (1998) 72 ALJR 243 (1998) 37 ATR 393 (1998) 151 ALR 1 98 ATC 4097 [1998] HCA 4 Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 [1981] HCA 40 (1981) 12 ATR 173 81 ATC 4429 Colonial Mutual Life Assurance Society Ltd v Producers and Citizens Co-operative Assurance Co of Australia Ltd [1931] HCA 53 (1931) 46 CLR 41 (1931) 5 ALJ 355 (1931) 38 ALR 73 Deputy Commissioner of Taxation v Barkworth Olives Management Ltd [2011] 1 Qd R 326 2010 ATC 20-172 (2010) 78 ATR 827 Deputy Federal Commissioner of Taxation v Brown (1958) 100 CLR 32 (1958) 11 ATD 374 7 AITR 198 Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 16 (1995) 29 ATR 644 95 ATC 4067 Drummond v Collins [1915] AC 1011 Federal Commissioner of Taxation v Australian Building Systems Pty Ltd (in liq) (2014) 226 FCR 263 2014 ATC 20-468 Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481 (2010) 75 ATR 1 2010 ATC 20-170 Federal Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq) (2008) 173 FCR 472 (2008) 70 ATR 903 2008 ATC 20-073 Federal Commissioner of Taxation v Linter Textiles Australia Ltd (In liq) (2005) 220 CLR 592 [2005] HCA 20 2005 ATC 4255 (2005) 59 ATR 177 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 (1994) 28 ATR 336 94 ATC 4570 Federal Commissioner of Taxation v Resource Capital Fund IV LP (2013) 215 FCR 1 (2013) 95 ATR 816 2013 ATC 20-422 Fermanis v Cheshire Holdings Pty Ltd (1990) 1 WAR 373 George v Federal Commissioner of Taxation (1952) 86 CLR 183 (1952) 10 ATD 65 Grainger & Son v Gough [1896] AC 325 Howey v Federal Commissioner of Taxation (1930) 44 CLR 289 (1930) 4 ALJ 307 (1930) 1 ATD 139 (1930) 37 ALR 7 [1930] HCA 45 In the Matter of the \"Income Tax Acts 1895 and 1896\" (1897) 22 VLR 539 In re Mary Willis (1907) 7 SR (NSW) 435 Joshua Bros Pty Ltd v Federal Commissioner of Taxation (1923) 31 CLR 490 [1923] HCA 3 Lee v New South Wales Crime Commission [2013] HCA 39 (2013) 87 ALJR 1082 (2013) 302 ALR 363 (2013) 251 CLR 196 Littlewoods Mail Order Stores Ltd v Inland Revenue Commissioners [1963] AC 135 [1962] 2 WLR 1228 [1962] 2 All ER 279 (1962) 41 ATC 116 [1962] TR 107 Lym International Pty Ltd v Westpac Banking Corporation [2011] NSWSC 927 Mack v Commissioner of Stamp Duties (NSW) (1920) 28 CLR 373 (1920) 27 ALR 146 [1920] HCA 76 Marshall v Director General, Department of Transport [2001] HCA 37 (2001) 75 ALJR 1218 (2001) 114 LGERA 389 (2001) 205 CLR 603 (2001) 180 ALR 351 Martin v Lowry [1926] KB 550 McGraw-Hinds (Aust) Pty Ltd v Smith (1979) 144 CLR 633 (1979) 53 ALJR 423 (1979) 24 ALR 175 [1979] HCA 19 Miller v Simpson (1903) 3 SR (NSW) 386 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 (1979) 54 ALJR 87 (1979) 27 ALR 129 (1979) 4 ACLR 575 [1980] CLC 40-602 [1979] HCA 61 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 (1998) 72 ALJR 841 (1998) 153 ALR 490 [1998] HCA 28 R v Newmarket Income Tax Commissioners; Ex parte Huxley [1916] 1 KB 788 Syme v Commissioner of Taxes for Victoria (1914) 18 CLR 519 [1914] VLR 600 (1914) 20 ALR 336 [1914] AC 1013 (1914) 84 LJPC 39 (1914) 111 LT 1043 (1914) 30 TLR 689 Tarn v Scanlan [1928] AC 34 The Commissioners of Taxation v Abbey (1901) 1 SR (NSW) (L) 4 Union-Fidelity Trustee Co of Australia Ltd v Federal Commissioner of Taxation (1969) 119 CLR 177 (1969) 1 ATR 200 69 ATC 4084 Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319 (1945) 19 ALJ 380 (1945) 14 ABC 79 [1946] ALR 50 [1945] HCA 37 Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5 (2008) 82 ALJR 489 (2008) 242 ALR 383 (2008) 233 CLR 259 (2008) 170 LGERA 345 Webb v Syme (1910) 10 CLR 482 (1910) 17 ALR 18 [1910] HCA 32 Whitney v Inland Revenue Commissioners [1924] 2 KB 602 Williams v Singer [1919] 2 KB 108 Williams v Singer [1921] 1 AC 65", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/B19-20/2015/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Desalination Technology Pty Limited", "Venue_Reference_No": "NSD 1159 of 2014", "Venue": "Federal Court of Australia", "Judgment_Date": "3 July 2015", "Date_Published": "7 December 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether the taxpayer 'incurred' research and development (R&D) expenditure for the purposes of subsection 73B(14) of the Income Tax Assessment Act 1936 (ITAA 1936), and as such whether it was entitled to claim an R&D offset, in circumstances where the taxpayer's obligation to make the invoiced payment was subject to certain contingencies affecting the existence of that obligation.", "Overview_of_Facts": "The taxpayer is a member of a group of companies involved in R&D activities. Mr D has been a director of the taxpayer since June 2007. Mr K was a director from incorporation in June 2007 until January 2008 (and since then he has been an alternate director, but at all relevant times he has been the accountant and tax agent for the taxpayer). | The taxpayer (Desalination Technologies Pty Ltd) and Innovative Design Technologies Group Pty Ltd (IDTG) were both associated with Mr D and Mr K. | The taxpayer entered into an agreement with IDTG to provide services relating to the taxpayer's R&D activities. The agreement was for IDTG 'to act as a project manager for all research and development projects and to coordinate the use of labour and equipment for the various projects'. | The R&D work itself was carried out by Mr D and others as employees of Davey Technology Pty Ltd, a company established by Mr D. The workers recorded the number of hours they spent undertaking R&D activities. The value of the time they charged became the basis of the fee invoiced by IDTG to the taxpayer, generally on a monthly basis. | During the relevant year, IDTG issued monthly invoices totalling $1,065,625 to the taxpayer. Of the total amount invoiced, the taxpayer paid $149,964. The balance of $915,661 was debited to an inter-company loan account between IDTG and the taxpayer, and the account remained unpaid. Payment of amounts debited to the inter-company loan account was subject to two conditions: 'the first, that the taxpayer receive funds from investors, lenders or other sources; and second, that even if it has the funds, the taxpayer considers it \"prudent\" to make a payment to IDTG'. | In its income tax return for the year ended 30 June 2009, the taxpayer claimed an R&D tax offset in respect of the R&D expenditure of $968,750. The amount claimed by the taxpayer as a tax offset was $363,281. [1] Of that amount the Commissioner allowed a tax offset of $56,236, relating to the paid amount of $149,964. | Issues decided by the court | There were two issues before the Full Federal Court. The first issue was whether the Commissioner's appeal to the Tribunal was competent. The second issue was whether the taxpayer had incurred the relevant R&D expenditure, notwithstanding the conditions attaching to the come and go loan account. | The issue of competency was considered and dismissed. | The Court held that since the taxpayer and IDTG agreed that the invoices received were not to be treated as trade creditors, but to be treated as 'fully paid at the date it is rendered' and 'charged to a come and go loan account', no obligation of the taxpayer to IDTG came into existence on the rendering of each invoice because of the contigencies attaching to the come and go loan account. Even if some obligation did come into existence, it was so infected by those contingencies that it was not open to the Tribunal to conclude that the taxpayer was definitively committed to the obligation. | The Court found that there was no evidence that IDTG financed the R&D work by lending the invoiced amount to the taxpayer.", "Issues_Decided": "There were two issues before the Full Federal Court. The first issue was whether the Commissioner's appeal to the Tribunal was competent. The second issue was whether the taxpayer had incurred the relevant R&D expenditure, notwithstanding the conditions attaching to the come and go loan account. The issue of competency was considered and dismissed. The Court held that since the taxpayer and IDTG agreed that the invoices received were not to be treated as trade creditors, but to be treated as 'fully paid at the date it is rendered' and 'charged to a come and go loan account', no obligation of the taxpayer to IDTG came into existence on the rendering of each invoice because of the contigencies attaching to the come and go loan account. Even if some obligation did come into existence, it was so infected by those contingencies that it was not open to the Tribunal to conclude that the taxpayer was definitively committed to the obligation. The Court found that there was no evidence that IDTG financed the R&D work by lending the invoiced amount to the taxpayer.", "ATO_View_of_Decision": "The Commissioner considers the Court's application of the law to the facts to be uncontroversial and correct. | The decision of the Court affirms earlier case law which established that for an amount to be incurred, a taxpayer must be definitively committed to the payment. | The Commissioner does not accept that such contrived invoicing arrangements satisfy the requirements of either the now repealed section 73B of the ITAA 1936 or the current section 355-205 of the Income Tax Assessment Act 1997. The invoiced amounts under these arrangements are neither incurred by the taxpayer nor are the payments definitively committed to by the taxpayer. | In its comments in obiter, the Court stated that where a creditor lent money to the taxpayer, even subject to the two contingencies as to repayment, and the taxpayer paid the invoices from the loan proceeds, there would be no doubt that the invoices had been paid and the expenditure 'incurred'. Where the lender is the provider of the R&D services (the counterparty), the Commissioner would also consider whether the funds received by the counterparty in respect of the R&D services are characterised as income, and if so, whether the income has been derived by the counterparty for the relevant period: see for example the judgment of Edmonds J in Business and Research Management Ltd (in Liq) v FCT [2008] FCA 1652. | The application of the general anti-avoidance provisions in Part IVA of the ITAA 1936 was not at issue before the Court in this matter, nor was there any finding of the Court in relation to its application. The Commissioner's view is that the provisions of Part IVA may apply where R&D expenditure is incurred under a similarly contrived invoicing arrangement. The Commissioner may seek to apply Part IVA to similar claims in these circumstances. | The Commissioner will disallow R&D claims in similar circumstances where the amounts have not been incurred or where the Commissioner determines that Part IVA applies to otherwise disallow the claim. | Taxpayers should take this opportunity to review their R&D claims for arrangements of a kind described here and to make voluntary disclosures to the Commissioner, where appropriate. A voluntary disclosure can result in a significant reduction in penalties that would otherwise apply where these claims are disallowed by the Commissioner.", "Administrative_Treatment": "", "Related_Documents": "TR 97/7 | TR 94/26 | [2015] FCAFC 96 | 2015 ATC 20-515 | 8-1 | 355-205 | 81 ATC 4346 | 2008 ATC 20-065 | 93 ATC 4214 | 2006 ATC 4404 | 2015 ATC 20-513 | (1938) 61 CLR 179 | 2007 ATC 5044 | 88 ATC 4279", "Legislative_References": "Income Tax Assessment Act 1936 73B 73I 73J Income Tax Assessment Act 1997 8-1 355-205 Administrative Appeals Tribunal Act 1975 44", "Case_References": "Belton v General Motors-Holden's Ltd (No 1) (1984) 55 ALR 142 58 ALJR 352 Birdseye v Australian Securities and Investments Commission [2003] FCA 232 Brookton Co-operative Society Limited v Commissioner of Taxation [1981] HCA 28 (1981) 11 ATR 880 81 ATC 4346 Business and Research Management Ltd (in Liq) v FCT [2008] FCA 1652 (2008) 74 ATR 525 2008 ATC 20-065 Coles Myer Finance Ltd v Commissioner of Taxation [1993] HCA 29 (1993) 25 ATR 95 93 ATC 4214 Commissioner of Taxation v CityLink Melbourne Ltd [2006] HCA 35 (2006) 62 ATR 648 2006 ATC 4404 Haritos v Commissioner of Taxation [2015] FCAFC 92 2015 ATC 20-513 Hope v The Council of the City of Bathurst [1980] HCA 16 Manzi & Ors v Smith & Anor [1975] HCA 35 New Zealand Flax Investments Limited v Federal Commissioner of Taxation (1938) 61 CLR 179 (1938) 5 ATD 36 (1938) 1 AITR 366 Price Street Professional Centre Pty Ltd v Commissioner of Taxation [2007] FCAFC 154 2007 ATC 5044 (2007) 67 ATR 544 TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation [1988] FCA 198 (1988) 19 ATR 1067 88 ATC 4279 Vetter v Lake Macquarie City Council [2001] HCA 12", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1159of2014/00001", "Unmatched_Content": "The ATO has reviewed the impact of TR 97/7 and TR 94/26. No amendments required. | Footnotes: [1] The tax offset is worked out as: 30% x (the R&D expenditure entitled to be claimed x 125%)."}
{"Case_Name": "Commissioner of Taxation v Donoghue", "Venue_Reference_No": "QUD110 of 2015; QUD128 & 129 of 2015", "Venue": "Federal Court of Australia", "Judgment_Date": "17 December 2015", "Date_Published": "29 July 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether in circumstances where the ATO has obtained privileged documents from a third party without the use of compulsory powers whether the use of those documents constitutes conscious maladministration such as to invalidate assessments to which section 175 of the Income Tax Assessment Act 1936 otherwise applies.", "Overview_of_Facts": "The Commissioner issued default assessments to Mr Donoghue for the income tax years ended 30 June 2005, 30 June 2006 and 30 June 2007 on the view that Mr Donoghue was an Australian resident for tax purposes. | Mr Donoghue objected to the default assessments. | Subsequently Mr Donoghue commenced proceedings in the Federal Court seeking orders quashing by certiorari each of the notices of assessment and also seeking declaratory relief on the basis that the use of allegedly privileged material in the audit process (which were used to reach an audit decision and led to the issue of the notices of assessment) constituted conscious maladministration by the Commissioner. | The allegedly privileged material had been provided to the auditor by a third party employee of a law firm engaged by Mr Donoghue to represent him in proceedings relating to the enforcement of loans and claims for possession of property. | The Trial Judge found the documents provided to the auditor were privileged but that the auditor whilst cognizant of what he regarded as a small risk that the documents might be privileged did not know that they were and had not acted in bad faith. The Trial Judge concluded that the auditor had acted with reckless disregard in respect of Mr Donoghue's claim for privilege and this constituted maladministration and rendered the assessments invalid. | The Commissioner appealed to the Full Federal Court from the Trial Judge's finding that the notices of assessment were invalid. | Issues decided by the court/Tribunal | On 17 December 2015 the Full Court (Kenny, Perram & Davies JJ) allowed the Commissioner's appeal. | The Commissioner argued that the common law principles concerning legal professional privilege were irrelevant to the formulation of a view that maladministration or conscious maladministration had occurred. Legal professional privilege constituted no more than a common law immunity against a requirement to produce documents or information under compulsion. In circumstances where the Commissioner obtained documents from a third party without the use of compulsory powers the common law principles were irrelevant. The only right that Mr Donoghue could have had to prevent the use of documents lay in an action for breach of confidence which claims was not in issue before the Trial Judge who consequently made no findings. | The Full Court found that there was no doubt that Mr Donoghue had abandoned his claim for breach of confidence before the Trial Judge. The only issue was the allegation of conscious maladministration on the basis that it was unlawful for the Commissioner to use privileged documents which had come into his possession in the course of the audit process. | The Full Court found that the Trial Judge's view that the principle of legal professional privilege was a bar to the use of the documents in the audit process was not correct stating that 'The common law of legal professional privilege operates as an immunity from the exercise of powers requiring compulsory production of documents or disclosure of information. It is not a rule of law conferring individual rights, the breach of which may be actionable.' It followed that as the Commissioner did not use any compulsory power to obtain the documents, whether they were privileged or not was irrelevant. | It further followed that breach of the common law of legal professional privilege could not constitute an act of maladministration or conscious maladministration.", "Issues_Decided": "On 17 December 2015 the Full Court (Kenny, Perram & Davies JJ) allowed the Commissioner's appeal. The Commissioner argued that the common law principles concerning legal professional privilege were irrelevant to the formulation of a view that maladministration or conscious maladministration had occurred. Legal professional privilege constituted no more than a common law immunity against a requirement to produce documents or information under compulsion. In circumstances where the Commissioner obtained documents from a third party without the use of compulsory powers the common law principles were irrelevant. The only right that Mr Donoghue could have had to prevent the use of documents lay in an action for breach of confidence which claims was not in issue before the Trial Judge who consequently made no findings. The Full Court found that there was no doubt that Mr Donoghue had abandoned his claim for breach of confidence before the Trial Judge. The only issue was the allegation of conscious maladministration on the basis that it was unlawful for the Commissioner to use privileged documents which had come into his possession in the course of the audit process. The Full Court found that the Trial Judge's view that the principle of legal professional privilege was a bar to the use of the documents in the audit process was not correct stating that 'The common law of legal professional privilege operates as an immunity from the exercise of powers requiring compulsory production of documents or disclosure of information. It is not a rule of law conferring individual rights, the breach of which may be actionable.' It followed that as the Commissioner did not use any compulsory power to obtain the documents, whether they were privileged or not was irrelevant. It further followed that breach of the common law of legal professional privilege could not constitute an act of maladministration or conscious maladministration.", "ATO_View_of_Decision": "The Tax office accepts the judgment of the Full Court as an application of non-contentious principles as to the operation of the common law principle of legal professional privilege in relation to claims of maladministration or conscious maladministration.", "Administrative_Treatment": "", "Related_Documents": "None | 2015 ATC 20-551 | s 175 | [2002] HCA 49 | 2011 ATC 20-260 | 2008 ATC 20-039 | [2013] FCAFC 119", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) s 175 s 177(1) Judiciary Act 1903 (Cth) s 39B Evidence Act 1995 (Cth) s 118 s 119", "Case_References": "Armstrong Strategic Management and Marketing Pty Ltd v Expense Reduction Analysts Group Pty Ltd [2012] NSWCA 430 (2012) 295 ALR 348 Australian Securities and Investments Commission v Lindberg [2009] VSCA 234 (2009) 25 VR 398 Coco v AN Clarke (Engineers) Ltd [1969] RPC 41 Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 Cowell v British American Tobacco Australia Services Ltd [2007] VSCA 301 Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49 (2002) 213 CLR 543 Denlay v Federal Commissioner of Taxation [2011] FCAFC 63 (2011) 193 FCR 412 2011 ATC 20-260 (2011) 83 ATR 625 Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46 (2013) 250 CLR 303 Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 2008 ATC 20-039 (2008) 69 ATR 41 Lord Ashburton v Pape [1913] 2 Ch 469 Macquarie Bank Limited v Commissioner of Taxation [2013] FCAFC 119 Trevorrow v South Australia (No 4) [2006] SASC 42 (2006) 94 SASR 64", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD110of2015/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements."}
{"Case_Name": "Coshott v Commissioner of Taxation", "Venue_Reference_No": "3778/2013", "Venue": "Federal Court of Australia", "Judgment_Date": "22 May 2015", "Date_Published": "1 October 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2015 ATC 20-5082", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/3778/2013/00001", "Unmatched_Content": "Coshott v Commissioner of Taxation [2015] FCAFC 71 2015 ATC 20-5082 | The adverse aspect/s of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Davies v Commissioner of Taxation", "Venue_Reference_No": "NSD 696 of 2014", "Venue": "Federal Court of Australia", "Judgment_Date": "31 July 2015", "Date_Published": "9 May 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether pursuant to relevant transitional provisions, the former Division 13A of the Income Tax Assessment Act 1936 (ITAA 1936) applies to shares & options granted to the taxpayer in the course of an employee share scheme.", "Overview_of_Facts": "The taxpayer is the sole director and sole employee of Dalara Investments Pty Limited (Dalara). At all relevant times, the taxpayer controlled Dalara. | The taxpayer was appointed as Executive Director - Operations of Whitehaven Coal Limited (Whitehaven) on 19 February 2009. Prior to his appointment, it was agreed between the taxpayer and Whitehaven that if the taxpayer were appointed, he would be remunerated by way of a share and option package in Whitehaven. Additionally, the taxpayer and Whitehaven were also aware that Whitehaven could not issue the shares or options to the taxpayer without first obtaining the approval of the company in general meeting. | On 27 April 2009, the taxpayer executed a Share Subscription and Option Deed (Deed) as a director of Dalara to formalise the earlier remuneration agreement. The Deed specified that the issue of the Shares and Options was subject to the obtainment of Share and Option Approvals at a general meeting. | On 17 November 2009, the share and options package for the taxpayer was approved at Whitehaven's annual general meeting. Subsequently, on or around 14 December 2009, Dalara subscribed for shares in Whitehaven. Dalara was also alloted options over ordinary shares in three tranches on 14 December 2009, 31 October 2010 and 31 October 2011. | The taxpayer lodged his 2009 income tax return including in his assessable income the discount received on the shares and options. The taxpayer held the view that discount received on the shares and options was included in his assessable income under former Division 13A of the ITAA 1936 at the time the Deed was entered into (in the 2009 income tax year). | The Commissioner issued amended assessments to the taxpayer for the 2009 to 2011 income years, including shortfall interest. The assessments were amended on the basis that the shares and options were instead to be assessed under Division 83A of the Income Tax Assessment Act 1997 (ITAA 1997); in later years and in different amounts. The Commissioner also issued the taxpayer with a notice of assessment for the 2012 year consistent with this position. | The Commissioner disallowed the objections that the taxpayer lodged against the assessments and the taxpayer commenced proceedings in the Federal Court under Part IVC of the Taxation Administration Act 1953. | Issues decided by the court | The Court found that when the Deed was signed on 27 April 2009 Dalara had obtained a contingent right. This contingent right was a right to have the shares and options issued to it, once approval by general meeting was obtained. Approval by a general meeting was therefore a condition precedent to the performance of the contract. Once approved by the annual general meeting on 17 November 2009, the contingent right became a right to acquire shares. That being so, section 83A-15 of the Income Tax (Transitional Provisions) Act 1997 applied with the result that the right arising from the Deed was a right which became a right to acquire a beneficial interest in a share. Former Division 13A of the ITAA 1936, in this transitional situation, brought the discount received on the shares and options to tax when the Deed was executed in the 2009 income tax year. | The Court also found that the rights arising from the Deed which were subject to approval at the annual general meeting were not rights to acquire a share for the purposes of former Division 13A of the ITAA 1936 and were therefore only brought to tax under former Division 13A of the ITAA 1936 by application of the transitional provisions in section 83A-15 of the Income Tax (Transitional Provisions) Act 1997.", "Issues_Decided": "The Court found that when the Deed was signed on 27 April 2009 Dalara had obtained a contingent right. This contingent right was a right to have the shares and options issued to it, once approval by general meeting was obtained. Approval by a general meeting was therefore a condition precedent to the performance of the contract. Once approved by the annual general meeting on 17 November 2009, the contingent right became a right to acquire shares. That being so, section 83A-15 of the Income Tax (Transitional Provisions) Act 1997 applied with the result that the right arising from the Deed was a right which became a right to acquire a beneficial interest in a share. Former Division 13A of the ITAA 1936, in this transitional situation, brought the discount received on the shares and options to tax when the Deed was executed in the 2009 income tax year. The Court also found that the rights arising from the Deed which were subject to approval at the annual general meeting were not rights to acquire a share for the purposes of former Division 13A of the ITAA 1936 and were therefore only brought to tax under former Division 13A of the ITAA 1936 by application of the transitional provisions in section 83A-15 of the Income Tax (Transitional Provisions) Act 1997.", "ATO_View_of_Decision": "The ATO accepts that on the facts of the matter, it was open to the Court to find that the rights created by the existence of the Deed were rights which became a right to acquire a beneficial interest in a share and will not appeal the decision. A right created by the contract which is a contingent right to receive shares is a right which becomes a right to acquire a beneficial interest in a share. The ATO will adopt this reasoning of the Court, where applicable, when determining whether a right becomes a right to acquire a beneficial interest in a share for the purposes of section 83A-15 of the Income Tax (Transitional Provisions) Act 1997 and the similarly worded section 83A-340 of the ITAA 1997.", "Administrative_Treatment": "Taxation Determination TD 2014/21 has been withdrawn, and replaced by Taxation Determination TD 2016/17. | There are two Class Rulings to which Davies is relevant: • Class Ruling CR 2012/12 does not require adjustment, as it is consistent with this decision. • Class Ruling CR 2011/19 does not require adjustment because the relevant scheme was entered into before the date of effect of TD 2016/17 (9 September 2015). As such, the class of entities to which CR 2011/19 applies may elect to apply this TD or their Class Ruling (provided they entered into the scheme during the term of the Class Ruling), whichever produces the more favourable outcome. | • Class Ruling CR 2012/12 does not require adjustment, as it is consistent with this decision. • Class Ruling CR 2011/19 does not require adjustment because the relevant scheme was entered into before the date of effect of TD 2016/17 (9 September 2015). As such, the class of entities to which CR 2011/19 applies may elect to apply this TD or their Class Ruling (provided they entered into the scheme during the term of the Class Ruling), whichever produces the more favourable outcome. | Date of amendment Part Comment 9 May 2017 Administrative treatment Updated to reflect the withdrawal of TD 2014/2 and that no amendments required to CR 2011/19 and CR 2012/12 Comments section Deleted", "Related_Documents": "TD 2014/21 | CR 2011/19 | CR 2012/12 | 2015 ATC 20-520 | Div 83A | 83A-25 | 83A-305 | 83A-340 | 83A-15 | (1967) 116 CLR 344 | (1967) 41 ALJR 195 | [1968] ALR 89 | 2000 ATC 4378 | 2013 ATC 20-398 | (1982) 149 CLR 537 | (1982) 41 ALR 441 | [2009] FCAFC 12 | (2009) 174 FCR 91", "Legislative_References": "Income Tax Assessment Act 1936 Div 13A 139B 139D 139G Income Tax Assessment Act 1997 Div 83A 83A-25 83A-305 83A-340 Income Tax (Transitional Provisions) Act 1997 83A-15", "Case_References": "Brown v Heffer (1967) 116 CLR 344 (1967) 41 ALJR 195 [1968] ALR 89 [1967] HCA 40 DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 83 NSWLR 728 [2011] NSWCA 348 (2011) 285 ALR 311 Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520 2000 ATC 4378 (2000) 44 ATR 370 [2000] HCA 35 (2000) 74 ALJR 1094 (2000) 172 ALR 346 Fowler v Federal Commissioner of Taxation [2013] FCAFC 69 (2013) 212 FCR 149 2013 ATC 20-398 (2013) 92 ATR 595 Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 (1982) 56 ALJR 445 (1982) 41 ALR 441 [1982] HCA 29 Woodside Energy Ltd v Federal Commissioner of Taxation [2009] FCAFC 12 (2009) 174 FCR 91 (2009) 74 ATR 922", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD696of2014/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products."}
{"Case_Name": "Falk and Commissioner of Taxation", "Venue_Reference_No": "2012/2459", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "4 June 2015", "Date_Published": "30 October 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a payment made to a taxpayer in consideration for him compromising a claim for deductible legal costs was an assessable recoupment within the meaning of subsection 20-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997) notwithstanding that the amount was paid to him in the form of an ex gratia payment.", "Overview_of_Facts": "1. In 2006, Dr Falk's employment at the Canberra Hospital was terminated. Dr Falk subsequently commenced proceedings against the Australian Capital Territory (ACT), on behalf of ACT Health, in the Australian Industrial Relations Commission (\"AIRC\") seeking reinstatement. Dr Falk was successful in the proceedings and the AIRC ordered his reinstatement with continuity of employment and payment of lost salary from the date of his dismissal. | 2. Dr Falk and the Commissioner agreed that the whole of Dr Falk's legal costs in pursuing those proceedings were properly deducted by Dr Falk in the 2006-2009 income years. | 3. Dr Falk made an application to the AIRC for the legal costs he had incurred in pursuing his wrongful dismissal application in the AIRC (the Cost Application). | 4. Dr Falk and legal representatives of the ACT entered into negotiations regarding the terms of Dr Falk's reinstatement and the payment of his legal costs in the AIRC proceedings. | 5. The outcome of these negotiations was that the ACT agreed to pay Dr Falk the whole of his legal costs in the AIRC in return for Dr Falk agreeing to withdraw the Cost Application. | 6. The ACT Treasurer then exercised his authority under section 130(1) of the Financial Management Act 1996 (ACT) to approve an act of grace payment equal to the amount of the costs as previously agreed and subject to two conditions: (a) that Dr Falk withdraw his Cost Application in the AIRC; and (b) that he release the ACT from all actions and claims arising from the AIRC proceedings. | 7. The ACT relied on the device of an act of grace payment authorisation to pay the agreed settlement it having formed the view it did not otherwise have the legal authority to pay the agreed settlement because Dr Falk's application was still pending in the AIRC and, as such, the ACT did not have a 'present legal liability' to meet Dr Falk's costs. | 8. Subsequently Dr Falk executed a Deed of Release, the ACT paid Dr Falk the agreed amount and Dr Falk withdrew his Cost Application to the AIRC. | 9. The Commissioner included the whole of the amount received by Dr Falk from the ACT in his assessable income for the 2009 income year, pursuant to subsection 6-10(4) and 20-35 of the ITAA 1997, on the basis that the amount was an assessable recoupment within the meaning of section 20-20(2)(a) of the ITAA 1997. | 10. Test case funding was provided to Dr Falk. | Issues decided by the tribunal | The question was whether the payment received by Dr Falk from the ACT was a recoupment that had been received by Dr Falk by way of indemnity pursuant to paragraph 20-20(2)(a) of the ITAA 1997. | An argument put on Dr Falk's behalf that the payment was not a 'recoupment' within the extended definition of that term in subsection 20-25(1) was readily dismissed by the Tribunal (at [45]). | The case then turned on two issues: • whether the payment received as compensation for past losses, was received 'by way of indemnity', notwithstanding there was no obligation to make good the loss at the time it was suffered, and • whether the payment, despite being received in the form of an ex gratia payment, was nevertheless a payment received 'by way of indemnity'. | • whether the payment received as compensation for past losses, was received 'by way of indemnity', notwithstanding there was no obligation to make good the loss at the time it was suffered, and • whether the payment, despite being received in the form of an ex gratia payment, was nevertheless a payment received 'by way of indemnity'. | Can an indemnity be created in respect of losses already suffered even if there was no obligation to make good the loss at the time it was suffered? | The question of whether a payment received as compensation for past losses, can be received 'by way of indemnity', despite there being no obligation to make good the loss at the time it was suffered was raised by the conflicting authorities of Walters J in Goldsborough Mort & Co Ltd v FCT (1976) 14 SASR 591 (preferred by the Commissioner) and Hunt J in Commercial Banking Company of Sydney Ltd v Federal Commissioner of Taxation (1983) 70 FLR 433 (preferred by Dr Falk). | Having considered those authorities, together with the decision at first instance in Batchelor and Commissioner of Taxation [2013] AATA 93, and on appeal to the Full Court of the Federal Court at (2014) 219 FCR 453, and the decision of Mason CJ, Brennan, Deane, Dawson and McHugh JJ in the High Court in Cachia v Hanes (1994) 179 CLR 403, the Tribunal concluded (at [55]) that Walter J's views in Goldsbrough Mort correctly stated the law. That is a payment received as compensation for past losses, can be received 'by way of indemnity', despite there being no obligation on the payer to make good the loss at the time it was suffered. | Was the payment received by way of indemnity, despite taking the form of an ex-gratia payment? | The Tribunal concluded (at [74]) that the payment was received by Dr Falk by way of indemnity because its character in his hands was as consideration for him compromising the application for costs that he had submitted to the AIRC and for him providing a release to the ACT in relation to all actions and claims arising from the AIRC proceedings. | The fact that the payment was received in the form of an act of grace payment did not alter the character of the receipt in Dr Falk's hands. The device of an act of grace payment was merely a mechanism to facilitate the payment (see [80] and [83]); it could not in fact be properly characterised as an ex gratia payment (see [81]). | To be an ex-gratia payment a payment must be made for reasons otherwise than on account of a legal liability (see [66]), whether that liability be a presently existing liability or a future liability. | An amount that is properly characterised as an ex gratia payment would not be received by way of indemnity (see [55]-[57]). | In considering the character of a receipt, neither its form nor its economic equivalence will necessarily be determinative, rather regard must be had to the circumstances under which it is received. However, the fact that a payment is expressed to be an act of grace payment may be accepted as prima facie evidence that it was an ex gratia payment (see [58]). | Conclusion: Was the payment a recoupment received by way of insurance or indemnity? | The Tribunal found that the payment was a recoupment of a deductible outgoing (being Dr Falk's legal costs) and, further, that the payment was received 'by way of indemnity' with the meaning of paragraph 20-20(2)(a). Thus, the recoupment was an assessable recoupment that was to be included in Dr Falk's assessable income pursuant to section 20-35 of the ITAA 1997.", "Issues_Decided": "The question was whether the payment received by Dr Falk from the ACT was a recoupment that had been received by Dr Falk by way of indemnity pursuant to paragraph 20-20(2)(a) of the ITAA 1997. An argument put on Dr Falk's behalf that the payment was not a 'recoupment' within the extended definition of that term in subsection 20-25(1) was readily dismissed by the Tribunal (at [45]). The case then turned on two issues: • whether the payment received as compensation for past losses, was received 'by way of indemnity', notwithstanding there was no obligation to make good the loss at the time it was suffered, and • whether the payment, despite being received in the form of an ex gratia payment, was nevertheless a payment received 'by way of indemnity'. • whether the payment received as compensation for past losses, was received 'by way of indemnity', notwithstanding there was no obligation to make good the loss at the time it was suffered, and • whether the payment, despite being received in the form of an ex gratia payment, was nevertheless a payment received 'by way of indemnity'. | Can an indemnity be created in respect of losses already suffered even if there was no obligation to make good the loss at the time it was suffered?: The question of whether a payment received as compensation for past losses, can be received 'by way of indemnity', despite there being no obligation to make good the loss at the time it was suffered was raised by the conflicting authorities of Walters J in Goldsborough Mort & Co Ltd v FCT (1976) 14 SASR 591 (preferred by the Commissioner) and Hunt J in Commercial Banking Company of Sydney Ltd v Federal Commissioner of Taxation (1983) 70 FLR 433 (preferred by Dr Falk). Having considered those authorities, together with the decision at first instance in Batchelor and Commissioner of Taxation [2013] AATA 93, and on appeal to the Full Court of the Federal Court at (2014) 219 FCR 453, and the decision of Mason CJ, Brennan, Deane, Dawson and McHugh JJ in the High Court in Cachia v Hanes (1994) 179 CLR 403, the Tribunal concluded (at [55]) that Walter J's views in Goldsbrough Mort correctly stated the law. That is a payment received as compensation for past losses, can be received 'by way of indemnity', despite there being no obligation on the payer to make good the loss at the time it was suffered. | Was the payment received by way of indemnity, despite taking the form of an ex-gratia payment?: The Tribunal concluded (at [74]) that the payment was received by Dr Falk by way of indemnity because its character in his hands was as consideration for him compromising the application for costs that he had submitted to the AIRC and for him providing a release to the ACT in relation to all actions and claims arising from the AIRC proceedings. The fact that the payment was received in the form of an act of grace payment did not alter the character of the receipt in Dr Falk's hands. The device of an act of grace payment was merely a mechanism to facilitate the payment (see [80] and [83]); it could not in fact be properly characterised as an ex gratia payment (see [81]). To be an ex-gratia payment a payment must be made for reasons otherwise than on account of a legal liability (see [66]), whether that liability be a presently existing liability or a future liability. An amount that is properly characterised as an ex gratia payment would not be received by way of indemnity (see [55]-[57]). In considering the character of a receipt, neither its form nor its economic equivalence will necessarily be determinative, rather regard must be had to the circumstances under which it is received. However, the fact that a payment is expressed to be an act of grace payment may be accepted as prima facie evidence that it was an ex gratia payment (see [58]). | Conclusion: Was the payment a recoupment received by way of insurance or indemnity?: The Tribunal found that the payment was a recoupment of a deductible outgoing (being Dr Falk's legal costs) and, further, that the payment was received 'by way of indemnity' with the meaning of paragraph 20-20(2)(a). Thus, the recoupment was an assessable recoupment that was to be included in Dr Falk's assessable income pursuant to section 20-35 of the ITAA 1997.", "ATO_View_of_Decision": "The ATO accepts the Tribunal's decision and will adopt its reasoning, where applicable, when determining whether an amount is received 'by way of ... indemnity' for the purposes of paragraph 20-20(2)(a) of the ITAA 1997. | The decision may also have relevance for other provisions of the ITAA 1997, the Taxation Administration Act 1953 and the Income Tax Assessment Act 1936 that deal with indemnities.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | The decision confirms the Commissioner's view as set out in paragraph 54 of Taxation Ruling TR 2012/8 that payments in settlement of a claim for legal costs are received by way of indemnity. | It otherwise has no impact on any other ATO precedential documents. | Implications for impacted Law Administration Practice Statements | The decision has no impact on Law Administrative Practice Statements.", "Related_Documents": "None | 2015 ATC 10-395 | 6-10(4) | 20-20(2) | 20-25(1) | 20-40 | 130(1) | 130(3) | Former s 26(j) | 2014 ATC 20-450 | (1994) 179 CLR 403 | 83 ATC 4208 | 97 ATC 4317 | [1964] 1 All ER 494 | (1951) 84 CLR 105 | 2013 ATC 10-297", "Legislative_References": "Income Tax Assessment Act 1997 6-10(4) 20-20(2) 20-25(1) 20-40 Financial Management Act 1996 (ACT) 130(1) 130(3) Income Tax Assessment Act 1936 Former s 26(j)", "Case_References": "Batchelor v Commissioner of Taxation [2014] FCAFC 41 (2014) 219 FCR 453 2014 ATC 20-450 Cachia v Hanes (1994) 179 CLR 403 [1994] HCA 14 Commercial Banking Company of Sydney Ltd v Federal Commissioner of Taxation (1983) 70 FLR 433 83 ATC 4208 (1983) 14 ATR 142 Federal Commissioner of Taxation v Rowe (1997) 187 CLR 266 [1997] HCA 16 97 ATC 4317 (1997) 35 ATR 432 Edwards v Skyways Ltd [1964] 1 All ER 494 Federal Commissioner of Taxation v Wade [1951] HCA 66 (1951) 84 CLR 105 Goldsbrough Mort & Co Ltd v FCT (1976) 14 SASR 591 [1964] 1 WLR 349 Re Batchelor and Commissioner of Taxation [2013] AATA 93 (2013) 92 ATR 416 2013 ATC 10-297", "Subject_References": "Assessable recoupment Indemnity By way of indemnity Ex gratia payment", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/2459/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Hii v Commissioner of Taxation", "Venue_Reference_No": "QUD 622/2014", "Venue": "Federal Court of Australia", "Judgment_Date": "23 April 2015", "Date_Published": "23 October 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to a Federal Court decision that it was not a requirement for the validity of an amended assessment made following an objection decision, that the Commissioner re-form at objection any opinion that was necessary to authorise the making of the earlier assessment.", "Overview_of_Facts": "In July and August 2012, following an audit, the Commissioner issued notices of amended assessment to Mr Hii, increasing his taxable income and tax payable for the years ended 30 June 2001 to 30 June 2004, and 30 June 2007 to 30 June 2008. The basis on which the amended assessments were made was that Mr Hii was, contrary to how he had prepared his tax returns, an 'Australian resident' as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). Some of the notices were issued more than four years after the date of the respective original assessments. For those, the Commissioner's power to amend was expressed to be sourced in item 5 of the table in subsection 170(1) of the Income Tax Assessment Act 1936 (ITAA 1936) as an EL2.1 officer employed by the Australian Taxation Office, holding the appropriate authorisation, had positively formed the opinion that there had been an avoidance of tax due to evasion (the evasion opinion). | Mr Hii objected to the amended assessments on three grounds: that he was not an Australian resident, that the statutory period to amend provided under item 5 in the table in subsection 170(1) of the ITAA 1936 had expired as his acts did not amount to evasion, and that the assessments were excessive as they improperly calculated his taxable income. The objections were allowed in part, on the third ground (the objection decisions). Further amended assessments giving effect to the objection decisions were issued in early 2014 (the further amended assessments). At the time of making the objection decisions, the evasion opinion was undisturbed and the Commissioner did not re-form his opinion that Mr Hii had avoided tax due to fraud or evasion. | Mr Hii filed an originating application in the Federal Court under section 39B of the Judiciary Act 1903 (Cth), alleging that the further amended assessments were void and of no effect as the formation, at or about the time when the objection decisions were made, that there had been an avoidance of tax due to fraud or evasion, was a jurisdictional fact upon which the power to issue the further amended assessments depends. Mr Hii sought orders by way of declaratory relief, certiorari, mandamus and prohibition. | Issues Decided by the Court | The Court (Collier J) dismissed the application. | Collier J concluded, at paragraphs 106 to 108, that the Commissioner made the further amended assessments in compliance with the power in item 5 of the table in subsection 170(1) of the ITAA 1936 to amend an assessment as a result of an objection made by the taxpayer. It was not necessary for the Commissioner to re-determine, ab initio, all issues relevant to the original decision. | Collier J also concluded that, even if the Commissioner's actions had failed to comply with the terms of section 170 of the ITAA 1936 in respect of the further amended assessments: the combined effect of s 175 and s 177 of the ITAA 1936 is that any failure by the Commissioner to comply with a provision of the tax legislation when issuing an assessment does not thereby render the assessment invalid. The decision of the High Court in Futuris, in particular as subsequently applied in this Court, is authority for the proposition that unless an assessment is tentative or provisional, or is produced as a result of conscious maladministration, it is not susceptible to challenge pursuant to s 39B of the Judiciary Act [at paragraph 90]. | The further amended assessments were not tentative or provisional, nor on the facts of the case attended by bad faith so as to constitute conscious maladministration. In the view of Collier J, if the Commissioner's actions did not comply with section 170 they would simply have been wrong at law. Accordingly, it was not open for Mr Hii to obtain the relief sought.", "Issues_Decided": "The Court (Collier J) dismissed the application. Collier J concluded, at paragraphs 106 to 108, that the Commissioner made the further amended assessments in compliance with the power in item 5 of the table in subsection 170(1) of the ITAA 1936 to amend an assessment as a result of an objection made by the taxpayer. It was not necessary for the Commissioner to re-determine, ab initio, all issues relevant to the original decision. Collier J also concluded that, even if the Commissioner's actions had failed to comply with the terms of section 170 of the ITAA 1936 in respect of the further amended assessments: the combined effect of s 175 and s 177 of the ITAA 1936 is that any failure by the Commissioner to comply with a provision of the tax legislation when issuing an assessment does not thereby render the assessment invalid. The decision of the High Court in Futuris, in particular as subsequently applied in this Court, is authority for the proposition that unless an assessment is tentative or provisional, or is produced as a result of conscious maladministration, it is not susceptible to challenge pursuant to s 39B of the Judiciary Act [at paragraph 90]. The further amended assessments were not tentative or provisional, nor on the facts of the case attended by bad faith so as to constitute conscious maladministration. In the view of Collier J, if the Commissioner's actions did not comply with section 170 they would simply have been wrong at law. Accordingly, it was not open for Mr Hii to obtain the relief sought.", "ATO_View_of_Decision": "The ATO agrees with the decision, which is in accordance with established principles. | The ATO notes that the decision is a further example where the Federal Court has interpreted the decision in Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 (Futuris) as having narrowed the class of case where the Court has power to intervene in challenges to assessments pursuant to section 39B of the Judiciary Act 1903 (Cth) to cases involving tentative or provisional assessment or conscious maladministration.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | Nil | Implications for impacted Law Administration Practice Statements | Nil", "Related_Documents": "This decision has no impact for ATO Rulings/Determinations | This decision has no impact for ATO precedential documents or Law Administration Practice Statements | 2015 ATC 20-501 | Subsection 170(1) | Subsection 170(2) | (2008) 2008 ATC 20-039 | (1988) 88 ATC 4834 | (2011) 2011 ATC 20-297", "Legislative_References": "Income Tax Assessment Act 1936 Subsection 170(1) Subsection 170(2) Judiciary Act 1903 Section 39B", "Case_References": "Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 (2008) 2008 ATC 20-039 (2008) 69 ATR 41 Fletcher v Commissioner of Taxation (1998) 19 FCR 442 (1988) 84 ALR 295 (1988) 19 ATR 1765 (1988) 88 ATC 4834 [1988] FCA 362 Roberts v Deputy Commissioner of Taxation [2015] FCA 238 Roberts v Federal Commissioner of Taxation [2013] FCA 1108 (2013) 228 FCR 280 Woods v Deputy Commissioner of Taxation [2011] TASSC 68 (2011) 2011 ATC 20-297 (2011) 86 ATR 620", "Subject_References": "Tax assessments Amendment of assessments Administrative law Judicial review", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD622/2014/00001", "Unmatched_Content": ""}
{"Case_Name": "John Holland Group Pty Ltd & Anor v Commissioner of Taxation", "Venue_Reference_No": "DIS NSD 1397/2014 and NSD 1398/2014", "Venue": "Federal Court of Australia", "Judgment_Date": "11 June 2015", "Date_Published": "15 December 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns the 'otherwise deductible rule' in section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). | The employers organised and paid for their employees to be flown from Perth airport to Geraldton and back again to work on a project on a rostered basis. The exemption available under subsection 47(7) of the FBTAA did not apply in this instance. The taxable value of the residual fringe benefits would be nil where the costs of the flights, under the statutory hypothesis, would be deductible to the employees under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). | The issue for consideration by the Court was whether, under the statutory hypothesis, the amounts, if they had been incurred by the employees would be allowable deductions or not under section 8-1 of the ITAA 1997.", "Overview_of_Facts": "John Holland Group has a rail business; JH Rail. JH Rail is a major participant in the industry of rail construction and maintenance in Australia. In Western Australia, many of the rail construction projects in which JH Rail was involved were connected with the requirements of mining projects. | In order to carry out its rail projects, JH Rail needed to be able to deploy skilled people to projects in different areas as those projects came on line. John Holland Group was an employer of employees who were skilled in carrying out rail construction projects. | Between May 2011 and September 2012, John Holland Group employees worked on the Midwest Project. The employer paid for their employees to be flown from Perth to Geraldton, near where the Midwest Project was located, and back again on a rostered basis. | Most employees lived in Perth. Most of the John Holland rail projects in Western Australia were in remote and regional areas. Most projects lasted about a year. Most areas in which a project was located did not have sufficient accommodation available to function as permanent accommodation for employees and their families. | For the Midwest Project, the accommodation used was a resort in Geraldton which provided apartment style group accommodation, suitable for employees but not for partners and families. Partners and families were not generally permitted to stay at the employee accommodation. | The Fly-in Fly-out (FIFO) arrangements for the Midwest Project involved the following: • Employees were designated as either 'workforce' or 'staff'. Staff employees were subject to individual employment contracts and workforce employees were subject to the John Holland Pty Limited and RTBU - Rail Maintenance Agreement - 2009-2012. • Employees travelled at their own expense to Perth airport. Perth airport was designated by John Holland as the 'point of hire'. • John Holland would pay for the employees' flights from Perth to Geraldton, the nearest airport to the Midwest Project. Most flights were chartered by the employer. • Generally, employees worked on the project during their rostered on period which was for a duration of two to four weeks (although some staff employees worked a five day week, Monday to Friday, and were flown in Monday morning and out Friday night). • At the end of their rostered on period, the employees would be transported back to Geraldton airport and would catch a flight back to Perth, at the cost of the employer. • The employees would make their way home from Perth airport at their own expense for one week of rest and recreation at home. • All flights to and from Perth to Geraldton occurred while the employees were rostered on. That is, the flight was undertaken on the time of the employer. • The 'workforce' employees commenced their rostered-on employment duties from the time of their arrival at Perth airport and took the flights because they were directed to do so and were required to do so as part of their employment obligations. These employees were remunerated at an applicable hourly rate for travelling time on the flight from Perth airport to Geraldton and the return flight, which occurred during rostered-on work time. • In accordance with the standard terms of employment, 'staff' employees travelled to the project location when required by the employer. These employees were provided with a project allowance based on their annual salary for working at the project site. • Employees, travelling on the employer's time, were bound to comply with all employer directives and policies, and disciplinary action could result if an employee breached any such requirement during a flight. | • Employees were designated as either 'workforce' or 'staff'. Staff employees were subject to individual employment contracts and workforce employees were subject to the John Holland Pty Limited and RTBU - Rail Maintenance Agreement - 2009-2012. • Employees travelled at their own expense to Perth airport. Perth airport was designated by John Holland as the 'point of hire'. • John Holland would pay for the employees' flights from Perth to Geraldton, the nearest airport to the Midwest Project. Most flights were chartered by the employer. • Generally, employees worked on the project during their rostered on period which was for a duration of two to four weeks (although some staff employees worked a five day week, Monday to Friday, and were flown in Monday morning and out Friday night). • At the end of their rostered on period, the employees would be transported back to Geraldton airport and would catch a flight back to Perth, at the cost of the employer. • The employees would make their way home from Perth airport at their own expense for one week of rest and recreation at home. • All flights to and from Perth to Geraldton occurred while the employees were rostered on. That is, the flight was undertaken on the time of the employer. • The 'workforce' employees commenced their rostered-on employment duties from the time of their arrival at Perth airport and took the flights because they were directed to do so and were required to do so as part of their employment obligations. These employees were remunerated at an applicable hourly rate for travelling time on the flight from Perth airport to Geraldton and the return flight, which occurred during rostered-on work time. • In accordance with the standard terms of employment, 'staff' employees travelled to the project location when required by the employer. These employees were provided with a project allowance based on their annual salary for working at the project site. • Employees, travelling on the employer's time, were bound to comply with all employer directives and policies, and disciplinary action could result if an employee breached any such requirement during a flight. | The employers lodged objections against the relevant assessments and sought to rely on the 'otherwise deductible rule' to reduce the taxable value of the residual fringe benefits to nil. The Commissioner disallowed the objections and the employers appealed to the Federal Court. | Decision at First Instance | The Federal Court at first instance (Justice Jagot) found that whilst the features identified might be sufficient to conclude, hypothetically, that the cost of flights was incurred in the course of each employee gaining or producing their assessable income within the meaning of section 8-1 of the ITAA 1997, other considerations emphasised by the authorities did not permit her Honour to reach that conclusion. To the employee the cost of the flights would be incurred because they had chosen to live away from their place of work, the project location, and accordingly no deduction was available. | The employers appealed to the Full Court. | Issues Decided by the Full Federal Court | The Full Federal Court agreed with the employers contentions and set aside the decision at first instance. | The Full Court found that the employees' arrival at Perth airport from their homes was not travel in the employees' derivation of income, and any expenditure incurred by the employees from their homes to Perth airport would not have been deductible, but, the employees were relevantly at work from arrival at Perth airport and were deriving income from that point. Accordingly the employees would be, on the statutory hypothesis put forward, entitled to a deduction for the cost of air travel from Perth airport to Geraldton and return. | In discussing Lunney v Commissioner of Taxation of the Commonwealth of Australia; Hayley v Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166 (Lunney), the Full Court noted that the cost of travel for which Mr Lunney claimed a deduction, and which the court did not allow, was not the travel from the company's office at No. 11 Darling Harbour to the various ports to carry out his work, but from his domestic residence in Narraweena to his employer's office at No. 11 Darling Harbour. | The employers contended that the equivalent outgoing in this case (which the employees would not be able to deduct) would be the cost of travelling from the employees' individual residences to Perth airport, but that the employees' arrival at Perth airport was equivalent to the arrival of Mr Lunney at the office of his employer at No. 11 Darling Harbour. | In other words that arrival by the employees at Perth airport was the employees' arrival at work from which they then travelled to Geraldton to undertake other tasks. The employees were 'in' their employment from the time they were required to present themselves at Perth airport to embark on a specified flight. They were not travelling 'to' their employment at Geraldton. | The Full Court found that the employment necessitated that travel be part of the activities productive of assessable income. It was the remoteness of the project location that caused there to be a need for travel to be part of that for which employees were employed. There is no suggestion of the obligation to travel between Perth and Geraldton being created other than by the demands of the nature of the employment, or as device to clothe what would be a private journey before the derivation of income with the appearance of a journey as part of the employment. | It was also noted by the Full Court that the distance between an employee's home and place of work is, of course, not sufficient to make deductible the expense of travel from one place to the other. The criteria for deductibility is not that there is a great distance to travel from home to work but that the travel is a part of the employment. A distant or remote location for the performance of employment duties may, however, be a relevant factor in determining whether travel is part of the employment. The location of the place at which work needs to be performed may occasion a need for travel to be part of the employment. The remoteness of the project location in this case provides the explanation for the travel being part of the employment. | The case under consideration in Lunney was of 'ordinary people' paying fares 'to enable them to go day by day to their regular place of employment or business and back to their homes'; it was not about the specific demands occasioned by employment that required, as part of the employment, travel to a remote place. The employees in this case were required to travel as part of their employment to a remote location. | The Full Court also found that there is no reason why Perth airport should not be a point at which the employees duties and remuneration for performance of those duties both commenced and ceased. The contract of employment so provided. The fact that Perth airport is not an area or premises owned or leased by John Holland, is irrelevant. In this respect, there is, it was held no difference between Perth airport and No. 11 Darling Harbour in Lunney's case. | The Full Court found that from the time the employees, both workforce and staff, checked in at Perth airport as directed by their employer they were travelling in the course of their employment, subject to the directions of the employer and being paid for it. That situation subsisted until they disembarked the plane at Perth airport at the end of their rostered-on work time. At no time during that period were they travelling to work; they were travelling on work and the cost of doing so under the statutory hypothesis in subsection 52(1) of the FBTAA would be an allowable deduction to them under section 8-1 of the ITAA 1997.", "Issues_Decided": "The Full Federal Court agreed with the employers contentions and set aside the decision at first instance. The Full Court found that the employees' arrival at Perth airport from their homes was not travel in the employees' derivation of income, and any expenditure incurred by the employees from their homes to Perth airport would not have been deductible, but, the employees were relevantly at work from arrival at Perth airport and were deriving income from that point. Accordingly the employees would be, on the statutory hypothesis put forward, entitled to a deduction for the cost of air travel from Perth airport to Geraldton and return. In discussing Lunney v Commissioner of Taxation of the Commonwealth of Australia; Hayley v Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166 (Lunney), the Full Court noted that the cost of travel for which Mr Lunney claimed a deduction, and which the court did not allow, was not the travel from the company's office at No. 11 Darling Harbour to the various ports to carry out his work, but from his domestic residence in Narraweena to his employer's office at No. 11 Darling Harbour. The employers contended that the equivalent outgoing in this case (which the employees would not be able to deduct) would be the cost of travelling from the employees' individual residences to Perth airport, but that the employees' arrival at Perth airport was equivalent to the arrival of Mr Lunney at the office of his employer at No. 11 Darling Harbour. In other words that arrival by the employees at Perth airport was the employees' arrival at work from which they then travelled to Geraldton to undertake other tasks. The employees were 'in' their employment from the time they were required to present themselves at Perth airport to embark on a specified flight. They were not travelling 'to' their employment at Geraldton. The Full Court found that the employment necessitated that travel be part of the activities productive of assessable income. It was the remoteness of the project location that caused there to be a need for travel to be part of that for which employees were employed. There is no suggestion of the obligation to travel between Perth and Geraldton being created other than by the demands of the nature of the employment, or as device to clothe what would be a private journey before the derivation of income with the appearance of a journey as part of the employment. It was also noted by the Full Court that the distance between an employee's home and place of work is, of course, not sufficient to make deductible the expense of travel from one place to the other. The criteria for deductibility is not that there is a great distance to travel from home to work but that the travel is a part of the employment. A distant or remote location for the performance of employment duties may, however, be a relevant factor in determining whether travel is part of the employment. The location of the place at which work needs to be performed may occasion a need for travel to be part of the employment. The remoteness of the project location in this case provides the explanation for the travel being part of the employment. The case under consideration in Lunney was of 'ordinary people' paying fares 'to enable them to go day by day to their regular place of employment or business and back to their homes'; it was not about the specific demands occasioned by employment that required, as part of the employment, travel to a remote place. The employees in this case were required to travel as part of their employment to a remote location. The Full Court also found that there is no reason why Perth airport should not be a point at which the employees duties and remuneration for performance of those duties both commenced and ceased. The contract of employment so provided. The fact that Perth airport is not an area or premises owned or leased by John Holland, is irrelevant. In this respect, there is, it was held no difference between Perth airport and No. 11 Darling Harbour in Lunney's case. The Full Court found that from the time the employees, both workforce and staff, checked in at Perth airport as directed by their employer they were travelling in the course of their employment, subject to the directions of the employer and being paid for it. That situation subsisted until they disembarked the plane at Perth airport at the end of their rostered-on work time. At no time during that period were they travelling to work; they were travelling on work and the cost of doing so under the statutory hypothesis in subsection 52(1) of the FBTAA would be an allowable deduction to them under section 8-1 of the ITAA 1997.", "ATO_View_of_Decision": "This case involved particular FIFO employment arrangements which meant that the air travel provided by the employer was not exempt under subsection 47(7) of the FBTAA. This was because the usual place of employment was adjacent to an eligible urban area as defined (see section 140 of the FBTAA). | The decision of the Full Court clarifies the law regarding the deductibility of travel expenses. As concluded by the Full Court, the case under consideration in Lunney was of 'ordinary people' paying fares 'to enable them to go day by day to their regular place of employment or business and back to their homes'; it was not about the specific demands occasioned by employment that required, as part of the employment, travel to a remote place. | The employees in this case were required by their employer, as part of their employment duties, to travel each way between Perth airport and the project accommodation at a remote location. This travel occurred during working time while the employees were rostered-on, and paid. This travel did not include the private travel between the employee's home and Perth airport. | This was a case of well settled law being applied to a new factual situation. Such matters can involve questions of fact and degree and different facts may result in different conclusions as to deductibility. | The ATO will continue to approach travel deduction cases by weighing all the relevant facts and circumstances and applying the relevant tax law and authorities to those facts. | Where similar factual situations to the John Holland case arise, the decision of the Court would obviously apply.", "Administrative_Treatment": "", "Related_Documents": "None | 2015 ATC 20-510 | 45 | 47 | 52 | 136 | 140 | 8-1 | (1956) 95 CLR 344 | 2008 ATC 20-064 | 2001 ATC 4027 | 91 ATC 4396 | 87 ATC 4875 | 72 ATC 4174 | (1958) 100 CLR 478 | (1958) 11 ATD 404 | 93 ATC 4508 | (1949) 78 CLR 47 | (1949) 8 ATD 431", "Legislative_References": "Fringe Benefits Tax Assessment Act 1986 45 47 52 136 140 Income Tax Assessment Act 1936 51(1) Income Tax Assessment Act 1997 8-1", "Case_References": "Charles Moore & Co (WA) Pty Ltd v Federal Commissioner of Taxation [1956] HCA 77 (1956) 95 CLR 344 (1956) 11 ATD 147 (1956) 6 AITR 379 Commissioner of Taxation of the Commonwealth of Australia v Day [2008] HCA 53 (2008) 236 CLR 163 2008 ATC 20-064 (2008) 70 ATR 14 Commissioner of Taxation of the Commonwealth of Australia v Payne [2001] HCA 3 (2001) 202 CLR 93 2001 ATC 4027 (2001) 46 ATR 228 Commissioner of Taxation v Cooper [1991] FCA 190 (1991) 29 FCR 177 91 ATC 4396 (1991) 21 ATR 1616 Commissioner of Taxation v Genys [1987] FCA 20 (1987) 17 FCR 495 87 ATC 4875 (1987) 19 ATR 356 Lodge v Federal Commissioner of Taxation [1972] HCA 49 (1972) 128 CLR 171 72 ATC 4174 (1972) 3 ATR 254 Lunney v Commissioner of Taxation of the Commonwealth of Australia; Hayley v Commissioner of Taxation (1958) 100 CLR 478 (1958) 11 ATD 404 (1958) 7 AITR 166 Newsom v Robertson (Inspector of Taxes) [1953] 1 Ch 7 Roads and Traffic Authority of New South Wales v Commissioner of Taxation [1993] FCA 314 (1993) 43 FCR 223 93 ATC 4508 (1993) 26 ATR 76 Ronpibon Tin No Liability; Tongkah Compound No Liability v Federal Commissioner of Taxation (1949) 78 CLR 47 (1949) 8 ATD 431 (1949) 7 AITR 236", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1397/2014/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements."}
{"Case_Name": "Macoun v Commissioner of Taxation", "Venue_Reference_No": "S100/2015", "Venue": "High Court", "Judgment_Date": "2 December 2015", "Date_Published": "27 March 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether pension payments were exempt under subsection 6-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997) by reason of the International Organisations (Privileges and Immunities) Act 1963 (IOPI Act) and the Specialized Agencies (Privileges and Immunities) Regulations 1986 (SAPI Regulations).", "Overview_of_Facts": "The taxpayer was employed by the International Bank for Reconstruction and Development (IBRD) between 1992 and 2007. He retired from the IBRD in 2007. | In the 2009 and 2010 income years, the taxpayer received monthly pension payments from a retirement fund established under the IBRD's Staff Retirement Plan. | The taxpayer argued that the pension payments were exempt from tax under subsection 6-20(1) of the ITAA 1997 by reason of a provision of a Commonwealth law, namely subparagraph 6(1)(d)(i) of the IOPI Act and subregulation 8(1) of the SAPI Regulations. | Paragraph 6(1)(d) of the IOPI Act contains the mechanism by which privileges may be conferred on officers of international organisations. It provides: Subject to this section, the regulations may, either without restriction or to the extent or subject to the conditions prescribed by the regulations: ... (d) confer: (i) upon a person who holds an office in an international organisation to which this Act applies (not being an office prescribed by the regulations to be a high office) all or any of the privileges and immunities specified in Part I of the Fourth Schedule; and (ii) upon a person who has ceased to hold such an office the immunities specified in Part II of the Fourth Schedule. (emphasis added) | (i) upon a person who holds an office in an international organisation to which this Act applies (not being an office prescribed by the regulations to be a high office) all or any of the privileges and immunities specified in Part I of the Fourth Schedule; and (ii) upon a person who has ceased to hold such an office the immunities specified in Part II of the Fourth Schedule. (emphasis added) | Regulation 8 of the SAPI Regulations provides: (1) Subject to subregulation (2), a person who holds an office in a Specialized Agency, other than a person who holds, or is performing the duties of, an office specified in Column 3 of an item in the Schedule, has the privileges and immunities specified in Part I of the Fourth Schedule to the [IOPI] Act. ... (3) A person who has ceased to hold an office in a Specialized Agency, other than an office specified in Column 3 of an item in the Schedule, has the immunities specified in Part II of the Fourth Schedule to the [IOPI] Act. (emphasis added) | (1) Subject to subregulation (2), a person who holds an office in a Specialized Agency, other than a person who holds, or is performing the duties of, an office specified in Column 3 of an item in the Schedule, has the privileges and immunities specified in Part I of the Fourth Schedule to the [IOPI] Act. ... (3) A person who has ceased to hold an office in a Specialized Agency, other than an office specified in Column 3 of an item in the Schedule, has the immunities specified in Part II of the Fourth Schedule to the [IOPI] Act. (emphasis added) | Item 2 of Part I of the Fourth Schedule to the IOPI Act confers upon a person who holds an office in an international organisation to which the IOPI Act applies an exemption from taxation on salaries and emoluments received from the organisation. There is no taxation exemption in Part II of the Fourth Schedule. | The IBRD is an 'international organisation' to which the IOPI Act applies and a 'specialised agency' for the purposes of the SAPI Regulations. | Issues decided by the court | The High Court held unanimously that the taxpayer's monthly pension payments were not exempt from tax because: - the taxpayer had ceased to hold an office in the IBRD when he received them [50] (although the court observed, without deciding the question, that if salary or emoluments were both due and payable while an officer continued to hold office, it may be that they should be regarded as 'received' during office even though not in fact paid until after the officer ceased to hold office) - the payments were not received from the IBRD but from the retirement fund established under the Staff Retirement Plan [50], and - the taxpayer's pension payments fell outside the phrase 'salaries and emoluments received from the organisation' in Item 2 of Pt I of the Fourth Schedule to the IOPI Act. The phrase is subject to the conditions that the emolument must be received whilst the person is an officer of a Specialized Agency and the emolument must be received from the Specialized Agency. A monthly pension payment does not, and cannot, satisfy those conditions nor can it be characterised as the advantage in money or money's worth which flows from occupation of an office or the like. A pension payment flows only on and from cessation of that office. [65] | - the taxpayer had ceased to hold an office in the IBRD when he received them [50] (although the court observed, without deciding the question, that if salary or emoluments were both due and payable while an officer continued to hold office, it may be that they should be regarded as 'received' during office even though not in fact paid until after the officer ceased to hold office) - the payments were not received from the IBRD but from the retirement fund established under the Staff Retirement Plan [50], and - the taxpayer's pension payments fell outside the phrase 'salaries and emoluments received from the organisation' in Item 2 of Pt I of the Fourth Schedule to the IOPI Act. The phrase is subject to the conditions that the emolument must be received whilst the person is an officer of a Specialized Agency and the emolument must be received from the Specialized Agency. A monthly pension payment does not, and cannot, satisfy those conditions nor can it be characterised as the advantage in money or money's worth which flows from occupation of an office or the like. A pension payment flows only on and from cessation of that office. [65] | The Court observed that this construction of the taxation exemption privilege is consistent with the statutory purposes of the IOPI Act which is to assist identified organisations in the performance of their functions; not to benefit persons connected with those organisations. The privilege of exemption from taxation is designed to ensure that the international organisation secures the services of an officer who remains independent by reason of not having to submit to the taxation jurisdiction of a Convention State (whether the State of his or her nationality or residence, or a State in which he or she is located whilst working for the organisation). The interest of the international organisation disappears when the officer ceases to hold the office. [54] | It being common ground that the Court should, where possible, construe the IOPI Act in a manner which accords to Australia's international obligations, the Court also concluded that the Agencies Convention, properly construed, does not require Australia not to tax a pension received by a former officer of a specialized agency. That construction is consistent with both the preparatory works to the Agencies Convention and State practice. [75] In relation to State practice, the Court noted that there is no generally accepted State practice with regard to the exemption of retirement pensions from taxation. [82]", "Issues_Decided": "The High Court held unanimously that the taxpayer's monthly pension payments were not exempt from tax because: - the taxpayer had ceased to hold an office in the IBRD when he received them [50] (although the court observed, without deciding the question, that if salary or emoluments were both due and payable while an officer continued to hold office, it may be that they should be regarded as 'received' during office even though not in fact paid until after the officer ceased to hold office) - the payments were not received from the IBRD but from the retirement fund established under the Staff Retirement Plan [50], and - the taxpayer's pension payments fell outside the phrase 'salaries and emoluments received from the organisation' in Item 2 of Pt I of the Fourth Schedule to the IOPI Act. The phrase is subject to the conditions that the emolument must be received whilst the person is an officer of a Specialized Agency and the emolument must be received from the Specialized Agency. A monthly pension payment does not, and cannot, satisfy those conditions nor can it be characterised as the advantage in money or money's worth which flows from occupation of an office or the like. A pension payment flows only on and from cessation of that office. [65] - the taxpayer had ceased to hold an office in the IBRD when he received them [50] (although the court observed, without deciding the question, that if salary or emoluments were both due and payable while an officer continued to hold office, it may be that they should be regarded as 'received' during office even though not in fact paid until after the officer ceased to hold office) - the payments were not received from the IBRD but from the retirement fund established under the Staff Retirement Plan [50], and - the taxpayer's pension payments fell outside the phrase 'salaries and emoluments received from the organisation' in Item 2 of Pt I of the Fourth Schedule to the IOPI Act. The phrase is subject to the conditions that the emolument must be received whilst the person is an officer of a Specialized Agency and the emolument must be received from the Specialized Agency. A monthly pension payment does not, and cannot, satisfy those conditions nor can it be characterised as the advantage in money or money's worth which flows from occupation of an office or the like. A pension payment flows only on and from cessation of that office. [65] The Court observed that this construction of the taxation exemption privilege is consistent with the statutory purposes of the IOPI Act which is to assist identified organisations in the performance of their functions; not to benefit persons connected with those organisations. The privilege of exemption from taxation is designed to ensure that the international organisation secures the services of an officer who remains independent by reason of not having to submit to the taxation jurisdiction of a Convention State (whether the State of his or her nationality or residence, or a State in which he or she is located whilst working for the organisation). The interest of the international organisation disappears when the officer ceases to hold the office. [54] It being common ground that the Court should, where possible, construe the IOPI Act in a manner which accords to Australia's international obligations, the Court also concluded that the Agencies Convention, properly construed, does not require Australia not to tax a pension received by a former officer of a specialized agency. That construction is consistent with both the preparatory works to the Agencies Convention and State practice. [75] In relation to State practice, the Court noted that there is no generally accepted State practice with regard to the exemption of retirement pensions from taxation. [82]", "ATO_View_of_Decision": "The decision of the High Court is consistent with the Commissioner's view.", "Administrative_Treatment": "The ATO has issued Taxation Ruling TR 2019/D1 Income tax: income of international organisations and persons connected with them that is exempt from income tax to reflect the decision in this case and the case of Commissioner of Taxation v Jayasinghe [2017] HCA 26; and the views previously expressed in TD 92/153 and Taxation Ruling TR 92/14. | TR 92/14 and TD 92/153 have been withdrawn as a consequence. | Implications for impacted Law Administration Practice Statements | No implications. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).", "Related_Documents": "TR 92/14 | TD 92/153 | 2015 ATC 20-543 | 6-20(1) | 6(1)(d)(i) | Fourth Schedule Pt I | 80 ATC 648 | 2017 ATC 20-627 | (1935) 53 CLR 55", "Legislative_References": "Income Tax Assessment Act 1997 6-20(1) International Organisations (Privileges and Immunities) Act 1963 6(1)(d)(i) Fourth Schedule Pt I Specialized Agencies (Privileges and Immunities) Regulations 1986 8 8(1) 8(1)(d)", "Case_References": "Case M90 80 ATC 648 24 CTBR(NS) 585 Federal Commissioner of Taxation v Jayasinghe [2017] HCA 26 2017 ATC 20-627 (2017) 106 ATR 274 (2017) 260 CLR 400 (2017) 345 ALR 357 Nette v Howarth [1935] HCA 22 (1935) 53 CLR 55 [1935] ALR 241", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S100/2015/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision on related advice and guidance products."}
{"Case_Name": "McGrouther & Anor v Commissioner of Taxation", "Venue_Reference_No": "NSD 687 of 2014(FC)", "Venue": "High Court", "Judgment_Date": "11 September 2015", "Date_Published": "16 November 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case. This case concerned whether a taxpayer can 'waive' a notice they have given to the Commissioner under subsection 14ZYA(2) of the Taxation Administration Act 1953 (TAA) in respect of an objection requiring the Commissioner to make an objection decision. If a taxpayer can, whether waiving the notice has the effect that subsection 14ZYA(3) of the TAA cannot operate to deem the Commissioner to have disallowed the objection as a result of that notice.", "Overview_of_Facts": "Mr and Mrs McGrouther (the taxpayers) lodged objections against amended assessments issued to them in respect of the 2000 to 2007 income years. | Prior to determining the objections the Commissioner issued a notice under section 264 of the Income Tax Assessment Act 1936 requiring Mr McGrouther to attend for an examination (the section 264 notice). | Two days later, the taxpayers served notices under subsection 14ZYA(2) of the TAA requiring the Commissioner to determine their objections. The consequence of which was that if the Commissioner did not determine the objection within 60 days of the notice being given, he would be deemed to have disallowed the objection pursuant to subsection 14ZYA(3) of the TAA and giving the taxpayer the right to appeal the deemed disallowance of the objection to the Federal Court under section 14ZZ of the TAA. | On 9 April 2014, the Taxpayers then commenced proceedings in the Federal court challenging the validity of decision to issue the section 264 notice issued to Mr McGrouther. At the preliminary stage of those proceedings, it was agreed between the taxpayers and the Commissioner that: | the Commissioner would defer the examination until at least 7 days after final orders were made determining the validation of the section 264 notice issued to Mr McGrouther; and | the taxpayer's were to withdraw the notices given under subsection 14ZYA(2) of the TAA, and not to issue further notices under subsection 14ZYA(2) in respect of the objections until the validity of the section 264 notice was determined. | On 10 April Nicholas J made orders in these proceedings noting the agreement made between the taxpayers and the Commissioner. | The taxpayers 'withdrew' the notices pursuant to that agreement. The taxpayers subsequently advised the Commissioner they were of the view they could not validly withdraw the notices. When 60 days had passed from the time they gave the notices, taking the view that their objections had been deemed to be disallowed by the Commissioner as a result of the operation of subsection 14ZYA(3) of the TAA, they commenced proceedings under section 14ZZ of the TAA appealing against the disallowance of their objections. | The Commissioner commenced interlocutory proceedings seeking to have the proceedings brought by the taxpayers under section 14ZZ of the TAA dismissed for want of jurisdiction on the grounds that the purported withdrawal meant there was no deemed objection decision against which an appeal to the Federal Court under section 14ZZ could be made. | Issues decided by the court/Tribunal | Decision at First Instance | As there is no express power conferred on a taxpayer to 'withdraw' or 'waive' on a notice they have given to the Commissioner under subsection 14ZYA(2) of the TAA, at issue before Edmonds J at first instance was whether there is an implied power to withdraw or revoke a notice given under subsection 14ZYA(2). | Edmonds J held that there was no implied right to withdraw or revoke a subsection 14ZYA(2) notice and dismissed the Commissioner's application to have the section 14ZZ proceedings dismissed. | Issues Decided by the Full Federal Court | On appeal by the Commissioner to the Full Federal Court the issue was argued before the full court on the basis of whether the taxpayers could 'waive' reliance on a notice given under subsection 14ZYA(2) of the TAA. | The Full Federal Court unanimously held that a taxpayer could 'waive' reliance on a notice given under subsection 14ZYA(2) of the TAA, it being a provision existing solely for the benefit of the taxpayer and not one whose observance was a condition of the exercise of a statutory power or enacted for a wider public purpose (per Pagone and Davies JJ at [26] and Allsop CJ at [10-11]). | Waiver of a subsection 14ZYA(2) notice can be validly effected by a notice to the Commissioner withdrawing the notice (per Pagone and Davies JJ at [26]. | As the taxpayers had waived the subsection 14ZYA(2) notice given to the Commissioner, there was no deemed objection decision and the Federal court had no jurisdiction to hear the application made by the taxpayers under section 14ZZ of the TAA. The Court therefore dismissed the applications made by the taxpayers under section 14ZZ. | Pagone and Davies at [29] also observed in obiter that a taxpayer could, after having waived an earlier notice given under subsection 14ZYA(2) of the TAA, give the Commissioner subsequent notices under that section requiring him to determine the objection. | The taxpayers sought special leave to appeal the decision of the Full Federal Court to the High Court. The application for special leave was refused by the High Court. In doing so Bell J observed that1 '...there was no reason to doubt the correctness of the decision of the Full Federal Court\".", "Issues_Decided": "Decision at First Instance: As there is no express power conferred on a taxpayer to 'withdraw' or 'waive' on a notice they have given to the Commissioner under subsection 14ZYA(2) of the TAA, at issue before Edmonds J at first instance was whether there is an implied power to withdraw or revoke a notice given under subsection 14ZYA(2). Edmonds J held that there was no implied right to withdraw or revoke a subsection 14ZYA(2) notice and dismissed the Commissioner's application to have the section 14ZZ proceedings dismissed. | Issues Decided by the Full Federal Court: On appeal by the Commissioner to the Full Federal Court the issue was argued before the full court on the basis of whether the taxpayers could 'waive' reliance on a notice given under subsection 14ZYA(2) of the TAA. The Full Federal Court unanimously held that a taxpayer could 'waive' reliance on a notice given under subsection 14ZYA(2) of the TAA, it being a provision existing solely for the benefit of the taxpayer and not one whose observance was a condition of the exercise of a statutory power or enacted for a wider public purpose (per Pagone and Davies JJ at [26] and Allsop CJ at [10-11]). Waiver of a subsection 14ZYA(2) notice can be validly effected by a notice to the Commissioner withdrawing the notice (per Pagone and Davies JJ at [26]. As the taxpayers had waived the subsection 14ZYA(2) notice given to the Commissioner, there was no deemed objection decision and the Federal court had no jurisdiction to hear the application made by the taxpayers under section 14ZZ of the TAA. The Court therefore dismissed the applications made by the taxpayers under section 14ZZ. Pagone and Davies at [29] also observed in obiter that a taxpayer could, after having waived an earlier notice given under subsection 14ZYA(2) of the TAA, give the Commissioner subsequent notices under that section requiring him to determine the objection. The taxpayers sought special leave to appeal the decision of the Full Federal Court to the High Court. The application for special leave was refused by the High Court. In doing so Bell J observed that1 '...there was no reason to doubt the correctness of the decision of the Full Federal Court\".", "ATO_View_of_Decision": "The ATO accepts the decision of the Full Federal Court and will apply its reasoning.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | None. | Implications for impacted Law Administration Practice Statements | The decision has no impact on Law Administrative Practice Statements.", "Related_Documents": "None | Federal Court | 2014 ATC 20-469 | Full Federal Court | 2015 ATC 20-492 | High Court | [2015] HCATrans 221 | subsection 14ZYA(2) | subsection 14ZYA(3) | section 14ZZ", "Legislative_References": "Taxation Administration Act 1953 subsection 14ZYA(2) subsection 14ZYA(3) section 14ZZ", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S68of2015/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "OEM Supplies Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2014/1486", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 July 2015", "Date_Published": "14 August 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2015 ATC 10-400", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014/1486/00001", "Unmatched_Content": "OEM Supplies Pty Ltd and Commissioner of Taxation [2015] AATA 532 2015 ATC 10-400 | The adverse aspect/s of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Orica Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 43-48 of 2015", "Venue": "Federal Court of Australia", "Judgment_Date": "7 December 2015", "Date_Published": "17 March 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This decision concerned the application of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) to a cross-border financing arrangement. Under the arrangement, deductions were claimed under section 25-90, or alternatively section 8-1, of the Income Tax Assessment Act 1997 (ITAA 1997) for interest paid by an Australian-resident group company to a US-resident group company with significant carried-forward US tax losses. The funds deposited with the Australian company had originally been lent by the Australian company itself to a third group entity, and then paid to the US company by way of subscription for redeemable preference shares in it.", "Overview_of_Facts": "Between 2002 and 2006, members of the Orica corporate group entered into the following intra-group arrangement (implemented in three tranches - Series B, C and D): • Australian-resident Orica Finance Ltd (OFL) lent Australian-resident Orica Explosives Holdings (OEH) the AUD equivalent of USD $590m. • OEH used the loan proceeds to subscribe for redeemable preference securities issued by a US resident subsidiary, Orica US Services Inc. (OUSSI). • OUSSI then placed USD $517m on deposit at interest with OFL. | • Australian-resident Orica Finance Ltd (OFL) lent Australian-resident Orica Explosives Holdings (OEH) the AUD equivalent of USD $590m. • OEH used the loan proceeds to subscribe for redeemable preference securities issued by a US resident subsidiary, Orica US Services Inc. (OUSSI). • OUSSI then placed USD $517m on deposit at interest with OFL. | OUSSI conducted Orica's North American explosives business. It had incurred significant operating losses and had consequently accumulated US tax losses in the years leading up to the scheme. The losses had initially been recognised in Orica's consolidated balance sheet as a Future Income Tax Benefit (FITB) asset for US purposes. However, under the Australian accounting standards, to maintain recognition of the value of the FITB in Orica Limited's subsidiary, the FITB had to be 'virtually certain' it could be used in the future. Given OUSSI's protracted poor financial performance, the FITB asset was written off in 2001. | The scheme caused OUSSI to receive income that was assessable in the US. This enabled re-recognition and use of the US tax losses. Orica re-recognised the losses over a period of three years. In 2006, when the US losses had been fully used, the arrangement was unwound. | The interest expenses of OFL were claimed as deductions in Australia under section 25-90 of the ITAA 1997. In dispute were deductions claimed between 2004-2006 by Orica Ltd as head company of the consolidated group of which OFL was a member. Deductions for the years in dispute amounted to A$88,650,627. | With the exception of a US$48,999,338 dividend paid on the redemption of the Series B Redeemable Preference Shares, no dividends were paid to OEH on any of the preference shares issued by OUSSI under the scheme. | The expert evidence before the court was that the scheme improved the reported profits over the re-recognition period. The three consequences of the arrangement were: • a cumulative reduction of A$33.8m in the income tax expense recognised on the payment of interest by OFL to OUSSI • an increase of $45m in the income tax expense of OUSSI, and • a cumulative reduction in the income tax expense of OUSSI, equal to the increased amount, by bringing into account the unbooked benefits of the tax losses. | • a cumulative reduction of A$33.8m in the income tax expense recognised on the payment of interest by OFL to OUSSI • an increase of $45m in the income tax expense of OUSSI, and • a cumulative reduction in the income tax expense of OUSSI, equal to the increased amount, by bringing into account the unbooked benefits of the tax losses. | The Commissioner submitted that the deduction under section 25-90 of the ITAA 1997 for interest paid by OFL to OUSSI was a tax benefit to which Part IVA applied. | Issues decided by the court/Tribunal | Pagone J found that Part IVA applied to the deductions claimed by Orica Ltd for each of the years in dispute. | Orica conceded that the deductions obtained under the scheme were tax benefits under the former terms of section 177C of the ITAA 1936. This confined the dispute to an analysis under paragraph 177D(b) of the ITAA 1936 (as it then was) as to whether it would be concluded from the matters listed in that paragraph that a person who entered into or carried out the scheme did so for the dominant purpose of enabling the taxpayer to obtain a tax benefit in connection with the scheme. | His Honour found (at paragraph [37]) that that a reasonable person would so conclude. | Pagone J also found that the scheme penalty amount under section 284-145 of Schedule 1 to the Taxation Administration Act 1953 should not be reduced to 25% in the circumstances because the taxpayer's position was not 'reasonably arguable': section 284-15.", "Issues_Decided": "Pagone J found that Part IVA applied to the deductions claimed by Orica Ltd for each of the years in dispute. Orica conceded that the deductions obtained under the scheme were tax benefits under the former terms of section 177C of the ITAA 1936. This confined the dispute to an analysis under paragraph 177D(b) of the ITAA 1936 (as it then was) as to whether it would be concluded from the matters listed in that paragraph that a person who entered into or carried out the scheme did so for the dominant purpose of enabling the taxpayer to obtain a tax benefit in connection with the scheme. His Honour found (at paragraph [37]) that that a reasonable person would so conclude. Pagone J also found that the scheme penalty amount under section 284-145 of Schedule 1 to the Taxation Administration Act 1953 should not be reduced to 25% in the circumstances because the taxpayer's position was not 'reasonably arguable': section 284-15.", "ATO_View_of_Decision": "The ATO considers the decision to be consistent with the established case law on Part IVA and the penalty provisions. | The case shows that the anti-avoidance legislation is capable of defeating artificial or contrived arrangements that shift taxable profits out of the Australian tax base. | The ATO will give close attention to schemes that exhibit similar features; namely schemes in which, in effect, entities inject capital into foreign subsidiaries and then borrow the funds back again at interest, where the interest is said to be deductible under section 25-90 of the ITAA 1997. Typically in these schemes the corresponding income from the interest flows is for some reason not taxed anywhere at a comparable rate. We informally refer to these schemes as 'loan-ups'. | As well as Part IVA, some loan-up schemes currently under examination raise questions as to whether the conditions for deducibility in section 25-90 of the ITAA 1997 are met. In particular, the ATO may question whether the requisite income-generating purpose is genuinely present, especially if the scheme seems incapable of generating a positive net return for the borrower. This issue was not raised in Orica but it might be in future cases.", "Administrative_Treatment": "", "Related_Documents": "Nil | 2015 ATC 20-547 | Part IVA | section 25-90 | section 284-145 of Sch 1 | section 284-15 of Sch 1 | 2004 ATC 4599 | 96 ATC 5201 | 2010 ATC 20-222 | 2001 ATC 4343 | 2003 ATC 5076", "Legislative_References": "ITAA 1936 Part IVA ITAA 1997 section 25-90 TAA 1953 section 284-145 of Sch 1 section 284-15 of Sch 1", "Case_References": "Hart v Federal Commissioner of Taxation (2004) 217 CLR 216 (2004) 55 ATR 712 2004 ATC 4599 Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 (1996) 34 ATR 183 96 ATC 5201 British American Tobacco Australia Services Ltd v Federal Commissioner of Taxation (2010) 189 FCR 151 2010 ATC 20-222 (2010) 80 ATR 813 Federal Commissioner of Taxation v Consolidated Press Holdings (2001) 207 CLR 235 2001 ATC 4343 (2001) 47 ATR 229 Walstern v Commissioner of Taxation (2003) 138 FCR 1 (2003) 54 ATR 423 2003 ATC 5076", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID43-48of2015/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Raschta Coatings Pty Ltd as trustee for the Raschta Coatings Trust and Commissioner of Taxation", "Venue_Reference_No": "2013/3341", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "23 January 2015", "Date_Published": "18 February 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2015 ATC 10-383", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/3341/00001", "Unmatched_Content": "Raschta Coatings Pty Ltd as trustee for the Raschta Coatings Trust and Commissioner of Taxation [2015] AATA 34 2015 ATC 10-383 (2015) 96 ATR 490 | The adverse aspects of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Rio Tinto Services Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 104 OF 2015", "Venue": "Federal Court of Australia", "Judgment_Date": "24 August 2015", "Date_Published": "9 October 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case considered when acquisitions are not made for a creditable purpose due to the acquisitions relating to the making of input taxed supplies under paragraph 11-15(2)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).", "Overview_of_Facts": "Rio Tinto Services Limited (Rio Tinto) is the representative member for a GST group. Members of the GST group include Hamersley Iron Pty Ltd (Hamersley), which carries on a business of mining and selling iron ore, and Pilbara Iron Company (Services) Pty Ltd. These members of the GST group made acquisitions in providing, and maintaining, residential accommodation for Hamersley's workforce in the remote Pilbara region in Western Australia (Tom Price, Paraburdoo, Dampier and Karratha). The categories of acquisitions included: • construction and purchase of new housing • refurbishment, minor works, maintenance and repairs for the residential housing • mould removal, remediating and general hygiene cleansing, and • cleaning housing, landscaping grounds and pool maintenance. | • construction and purchase of new housing • refurbishment, minor works, maintenance and repairs for the residential housing • mould removal, remediating and general hygiene cleansing, and • cleaning housing, landscaping grounds and pool maintenance. | The premises leased to employees and contractors were houses and apartments. Hamersley subsidised the rent it charged to its workforce in order to attract, and retain, people to work in the Pilbara region. Its expenditure on the housing substantially exceeded the rental income it received for the relevant periods. | As the representative member of the GST group, Rio Tinto sought declarations from the Federal Court that it was entitled to input tax credits for the relevant acquisitions on the basis that the acquisitions were creditable acquisitions related to Hamersley making supplies of iron ore which were not input taxed supplies. The acquisitions were therefore made for a creditable purpose under section 11-15 of the GST Act and were accordingly creditable acquisitions under section 11-5 of the GST Act. Alternatively, the acquisitions related to Hamersley making the supplies of iron ore to some extent and were therefore partly creditable. The Commissioner's position was that Rio Tinto was not entitled to the input tax credits as the acquisitions related to Hamersley making input taxed supplies through leasing residential premises to the work force. The acquisitions were therefore not made for a creditable purpose under paragraph 11-15(2)(a) of the GST Act. | It was not in dispute between the parties that Hamersley made input taxed supplies under section 40-35 of the GST Act when leasing premises to employees and contractors. | Issues decided by the court | The Full Federal Court decided that Rio Tinto was not entitled to input tax credits for the relevant acquisitions as the acquisitions related wholly to the making of supplies that would be input taxed (at [8]). At [7], the Full Federal Court stated: | The application of s 11-15(2)(a) requires, therefore, the precise identification of the relevant acquisition and a factual inquiry into the relationship between that acquisition and the making of supplies that would be input taxed. An acquisition will not be for a creditable purpose to the extent that the facts disclose that the acquisition relates to the making by the enterprise of supplies that would be input taxed. Some acquisitions may relate to the making of supplies would be capable of distinct and separate apportionment as between an input taxed supply and an otherwise taxable supply. In that case it may be possible to divide the creditable purpose between the two. Other acquisitions may be indifferently both for supplies that would be both input taxed and otherwise taxable generally. In that case some fair and reasonable assessment of the extent of the relationship between the two may need to be made. But, as is the case here, an acquisition that relates wholly to the making of supplies that would be input taxed is not to be apportioned merely because that supply may also serve some broader commercial objective of the supplier. | The Court further observed that the text of paragraph 11-15(2)(a) requires a factual identification of the acquisitions in question and a factual inquiry into the extent to which those acquisitions relate to the making of supplies that would be input taxed. The relevant inquiry is not into the relationship between the acquisition and the enterprise more broadly (at [7]). | In the context of the factual arrangement, the extent of the relationship between the acquisitions and the supply of the residential premises is not to be reduced by the fact that the acquisitions may also have related to another purpose where that other purpose is only related to the acquisition wholly by and through the otherwise input taxed supply (at [8]).", "Issues_Decided": "The Full Federal Court decided that Rio Tinto was not entitled to input tax credits for the relevant acquisitions as the acquisitions related wholly to the making of supplies that would be input taxed (at [8]). At [7], the Full Federal Court stated: The application of s 11-15(2)(a) requires, therefore, the precise identification of the relevant acquisition and a factual inquiry into the relationship between that acquisition and the making of supplies that would be input taxed. An acquisition will not be for a creditable purpose to the extent that the facts disclose that the acquisition relates to the making by the enterprise of supplies that would be input taxed. Some acquisitions may relate to the making of supplies would be capable of distinct and separate apportionment as between an input taxed supply and an otherwise taxable supply. In that case it may be possible to divide the creditable purpose between the two. Other acquisitions may be indifferently both for supplies that would be both input taxed and otherwise taxable generally. In that case some fair and reasonable assessment of the extent of the relationship between the two may need to be made. But, as is the case here, an acquisition that relates wholly to the making of supplies that would be input taxed is not to be apportioned merely because that supply may also serve some broader commercial objective of the supplier. The Court further observed that the text of paragraph 11-15(2)(a) requires a factual identification of the acquisitions in question and a factual inquiry into the extent to which those acquisitions relate to the making of supplies that would be input taxed. The relevant inquiry is not into the relationship between the acquisition and the enterprise more broadly (at [7]). In the context of the factual arrangement, the extent of the relationship between the acquisitions and the supply of the residential premises is not to be reduced by the fact that the acquisitions may also have related to another purpose where that other purpose is only related to the acquisition wholly by and through the otherwise input taxed supply (at [8]).", "ATO_View_of_Decision": "The decision of the Full Federal Court is consistent with the Commissioner's view set out in Goods and Services Tax Ruling GSTR 2008/1 that an acquisition will relate to a taxpayer making supplies that would be input taxed for the purposes of paragraph 11-15(2)(a) of the GST Act where, on an objective assessment of the surrounding facts and circumstances, the acquisition is used, or intended to be used, solely or to some extent for the making of supplies that would be input taxed. The Commissioner accepts that if an objective assessment of the facts and circumstances shows that the acquisition has a direct relationship with the making of both input taxed supplies and other taxable or GST-free supplies made in the course of carrying on an enterprise, the acquisition is a partly creditable acquisition.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | The ATO reviewed GSTR 2008/1 to ensure the principles set out in that ruling were consistent with the decision handed down by the Full Federal Court. | As a result of the review, it was determined that no further amendments to GSTR 2008/1 were necessary (or to other public ruling products that considered the application of paragraph 11-15(2)(a). | Implications for impacted Law Administration Practice Statements | Nil | Date of amendment Part Comment 9 October 2017 Aministrative Treatment Updated to advise GSTR 2008/1 was reviewed without change. Comments section Deleted", "Related_Documents": "Goods and Services Tax GSTR 2008/1 Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose? | Goods and Services Tax GSTR 2001/3 Goods and Services Tax: GST and how it applies to supplies of fringe benefits | 2015 ATC 20-525 | 11-15 | 11-20 | 48-45 | 2005 ATC 4571 | 2005 ATC 4829 | (1949) 78 CLR 47", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 11-15 11-20 48-45", "Case_References": "AXA Asia Pacific Holdings Ltd v Commissioner of Taxation (2008) 173 FCR 500 [2008] FCA 1834 (2008) 71 ATR 1 HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 [2005] FCAFC 126 2005 ATC 4571 (2005) 60 ATR 106 Macquarie Finance Ltd v Commissioner of Taxation (2005) 146 FCR 77 [2005] FCAFC 205 2005 ATC 4829 (2005) 61 ATR 1 Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID104OF2015/00001", "Unmatched_Content": ""}
{"Case_Name": "Sharratt and Commissioner of Taxation", "Venue_Reference_No": "2014/3797 & 2014/3798", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "1 May 2015", "Date_Published": "1 May 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2015] AATA 293", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014/3797/00001", "Unmatched_Content": "Sharratt and Commissioner of Taxation [2015] AATA 293 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "The Bell Group Ltd (in Liq) & Anor v Deputy Commissioner of Taxation & Anor", "Venue_Reference_No": "NSD 1030 of 2015", "Venue": "Federal Court of Australia", "Judgment_Date": "29 September 2015", "Date_Published": "12 November 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "1. The Bell Group Ltd (TBGL) went into liquidation on 24 July 1991. | 2. In 2000 TBGL and its related entities commenced proceedings in the Supreme court of Western Australia against a number of Australian and overseas banks. These proceedings were eventually settled and the Deed of Settlement provided, amongst other things, for the banks to pay a settlement sum to the Liquidator of TBGL, Mr Woodings to be held for the benefit of TBGL and its related entities (settlement sum). | 3. The settlement sum is still held by Mr Woodings and he has deposited $300,000,000 of it into a National Australia Bank (NAB) term deposit which was due to expire on 2 October 2015. | 4. On 10 August 2015, the Commissioner issued a notice of assessment to TBGL for the year ended 30 June 2014 pursuant to section 167 of the Income Tax Assessment Act 1936 for tax payable of $308,724,204.90. The assessment relates to the settlement sum. | 5. On 18 August 2015, the Commissioner issued an amended notice of assessment to TBGL for the year ended 30 June 2014 with a reduced tax payable amount of $298,190,348.70. | 6. On 14 August 2015, a Deputy Commissioner of Taxation, as delegate of the Commissioner, issued a notice pursuant to section 260-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA) to NAB requiring payment to the value of $298,190,348.70 (garnishee notice). | 7. TBGL and Mr Woodings sought declarations that the garnishee notice was void and of no effect. They also sought orders quashing the garnishee notice. | Issues decided by the court | 8. The Court, relying on Bruton Holdings Pty Ltd (in liq) v CoT (2009) 239 CLR 346 (Bruton Holdings), held the garnishee notice was void and of no effect for two related reasons: a. The notices are an attachment against property of TBGL and therefore void by operation of subsection 468(4) of the Corporations Act; b. The power conferred on the Commissioner under section 260-5 of Schedule 1 to the TAA is not available where the relevant 'debtor' for the purposes of that section is a company which is being wound up, or its liquidator. That is so even where the relevant debt is for tax payable on income derived after the commencement of the winding up. | a. The notices are an attachment against property of TBGL and therefore void by operation of subsection 468(4) of the Corporations Act; b. The power conferred on the Commissioner under section 260-5 of Schedule 1 to the TAA is not available where the relevant 'debtor' for the purposes of that section is a company which is being wound up, or its liquidator. That is so even where the relevant debt is for tax payable on income derived after the commencement of the winding up.", "Issues_Decided": "8. The Court, relying on Bruton Holdings Pty Ltd (in liq) v CoT (2009) 239 CLR 346 (Bruton Holdings), held the garnishee notice was void and of no effect for two related reasons: a. The notices are an attachment against property of TBGL and therefore void by operation of subsection 468(4) of the Corporations Act; b. The power conferred on the Commissioner under section 260-5 of Schedule 1 to the TAA is not available where the relevant 'debtor' for the purposes of that section is a company which is being wound up, or its liquidator. That is so even where the relevant debt is for tax payable on income derived after the commencement of the winding up. a. The notices are an attachment against property of TBGL and therefore void by operation of subsection 468(4) of the Corporations Act; b. The power conferred on the Commissioner under section 260-5 of Schedule 1 to the TAA is not available where the relevant 'debtor' for the purposes of that section is a company which is being wound up, or its liquidator. That is so even where the relevant debt is for tax payable on income derived after the commencement of the winding up.", "ATO_View_of_Decision": "9. Following the decision in Bruton Holdings the Commissioner ceased to issue notices under section 260-5 of Schedule 1 to the TAA in respect of pre-liquidation tax liabilities of companies in liquidation. | 10. The Commissioner was of the view that garnishee notices could be issued with respect to tax liabilities that relate to income derived by a company in liquidation post-liquidation. The Commissioner continues to be of the view that notices under section 260-5 can be validly issued in a limited range of circumstance involving post liquidation tax liabilities. The High Court's decision in Bruton Holdings is not considered determinative in the context of post liquidation liabilities. That situation was not before the High Court. That Court expressly stated that '... the remedy available to the Commissioner on the facts of this case was that under the regime for liquidations (s260-45), not the garnishee regime provided by s260-5' (CLR [51], emphasis added). Section 260-45 is not enlivened in the circumstance of a post liquidation tax liability. Additionally, the High Court did not rule as to the wider question of the interaction of the taxation law and the Corporations law. | 11. The present case was considered to be an inappropriate vehicle to test these issues before an appeal Court. The very short period of time between the handing down of the decision and the maturity of the term deposited, and the possibility that actions by the liquidator after the deposit matures could materially affect both the factual and legal positions, meant that an appeal could be rendered futile. | 12. The Commissioner will continue to review his position with a view to finding an appropriate method of testing the relevant legal issues.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | Not applicable | Implications for impacted Law Administration Practice Statements | Not applicable", "Related_Documents": "Not applicable | [2015] FCA 1056 | 2015 ATC 20-528 | 468(4) | 500(1) | 555 | 556 | 95 | 6 | 167 | 221 | 254 | 960-100 | 995-1 | 3AA(2) | 255-1 | 260-5 | 260-45 | 79 ATC 4687 | 2007 ATC 5151 | 2009 ATC 20-125 | 2008 ATC 20-073", "Legislative_References": "Corporations Act 2001 (Cth) 468(4) 500(1) 555 556 Companies Act 1899 (NSW) 95 Income Tax Assessment Act 1936 (Cth) 6 167 215 221 254 Income Tax Assessment Act 1997 (Cth) 960-100 995-1 Taxation Debts (Abolition of Crown Priority) Act 1980 (Cth) The Act Taxation Administration Act 1953 (Cth) 3AA(2) 255-1 260-5 260-45", "Case_References": "Bank of New South Wales v The Commissioner of Taxation of the Commonwealth of Australia (1979) 145 CLR 438 (1979) 10 ATR 482 79 ATC 4687 Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation [2007] FCA 1643 (2007) 67 ATR 618 2007 ATC 5151 (2007) 244 ALR 177 Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation (2009) 239 CLR 346 (2009) 72 ATR 856 2009 ATC 20-125 Federal Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq) (2008) 173 FCR 472 (2008) 70 ATR 903 2008 ATC 20-073", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1030of2015/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "The Trustee for The Anderson Family (No. 2) Trust", "Venue_Reference_No": "2014/2653", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "23 March 2015", "Date_Published": "30 April 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2015 ATC 10-387", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014/2653/00001", "Unmatched_Content": "The Trustee for The Anderson Family (No. 2) Trust [2015] AATA 167 2015 ATC 10-387 (2015) 96 ATR 249 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Thomas and Commissioner of Taxation", "Venue_Reference_No": "2014/4623", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "9 September 2015", "Date_Published": "20 October 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2015] AATA 687 | 2012 ATC 10-404", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014/4623/00001", "Unmatched_Content": "Thomas and Commissioner of Taxation [2015] AATA 687 2012 ATC 10-404 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner and, the adverse aspect/s of the decision concerns administrative penalties and have no wider ramifications. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Ting v Commissioner of Taxation", "Venue_Reference_No": "AAT 2014/5244", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "23 February 2015", "Date_Published": "23 February 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2015 ATC 10-386", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014/5244/00001", "Unmatched_Content": "Ting v Commissioner of Taxation [2015] AATA 166 2015 ATC 10-386 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Trustee for SBM Trust v Federal Commissioner of Taxation", "Venue_Reference_No": "2013/4747", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "26 March 2015", "Date_Published": "25 August 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the applicant was entitled to input tax credits (ITCs) for creditable acquisitions made prior to the commencement of a four year time limit on the claiming of ITCs.", "Overview_of_Facts": "1. The taxpayer, which accounted for GST on a cash basis and had quarterly tax periods, lodged its Business Activity Statement (BAS) for the tax periods 31 March 2005, 30 June 2005 and 30 June 2006 on the following respective dates: 29 April 2005, 28 July 2005 and 26 July 2006. | 2. On 15 October 2012, the taxpayer purported to revise its BAS for the June 2005 tax period to claim ITCs for acquisitions made during that period that it had not previously claimed. The Commissioner paid a refund to the taxpayer on 3 November 2012. | 3. On 8 and 10 November 2012 the taxpayer purported to revise its BASs for the March 2005 and June 2006 tax periods to claim ITCs for acquisitions made during those periods that were not taken into account in their previous returns. No refund issued for these purported revisions. | 4. The Commissioner wrote to the taxpayer, advising that it was not entitled to any refunds as it was out of time. The Commissioner issued nil assessments for the 31 March 2005, 30 June 2005 and 30 June 2006 tax periods, placing the taxpayer back into the same position it was in after it lodged the original BASs in 2005 and 2006. | 5. The ITCs that the taxpayer purported to claim in these tax periods related to acquisitions made in the relevant periods. There was no dispute that the taxpayer could have claimed the ITCs when it lodged the original BASs for the relevant periods. | 6. The Commissioner disallowed the objections that the taxpayer lodged against the assessments and the taxpayer applied to the Administrative Appeals Tribunal ('the Tribunal') to review the objection decisions. | Issues decided by the tribunal | Whether section 93-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which was enacted in 2010, applied to impose a time limit on the taxpayer's entitlement to claim ITCs. | The Tribunal decided that the taxpayer was no longer entitled to claim ITCs for the relevant acquisitions, even though the four year time limit imposed by section 93-5 of the GST Act was enacted after the taxpayer acquired the creditable acquisitions. The Tribunal noted that the application clause of the amending legislation provided that Division 93 applied \"in relation to acquisitions ….that are taken into account in GST returns given to the Commissioner under the GST Act after 7.30pm AEST on 12 May 2009.\" The Tribunal found the provision to be unambiguous, and that it is fixing, not on the timing of the acquisition, but on the timing of lodgment of the GST return, or the timing of the assessment. In the taxpayer's case, the acquisitions were taken into account in the revised BASs given to the Commissioner in October and November 2012 (that is, after 7.30pm on 12 May 2009) so section 93-5 applied, and the taxpayer had ceased to be entitled to the ITCs. | The Tribunal also found that subsection 29-10(4) of the GST Act, which deals with attribution, is not in conflict with subsection 93-5, which deals with entitlement. As the Tribunal had found that the taxpayer is not entitled to ITCs, there was no question of attributing the ITCs. The Tribunal also commented at [10] and [38] that, because the taxpayer lodged their returns in 2005 and 2006, without taking into account ITCs that were otherwise attributable to those tax periods (and in circumstances where the taxpayer could have taken them into account), the ITCs were no longer attributable to those tax periods. In these circumstances, in the view of the Tribunal, the taxpayer was not able to revise their returns for the 2005 and 2006 tax periods to claim ITCs that were not taken into account at the time of lodgment of the original returns.", "Issues_Decided": "Whether section 93-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which was enacted in 2010, applied to impose a time limit on the taxpayer's entitlement to claim ITCs.: The Tribunal decided that the taxpayer was no longer entitled to claim ITCs for the relevant acquisitions, even though the four year time limit imposed by section 93-5 of the GST Act was enacted after the taxpayer acquired the creditable acquisitions. The Tribunal noted that the application clause of the amending legislation provided that Division 93 applied \"in relation to acquisitions ….that are taken into account in GST returns given to the Commissioner under the GST Act after 7.30pm AEST on 12 May 2009.\" The Tribunal found the provision to be unambiguous, and that it is fixing, not on the timing of the acquisition, but on the timing of lodgment of the GST return, or the timing of the assessment. In the taxpayer's case, the acquisitions were taken into account in the revised BASs given to the Commissioner in October and November 2012 (that is, after 7.30pm on 12 May 2009) so section 93-5 applied, and the taxpayer had ceased to be entitled to the ITCs. The Tribunal also found that subsection 29-10(4) of the GST Act, which deals with attribution, is not in conflict with subsection 93-5, which deals with entitlement. As the Tribunal had found that the taxpayer is not entitled to ITCs, there was no question of attributing the ITCs. The Tribunal also commented at [10] and [38] that, because the taxpayer lodged their returns in 2005 and 2006, without taking into account ITCs that were otherwise attributable to those tax periods (and in circumstances where the taxpayer could have taken them into account), the ITCs were no longer attributable to those tax periods. In these circumstances, in the view of the Tribunal, the taxpayer was not able to revise their returns for the 2005 and 2006 tax periods to claim ITCs that were not taken into account at the time of lodgment of the original returns.", "ATO_View_of_Decision": "The Commissioner considers that the Tribunal's decision confirms that section 93-5 of the GST Act imposes a time limit on a taxpayer's entitlement to claim ITCs for GST returns lodged, or assessed, from 12 May 2009, regardless of when the relevant acquisitions were made. It follows that, if a taxpayer is not entitled to claim ITCs, as the four year time limit has passed under section 93-5 of the GST Act, then there can be no attribution of those ITCs under subsection 29-10(4). | The Commissioner respectfully notes that the Tribunal's comments at [10] and [38] about the operation of subsection 29-10(4) of the GST Act were not necessary to resolution of the issue in dispute in this case. The Commissioner further notes that submissions were not made by either party on revisions being made to an assessment to take into account an ITC. Until there is a suitable opportunity to have this matter further considered by a Tribunal or Court, the Commissioner proposes to maintain his existing view that subsection 29-10(4) of the GST Act does not prevent an entity revising an earlier GST return to claim an ITC that the entity is otherwise entitled to claim.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | Nil | Implications for impacted Law Administration Practice Statements | Nil", "Related_Documents": "None | 2015 ATC 1-076 | 29-10(4) | 93-5 | 2010 ATC 10-168 | 2010 ATC 10-148 | 2013 ATC 10-344", "Legislative_References": "A new Tax System (Goods and Services Tax) Act 1999 29-10(4) 93-5", "Case_References": "Clontarf Development Pty Ltd and Commissioner of Taxation [2010] AATA 1065 2010 ATC 10-168 [2011] ALMD 3831 (2010) 79 ATR 540 Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 620 2010 ATC 10-148 (2010) 76 ATR 390 [2010] ALMD 7501 Swanbat Pty Ltd and Commissioner of Taxation [2013] AATA 891 2013 ATC 10-344", "Subject_References": "GST Input tax credits Creditable acquisitions", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/4747/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements."}
{"Case_Name": "Trustee of the WT & A Norman Superannuation Fund & the Trustee of Mary A Norman Superannuation Fund and Commissioner of Taxation", "Venue_Reference_No": "2014/6023 & 2014/6090", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "27 November 2015", "Date_Published": "17 March 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The Tribunal has affirmed the Commissioner's decision that section 177EA of the Income Tax Assessment Act 1936 (ITAA 1936) applies to cancel imputation benefits associated with the Applicants' 'dividend washing' transactions.", "Overview_of_Facts": "The Applicants were the trustees of the WT & A Norman Superannuation Fund and the Mary A Norman Superannuation Fund. | In 2012 and 2013, the Applicants, on the advice of their brokers, engaged in a series of paired transactions involving a sale and matched purchase of ASX-listed shares in a practice which has come to be known as 'dividend washing'. | Broadly, each dividend washing transaction involved: • Selling a parcel of ASX-listed shares on the ordinary market immediately after the shares began trading 'ex-dividend'; and • Immediately after the sale, purchasing an identical number of ordinary shares 'cum-dividend' at a higher price on an ASX Special Market - a market which operated for a short period after the 'ex-dividend' date and enabled trading on a 'cum-dividend' basis. | • Selling a parcel of ASX-listed shares on the ordinary market immediately after the shares began trading 'ex-dividend'; and • Immediately after the sale, purchasing an identical number of ordinary shares 'cum-dividend' at a higher price on an ASX Special Market - a market which operated for a short period after the 'ex-dividend' date and enabled trading on a 'cum-dividend' basis. | The Applicants claimed franking credits in respect of the dividend on each parcel of shares. The pair of transactions, generally speaking, produced a net negative economic outcome disregarding the value of the second franking credit, but was economically advantageous when the value of both credits was taken into account. | In deciding the relevant objection, the Commissioner made a determination under paragraph 177EA(5)(b) of the ITAA 1936 that no imputation benefit was available to the Applicants in respect of the distributions received on each parcel of shares purchased on the ASX Special Market. | Issues Decided by the Tribunal | The primary issue before the Tribunal was whether section 177EA of the ITAA 1936 applies to dividend washing transactions entered before section 207-157 of the Income Tax Assessment Act 1997 (ITAA 1997) was enacted and operative. | Application of s 177EA of the ITAA 1936 | SM O'Loughlin considered that the requisite purpose must be determined objectively by reference to the prescribed factors. A finding that the requisite purpose is present does not necessarily mean that the subjective intention of those involved was to obtain an imputation benefit; nor does it necessarily mean that the evidence given with regard to subjective intention is not honest. | The Tribunal found that the Commissioner's articulated scheme was a 'scheme for a disposition' of membership interests and that all conditions for the application of section 177EA of the ITAA 1936 were satisfied subject to the determination of purpose. | In finding that the Applicants had a non-incidental purpose of obtaining an imputation benefit, SM O'Loughlin identified the following three 'striking' features which led him to conclude that the requisite objective purpose could be identified on a holistic analysis: • at any time, the Applicants only had ownership of, and exposure to, one shareholding; • ignoring the imputation benefits, the Applicants cash flow and change of wealth on each integrated transaction was negative. Having regard to those benefits, the cash flow was positive; • the integrated transactions were carried out on the same day in different markets such that different dividend entitlements would be enjoyed. | • at any time, the Applicants only had ownership of, and exposure to, one shareholding; • ignoring the imputation benefits, the Applicants cash flow and change of wealth on each integrated transaction was negative. Having regard to those benefits, the cash flow was positive; • the integrated transactions were carried out on the same day in different markets such that different dividend entitlements would be enjoyed. | The Tribunal also analysed the factors individually, reaching the same conclusion.", "Issues_Decided": "The primary issue before the Tribunal was whether section 177EA of the ITAA 1936 applies to dividend washing transactions entered before section 207-157 of the Income Tax Assessment Act 1997 (ITAA 1997) was enacted and operative. | Application of s 177EA of the ITAA 1936: SM O'Loughlin considered that the requisite purpose must be determined objectively by reference to the prescribed factors. A finding that the requisite purpose is present does not necessarily mean that the subjective intention of those involved was to obtain an imputation benefit; nor does it necessarily mean that the evidence given with regard to subjective intention is not honest. The Tribunal found that the Commissioner's articulated scheme was a 'scheme for a disposition' of membership interests and that all conditions for the application of section 177EA of the ITAA 1936 were satisfied subject to the determination of purpose. In finding that the Applicants had a non-incidental purpose of obtaining an imputation benefit, SM O'Loughlin identified the following three 'striking' features which led him to conclude that the requisite objective purpose could be identified on a holistic analysis: • at any time, the Applicants only had ownership of, and exposure to, one shareholding; • ignoring the imputation benefits, the Applicants cash flow and change of wealth on each integrated transaction was negative. Having regard to those benefits, the cash flow was positive; • the integrated transactions were carried out on the same day in different markets such that different dividend entitlements would be enjoyed. • at any time, the Applicants only had ownership of, and exposure to, one shareholding; • ignoring the imputation benefits, the Applicants cash flow and change of wealth on each integrated transaction was negative. Having regard to those benefits, the cash flow was positive; • the integrated transactions were carried out on the same day in different markets such that different dividend entitlements would be enjoyed. The Tribunal also analysed the factors individually, reaching the same conclusion.", "ATO_View_of_Decision": "The ATO considers that the Tribunal's reasoning is consistent with the Commissioner's view on the application of the law to 'dividend washing' transactions as articulated in TD 2014/10 - Income tax: can section 177EA of the Income Tax Assessment Act 1936 apply to a 'dividend washing' scheme of the type described in this Taxation Determination? | The commencement of section 207-157 of the ITAA 1997 (enacted on 30 June 2014 with effect from 1 July 2013) is expected to remove the need for the Commissioner to make determinations under section 177EA of the ITAA 1936 to deny imputation benefits arising under dividend washing transactions where the relevant distributions are made on or after 1 July 2013.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | Nil | Implications for impacted Law Administration Practice Statements | Nil", "Related_Documents": "Nil | 2015 ATC 10-415 | section 169A | section 177D | section 177EA | section 207-157 | 2012 ATC 20-360", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) section 169A section 177D section 177EA Income Tax Assessment Act 1997 (Cth) section 207-157", "Case_References": "Mills v Commissioner of Taxation of the Commonwealth of Australia (2012) 250 CLR 171 83 ATR 514 2012 ATC 20-360", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014-6023-2014-6090/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Vo and Commissioner of Taxation", "Venue_Reference_No": "2014/2768", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "26 May 2015", "Date_Published": "26 May 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2015] AATA 359 | 2015 ATC 10-394", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014/2768-73/00001", "Unmatched_Content": "Vo and Commissioner of Taxation [2015] AATA 359 2015 ATC 10-394 | 2014/2768 2014/2769 2014/2770 2014/2771 2014/2772 2014/2773 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Ward and Commissioner of Taxation", "Venue_Reference_No": "2013/3760", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "11 March 2015", "Date_Published": "11 March 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This matter concerns the review rights that exist in relation to an Excess Contributions Tax (ECT) assessment where the Commissioner has decided not to exercise the discretion in subsection 292-465(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard, or allocate to another financial year, all or part of an individual's non-concessional superannuation contributions for a financial year. A preliminary question arose concerning whether the AAT had jurisdiction to review the decision of the Commissioner to disallow Mr Ward's objection against his 2011 ECT assessment on the ground that he was dissatisfied with the Commissioner's decision not to make a determination under subsection 292-465(1) of the ITAA 1997.", "Overview_of_Facts": "1. On 23 November 2012 the Commissioner issued Mr Ward a notice of assessment of excess non-concessional superannuation contributions tax (the ECT assessment) for the financial year ended 30 June 2011. | 2. On 4 December 2012 Mr Ward applied to the Commissioner for a determination under subsection 292-465(1) of the ITAA 1997 (a subsection 292-465(1) determination) that a specified amount of his non-concessional superannuation contributions for the 2011 financial year be disregarded. | 3. On 14 March 2013 the Commissioner decided not to make such a determination. | 4. On 26 April 2013 Mr Ward lodged an objection against the ECT assessment on the ground that he was dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination. | 5. On 7 June 2013 the Commissioner disallowed the objection. | 6. On 2 August 2013 Mr Ward applied to the AAT for a review of the objection decision. | 7. In a directions hearing concerning Mr Ward's matter, the Commissioner informed the AAT that the Tribunal in Hope and Commissioner of Taxation [2014] AATA 877 (Hope) questioned whether the Tribunal has jurisdiction to review the Commissioner's decision not to make a subsection 292-465(1) determination, as part of the Tribunal's review of the Commissioner's decision on an objection against an ECT assessment. (The Tribunal in Hope was able to resolve the matter without formally deciding the question as to jurisdiction.) | 8. In raising that jurisdiction issue, the AAT in Hope referred to the decision of the Full Federal Court in Commissioner of Taxation v Administrative Appeals Tribunal and Anor (2011) 191 FCR 400 (McMennemin) which held that an individual could not object under Part IVC of the Taxation Administration Act 1953 (Part IVC) against an ECT assessment on the ground that the individual was dissatisfied with a decision of the Commissioner not to make a determination under subsection 292-465(1) of the ITAA 1997, as section 292-465 of the ITAA 1997 was originally enacted. The AAT also referred to amendments made to that section by the Superannuation Legislation Amendment Act 2010 (the 2010 amendments). Those amendments, in particular by the insertion of paragraph 292-465(9)(a) of the ITAA 1997, dealt with taxpayers' rights of review in relation to applications made on or after 17 November 2010 for a subsection 292-465(1) determination. | 9. The Tribunal in this matter agreed to determine this jurisdiction issue as a preliminary question. | 10. Test Case funding was provided to Mr Ward for the jurisdiction issue. The Tribunal decided this issue on the papers. An Interlocutory Decision was made on 11 March 2015. | Issues Decided by the AAT | Do the 2010 amendments to section 292-465 of the ITAA 1997 entitle a taxpayer to object under Part IVC against an ECT assessment on the ground that they are dissatisfied with the Commissioner's determination under subsection 292-465(1) of the ITAA 1997 or with the Commissioner's decision not to make such a determination? | The AAT considered (at paragraph [13]) that giving the words of paragraph 292-465(9)(a) their ordinary meaning would mean that 'the only taxpayers entitled to object could not do so, because they would not be dissatisfied with the outcome, and those who were dissatisfied would not have a right to object despite that dissatisfaction. That would mean that the 2010 amendments, although evidently intended to remedy the outcome in McMennemin, had no practical effect.' | That, in turn, would mean that the AAT would not have jurisdiction (as part of its review of the Commissioner's decision on objection against an ECT assessment) to review the Commissioner's decision not to make a subsection 292-465(1) determination or to make such a determination different from what the taxpayer applied for. | The Tribunal concluded (at paragraph [15]) that 'the ordinary meaning conveyed by the text of paragraph 292-465(9)(a) leads to a result that is manifestly absurd' and accordingly determined that it could consider extrinsic material such as the Explanatory Memorandum (EM) to the Bill that became the 2010 amendments to ascertain the meaning of the provision. | Having regard to the clear statements in that EM, the AAT concluded that paragraph 292-465(9)(a) should be interpreted so as to grant a right to object under Part IVC against an ECT assessment on the ground that the person is dissatisfied with the Commissioner's subsection 292-465(1) determination or the Commissioner's decision not to make such a determination. | The Tribunal therefore concluded that where a taxpayer objects under Part IVC against an ECT assessment on such a ground, as part of its review of the Commissioner's decision on objection against that assessment it does have jurisdiction to review the Commissioner's decision not to make a subsection 292-465(1) determination or to make such a determination different from what the taxpayer applied for.", "Issues_Decided": "Do the 2010 amendments to section 292-465 of the ITAA 1997 entitle a taxpayer to object under Part IVC against an ECT assessment on the ground that they are dissatisfied with the Commissioner's determination under subsection 292-465(1) of the ITAA 1997 or with the Commissioner's decision not to make such a determination? The AAT considered (at paragraph [13]) that giving the words of paragraph 292-465(9)(a) their ordinary meaning would mean that 'the only taxpayers entitled to object could not do so, because they would not be dissatisfied with the outcome, and those who were dissatisfied would not have a right to object despite that dissatisfaction. That would mean that the 2010 amendments, although evidently intended to remedy the outcome in McMennemin, had no practical effect.' That, in turn, would mean that the AAT would not have jurisdiction (as part of its review of the Commissioner's decision on objection against an ECT assessment) to review the Commissioner's decision not to make a subsection 292-465(1) determination or to make such a determination different from what the taxpayer applied for. The Tribunal concluded (at paragraph [15]) that 'the ordinary meaning conveyed by the text of paragraph 292-465(9)(a) leads to a result that is manifestly absurd' and accordingly determined that it could consider extrinsic material such as the Explanatory Memorandum (EM) to the Bill that became the 2010 amendments to ascertain the meaning of the provision. Having regard to the clear statements in that EM, the AAT concluded that paragraph 292-465(9)(a) should be interpreted so as to grant a right to object under Part IVC against an ECT assessment on the ground that the person is dissatisfied with the Commissioner's subsection 292-465(1) determination or the Commissioner's decision not to make such a determination. The Tribunal therefore concluded that where a taxpayer objects under Part IVC against an ECT assessment on such a ground, as part of its review of the Commissioner's decision on objection against that assessment it does have jurisdiction to review the Commissioner's decision not to make a subsection 292-465(1) determination or to make such a determination different from what the taxpayer applied for.", "ATO_View_of_Decision": "The Commissioner has not appealed this decision as it is consistent with his longstanding practice. | This decision has significance for a taxpayer who wishes to object under Part IVC against: • an excess non-concessional contributions tax (ENCCT) assessment for any financial year, or • an excess concessional contributions tax (ECCT) assessment for a financial year up to and including the 2012-13 year (there are no ECCT assessments for the 2013-14 year and later years), on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make, where they applied for a subsection 292-465(1) determination on or after 17 November 2010. | • an excess non-concessional contributions tax (ENCCT) assessment for any financial year, or • an excess concessional contributions tax (ECCT) assessment for a financial year up to and including the 2012-13 year (there are no ECCT assessments for the 2013-14 year and later years), | on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make, where they applied for a subsection 292-465(1) determination on or after 17 November 2010. | Consequently, this decision also has significance for the jurisdiction of the AAT when reviewing an objection decision of the kind and in the circumstances described in the previous paragraph, since the AAT can only review an objection decision in relation to an objection validly made under Part IVC. | Decision should not be misconstrued - can't object directly against section 292-465 decision | To the extent that several paragraphs in the AAT's Reasons for Decision (see paragraphs 6, 11, 19 and 21) could wrongly be construed as suggesting that a taxpayer can object under Part IVC directly against the Commissioner's decision not to make a determination under subsection 292-465(1) or against such a determination the Commissioner did make (rather than against an ECT assessment on the ground of dissatisfaction with such a decision or determination), the Commissioner notes that no such direct objection rights exist in the law (including after the 2015 amendments to the law introduced by Schedule 1 to the Tax and Superannuation Laws Amendment (2014 Measures No.7) Act 2015 (the 2015 amendments) which apply in relation to non-concessional contributions for the 2013-14 and later financial years). | Significance of decision - non-concessional contributions | As mentioned above, this decision has significance for a taxpayer who wishes to object under Part IVC against an ENCCT assessment for any financial year on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make, where they applied for a subsection 292-465(1) determination on or after 17 November 2010. | However, as explained below, because of the way the law operates as a result of the 2015 amendments mentioned above that changed the ENCCT regime for the 2013-14 and later financial years, in many cases there will be no ENCCT assessment in existence for the 2013-14 or a later financial year that an individual can validly object against on these or any other grounds. | Under the changes introduced by the 2015 amendments the Commissioner makes a written excess non-concessional contributions determination (ENCCD) for an individual whose non-concessional contributions for such a financial year exceed their non-concessional contributions cap for that year. The individual can then choose to have an amount equal to those excess contributions plus 85% of an associated earnings amount released from their superannuation interest(s) in accordance with a release authority issued by the Commissioner. The full amount of the associated earnings for released contributions is included in the individual's assessable income for the income year corresponding to the financial year of the excess contributions. The individual is entitled to a non-refundable tax offset for that year equal to 15% of the associated earnings amount included in their assessable income. | The excess contributions stated in the ENCCD are not 'excess non-concessional contributions', and subject to excess non-concessional contributions tax, to the extent that they are released from the individual's superannuation interest(s) in accordance with the release authority issued by the Commissioner, or where the Commissioner is satisfied that the value of all the individual's remaining superannuation interest(s) is nil. | It follows that an ENCCT assessment only arises for the 2013-14 or a later financial year where excess non-concessional contributions are not released from a superannuation interest in circumstances where the remaining value of all the individual's superannuation interest(s) is not nil. In all other cases, there will be no ENCCT assessment for the 2013-14 or a later financial year against which an individual can object on any grounds (including on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make). | This decision does not have significance for a taxpayer who wishes to object under Part IVC against: • an income tax assessment relating to the inclusion of an amount of 'associated earnings' in their assessable income for the 2013-14 income year or a later income year under section 292-25 of the ITAA 1997, or • an ENCCD under section 97-25 in Schedule 1 to the Taxation Administration Act 1953 (TAA) for the 2013-14 financial year or a later financial year. | • an income tax assessment relating to the inclusion of an amount of 'associated earnings' in their assessable income for the 2013-14 income year or a later income year under section 292-25 of the ITAA 1997, or • an ENCCD under section 97-25 in Schedule 1 to the Taxation Administration Act 1953 (TAA) for the 2013-14 financial year or a later financial year. | Although a taxpayer can object under Part IVC against such an income tax assessment or ENCCD pursuant to s 175A of the Income Tax Assessment Act 1936 (ITAA 1936) and section 97-35 in Schedule 1 to the TAA respectively, no right exists in the law to do so on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make. | Significance of decision - concessional contributions | As mentioned above, this decision also has significance for a taxpayer who wishes to object under Part IVC against an ECCT assessment for a financial year up to and including the 2012-13 financial year on the ground they are dissatisfied with the Commissioner's decision not to make a subsection 292-465(1) determination or with such a determination the Commissioner did make, where they applied for a subsection 292-465(1) determination on or after 17 November 2010. | However, 2013 amendments in Schedule 1 to the Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Act 2013 changed the excess concessional contributions regime for the 2013-14 and later financial years. Under those changes there are no ECCT assessments for the 2013-14 and later financial years. Instead, the Commissioner makes a written excess concessional contributions determination (ECCD) for an individual whose concessional contributions for such a financial year exceed their concessional contributions cap for that year. The individual can then choose to have an amount equal to 85% of those excess contributions released from their superannuation in accordance with a release authority issued by the Commissioner. The full amount of an individual's excess concessional contributions for such a financial year is included in their assessable income for the income year corresponding to the financial year of the excess contributions. The individual is entitled to a non-refundable tax offset for that year equal to 15% of the excess amount included in their assessable income. | Section 291-465 of the ITAA 1997 was inserted as part of those 2013 amendments. It provides the Commissioner in certain circumstances with a discretion for the 2013-14 and later financial years to disregard concessional contributions or allocate them to another financial year. | This decision does not have significance in relation to the application of section 291-465. | In contrast to the objection rights in relation to the application of the section 292-465 discretion, a taxpayer who is dissatisfied with the Commissioner's decision not to make a determination under subsection 291-465(1) or with such a determination the Commissioner did make, can object under Part IVC directly against that decision or determination: see subsection 291-465(7). Alternatively, a taxpayer can object under Part IVC against: • an income tax assessment relating to the inclusion of excess concessional contributions in their assessable income for the 2013-14 income year or a later income year under section 291-15 of the ITAA 1997, or • an ECCD under section 97-5 in Schedule 1 to the TAA for the 2013-14 financial year or a later financial year, | • an income tax assessment relating to the inclusion of excess concessional contributions in their assessable income for the 2013-14 income year or a later income year under section 291-15 of the ITAA 1997, or • an ECCD under section 97-5 in Schedule 1 to the TAA for the 2013-14 financial year or a later financial year, | on the ground they are dissatisfied with the Commissioner's decision not to make a determination under subsection 291-465(1) or with such a determination the Commissioner did make: see subsection 291-465(8).", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | No existing Public Rulings or Determinations are affected by this decision. | Implications for impacted Law Administration Practice Statements | No existing Practice Statements are affected by this decision.", "Related_Documents": "None | [2015] AATA 138 | 2015 ATC 10-385 | 15AB | 175A | 291-15 | 291-465 | 292-25 | 292-465 | The Act | Part IVC | 14ZZ | 97-5 | 97-25 | 97-35 | (1997) 187 CLR 384 | 2011 ATC 20-248 | [2014] AATA 877 | (1997) 191 CLR 1 | [1980] AC 74 | 2010 ATC 10-145 | (1997) 191 CLR 85", "Legislative_References": "Acts Interpretation Act 1901 15AB Income Tax Assessment Act 1936 175A Income Tax Assessment Act 1997 291-15 291-465 292-25 292-465 Superannuation Legislation Amendment Act 2010 The Act Tax and Superannuation Laws Amendment (2014 Measures No. 7) Act 2015 The Act Taxation Administration Act 1953 Part IVC 14ZZ 97-5 97-25 97-35 Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Act 2013 The Act", "Case_References": "CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2 (1997) 187 CLR 384 Federal Commissioner of Taxation v Administrative Appeals Tribunal [2011] FCAFC 37 2011 ATC 20-248 (2011) 191 FCR 400 (2011) 276 ALR 231 (2011) 82 ATR 663 Hope and Commissioner of Taxation [2014] AATA 877 IW v City of Perth (1997) 191 CLR 1 (1997) 146 ALR 696 [1997] HCA 30 Jones v Wrotham Park Estates [1980] AC 74 Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404 McMennemin and Federal Commissioner of Taxation (2010) 53 AAR 187 (2010) 79 ATR 898 2010 ATC 10-145 [2010] AATA 573 Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 (1997) 149 ALR 623 [1997] HCA 53 Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd [1938] Ch 174", "Subject_References": "TAXATION AND REVENUE Excess superannuation contributions tax whether Tribunal has jurisdiction whether a person can object against assessment on ground that dissatisfied with Commissioner's decision not make a determination they applied for ordinary meaning of legislation leads to manifestly absurd result person may so object Tribunal has jurisdiction STATUTES Interpretation ordinary meaning leads to manifestly absurd result Tribunal may refer to explanatory memorandum Tribunal may insert words construction is reasonably open clear when read with explanatory memorandum that amendment confers jurisdiction", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/3760/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Wu and Commissioner of Taxation", "Venue_Reference_No": "2014/1949-1952", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "13 February 2015", "Date_Published": "13 February 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2015] AATA 78", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014/1949-1952/00001", "Unmatched_Content": "Wu and Commissioner of Taxation [2015] AATA 78 | The adverse aspect of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Akers & Ors v Deputy Commissioner of Taxation", "Venue_Reference_No": "NSD 1933/2013", "Venue": "Federal Court of Australia", "Judgment_Date": "14 May 2014", "Date_Published": "12 December 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case concerned the liquidation in the Cayman Islands of a Cayman Islands registered company and protection of the Commissioner's interests as a local creditor in Australia under the Cross-Border Insolvency Act 2008 (Cth), in circumstances where there were assets in Australia and where the tax debt would not be admitted to proof in the Cayman Islands liquidation.", "Overview_of_Facts": "1. The Model Law on Cross Border Insolvency was developed and adopted by United Nations Commission on International Trade Law (UNICTRAL).The Model Law was designed to address cross border insolvency, generally where an insolvent debtor has assets in more than one State, and to encourage cooperation and coordination between jurisdictions. The Model Law has the force of law in Australia with certain modifications contained in the Cross Border Insolvency Act 2008 (the Model Law). | 2. Saad Investments Company Limited (In Official Liquidation) (Saad) was a Company registered in the Cayman Islands. On 18 September 2009 Saad was wound up in the Cayman Islands and joint official liquidators appointed (the liquidators). The Commissioner subsequently raised income tax and penalty (the tax debt). | 3. On 7 September 2010 the liquidators filed an application in the Federal Court of Australia seeking recognition of a proceeding in the Cayman Islands under the Model Law and certain other relief (the recognition proceedings). | 4. On 22 September 2010 the Deputy Commissioner of Taxation (DCT) filed an interlocutory application in the recognition proceedings. On 22 October 2010 the liquidation of Saad was recognised by the Federal Court of Australia as a 'foreign main proceeding' within the meaning of the Model Law (the recognition orders). | 5. The recognition orders were made subject to certain undertakings, including an undertaking by the liquidators not to remit the proceeds of any realisation of assets outside Australia without giving 14 days notice. If assets had been remitted from Australia to the Cayman Islands, the DCT would not have been able to recover the tax debt, which being a revenue debt, would not be admitted to proof in the Cayman Islands liquidation. The recognition orders also prevented the DCT from taking any legal action, recovery action in respect of the tax debt. | 6. On 21 September 2012 the liquidators gave the Commissioner 14 days' notice of their intention to remit assets from Australia to the Cayman Islands. | 7. The DCT filed an application seeking modification of the recognition orders to issue statutory notices and take other recovery action, including action to obtain payment of the tax debt on a pari passu basis from the assets in Australia. | 8. The DCT was successful before Rares J at first instance and the modification orders were made. | 9. The liquidators appealed the modification orders to the Full Federal Court. | Issues Decided by the Full Federal Court and Special Leave application | On appeal the liquidators contended the primary judge erred in modifying the recognition orders, and that the modification orders were in excess of the jurisdiction under the Model Law and without due regard to the proper interpretation, policy and purpose of the Model Law. | In dismissing the appeal, the Full Federal Court held that: (a) There was nothing in the Model Law which imported foreign insolvency law into Australia so that domestic tax debts could not be recovered (b) There was no legislative or common law basis which destroyed the rights of the DCT to seek leave to proceed against the company in liquidation or to employ his enforcement rights under tax legislation (c) When granting or modifying relief under the Model Law, the Court must ensure that the interest of local creditors are protected, and (d) The primary judge had not misapplied the exercise of discretion by making the modification orders because to have found otherwise would have meant that the DCT's rights as a local creditor would have been transformed into a foreign creditor and that as the primary judge permitted the DCT to recover only a pari passu entitlement, the principles of fairness between all creditors was upheld. | (a) There was nothing in the Model Law which imported foreign insolvency law into Australia so that domestic tax debts could not be recovered (b) There was no legislative or common law basis which destroyed the rights of the DCT to seek leave to proceed against the company in liquidation or to employ his enforcement rights under tax legislation (c) When granting or modifying relief under the Model Law, the Court must ensure that the interest of local creditors are protected, and (d) The primary judge had not misapplied the exercise of discretion by making the modification orders because to have found otherwise would have meant that the DCT's rights as a local creditor would have been transformed into a foreign creditor and that as the primary judge permitted the DCT to recover only a pari passu entitlement, the principles of fairness between all creditors was upheld. | The liquidators sought special leave to appeal the Full Court's decision to the High Court which was heard on 17 October 2014. | The Court dismissed the application noting that whilst it was an interesting issue there was nothing to persuade them that the Full Court judgment was attended with sufficient doubt to warrant the granting of special leave.", "Issues_Decided": "On appeal the liquidators contended the primary judge erred in modifying the recognition orders, and that the modification orders were in excess of the jurisdiction under the Model Law and without due regard to the proper interpretation, policy and purpose of the Model Law. In dismissing the appeal, the Full Federal Court held that: (a) There was nothing in the Model Law which imported foreign insolvency law into Australia so that domestic tax debts could not be recovered (b) There was no legislative or common law basis which destroyed the rights of the DCT to seek leave to proceed against the company in liquidation or to employ his enforcement rights under tax legislation (c) When granting or modifying relief under the Model Law, the Court must ensure that the interest of local creditors are protected, and (d) The primary judge had not misapplied the exercise of discretion by making the modification orders because to have found otherwise would have meant that the DCT's rights as a local creditor would have been transformed into a foreign creditor and that as the primary judge permitted the DCT to recover only a pari passu entitlement, the principles of fairness between all creditors was upheld. (a) There was nothing in the Model Law which imported foreign insolvency law into Australia so that domestic tax debts could not be recovered (b) There was no legislative or common law basis which destroyed the rights of the DCT to seek leave to proceed against the company in liquidation or to employ his enforcement rights under tax legislation (c) When granting or modifying relief under the Model Law, the Court must ensure that the interest of local creditors are protected, and (d) The primary judge had not misapplied the exercise of discretion by making the modification orders because to have found otherwise would have meant that the DCT's rights as a local creditor would have been transformed into a foreign creditor and that as the primary judge permitted the DCT to recover only a pari passu entitlement, the principles of fairness between all creditors was upheld. The liquidators sought special leave to appeal the Full Court's decision to the High Court which was heard on 17 October 2014. The Court dismissed the application noting that whilst it was an interesting issue there was nothing to persuade them that the Full Court judgment was attended with sufficient doubt to warrant the granting of special leave.", "ATO_View_of_Decision": "The Full Federal Court's decision and the subsequent dismissal of the special leave application support the ATO view that Australian Courts have the power to make orders under the Model Law to protect the Commissioner's ability to recover revenue liabilities from assets located in Australia in circumstances where the revenue liability would not be admitted in a foreign liquidation.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | No existing Public Rulings or Determinations are affected by this decision.", "Related_Documents": "N/A | The Act | 2009 ATC 20-125 | (1884) 27 Ch D 225 | (1931) 32 SR (NSW) 14 | (1874) 9 Ch App 557 (on appeal) | [1932] 2 Ch 196 | 3542 (AB QB)", "Legislative_References": "Cross-Border Insolvency Act 2008 (Cth)(Model Law) The Act Corporations Act 2001 (Cth) The Act Income Tax Assessment Act 1936 (Cth) The Act Taxation Administration Act 1953 (Cth) The Act Model Law on Cross-Border Insolvency (UNICTRAL, 1997) The Act Companies Law (2011 Revision) (Cayman Islands) The Act", "Case_References": "In re HIH Casualty and General Insurance Ltd [2008] UKHL 21 Rubin v Eurofinances SA [2013] 1 AC 236 Bruton Holdings Pty Ltd (In liquidator) v Commissioner of Taxation [2009] HCA 32 2009 ATC 20-125 (2009) 72 ATR 856 Re Alfred Shaw and Commissioner Ltd Ex parte Mackenzie (1897) 8 QLJ 93 In re Matheson Brothers Ltd (1884) 27 Ch D 225 New Zealand Loan and Mercantile Agency Commissioner v Morrison [1898] AC 349 Primary Producers Bank of Australia v Hughes (1931) 32 SR (NSW) 14 Re Oriental Inland Steam Commissioner (1874) 30 LT 317 (1874) 9 Ch App 557 (on appeal) In re Vocalion (Foreign) Ltd [1932] 2 Ch 196 Re Bank of Credit and Commerce International SA (No 10) [1997] Ch 213 English and Scottish Australian Chartered Bank [1893] 3 Ch 385 In re The Australian Federal Life and General Assurance Commissioner Ltd (in liquidator) [1931] VLR 317 Re ABC Learning Ctrs 3rd Circuit 27 August 2013 Debis Financial Services (Aust) Pty Limited v Allied Bellambi Collieries Pty Limited [1999] NSWSC 935 In Re Atlas Shipping A/S, a Danish Corporation (2009) 404 BR 726 Re Standard Insurance Commissioner Ltd [1968] DqR 118 Selkrig v Davies (1814) 2 Dow 230 In re Dr Jurgen Toft 22 July 2011, United States, Bankruptcy Court for the Southern district of New York Re Sefel Geophysical Ltd ( 7 October 1988) 3542 (AB QB) 70 CBR 9", "Subject_References": "International Cross-Border Insolvency company not a registered foreign company and not amenable to being wound up in Australia joint foreign liquidators sought to transfer funds in Australia to Cayman Islands free of any Australian tax debt whether DCT should be permitted to proceed against the Australian funds subject to equal treatment of other creditors meaning of 'adequate protection' in the Model Law hotchpot and equality", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1933-2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements. | Implications on Law Administration Practice Statements: No existing Practice Statements are affected by this decision."}
{"Case_Name": "Albrecht & Ors v Commissioner of Taxation", "Venue_Reference_No": "WAD 471-479 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "19 December 2014", "Date_Published": "6 May 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the Protected Funds Acts [1] , which imposed liability to pay superannuation contributions surcharge (surcharge), were invalid in their application to the appellants, commissioned officers of the Western Australian (WA) Police Force.", "Overview_of_Facts": "1. The appellants were nine commissioned police officers in the WA Police Force of various ranks (other than the Commissioner of the WA Police Force). | 2. The respondent issued superannuation contributions surcharge assessments to the appellants under the Protected Funds Acts. | 3. The appellants made applications to the Full Federal Court (Full Court) of Australia arguing the Protected Funds Acts breach the implied constitutional limitation as set out in Melbourne Corporation v The Commonwealth (1947) 74 CLR 31. | Issues Decided by the Court | 1. Immunity of State Governments from federal regulation in areas of core constitutional significance. | The Full Court accepted that police officers perform an important and critical role in the maintenance of peace and order in the State and that this role may be described as having a constitutional aspect to it. However, the Full Court found that the surcharge had no impact upon the performance by the State of the policing function. | 2. Class of individuals at the 'higher levels of government'. | The Full Court allowed the appeals to the extent they related to the liability of the appellants to pay the surcharge while they held the rank of Deputy Commissioner of Police (Operations), Deputy Commissioner of Police (Special Services) and Assistant Commissioner. The Full Court accepted these ranks to be 'high level statutory office holders'. The appeals were otherwise dismissed.", "Issues_Decided": "1. Immunity of State Governments from federal regulation in areas of core constitutional significance.: The Full Court accepted that police officers perform an important and critical role in the maintenance of peace and order in the State and that this role may be described as having a constitutional aspect to it. However, the Full Court found that the surcharge had no impact upon the performance by the State of the policing function. | 2. Class of individuals at the 'higher levels of government'.: The Full Court allowed the appeals to the extent they related to the liability of the appellants to pay the surcharge while they held the rank of Deputy Commissioner of Police (Operations), Deputy Commissioner of Police (Special Services) and Assistant Commissioner. The Full Court accepted these ranks to be 'high level statutory office holders'. The appeals were otherwise dismissed.", "ATO_View_of_Decision": "Issue 1 | The Commissioner considers the decision of the Full Court on this issue is consistent with his understanding of and approach to this issue. | Issue 2 | The Commissioner considers the decision of the Full Court does not alter the general legal principle provided by the High Court in Re Australian Education Union; Ex parte Victoria (1995) 159 CLR 192, with respect to the determination of individuals who are at the 'higher levels of government'. In the Commissioner's view the class of individuals at the 'higher levels of government' remains those persons who perform a role with a close relationship with the exercise of State constitutional power, including Governors and their assistants and advisors, Members of Parliament, Ministers and ministerial advisors, judges, magistrates and heads of public service departments or similar instrumentalities. Also included are certain statutory officers with high-level responsibilities such as Directors of Public Prosecutions, Commissioners of Police, Auditors-General and the like. | However, the Commissioner accepts that the Full Court decision has, in clarifying who are statutory officers with high-level responsibilities, extended the class of individuals he now accepts as falling within higher levels of government. The Commissioner accepts he should cease to apply surcharge in relation to contributions to constitutionally protected superannuation funds by: • holders of any of the offices specified under the Salaries and Allowances Act 1975 (WA), including the Western Australian Police rankings of Deputy Commissioner of Police and Assistant Commissioner and any other offices on that list • holders of any of the offices specified under similar independent remuneration determination legislation in other States • holders of the police rank of Deputy Commissioner and Assistant Commissioner of Police (or their equivalents) in all States. | • holders of any of the offices specified under the Salaries and Allowances Act 1975 (WA), including the Western Australian Police rankings of Deputy Commissioner of Police and Assistant Commissioner and any other offices on that list • holders of any of the offices specified under similar independent remuneration determination legislation in other States • holders of the police rank of Deputy Commissioner and Assistant Commissioner of Police (or their equivalents) in all States. | Where existing surcharge assessments have been raised by the Commissioner pursuant to the Protected Funds Acts in relation to these persons, the Commissioner considers it is appropriate to amend these assessments to the extent that it is possible under the tax law, and treat the surcharge as not being applicable. | The Commissioner invites any taxpayers who have received superannuation surcharge assessments and consider they now fall within the extended class of individuals falling within higher levels of government as a result of the Full Court's decision in this case, to lodge an objection with the Commissioner, together with a request for an extension of time in which to lodge the objection. All objections will be decided in accordance with the Full Court's decision. For assistance with lodging an objection taxpayers can refer to the information located on our website at: www.ato.gov.au/general/dispute-or-object-to-an-ato-decision/object-to-an-ato-decision/", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | Not Applicable | Implications for impacted Law Administration Practice Statements | Not Applicable | [1] Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth) and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth)", "Related_Documents": "N/A | [2014] FCAFC 176 | 2(1) | The Act | 5 | 6 | 7 | 8 | l | 201 | 301 | 401 - 407 | 5A | cl 3 | Part 4 | (1920) 28 CLR 129 | (1955) 92 CLR 113 | 2003 ATC 4042 | [2009] HCA 33 | (1883-84) LR 9 App Cas 61 | 2013 ATC 20-405 | (1947) 74 CLR 31 | (1985) 159 CLR 192 | (1995) 128 ALR 609", "Legislative_References": "Constitution 114 Constitution Act 1889 (WA) 2(1) Income Tax Assessment Regulations 1997 (Cth) Schedule 4 Industrial Relations Act 1979 (WA) The Act Native Title Act 1993 (Cth) The Act Police Act 1892 (WA) 5 6 7 8 Police Force Regulations 1979 (WA) l 201 301 401 - 407 Public Sector Management Act 1982 (WA) 38 Salaries and Allowances Act 1975 (WA) 5 5A 7 Salaries and Allowances Regulations 1975 (WA) cl 3 State Superannuation Act 2000 (WA) Part 4 State Superannuation Regulations 1975 (WA) cl 3 Superannuation Contributions Tax (Assessment and Collection) Act 1997 (Cth) The Act Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) The Act Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth) The Act", "Case_References": "Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129 (1920) 26 ALR 337 Attorney-General (NSW) v Perpetual Trustee Company Ltd (1955) 92 CLR 113 [1955] ALR 469 [1955] AC 457 [1955] 2 WLR 707 [1955] 1 All ER 846 Austin v Commonwealth [2003] HCA 3 (2003) 215 CLR 185 2003 ATC 4042 (2003) 51 ATR 654 (2003) 195 ALR 321 Bayside City Council v Telstra Corporation Ltd [2004] HCA 19 (2004) 216 CLR 595 (2004) 206 ALR 1 Clarke v Commissioner of Taxation of the Commonwealth of Australia [2009] HCA 33 (2009) 240 CLR 272 (2009) 258 ALR 623 (2009) 72 ATR 868 Coomber (Surveyor of Taxes) v Justices of the County of Berks (1883-84) LR 9 App Cas 61 Fortescue Metals Group Ltd v Commonwealth [2013] HCA 34 (2013) 250 CLR 548 2013 ATC 20-405 (2013) 89 ATR 1 Melbourne Corporation v Commonwealth (1947) 74 CLR 31 [1947] ALR 377 [1947] HCA 26 Queensland Electricity Commission v Commonwealth (1985) 159 CLR 192 [1985] HCA 56 Re Australian Education Union Ex parte Victoria (1995) 184 CLR 188 (1995) 128 ALR 609 Western Australia v Commonwealth (1995) 183 CLR 373 (1995) 128 ALR 1 [1995] HCA 47", "Subject_References": "Constitutional Law Melbourne Corporation principle commissioned officers of Western Australian police force members of constitutionally-protected superannuation schemes whether Melbourne Corporation principle applies to invalidate superannuation contribution surcharge tax imposed on members whether commissioned officers were at the higher levels of government for the purpose of the application of the Melbourne Corporation principle", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD471-479of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements This document incorporates revisions made since original publication. View its history and amending notices, if applicable."}
{"Case_Name": "ATS Pacific Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 991 of 2013 (FCAFC)", "Venue": "Federal Court of Australia", "Judgment_Date": "27 March 2014", "Date_Published": "12 November 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned the characterisation, for GST purposes, of supplies made by an inbound tour operator (ITO) to its non-resident travel agent clients.", "Overview_of_Facts": "The taxpayer, an ITO, entered into contracts with numerous non-resident travel agents (NR travel agents) relating to the provision, in Australia, of the components of a tour package (Products) by Australian-based entities (Australian Providers) to non-resident tourist clients of the NR travel agents (NR tourists). The Products included accommodation in hotels and serviced apartments, transfers, car hire, tour guides, meals, and similar products and services. | Many dealings between the taxpayer and the NR travel agents occurred through the taxpayer's website which allowed NR travel agents to (amongst other things): • review the Products of the Australian Providers that were available for booking by the taxpayer • access lists of tariffs, inclusive of the taxpayer's fees, for the Products • build a tour package for a NR Tourist by selecting particular Australian Providers and their Products, and • obtain (in many cases) instant confirmation that the taxpayer was able to book the Products selected. | • review the Products of the Australian Providers that were available for booking by the taxpayer • access lists of tariffs, inclusive of the taxpayer's fees, for the Products • build a tour package for a NR Tourist by selecting particular Australian Providers and their Products, and • obtain (in many cases) instant confirmation that the taxpayer was able to book the Products selected. | The terms and conditions on the website stated that the amount the taxpayer charged included both the cost of the Products and a fee for arranging the Products. | Once agreement with an NR travel agent had been reached, the taxpayer entered into contracts with Australian Providers relating to the provision of Products to the NR tourists. In doing so, the taxpayer acted as principal, and not as an agent of the NR travel agent. The taxpayer was obliged to pay the Australian Providers and claimed the associated input tax credits. | Decision at First Instance | On 15 April 2013, the Federal Court at first instance (Justice Bennett) found that the taxpayer made two supplies; the supply of a promise to ensure that the Products would be supplied to a NR tourist (which was taxable) and the supply of arranging or booking services (which was GST-free) [1] . The consideration for the former was the price the taxpayer was liable to pay the Australian Provider for the Product, and the consideration for the latter was the taxpayer's margin. | The taxpayer appealed from the finding that it made a taxable supply of a promise, and the Commissioner cross-appealed from the finding that the taxpayer made a GST-free supply of arranging or booking services. | Issues Decided by the Full Federal Court | The Full Federal Court dismissed the taxpayer's appeal and allowed the Commissioner's cross-appeal. | The issue on appeal | In concluding that the primary judge did not err in characterising the taxpayer's supply as the supply of a promise to ensure the Products would be provided, the Full Federal Court found: • The issue of characterisation of the taxpayer's supply is 'undoubtedly a question of fact' [2] that is to be determined with regard to 'practical or business reality'. [3] • The text of the terms and conditions of a contract 'is not conclusive of the character of the supply that is made [in performance of that contract]'. [4] Rather, the character will depend as much 'on the manner of performance' and on the 'commercial or business purposes' of the contracting parties. [5] • A court should not be confined to the terms of the contract, and this is 'more so...where the contract is but one link in a chain of contracts or where, by reference to the factual matrix of the entirety of the arrangements, the commercial or practical reality points to [a different conclusion to that which might otherwise be drawn from confined analysis of the contract]'. [6] • In determining the character of a supply made pursuant to the performance of a contract between B and C that is related to a contract between A and B, to a contract between C and D, and to consumption by D of what A supplied to B, one may have regard to the terms and conditions of those other two contracts and to D's consumption of what A supplied to B. [7] • 'No evidence was adduced by ATS that would lead one to infer... that the conclusion of the primary judge did not accord with the commercial reality of the transaction'. [8] • 'ATS has not simply provided a service whereby a non-resident travel agent, or a non-resident tourist, can contract directly with those ultimately providing the service in Australia... ATS is essentially the wholesaler of a retail product'. [9] • It was open to the primary judge to characterise the supply as the supply of a promise without the need to analyse the contract to determine whether it contained an express or implied term reflecting that promise. [10] | • The issue of characterisation of the taxpayer's supply is 'undoubtedly a question of fact' [2] that is to be determined with regard to 'practical or business reality'. [3] • The text of the terms and conditions of a contract 'is not conclusive of the character of the supply that is made [in performance of that contract]'. [4] Rather, the character will depend as much 'on the manner of performance' and on the 'commercial or business purposes' of the contracting parties. [5] • A court should not be confined to the terms of the contract, and this is 'more so...where the contract is but one link in a chain of contracts or where, by reference to the factual matrix of the entirety of the arrangements, the commercial or practical reality points to [a different conclusion to that which might otherwise be drawn from confined analysis of the contract]'. [6] • In determining the character of a supply made pursuant to the performance of a contract between B and C that is related to a contract between A and B, to a contract between C and D, and to consumption by D of what A supplied to B, one may have regard to the terms and conditions of those other two contracts and to D's consumption of what A supplied to B. [7] • 'No evidence was adduced by ATS that would lead one to infer... that the conclusion of the primary judge did not accord with the commercial reality of the transaction'. [8] • 'ATS has not simply provided a service whereby a non-resident travel agent, or a non-resident tourist, can contract directly with those ultimately providing the service in Australia... ATS is essentially the wholesaler of a retail product'. [9] • It was open to the primary judge to characterise the supply as the supply of a promise without the need to analyse the contract to determine whether it contained an express or implied term reflecting that promise. [10] | The court agreed with the primary judge's conclusion that the supply of the promise is not GST-free, but provided its own reasoning, noting that: • For the accommodation component of a tour package - the supply of a promise that a hotel proprietor would provide accommodation to a NR tourist is a supply of 'real property' within the meaning of that term in section 195-1 of the GST Act, and thus it does not fall within the scope of the GST-free exemption in subsection 38-190(1). [11] • For the non-accommodation component of a tour package - the supply of a promise that Australian Providers would provide goods and services 'carries with it a right to acquire those goods and services'. This, together with the fact that the supply of the goods and services would be connected with Australia, means that the supply of the promise is excluded from being GST-free by subsection 38-190(2). [12] | • For the accommodation component of a tour package - the supply of a promise that a hotel proprietor would provide accommodation to a NR tourist is a supply of 'real property' within the meaning of that term in section 195-1 of the GST Act, and thus it does not fall within the scope of the GST-free exemption in subsection 38-190(1). [11] • For the non-accommodation component of a tour package - the supply of a promise that Australian Providers would provide goods and services 'carries with it a right to acquire those goods and services'. This, together with the fact that the supply of the goods and services would be connected with Australia, means that the supply of the promise is excluded from being GST-free by subsection 38-190(2). [12] | The court found that the exclusion in subsection 38-190(3) had no application to the non-accommodation component and noted that, in the context of Australian inbound tourism, the application of subsection 38-190(3) 'would seem to be confined to situations where the Australian Provider contracts directly with NR Travel Agents.' [13] | The issue on cross-appeal | In concluding that the primary judge erred in finding that ATS supplied a GST-free arranging service (in addition to the supply of the promise), the Full Federal Court found: • The relevant question is whether, in addition to the supply of the promise, there is 'another non-ancillary, non-incidental supply from ATS to the NR Travel Agents'. [14] • The adoption of a practical and business point of view [15] 'impels one to the conclusion here that there is one supply - the supply of the promise...- or if that embodies a supply of arranging services by ATS ... [the supply of arranging services] is to be regarded as ancillary and incidental. [16] • The conclusion that there is one taxable supply 'better accords with the policy design of taxing such consumption in Australia manifest in the extrinsic material [17] ... which made it clear that Australia asserted jurisdiction to tax the value of the supply from the NR Travel Agents to the NR Tourists but was content to settle for tax on the supply by ATS to NR Travel Agents in order to simplify compliance and administration'. [18] | • The relevant question is whether, in addition to the supply of the promise, there is 'another non-ancillary, non-incidental supply from ATS to the NR Travel Agents'. [14] • The adoption of a practical and business point of view [15] 'impels one to the conclusion here that there is one supply - the supply of the promise...- or if that embodies a supply of arranging services by ATS ... [the supply of arranging services] is to be regarded as ancillary and incidental. [16] • The conclusion that there is one taxable supply 'better accords with the policy design of taxing such consumption in Australia manifest in the extrinsic material [17] ... which made it clear that Australia asserted jurisdiction to tax the value of the supply from the NR Travel Agents to the NR Tourists but was content to settle for tax on the supply by ATS to NR Travel Agents in order to simplify compliance and administration'. [18]", "Issues_Decided": "The Full Federal Court dismissed the taxpayer's appeal and allowed the Commissioner's cross-appeal. | The issue on appeal: In concluding that the primary judge did not err in characterising the taxpayer's supply as the supply of a promise to ensure the Products would be provided, the Full Federal Court found: • The issue of characterisation of the taxpayer's supply is 'undoubtedly a question of fact' [2] that is to be determined with regard to 'practical or business reality'. [3] • The text of the terms and conditions of a contract 'is not conclusive of the character of the supply that is made [in performance of that contract]'. [4] Rather, the character will depend as much 'on the manner of performance' and on the 'commercial or business purposes' of the contracting parties. [5] • A court should not be confined to the terms of the contract, and this is 'more so...where the contract is but one link in a chain of contracts or where, by reference to the factual matrix of the entirety of the arrangements, the commercial or practical reality points to [a different conclusion to that which might otherwise be drawn from confined analysis of the contract]'. [6] • In determining the character of a supply made pursuant to the performance of a contract between B and C that is related to a contract between A and B, to a contract between C and D, and to consumption by D of what A supplied to B, one may have regard to the terms and conditions of those other two contracts and to D's consumption of what A supplied to B. [7] • 'No evidence was adduced by ATS that would lead one to infer... that the conclusion of the primary judge did not accord with the commercial reality of the transaction'. [8] • 'ATS has not simply provided a service whereby a non-resident travel agent, or a non-resident tourist, can contract directly with those ultimately providing the service in Australia... ATS is essentially the wholesaler of a retail product'. [9] • It was open to the primary judge to characterise the supply as the supply of a promise without the need to analyse the contract to determine whether it contained an express or implied term reflecting that promise. [10] • The issue of characterisation of the taxpayer's supply is 'undoubtedly a question of fact' [2] that is to be determined with regard to 'practical or business reality'. [3] • The text of the terms and conditions of a contract 'is not conclusive of the character of the supply that is made [in performance of that contract]'. [4] Rather, the character will depend as much 'on the manner of performance' and on the 'commercial or business purposes' of the contracting parties. [5] • A court should not be confined to the terms of the contract, and this is 'more so...where the contract is but one link in a chain of contracts or where, by reference to the factual matrix of the entirety of the arrangements, the commercial or practical reality points to [a different conclusion to that which might otherwise be drawn from confined analysis of the contract]'. [6] • In determining the character of a supply made pursuant to the performance of a contract between B and C that is related to a contract between A and B, to a contract between C and D, and to consumption by D of what A supplied to B, one may have regard to the terms and conditions of those other two contracts and to D's consumption of what A supplied to B. [7] • 'No evidence was adduced by ATS that would lead one to infer... that the conclusion of the primary judge did not accord with the commercial reality of the transaction'. [8] • 'ATS has not simply provided a service whereby a non-resident travel agent, or a non-resident tourist, can contract directly with those ultimately providing the service in Australia... ATS is essentially the wholesaler of a retail product'. [9] • It was open to the primary judge to characterise the supply as the supply of a promise without the need to analyse the contract to determine whether it contained an express or implied term reflecting that promise. [10] The court agreed with the primary judge's conclusion that the supply of the promise is not GST-free, but provided its own reasoning, noting that: • For the accommodation component of a tour package - the supply of a promise that a hotel proprietor would provide accommodation to a NR tourist is a supply of 'real property' within the meaning of that term in section 195-1 of the GST Act, and thus it does not fall within the scope of the GST-free exemption in subsection 38-190(1). [11] • For the non-accommodation component of a tour package - the supply of a promise that Australian Providers would provide goods and services 'carries with it a right to acquire those goods and services'. This, together with the fact that the supply of the goods and services would be connected with Australia, means that the supply of the promise is excluded from being GST-free by subsection 38-190(2). [12] • For the accommodation component of a tour package - the supply of a promise that a hotel proprietor would provide accommodation to a NR tourist is a supply of 'real property' within the meaning of that term in section 195-1 of the GST Act, and thus it does not fall within the scope of the GST-free exemption in subsection 38-190(1). [11] • For the non-accommodation component of a tour package - the supply of a promise that Australian Providers would provide goods and services 'carries with it a right to acquire those goods and services'. This, together with the fact that the supply of the goods and services would be connected with Australia, means that the supply of the promise is excluded from being GST-free by subsection 38-190(2). [12] The court found that the exclusion in subsection 38-190(3) had no application to the non-accommodation component and noted that, in the context of Australian inbound tourism, the application of subsection 38-190(3) 'would seem to be confined to situations where the Australian Provider contracts directly with NR Travel Agents.' [13] | The issue on cross-appeal: In concluding that the primary judge erred in finding that ATS supplied a GST-free arranging service (in addition to the supply of the promise), the Full Federal Court found: • The relevant question is whether, in addition to the supply of the promise, there is 'another non-ancillary, non-incidental supply from ATS to the NR Travel Agents'. [14] • The adoption of a practical and business point of view [15] 'impels one to the conclusion here that there is one supply - the supply of the promise...- or if that embodies a supply of arranging services by ATS ... [the supply of arranging services] is to be regarded as ancillary and incidental. [16] • The conclusion that there is one taxable supply 'better accords with the policy design of taxing such consumption in Australia manifest in the extrinsic material [17] ... which made it clear that Australia asserted jurisdiction to tax the value of the supply from the NR Travel Agents to the NR Tourists but was content to settle for tax on the supply by ATS to NR Travel Agents in order to simplify compliance and administration'. [18] • The relevant question is whether, in addition to the supply of the promise, there is 'another non-ancillary, non-incidental supply from ATS to the NR Travel Agents'. [14] • The adoption of a practical and business point of view [15] 'impels one to the conclusion here that there is one supply - the supply of the promise...- or if that embodies a supply of arranging services by ATS ... [the supply of arranging services] is to be regarded as ancillary and incidental. [16] • The conclusion that there is one taxable supply 'better accords with the policy design of taxing such consumption in Australia manifest in the extrinsic material [17] ... which made it clear that Australia asserted jurisdiction to tax the value of the supply from the NR Travel Agents to the NR Tourists but was content to settle for tax on the supply by ATS to NR Travel Agents in order to simplify compliance and administration'. [18]", "ATO_View_of_Decision": "Although the decision relates to specific facts, the Commissioner remains of the view (for the reasons set out in the Decision Impact Statement which the Commissioner issued in response to the primary judge's decision [19] ) that the decision applies to all ITOs which: • transact as principal (and not as an agent of a NR travel agent); • are engaged by NR travel agents to enter into contracts with Australian Providers for the provision of Products to NR tourists | • transact as principal (and not as an agent of a NR travel agent); • are engaged by NR travel agents to enter into contracts with Australian Providers for the provision of Products to NR tourists | Under the court's reasoning, the supplies made by these ITOs to their NR travel agent clients are properly characterised as supplies of promises to ensure Products are provided. | The supplies are wholly taxable [20] . | Diagrammatically, the supplies [21] (clear lines) and payments (dotted lines) involved in arrangements of this type can be represented as follows: | Agency arrangements not impacted | The court's decision has no implications for an ITO in relation to the supply of any given Product if: • The contract for the supply of that Product is between the NR travel agent and the Australian Provider, with the result that the NR travel agent has rights against the Australian Provider in the event the Product is not provided. • The ITO acts as agent [22] of the NR travel agent, and is not itself a party to the contract. | • The contract for the supply of that Product is between the NR travel agent and the Australian Provider, with the result that the NR travel agent has rights against the Australian Provider in the event the Product is not provided. • The ITO acts as agent [22] of the NR travel agent, and is not itself a party to the contract. | Diagrammatically, the supplies (clear lines) and payments (dotted lines) involved in arrangements of this type can be represented as follows: | The Commissioner considers that an ITO would fit within this scenario if, in documentation with both the NR travel agent and each Australian provider, the ITO indicates that it is acting as an agent for the NR travel agent and the arrangements as a whole are not inconsistent with the conclusion that the contract for the supply of the Product is between the Provider and the NR travel agent. | If the documentation between the parties does not expressly indicate that the ITO is acting as agent, the Commissioner may not conclude that the contract for the supply of the Product is between the NR travel agent and the Australian Provider. However, each case would need to be assessed on its merits. | Administrative Treatment - Implications for Rulings | The court's reasoning is consistent with the views set out in Goods and Services Tax Rulings GSTR 2001/8 [23] , GSTR 2005/6 [24] , GSTR 2006/9 [25] , and GSTD 2004/3 [26] . The Commissioner will update these products to include references to the court's decision. | The court's reasoning is generally consistent with the views set out in Goods and Service Tax Industry Issue: Land product supplied to non-residents (as principal). The Commissioner will update this public ruling to reflect the court's characterisation of the taxpayer's supply as the supply of a promise to ensure the Products would be provided. The Commissioner will also expand the scope of the ruling so that it covers the agency arrangements. | Administrative Treatment - Amounts owed by taxpayers | The Commissioner requests that all ITOs that have transacted as principal and have an outstanding amount due to the ATO (as a result of treating their margin or entire supply as GST-free) contact the following ATO officer within 28 days of the publication date of this Decision Impact Statement to discuss payment of the amount owed. In working out the total amount owed, the Commissioner will have regard to any entitlement an ITO has to a refund of overpaid income tax that arises because it did not take into account the correct amount of GST payable in working out its assessable income. Mr Craig Morelande Craig.morelande@ato.gov.au Ph: (07) 3149 5173 | ITOs that consider that they are not affected by the decision on the basis that they operate as an agent (see discussion above under 'ATO view of decision') are nevertheless asked to contact Mr Morelande within the 28 day period. | Following the expiration of the 28 day period, the Commissioner will take steps to identify any ITO with an outstanding liability that has not approached voluntarily. The Commissioner may commence recovery action without any further notice being provided to these entities. | In determining whether remission of general interest charge and penalties (if applicable) is warranted for any ITO that has an outstanding liability, the Commissioner will have regard to all relevant factors including the steps taken by an ITO to engage with the ATO and resolve their outstanding liability.", "Administrative_Treatment": "", "Related_Documents": "GSTR 2001/8 | GSTR 2005/6 | GSTD 2004/3 | Goods and Services Tax Industry Issues - Land product supplied to non-residents (as principal) | [2014] FCAFC 33 | 2014 ATC 20-449 | http://law.ato.gov.au/atolaw/view.htm?DocID=LIT/ICD/NSD1730of2010-NSD235of2011/00001 | subsection 38-190(1) | subsection 38-190(2) | subsection 38-190(3) | 2013 ATC 20-383 | 2006 ATC 4363 | Decision Impact Statement on ATS Pacific Pty Ltd v Commissioner of Taxation [2013] FCA 341", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1) subsection 38-190(2) subsection 38-190(3)", "Case_References": "ATS Pacific Pty Ltd v Commissioner of Taxation [2013] FCA 341 2013 ATC 20-383 Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 2006 ATC 4363 (2006) 62 ATR 682", "Subject_References": "", "Other_References": "Decision Impact Statement on ATS Pacific Pty Ltd v Commissioner of Taxation [2013] FCA 341", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD991of2013;NSD994of2013/00001", "Unmatched_Content": "Footnotes: [1] ATS Pacific Pty Ltd v Commissioner of Taxation [2013] FCA 341, at paragraphs 123 and 149. | [2] Paragraph 38 (Edmonds J) | [3] Paragraph 43 (Edmonds J) | [4] Paragraph 29 (Edmonds J) | [5] Paragraph 29 (Edmonds J) | [6] Paragraph 39 (Edmonds J) | [7] Paragraph 40 (Edmonds J) | [8] Paragraph 37 (Edmonds J) | [9] Paragraph 72 (Pagone J) | [10] Paragraph 32 (Edmonds J) | [11] Paragraphs 50 to 52 (Edmonds J), and noting that subsection 38-190(1) does not apply to supplies of goods or real property. | [12] Paragraph 53, 54, 57 and 58 (Edmonds J) | [13] Paragraph 56 (Edmonds J), noting that in the present case the supply from ATS is not the same as the supply provided to the NR tourist (which it must be in order for subsection 38-190(3) to apply). | [14] Paragraph 61 (Edmonds J) | [15] The court, at paragraph 64, cited Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 in noting that the question of 'whether there is one or two supplies and if there are two, ... whether one is ancillary or incidental to the other... has to be approached from a practical and business point of view'. | [16] Paragraph 64 (Edmonds J) | [17] The court referred in particular to the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998, at 12; and to the 'non-resident tour operator amendments' made to the GST Act in 2005 and the description of the intention of these amendments contained in a journal article authored by Professor Rebecca Millar ( GST on Package Tours to Australia , (2014) Int VAT Mon 16). | [18] Paragraph 65 (Edmonds J), in which the court also noted that 'under the primary judge's conclusion on the fundamental issue on the cross-appeals, a cost element (ATS' mark-up) of the NR Tourists' consumption of the Products was excluded from the tax base'. | [19] Published on 6 September 2013 (and which can be accessed at: http://law.ato.gov.au/atolaw/view.htm?DocID=LIT/ICD/NSD1730of2010-NSD235of2011/00001 . | [20] This is unless there is a specific provision in the GST Act which makes the supply GST-free or input taxed (the supply of a right to, or promise of, accommodation in certain serviced apartments may, for example, be input taxed by virtue of subsection 9-30(2) and section 40-35). | [21] In the case of the Australian Provider's dealing with the NR tourist, this would be the 'provision' of the relevant Product. | [22] The Commissioner's views on agency in a GST context are set out in Goods and Service Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law . | [23] Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts . | [24] Goods and services tax: the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999. | [26] Goods and services tax: Is a supply of rights to accommodation a supply of real property for the purposes of the A New Tax System (Goods and Services Tax) Act 1999/"}
{"Case_Name": "Batchelor v Commissioner of Taxation", "Venue_Reference_No": "NSD 442 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "3 April 2014", "Date_Published": "27 September 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case concerns whether an amount received by the taxpayer in accordance with a settlement deed, that was in consequence of the settlement of a dispute concerning a failed development of a retirement village, was an assessable recoupment under section 20-20 of the Income Tax Assessment Act 1997 (ITAA 1997) or an assessable capital gain under Part 3-1 of the ITAA 1997.", "Overview_of_Facts": "The taxpayer held an interest in the business and assets of the Cresthaven Village Partnership (the Partnership) through an interest in TPC Retirement Nominees (No 2) Pty Ltd, a party to the Partnership. | In June 1999, GDK Retirement Nominees (Cresthaven) Pty Limited (Cresthaven), acting as a bare trustee of the Partnership, entered into a contract (the Contract) with Prime Life (Mount Evelyn) Pty Ltd for the purchase and development of a property to be known as the Cresthaven Retirement Village. Pursuant to that contract, a deposit of $6.5 million was paid by Cresthaven. The taxpayer's share of that deposit was $55,500 (the Deposit). | In the tax return for the 1999 income year, the taxpayer claimed a deduction for the Deposit. | In 2004, through separate proceedings involving Cresthaven, settlements were reached between the various parties. As a result of the settlements, the taxpayer received a sum of $47,927 (the Receipt). | In February 2008, the amount of $47,927 was not returned as assessable income by the taxpayer in her tax return for the 2007 income year. | On 27 June 2011, the Commissioner issued a notice of amended assessment to the taxpayer for the 2007 income year, including an amount of $47,927 in the taxpayer's assessable income. The taxpayer objected and the Commissioner disallowed the taxpayer's objection in full. | The taxpayer applied to the Administrative Appeals Tribunal for a review of the objection decision. The AAT found that the amount of $47,927 should be included in the taxpayer's assessable income under section 20-35 of the ITAA 1997 because the amount satisfies the requirements of being an assessable recoupment under subsection 20-20(2) of the ITAA 1997, or in the alternative, it was nevertheless assessable as a capital gain under Part 3-1 of the ITAA 1997 (with subsection 110-45(2) of the ITAA 1997 applying to exclude the Deposit from the cost base calculation). | These issues were raised before the Full Federal Court. | Issues decided by the court | There were two main income tax issues before the Full Federal Court. | The first issue was whether the Receipt should be characterised as an assessable recoupment within the meaning of subsection 20-20(2) of the ITAA 1997. In particular, whether the taxpayer received the amount 'by way of insurance or indemnity' as required by paragraph 20-20(2)(a) of the ITAA 1997. | On this issue, Edmonds and Pagone JJ [at 16] concluded that: It follows that the amount ought not to have been included in the taxpayer's assessable income under s 20-20(2) and, therefore, that it is not necessary to deal with the other issues which had been raised by the parties on the appeal, although it may be desirable to consider the Commissioner's alternative argument which had also found favour with the Tribunal, namely, that the amount was taxable as a capital gain. | Justice Wigney [at 26] agreed with the finding of Edmonds and Pagone JJ that the relevant receipt could not properly be characterised on the material before the Tribunal as a receipt 'by way of insurance or indemnity'. | The second issue, in the alternative, was whether the Deposit forms part of the cost base of the capital gains tax calculation if the Receipt is characterised as an assessable capital gain under Part 3-1 of the ITAA 1997. The Court did not form a concluded view on this issue.", "Issues_Decided": "There were two main income tax issues before the Full Federal Court. The first issue was whether the Receipt should be characterised as an assessable recoupment within the meaning of subsection 20-20(2) of the ITAA 1997. In particular, whether the taxpayer received the amount 'by way of insurance or indemnity' as required by paragraph 20-20(2)(a) of the ITAA 1997. On this issue, Edmonds and Pagone JJ [at 16] concluded that: It follows that the amount ought not to have been included in the taxpayer's assessable income under s 20-20(2) and, therefore, that it is not necessary to deal with the other issues which had been raised by the parties on the appeal, although it may be desirable to consider the Commissioner's alternative argument which had also found favour with the Tribunal, namely, that the amount was taxable as a capital gain. Justice Wigney [at 26] agreed with the finding of Edmonds and Pagone JJ that the relevant receipt could not properly be characterised on the material before the Tribunal as a receipt 'by way of insurance or indemnity'. The second issue, in the alternative, was whether the Deposit forms part of the cost base of the capital gains tax calculation if the Receipt is characterised as an assessable capital gain under Part 3-1 of the ITAA 1997. The Court did not form a concluded view on this issue.", "ATO_View_of_Decision": "The ATO agrees with the Court's finding that, in light of the way the case was conducted before the Tribunal and based on the material before the Tribunal, the Receipt could not properly be characterised as a receipt 'by way of insurance or indemnity' for the purposes of paragraph 20-20(2)(a) of the ITAA 1997. | The ATO notes that the Court did not form a concluded view on the second issue. | As the decision was primarily centred around whether the taxpayer received the amount 'by way of insurance or indemnity' as required by paragraph 20-20(2)(a) of the ITAA 1997, the decision will have no impact on the now withdrawn TR 94/24. | In line with the decision, the Commissioner will withdraw ATO ID 2009/119 Income Tax: Refund of deposit: received by a purchaser as an assessable recoupment.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | ATO ID 2009/119 is withdrawn effective from 3 April 2014, following the decision in this case. The ATO ID contains a view inconsistent with the decision handed down and will not be replaced. | Implications for impacted Law Administration Practice Statements | Nil. | Date of amendment Part Comment 27 September 2016 Administrative treatment Updated to reflect the withdrawal of ATO ID 2009/119", "Related_Documents": "ATO ID 2009/119 | [2014] FCAFC 41 | 2014 ATC 20-450 | section 26-47 | 2013 ATC 10-297 | 78 ATC 4017 | 83 ATC 4208 | 2009 ATC 20-099 | 99 ATC 4467 | 89 ATC 4994 | 97 ATC 4317 | (1951) 84 CLR 105 | (1989) 168 CLR 385 | 76 ATC 4343 | (2001) 179 ALR 321 | [2001] HCA 24 | 94 ATC 4403 | (1995) 95 ATC 4552", "Legislative_References": "Income Tax Assessment Act 1997 section 26-47", "Case_References": "Batchelor and Commissioner of Taxation [2013] AATA 93 2013 ATC 10-297 Birdseye v Australian Securities and Investment Commission (2003) 38 AAR 55 Briers v Atlas Tiles Ltd (1978) 8 ATR 176 78 ATC 4017 CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd [2004] VSCA 232 Comcare v Fiedler (2001) 115 FCR 328 Commercial Banking Company of Sydney Ltd v Federal Commissioner of Taxation (1983) 70 FLR 433 83 ATC 4208 Commissioner of Taxation v Energy Resources of Australia (2003) 135 FCR 346 Commissioner of Taxation v Malouf [2009] FCAFC 44 (2009) 174 FCR 581 (2009) 75 ATR 335 2009 ATC 20-099 Federal Commissioner of Taxation v Glennan (1999) 90 FCR 538 (1999) 41 ATR 413 99 ATC 4467 Federal Commissioner of Taxation v Raptis (1989) 20 ATR 1262 89 ATC 4994 Federal Commissioner of Taxation v Rowe (1997) 187 CLR 266 (1997) 35 ATR 432 97 ATC 4317 Federal Commissioner of Taxation v Wade (1951) 84 CLR 105 (1951) 9 ATD 337 Foran v Wright (1989) 168 CLR 385 Goldsbrough Mort & Co Ltd v Federal Commissioner of Taxation (1976) 14 SASR 591 76 ATC 4343 (1976) 6 ATR 580 Liftronic Pty Ltd v Unver (2001) 179 ALR 321 [2001] HCA 24 Macnamara v Martin (1908) 7 CLR 699 Mendelsons Lawyers Pty Ltd v Hanlon [2013] VSC 320 Nudd v R (2006) 225 ALR 161 [2006] HCA 9 Perpetual Trustee Co (Canberra) Ltd v Commissioner for ACT Revenue (1994) 50 FCR 405 94 ATC 4403 (1994) 28 ATR 307 Rabelais Pty Ltd v Cameron (1995) 95 ATC 4552 Repatriation Commission v Warren (2008) 167 FCR 511 Robert v Collier's Bulk Liquid Transport Pty Ltd [1959] VR 280 Van Gervan v Fenton (1992) 175 CLR 327 Vincent v Commissioner of Taxation (2002) 124 FCR 350 Williamson v Commissioner for Railways [1960] SR (NSW) 252", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD442of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Bentivoglio v Commissioner of Taxation", "Venue_Reference_No": "2013/2825", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "2 September 2014", "Date_Published": "26 November 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case where the Tribunal considered an appeal in respect of a private ruling where the Commissioner ruled that he would not exercise his discretion that the non-commercial loss provisions in the Income Tax Assessment Act 1997 (ITAA 1997) did not apply to the taxpayer.", "Overview_of_Facts": "The taxpayer is a medical practitioner who, for the past 15 years, also carried on an olive growing and olive oil production business in Rylstone, near Mudgee. | In each of the income years from 2010 to 2014, the taxpayer incurred tax losses from his olive production business. | The taxpayer applied to the Commissioner for a private ruling on whether the Commissioner would exercise his discretion for relief from the application of the non-commercial loss provisions such that he could deduct the losses from his olive production business from his other income in the relevant income years. | The taxpayer argued that the discretion should be exercised because special circumstances existed which affected his olive production business in the relevant income years. The special circumstances were said to be the extraordinary challenges facing the olive industry, the infestation of the olive trees by the olive lace bug, the prolonged drought and dry conditions, the loss and damage of many trees from bushfire, the extraordinary hot weather event experienced in November 2009, spot fires from lightning strikes in February 2007 and November 2009 and the resulting smoke, and a hailstorm in January 2011. | In addition, the taxpayer's wife, who was an important figure in the running of the business, was diagnosed with a serious medical condition in late 2009 and spent time recovering in the subsequent years to 2013. | Issues decided by the AAT | The key issue for the Tribunal was whether, by reference to the scheme as identified by the Commissioner in the private ruling, the discretion in section 35-55 of the ITAA 1997 should be exercised in the taxpayer's favour. | In order for the exercise of the discretion, the Deputy President was required to be satisfied that the business activity, being the olive production business, would have passed one of the tests in the non-commercial rules had it not been for the special circumstances. | In his consideration of whether to exercise the discretion, the Deputy President concluded that the failure to show that a tax profit would have been generated in the absence of the special circumstances is not a necessary disqualifier to the exercise of the discretion in section 35-55 of the ITAA 1997, but it is nevertheless a relevant consideration. In reaching this conclusion, the Deputy President expressly disagreed with the Senior Member in Re Heaney and Commissioner of Taxation (2013) 138 ALD 144; [2013] AATA 331 who concluded that it was a necessary prerequisite for the exercise of the discretion that a tax profit would have been generated in the absence of the special circumstances. | The Deputy President considered the taxpayer's personal circumstances, and found that the pest infestation, the drought and adverse weather events (fires, hail, hot weather), and the illness of the taxpayer's wife were all circumstances that affected the profitability of the taxpayer's olive-growing business. | However, the Deputy President concluded that the economic challenges facing the olive industry were not special circumstances, as they are not unusual, uncommon or out of the ordinary, and did not affect the business activity but merely the profitability of the olives. | Having regard to the impact of the special circumstances on the taxpayer's business activity in the relevant years, and to the financial outcomes that could have been expected had those special circumstances not occurred, the Deputy President was satisfied that the discretion in section 35-55 of the ITAA 1997 should be exercised in each of the income years except the 2014 year.", "Issues_Decided": "The key issue for the Tribunal was whether, by reference to the scheme as identified by the Commissioner in the private ruling, the discretion in section 35-55 of the ITAA 1997 should be exercised in the taxpayer's favour. In order for the exercise of the discretion, the Deputy President was required to be satisfied that the business activity, being the olive production business, would have passed one of the tests in the non-commercial rules had it not been for the special circumstances. In his consideration of whether to exercise the discretion, the Deputy President concluded that the failure to show that a tax profit would have been generated in the absence of the special circumstances is not a necessary disqualifier to the exercise of the discretion in section 35-55 of the ITAA 1997, but it is nevertheless a relevant consideration. In reaching this conclusion, the Deputy President expressly disagreed with the Senior Member in Re Heaney and Commissioner of Taxation (2013) 138 ALD 144; [2013] AATA 331 who concluded that it was a necessary prerequisite for the exercise of the discretion that a tax profit would have been generated in the absence of the special circumstances. The Deputy President considered the taxpayer's personal circumstances, and found that the pest infestation, the drought and adverse weather events (fires, hail, hot weather), and the illness of the taxpayer's wife were all circumstances that affected the profitability of the taxpayer's olive-growing business. However, the Deputy President concluded that the economic challenges facing the olive industry were not special circumstances, as they are not unusual, uncommon or out of the ordinary, and did not affect the business activity but merely the profitability of the olives. Having regard to the impact of the special circumstances on the taxpayer's business activity in the relevant years, and to the financial outcomes that could have been expected had those special circumstances not occurred, the Deputy President was satisfied that the discretion in section 35-55 of the ITAA 1997 should be exercised in each of the income years except the 2014 year.", "ATO_View_of_Decision": "The decision is one decided on its facts and does not have wider ramifications. | Although the Deputy President's view on how the discretion in section 35-55 of the ITAA 1997 is to be construed is not consistent with the Commissioner's view in paragraphs 13A and 41D of TR 2007/6, the paragraphs in the ruling are consistent with the decision in Heaney and Commissioner of Taxation [2013] AATA 331. The ATO does not intend to amend the ruling.", "Administrative_Treatment": "", "Related_Documents": "N/A | [2014] AATA 620 | 2014 ATC 10-374 | TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion | 35-5(1) | 35-10 | 35-55 | 14ZZK(b)(ii) | 359-5 | 359-20 | 359-60 | The Act | 2010 ATC 20-183 | [2013] AATA 99 | 2013 ATC 10-315 | 2012 ATC 20-361 | [1995] FCA 1708 | (1995) 40 ALD 541", "Legislative_References": "Income Tax Assessment Act 1997 35-5(1) 35-10 35-55 Taxation Administration Act 1953 14ZZK(b)(ii) 359-5 359-20 359-60 Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009 The Act", "Case_References": "Commissioner of Taxation v McMahon [1997] FCA 1087 (1997) 79 FCR 127 (1997) 37 ATR 167 97 ATC 4968 Cooperative Bulk Handling Ltd v Commissioner of Taxation [2010] FCA 508 (2010) 79 ATR 582 2010 ATC 20-183 Re Cooper Bros Holdings Pty Ltd trading as Triple R Waste Management and Commissioner of Taxation [2013] AATA 99 Re Heaney and Commissioner of Taxation (2013) 138 ALD 144 [2013] AATA 331 2013 ATC 10-315 Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 84 ATR 1 2012 ATC 20-361 [2012] HCA 55 Minister of Community Services and Health v Chee Keong Thoo [1998] FCA 54 Groth v Secretary, Department of Social Security [1995] FCA 1708 (1995) 40 ALD 541", "Subject_References": "Income tax", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/2825/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Cartesian Capital and Commissioner of Taxation", "Venue_Reference_No": "2013/0685", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 January 2014", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2014] AATA 49", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/0685/00001", "Unmatched_Content": "Cartesian Capital and Commissioner of Taxation [2014] AATA 49 (2014) 92 ATR 228 | The adverse aspects of the decision concern administrative penalties and have no wider ramifications. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Chemical Trustee Ltd v Deputy Commissioner of Taxation", "Venue_Reference_No": "S82 of 2014 (HCA)", "Venue": "Federal Court of Australia", "Judgment_Date": "15 August 2014", "Date_Published": "5 September 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the Commissioner, having obtained judgment for an income tax debt, is prohibited from obtaining judgment for an income tax debt arising out of an amended assessment for the same income year.", "Overview_of_Facts": "The Commissioner issued notices of assessment to the taxpayer on 12 August 2010 relating to the income years ended 30 June 2001 to 2004, 2006 and 2007. | The Commissioner commenced proceedings in the Federal Court to seek judgment for the income tax debts included in the above notices of assessment. The Commissioner obtained summary judgment in those proceedings on 25 November 2010. | In July and September 2012, the Commissioner issued amended assessments for some of the years of income included in the 2010 judgment, as well as original assessments for some additional years. | The Commissioner commenced proceedings in the Federal Court in September 2012 to seek judgment in relation to the assessments issued in July and September 2012. | The taxpayer argued that the Commissioner was prevented by the doctrine of res judicata, issue estoppel or abuse of process from obtaining judgment in relation to the amended assessments for the years included in the 2010 judgment. The taxpayer relied on Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 (Chamberlain), in which the High Court had held that the Commissioner was prevented from obtaining judgment for a notice of assessment in subsequent proceedings when he already had judgment for the same notice of assessment in earlier proceedings. | At first instance, Perram J rejected the taxpayer's arguments and granted judgment for the Commissioner on 23 May 2013. | The taxpayer appealed to the Full Court of the Federal Court. | The Full Court dismissed the appeal on 19 March 2014. | The taxpayer sought special leave to appeal to the High Court. | The High Court refused the application for special leave on 15 August 2014 on the basis that the Full Court's decision and the primary judge's decision were correct. | Issues Decided by the Court | The Full Court held that the cause of action arising from an amended assessment of income tax is a separate cause of action from that arising from an earlier assessment for the same year of income. Chamberlain was distinguishable because in those proceedings the Commissioner was suing twice for the same notice of assessment and not an amended one. | Consequently, the doctrine of res judicata does not prevent the Commissioner from recovering on an amended assessment if he already has judgment for the original assessment. The fact that an amended assessment gives rise to a separate cause of action also means that issue estoppel does not arise. | The Full Court held that it was not an abuse of process for the Commissioner, following the judgment in 2010, to carry out further investigations into the taxpayer's income tax liability, to issue notices of amended assessment and then to seek to recover the additional tax arising from those assessments as this was in accordance with the statutory scheme for assessment and recovery of income tax. | The Full Court also held that section 177 of the Income Tax Assessment Act 1936 does not provide that a notice of assessment is conclusive proof that the amount is the entire amount of a tax liability and may never be amended. | The High Court in refusing special leave confirmed the correctness of the Full Court's decision and that of the primary judge. Their Honours stated that an amended assessment gives rise to a separate cause of action from an original assessment for the same income year and that this case was not covered by the Chamberlain decision. They also stated that the taxpayer's contention was antithetical to the statutory scheme for amended assessments. Finally, they stated that there was no basis for the application of res judicata, issue estoppel or abuse of process.", "Issues_Decided": "The Full Court held that the cause of action arising from an amended assessment of income tax is a separate cause of action from that arising from an earlier assessment for the same year of income. Chamberlain was distinguishable because in those proceedings the Commissioner was suing twice for the same notice of assessment and not an amended one. Consequently, the doctrine of res judicata does not prevent the Commissioner from recovering on an amended assessment if he already has judgment for the original assessment. The fact that an amended assessment gives rise to a separate cause of action also means that issue estoppel does not arise. The Full Court held that it was not an abuse of process for the Commissioner, following the judgment in 2010, to carry out further investigations into the taxpayer's income tax liability, to issue notices of amended assessment and then to seek to recover the additional tax arising from those assessments as this was in accordance with the statutory scheme for assessment and recovery of income tax. The Full Court also held that section 177 of the Income Tax Assessment Act 1936 does not provide that a notice of assessment is conclusive proof that the amount is the entire amount of a tax liability and may never be amended. The High Court in refusing special leave confirmed the correctness of the Full Court's decision and that of the primary judge. Their Honours stated that an amended assessment gives rise to a separate cause of action from an original assessment for the same income year and that this case was not covered by the Chamberlain decision. They also stated that the taxpayer's contention was antithetical to the statutory scheme for amended assessments. Finally, they stated that there was no basis for the application of res judicata, issue estoppel or abuse of process.", "ATO_View_of_Decision": "The ATO respectfully agrees with the views expressed by the Federal Court and the High Court. These accord with the way in which the Commissioner currently administers the income tax legislation and seeks to recover debts arising from amended assessments. | In particular, the ATO views the additional tax resulting from an amended assessment as a separate tax liability from the tax arising from any earlier assessment for the same income year. That additional tax may have a different due date from that of the original tax depending on the year of income concerned. | If the Commissioner obtains judgment for an income tax debt and that judgment is not set aside, he will not sue again on the same notice of assessment. However, if the assessment is amended and the amendment gives rise to additional tax, the Commissioner may sue to recover the additional tax. | Your comments | We invite you to advise us if you feel this decision has consequences we have not identified, or if a precedential decision such as a Public Ruling or an ATO ID requires reconsideration or amendment. Please forward your comments to the contact officer by the due date. Date issued: 5 September 2014 Contact officer: Contact officer details have been removed as the comments period has ended.", "Administrative_Treatment": "", "Related_Documents": "High Court | Full Federal Court | [2014] FCAFC 27 | 308 ALR 366 | 173 | 177 | 204 | 5-5(2) | 5-5(7) | 5(1) | Schedule 1 255-5(1) | (1963) 109 CLR 243 | 88 ATC 4323 | [2010] FCA 1297 | (2010) 81 ATR 237 | (1928) 42 CLR 39 | (1981) 147 CLR 589 | 2007 ATC 5406", "Legislative_References": "Income Tax Assessment Act 1936 173 177 204 Income Tax Assessment Act 1997 5-5(2) 5-5(7) Income Tax Act 1986 5(1) Taxation Administration Act 1953 Schedule 1 255-5(1)", "Case_References": "Batagol v Commissioner of Taxation (1963) 109 CLR 243 Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 [1988] HCA 21 (1988) 19 ATR 1060 88 ATC 4323 Deputy Commissioner of Taxation v Chemical Trustee Ltd (No 8) [2013] FCA 494 Deputy Commissioner of Taxation v Chemical Trustee Ltd and Others [2010] FCA 1297 (2010) 81 ATR 237 Executor, Trustee and Agency Co of South Australia Ltd v Thompson (1919) 27 CLR 162 Federal Commissioner of Taxation v Hoffnung and Co Ltd (1928) 42 CLR 39 [1928] HCA 49 Frinty v Landmax Developments Pty Ltd [2010] NSWSC 734 Haller v Ayre [2005] QCA 224 Inland Revenue Commissioners v Sneath [1932] 2 KB 362 Jeffery and Katauskas Pty Ltd v SST Consulting Pty Ltd (2009) 239 CLR 75 [2009] HCA 43 O'Driscoll v Manchester Insurance Committee [1915] 3 KB 499 Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 [1981] HCA 45 Society of Medical Officers of Health v Hope [1960] AC 551 Spassked Pty Ltd v Federal Commissioner of Taxation (No 2) (2007) 165 FCR 484 [2007] FCAFC 205 2007 ATC 5406 (2007) 67 ATR 900 Walton v Gardiner (1993) 177 CLR 378 [1993] HCA 77", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S82of2014/00001", "Unmatched_Content": "Impacted Advice: This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation of the Commonwealth of Australia v Barossa Vines Ltd", "Venue_Reference_No": "SAD 146 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "3 February 2014", "Date_Published": "31 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether entities engaged in conduct that resulted in schemes that had been promoted on the basis of conformity with product rulings being implemented in a way that is materially different from that described in the product rulings.", "Overview_of_Facts": "Barossa Vines Ltd (the taxpayer) was the Responsible Entity for a number of managed investment schemes in the viticulture industry. | The taxpayer applied for and received product rulings PR 2007/32 (2007 Project), 2008/21 and 2008/22 (together the 2008 Project). | Following an investigation, the Commissioner concluded that the schemes had been implemented in a way that was materially different from that described in the product rulings. Following mediation, the parties submitted to the Federal Court a statement of agreed facts and joint submissions on penalty which they contended should be imposed. | Issues decided by the court | The Court held that the five respondents (the taxpayer and four individuals) acted in contravention of subsection 290-50(2) of Schedule 1 of the Taxation Administration Act 1953 ('TAA'), by implementing the schemes in a way that was materially different from that described in the product rulings. | The Court upheld the Commissioner's application for civil penalty orders against the respondents for the contraventions and imposed a penalty of $625,000 on the taxpayer and $125,000 on each of the four individual respondents. | The Court accepted that, to the extent that the two offences (that is, relating to the 2007 Project and the 2008 Project) contained common elements, the taxpayers should not be punished twice for such elements. | In determining the appropriate penalty, the Court had regard to each of the relevant matters listed in subsection 290-50(5) of the TAA, including the nature and extent of the contravention and the circumstances in which the contravention took place. | In terms of the nature and extent of the contravention, the Court noted the lack of care in the management of the schemes, attempts to conceal the failure of certain plantings and the selling of certain vineyard lots knowing that they would not be planted with rootlings, which indicated that attention to good viticultural practice was subordinated to commercial considerations. | In terms of the circumstances, the Court noted at [74] that: \"... the material differences in the implementation of the 2007 Project and the 2008 Project were the result of the respondents' failure to prepare adequately or plan the development of vineyards, or to put in place appropriate structures and resources for their establishment and ongoing management.\" | Other considerations include the respondents' failure, in general terms, to take any steps to avoid the contraventions, the limited degree of cooperation with the Commissioner's investigation and Division 290's object of general deterrence. The Court noted, however, the parties' submission that the penalties be discounted in light of the respondents' cooperation with the Commissioner to resolve the matter by agreeing facts. | The Court also accepted the parties' submission that the penalty imposed on the taxpayer (a body corporate) be in proportion to the individual respondents' penalty that is, 1:5. This is the ratio of the maximum penalties under subsection 290-50(4) of the TAA, namely 5,000 penalty units for an individual and 25,000 for a body corporate.", "Issues_Decided": "The Court held that the five respondents (the taxpayer and four individuals) acted in contravention of subsection 290-50(2) of Schedule 1 of the Taxation Administration Act 1953 ('TAA'), by implementing the schemes in a way that was materially different from that described in the product rulings. The Court upheld the Commissioner's application for civil penalty orders against the respondents for the contraventions and imposed a penalty of $625,000 on the taxpayer and $125,000 on each of the four individual respondents. The Court accepted that, to the extent that the two offences (that is, relating to the 2007 Project and the 2008 Project) contained common elements, the taxpayers should not be punished twice for such elements. In determining the appropriate penalty, the Court had regard to each of the relevant matters listed in subsection 290-50(5) of the TAA, including the nature and extent of the contravention and the circumstances in which the contravention took place. In terms of the nature and extent of the contravention, the Court noted the lack of care in the management of the schemes, attempts to conceal the failure of certain plantings and the selling of certain vineyard lots knowing that they would not be planted with rootlings, which indicated that attention to good viticultural practice was subordinated to commercial considerations. In terms of the circumstances, the Court noted at [74] that: \"... the material differences in the implementation of the 2007 Project and the 2008 Project were the result of the respondents' failure to prepare adequately or plan the development of vineyards, or to put in place appropriate structures and resources for their establishment and ongoing management.\" Other considerations include the respondents' failure, in general terms, to take any steps to avoid the contraventions, the limited degree of cooperation with the Commissioner's investigation and Division 290's object of general deterrence. The Court noted, however, the parties' submission that the penalties be discounted in light of the respondents' cooperation with the Commissioner to resolve the matter by agreeing facts. The Court also accepted the parties' submission that the penalty imposed on the taxpayer (a body corporate) be in proportion to the individual respondents' penalty that is, 1:5. This is the ratio of the maximum penalties under subsection 290-50(4) of the TAA, namely 5,000 penalty units for an individual and 25,000 for a body corporate.", "ATO_View_of_Decision": "The Court's decision supported the joint statement of agreed facts and submissions on penalty. The ATO respectfully agrees with the outcome.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil", "Related_Documents": "None | 2014 ATC 20-436 | section 8-1 | section 35-10 | section 35-55 | section 995-1 | section 290-50(2) of Schedule 1 | [2014] FCA 6 | [2008] FCAFC 8 | PS LA 2008/8", "Legislative_References": "Income Tax Assessment Act 1997 section 8-1 section 35-10 section 35-55 section 995-1 Taxation Administration Act 1953 section 290-50(2) of Schedule 1", "Case_References": "Australian Competition and Consumer Commission v P & N Pty Ltd [2014] FCA 6 Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith [2008] FCAFC 8 (2008) 165 FCR 560 Pearce v The Queen [1998] HCA 57 (1998) 194 CLR 610", "Subject_References": "Civil penalties Managed investment scheme Product rulings", "Other_References": "PS LA 2008/8", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/SAD146of2012/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v Darling", "Venue_Reference_No": "M34 of 2014 (High Court of Australia)", "Venue": "High Court", "Judgment_Date": "15 August 2014", "Date_Published": "1 October 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to the Full Family Court's decision granting the Commissioner relief from the implied obligation not to use documents obtained from the court file.", "Overview_of_Facts": "Mr Darling (the husband) and Ms Darling (the wife) were parties to Family Court proceedings (the Proceedings). | The Australian Taxation Office (ATO) had commenced an audit of the husband's income tax affairs in June 2009. | In mid-December 2009, ATO officers were given permission by the Registry Manager to examine the file in the Proceedings. Some documents were \"tagged\", but copies were not made. | On 9 February 2010, the ATO wrote to the Court seeking permission to copy the \"tagged\" documents under r 24.13(1)(c) of the Family Law Rules 2004 (Cth) (the Rules). The ATO did not give notice of its request to either of the parties. | On 1 March 2010, the Registry Manager refused the ATO's request to access the file under the terms of r24.13 of the Rules. | On 29 April 2010, the ATO wrote to the Court referring to the Commissioner's access powers under section 263 of the Income Tax Assessment Act 1936 and again requesting access to the file to copy the documents. | On 20 May 2010 the Registry Manager granted the ATO access to the file. | On 3 June 2010 and 17 December 2010 respectively, ATO officers inspected the file and copied documents from it. | On 7 December 2010, the Proceedings were dismissed by consent. | On 3 July 2012, the Commissioner sought leave to intervene in the Proceedings to be released from the implied obligation articulated in Harman v Secretary of State for Home Department [1983] 1 AC 280 (adopted by the High Court in Hearne v Street (2008) 235 CLR 125) not to use documents obtained from the file for a purpose not related to the Proceedings. | Issues decided by the court | At first instance the Family Court dismissed the Commissioner's application and held that he remained under an implied obligation not to make use of the documents for a purpose not related to the litigation. The primary Judge was not satisfied that the Commissioner had shown that there were special circumstances justifying his release from the implied obligation; or that his release from the obligation was necessary or in the public interest; or that such a release should override the public interest in maintaining the privacy of the parties to the proceedings. | The Full Court of the Family Court granted the Commissioner leave to appeal and set aside the primary Judge's order on the basis that the exercise of discretion not to release the Commissioner from the implied obligation miscarried. | The Full Court was critical of the conduct of ATO officers seeking access to Court documents by the use of the Commissioner's access powers. However, the Court was prepared to overlook any interference with the processes of the Court, because the ATO did not seek to use the documents without first seeking to approach the Court to be released from the implied obligation. | The Full Court rejected the Commissioner's new grounds of appeal, that the implied obligation did not apply to the Commissioner as a stranger to the litigation and in the context of his powers to make assessments under section 166 and 167 of the Income Tax Assessment Act 1936 (Cth). | The Full Court considered the way in which the discretion should be exercised, and noted that there must be a difference between cases involving private commercial disputes and those, such as this case, where the applicant seeking release from the implied obligation is performing a public duty. The Full Court considered the following considerations were relevant to the exercise of the discretion in the Commissioner's favour: - The Commissioner was performing an important public duty. - The Commissioner was engaged in a substantial, targeted audit. - Although many of the annexures to the affidavits may be available to the Commissioner from other sources, the parties' own assertions about the history of acquisition of assets would be available only to the Commissioner by interview with the parties in which they may have an incentive not to be frank. - The cogency of any evidence would be the subject of scrutiny in any proceedings that may be instituted after the Commissioner completes the audit and makes assessments. - The release of the Commissioner from the obligation would not be \"inconvenient\" to the husband. Nor would there be any prejudice to the husband, unless the documents did establish he has not been meeting his taxation obligations: - There are restrictions on the way in which the Commissioner can use the information obtained from the court file which would ensure that the documents do not venture into the public arena, thus ensuring there is no breach of section 121 of the Family Law Act (Cth) - The affidavits and financial statements were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court. - The fact the Commissioner does not carry the burden of proving the accuracy of his assessment was irrelevant. - Albeit brief, and expressed in general terms, the ATO officer sufficiently stated the purpose for which the documents were required in his affidavit. | - The Commissioner was performing an important public duty. - The Commissioner was engaged in a substantial, targeted audit. - Although many of the annexures to the affidavits may be available to the Commissioner from other sources, the parties' own assertions about the history of acquisition of assets would be available only to the Commissioner by interview with the parties in which they may have an incentive not to be frank. - The cogency of any evidence would be the subject of scrutiny in any proceedings that may be instituted after the Commissioner completes the audit and makes assessments. - The release of the Commissioner from the obligation would not be \"inconvenient\" to the husband. Nor would there be any prejudice to the husband, unless the documents did establish he has not been meeting his taxation obligations: - There are restrictions on the way in which the Commissioner can use the information obtained from the court file which would ensure that the documents do not venture into the public arena, thus ensuring there is no breach of section 121 of the Family Law Act (Cth) - The affidavits and financial statements were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court. - The fact the Commissioner does not carry the burden of proving the accuracy of his assessment was irrelevant. - Albeit brief, and expressed in general terms, the ATO officer sufficiently stated the purpose for which the documents were required in his affidavit. | The Full Court considered that the most important consideration was whether or not granting the Commissioner relief from the implied obligation was likely to result in discouraging parties from making full and frank disclosures to the court. The Full Court noted that the Family Court can and does refer matters involving tax evasion to the relevant authorities for investigation. The Full Court concluded that releasing the Commissioner from the implied obligation would not result in any greater disincentive to parties being frank with the court. | The High Court found that there was no point of law suitable to a grant of special leave.", "Issues_Decided": "At first instance the Family Court dismissed the Commissioner's application and held that he remained under an implied obligation not to make use of the documents for a purpose not related to the litigation. The primary Judge was not satisfied that the Commissioner had shown that there were special circumstances justifying his release from the implied obligation; or that his release from the obligation was necessary or in the public interest; or that such a release should override the public interest in maintaining the privacy of the parties to the proceedings. The Full Court of the Family Court granted the Commissioner leave to appeal and set aside the primary Judge's order on the basis that the exercise of discretion not to release the Commissioner from the implied obligation miscarried. The Full Court was critical of the conduct of ATO officers seeking access to Court documents by the use of the Commissioner's access powers. However, the Court was prepared to overlook any interference with the processes of the Court, because the ATO did not seek to use the documents without first seeking to approach the Court to be released from the implied obligation. The Full Court rejected the Commissioner's new grounds of appeal, that the implied obligation did not apply to the Commissioner as a stranger to the litigation and in the context of his powers to make assessments under section 166 and 167 of the Income Tax Assessment Act 1936 (Cth). The Full Court considered the way in which the discretion should be exercised, and noted that there must be a difference between cases involving private commercial disputes and those, such as this case, where the applicant seeking release from the implied obligation is performing a public duty. The Full Court considered the following considerations were relevant to the exercise of the discretion in the Commissioner's favour: - The Commissioner was performing an important public duty. - The Commissioner was engaged in a substantial, targeted audit. - Although many of the annexures to the affidavits may be available to the Commissioner from other sources, the parties' own assertions about the history of acquisition of assets would be available only to the Commissioner by interview with the parties in which they may have an incentive not to be frank. - The cogency of any evidence would be the subject of scrutiny in any proceedings that may be instituted after the Commissioner completes the audit and makes assessments. - The release of the Commissioner from the obligation would not be \"inconvenient\" to the husband. Nor would there be any prejudice to the husband, unless the documents did establish he has not been meeting his taxation obligations: - There are restrictions on the way in which the Commissioner can use the information obtained from the court file which would ensure that the documents do not venture into the public arena, thus ensuring there is no breach of section 121 of the Family Law Act (Cth) - The affidavits and financial statements were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court. - The fact the Commissioner does not carry the burden of proving the accuracy of his assessment was irrelevant. - Albeit brief, and expressed in general terms, the ATO officer sufficiently stated the purpose for which the documents were required in his affidavit. - The Commissioner was performing an important public duty. - The Commissioner was engaged in a substantial, targeted audit. - Although many of the annexures to the affidavits may be available to the Commissioner from other sources, the parties' own assertions about the history of acquisition of assets would be available only to the Commissioner by interview with the parties in which they may have an incentive not to be frank. - The cogency of any evidence would be the subject of scrutiny in any proceedings that may be instituted after the Commissioner completes the audit and makes assessments. - The release of the Commissioner from the obligation would not be \"inconvenient\" to the husband. Nor would there be any prejudice to the husband, unless the documents did establish he has not been meeting his taxation obligations: - There are restrictions on the way in which the Commissioner can use the information obtained from the court file which would ensure that the documents do not venture into the public arena, thus ensuring there is no breach of section 121 of the Family Law Act (Cth) - The affidavits and financial statements were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court. - The fact the Commissioner does not carry the burden of proving the accuracy of his assessment was irrelevant. - Albeit brief, and expressed in general terms, the ATO officer sufficiently stated the purpose for which the documents were required in his affidavit. The Full Court considered that the most important consideration was whether or not granting the Commissioner relief from the implied obligation was likely to result in discouraging parties from making full and frank disclosures to the court. The Full Court noted that the Family Court can and does refer matters involving tax evasion to the relevant authorities for investigation. The Full Court concluded that releasing the Commissioner from the implied obligation would not result in any greater disincentive to parties being frank with the court. The High Court found that there was no point of law suitable to a grant of special leave.", "ATO_View_of_Decision": "The Commissioner accepts the decision of the Full Court of the Family Court that the implied obligation applies to the Commissioner as a stranger to the litigation. | The ATO's policies were updated in 2011 to instruct ATO officers not to seek to inspect or copy documents from court files by relying on access powers, because such conduct could constitute contempt of court. | Where the Commissioner, as a non-party to litigation, seeks access to court documents for use other than in the proceeding in which the documents were filed, the Commissioner will make an application to the court for release from the implied obligation. The Commissioner will have regard to the factors considered by the Full Court of the Family Court in making any such application.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A | Implications for Law Administration Practice Statements | N/A", "Related_Documents": "N/A | High Court of Australia | Full Family Court | [2014] FamCAFC 59 | Family Court | 166 | 167 | 263 | 264 | 355-50 of Schedule 1 | [2012] VSC 143 | (2008) 235 CLR 125 | [2008] HCA 36 | [2008] VSC 230 | (2002) 43 ACSR 173 | (2000) 104 FCR 564 | [2000] FCA 1572 | (1990) 90 ATC 4088 | (1981) 148 CLR 170 | (1979) 143 CLR 499 | 79 ATC 4039 | [1995] 1 Qd R 476 | (1936) 55 CLR 499", "Legislative_References": "Income Tax Assessment Act 1936 166 167 263 264 Taxation Administration Act 1953 (Cth) 121 Family Law Act 1975 355-50 of Schedule 1 Family Law Rules 2004 355-50 of Schedule 1", "Case_References": "Deputy Commissioner of Taxation v Karas [2012] VSC 143 Hearne v Street (2008) 235 CLR 125 [2008] HCA 36 Griffiths & Beerens Pty Ltd v Duggan (No 2) [2008] VSC 230 Moage Ltd (in liq) v Jagelman (2002) 43 ACSR 173 Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 104 FCR 564 [2000] FCA 1572 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 [1990] HCA 3 (1990) 20 ATR 1370 (1990) 90 ATC 4088 Adam P. Brown Male Fashions Pty. Ltd. v Philip Morris Inc. (1981) 148 CLR 170 Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 79 ATC 4039 (1979) 9 ATR 483 Bailey v Australian Broadcasting Corporation [1995] 1 Qd R 476 T & T (1984) FLC 91-588 House v The King (1936) 55 CLR 499", "Subject_References": "Tax administration Commissioner's powers Access & entry powers Powers to obtain information", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M34of2014/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v MBI Properties Pty Ltd", "Venue_Reference_No": "S90/2014", "Venue": "High Court", "Judgment_Date": "3 December 2014", "Date_Published": "30 September 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Commissioner's response to this case involving the application of Division 135 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) following the sale of leased residential premises as a going concern.", "Overview_of_Facts": "MBI Properties Pty Ltd (MBI) purchased three residential apartments in the Sebel Manly Beach Hotel Complex from South Steyne Hotel Pty Ltd (South Steyne). | Each apartment was sold subject to a lease already granted by South Steyne to Mirvac Management Pty Ltd (MML). Each lease obliged MML to operate a scheme under which the three apartments, together with the other apartments in the complex, were to be operated as part of a serviced apartment business. | As permitted by each contract of sale, MBI elected to participate in a 'Management Rights Scheme' that mirrored the scheme provided for under the leases. | In earlier proceedings, the majority of the Full Federal Court held that South Steyne's grant of the leases was an input taxed supply of residential premises by way of lease under section 40-35 of the GST Act, and that its sale of the apartments to MBI subject to the leases, was a GST-free supply of a going concern under section 38-325 of the GST Act: South Steyne Hotel Pty Ltd v Commissioner of Taxation [2009] FCAFC 155 (South Steyne). | In South Steyne, the Full Federal Court unanimously held that on purchase of the three leased apartments, MBI did not make any supply to MML. Instead, the Full Federal Court concluded that after the sale, there was a continuation of the existing leases South Steyne had granted MML. | The Commissioner later assessed MBI's net amount to include an increasing adjustment under section 135-5 of the GST Act. Subsection 135-5(1) of the GST Act provides for an increasing adjustment if an entity is supplied a going concern, and intends that some or all of the supplies made through the enterprise to which the supply of the going concern relates, will be input taxed supplies. Under subsection 135-5(2), the amount of the adjustment is determined by reference to the 'price' of the input taxed supplies as a proportion of the 'price' of all the supplies intended to be made through the enterprise. [1] | MBI appealed to the Federal Court after its objection to the assessment was disallowed. Griffiths J dismissed MBI's appeal at first instance, accepting the Commissioner's argument that continuation of the leases resulted in input taxed supplies of residential premises being made by South Steyne to MML through the enterprise MBI acquired as a GST-free going concern. | The Full Federal Court allowed MBI's further appeal, holding that the only supply by way of lease occurred on grant of the leases by South Steyne to MML, and that that supply did not continue. Therefore, there was no input taxed supply which MBI could have intended would be made through the enterprise it acquired from South Steyne as a going concern. | The Commissioner was granted special leave to appeal to the High Court, MBI contending that it did not make any input taxed supplies by way of lease to MML, and, that there could be no increasing adjustment because there was no 'price' for any input taxed supplies it may have intended to make. | Issues decided by the High Court | The primary questions addressed by the High Court on appeal were: • Did MBI as purchaser of the leased apartments make a supply to MML as tenant during the term of each lease remaining after the sale of the apartments; and • If MBI did make a supply to MML after the sale of the apartments, was there any 'price' for the supply for the purpose of calculating an increasing adjustment under subsection 135-5(2)? | • Did MBI as purchaser of the leased apartments make a supply to MML as tenant during the term of each lease remaining after the sale of the apartments; and • If MBI did make a supply to MML after the sale of the apartments, was there any 'price' for the supply for the purpose of calculating an increasing adjustment under subsection 135-5(2)? | The High Court unanimously held in a joint judgment (at [46]) that MBI was liable for an increasing adjustment under section 135-5. | By assuming the lessor's rights and obligations under the leases, MBI intended to and did in fact make input taxed supplies of residential premises by way of lease to MML through the enterprise it acquired from South Steyne (at [2] & [40]). The High Court also held that the supplies MBI made and intended to make were for a 'price' - that being the rent to be paid by MML to MBI under each apartment lease (at [2] & [45]). | The High Court noted that, by observing the covenant to provide quiet enjoyment under a lease, the lessor engages in an 'activity' done 'on a regular or continuous basis, in the form of a lease'. Whether or not the lessor might also be engaged in some other form of enterprise, it makes a supply of use and occupation of the leased premises in the course of an enterprise the lessor carries on within the meaning of paragraph 9-20(1)(c) of the GST Act (at [37]). The High Court also noted (at [33]), that it was incorrect to consider that the making of a supply must always involve the taking of some action on the part of the supplier, and that one transaction must always involve the making of just one supply.", "Issues_Decided": "The primary questions addressed by the High Court on appeal were: • Did MBI as purchaser of the leased apartments make a supply to MML as tenant during the term of each lease remaining after the sale of the apartments; and • If MBI did make a supply to MML after the sale of the apartments, was there any 'price' for the supply for the purpose of calculating an increasing adjustment under subsection 135-5(2)? • Did MBI as purchaser of the leased apartments make a supply to MML as tenant during the term of each lease remaining after the sale of the apartments; and • If MBI did make a supply to MML after the sale of the apartments, was there any 'price' for the supply for the purpose of calculating an increasing adjustment under subsection 135-5(2)? The High Court unanimously held in a joint judgment (at [46]) that MBI was liable for an increasing adjustment under section 135-5. By assuming the lessor's rights and obligations under the leases, MBI intended to and did in fact make input taxed supplies of residential premises by way of lease to MML through the enterprise it acquired from South Steyne (at [2] & [40]). The High Court also held that the supplies MBI made and intended to make were for a 'price' - that being the rent to be paid by MML to MBI under each apartment lease (at [2] & [45]). The High Court noted that, by observing the covenant to provide quiet enjoyment under a lease, the lessor engages in an 'activity' done 'on a regular or continuous basis, in the form of a lease'. Whether or not the lessor might also be engaged in some other form of enterprise, it makes a supply of use and occupation of the leased premises in the course of an enterprise the lessor carries on within the meaning of paragraph 9-20(1)(c) of the GST Act (at [37]). The High Court also noted (at [33]), that it was incorrect to consider that the making of a supply must always involve the taking of some action on the part of the supplier, and that one transaction must always involve the making of just one supply.", "ATO_View_of_Decision": "The High Court has decided that the Full Federal Court was wrong to conclude in South Steyne that the purchaser of leased premises makes no supply to the sitting tenant (at [41]). The High Court decision confirms that, for the purposes of section 9-10 of the GST Act, the purchaser makes a supply to the tenant that is by way of lease, for which the rent is consideration within the meaning of section 9-15. The purchaser makes a supply by observing and continuing to observe the obligations imposed on it by law or accepted by agreement. This supply is made progressively in accordance with the general operation of the GST Act, and aside from any application of the special rules in Division 156 (at [36]). | The Commissioner considers that the High Court's decision gives rise to the following GST outcomes: • A purchaser of leased residential premises as a GST-free going concern, with the intention of continuing to observe and act in accordance with the covenants of the existing lease, is liable for an increasing adjustment under section 135-5. • A purchaser of leased residential premises makes an input taxed supply by way of lease, and paragraph 11-15(2)(a) operates so that there is no entitlement to an input tax credit for anything acquired that relates to making that supply. • Where leased premises acquired by a purchaser are not residential premises, the purchaser makes a supply of the premises to the tenant and that supply will be a taxable supply when the other requirements of section 9-5 are met. Therefore, after the sale: • the purchaser is required to pay GST on rent paid by the tenant • where the other requirements of section 11-5 are met, the tenant is entitled to input tax credits with respect to rent paid to the purchaser after the sale • the vendor is not liable for GST on rent paid to the purchaser after the sale,and • where the purchaser or tenant account for GST on a basis other than cash, their respective supply or acquisition of the premises by way of lease will be treated as being made on a progressive or periodic basis for the purposes of Division 156 of the GST Act. | • A purchaser of leased residential premises as a GST-free going concern, with the intention of continuing to observe and act in accordance with the covenants of the existing lease, is liable for an increasing adjustment under section 135-5. • A purchaser of leased residential premises makes an input taxed supply by way of lease, and paragraph 11-15(2)(a) operates so that there is no entitlement to an input tax credit for anything acquired that relates to making that supply. • Where leased premises acquired by a purchaser are not residential premises, the purchaser makes a supply of the premises to the tenant and that supply will be a taxable supply when the other requirements of section 9-5 are met. Therefore, after the sale: • the purchaser is required to pay GST on rent paid by the tenant • where the other requirements of section 11-5 are met, the tenant is entitled to input tax credits with respect to rent paid to the purchaser after the sale • the vendor is not liable for GST on rent paid to the purchaser after the sale,and • where the purchaser or tenant account for GST on a basis other than cash, their respective supply or acquisition of the premises by way of lease will be treated as being made on a progressive or periodic basis for the purposes of Division 156 of the GST Act. | • the purchaser is required to pay GST on rent paid by the tenant • where the other requirements of section 11-5 are met, the tenant is entitled to input tax credits with respect to rent paid to the purchaser after the sale • the vendor is not liable for GST on rent paid to the purchaser after the sale,and • where the purchaser or tenant account for GST on a basis other than cash, their respective supply or acquisition of the premises by way of lease will be treated as being made on a progressive or periodic basis for the purposes of Division 156 of the GST Act. | The High Court's statement (at [37]) that observing covenants to provide quiet enjoyment under a lease amounts to engaging in an 'activity' done 'on a regular or continuous basis, in the form of a lease' confirms that an entity granting a lease or acquiring a reversion makes a supply of the use and occupation of the leased premises in the course of carrying an enterprise: see paragraph 9-20(1)(c) of the GST Act. It remains a question of fact and degree whether the entity may also be engaged in some other or broader enterprise.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | GST consequences following a sale of leased premises | Although the High Court decision is consistent with the Commissioner's views on the GST consequences following a sale of leased premises in GSTD 2012/1 and GSTD 2012/2, those rulings will be reviewed to ensure that they fully reflect what the High Court has said. Entities who have lodged GST returns relying on these rulings will not need to review them following the High Court decision. Those entities are in any event protected from underpaid tax, penalties and interest to the extent the rulings do not correctly state the law. | As the High Court decision is consistent with existing practice, it is not anticipated that any changes made to GSTD 2012/1 and GSTD 2012/2 will materially or adversely impact taxpayers. | Vendors of leased commercial premises can continue to self-assess net amounts on the basis that they are not liable for GST on rent paid by the tenant to the purchaser. Tenants of commercial premises can self-assess net amounts on the basis that they are entitled to input tax credits on rent paid to the purchaser. Purchasers in turn need to account for GST on that rent. | Note: Following the High Court's decision in this case, GSTD 2012/1 and GSTD 2012/2 were amended on 22 July 2015 and 23 September 2015 respectively. | Supplies of leased premises as a GST-free going concern | Vendors and purchasers of premises subject to an existing lease can continue to rely on the Commissioner's views in GSTR 2002/5 - Goods and services tax: when is a 'supply of a going concern' GST-free? This means, that subject to the required conditions being met, entities can rely upon GSTR 2002/5 to treat a sale of leased premises as being a GST-free supply of a going concern. | Supplies | GSTR 2006/9 includes 16 propositions for characterising and analysing supplies. Proposition 5 is that an entity must do something to make a supply. We intend to review proposition 5 in GSTR 2006/9, given the High Court's statement at [33] about it being incorrect to consider that the making of a supply must always involve the taking of some action on the part of the supplier. | We would welcome comment on whether rulings additional to GSTD 2012/1, GSTD 2012/2 and GSTR 2006/9 require review following the High Court's decision. | Past transactions accounted for in accordance with the Full Federal Court decision | Entities that have self-assessed on the basis of the Full Federal Court's decision in MBI may need to review prior lodgments to determine whether they have an incorrectly reported net amount. Entities in these circumstances that have a tax shortfall may choose to make a voluntary disclosure. | Reduced tax shortfall penalties and interest may apply if voluntary disclosures are made. Further information on making voluntary disclosures can be located by searching for 'voluntary disclosure' on www.ato.gov.au . | The Commissioner will, where appropriate, address non-compliance and seek to recover excess refunds or underpaid net amounts from entities that have: • purchased leased residential premises as a GST-free going concern and not accounted for any increasing adjustment under Division 135; • purchased leased commercial premises and not accounted for GST on rent they have received from the tenant; or • claimed input tax credits for acquisitions related to the leasing of residential premises. | • purchased leased residential premises as a GST-free going concern and not accounted for any increasing adjustment under Division 135; • purchased leased commercial premises and not accounted for GST on rent they have received from the tenant; or • claimed input tax credits for acquisitions related to the leasing of residential premises.", "Related_Documents": "Goods and Services Tax Ruling GSTR 2002/5 | Goods and Services Tax Ruling GSTR 2006/9 | Goods and Services Tax Determination GSTD 2012/1 | Goods and Services Tax Determination GSTD 2012/2 | 2014 ATC 20-474 | section 9-5 | section 9-15 | section 9-75 | section 40-35 | section 135-5 | section 156-22 | 2013 ATC 20-420 | 2013 ATC 20-372 | 2009 ATC 20-145 | 2006 ATC 4363", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 9-15 section 9-75 section 40-35 section 135-5 section 156-22", "Case_References": "Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49 2014 ATC 20-474 MBI Properties Pty Ltd v Commissioner of Taxation [2013] FCAFC 112 2013 ATC 20-420 MBI Properties Pty Ltd v Commissioner of Taxation [2013] FCA 56 2013 ATC 20-372 South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation [2009] FCAFC 155 (2009) 180 FCR 409 2009 ATC 20-145 74 ATR 41 Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 (2006) 152 FCR 461 2006 ATC 4363 62 ATR 682", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD329-2013/00001", "Unmatched_Content": "Footnotes: [1] Section 9-75 of the GST Act defines the term 'price' by reference to the meaning of 'consideration' in section 9-15."}
{"Case_Name": "Commissioner of Taxation v Moodie", "Venue_Reference_No": "2012/174957", "Venue": "Supreme Court", "Judgment_Date": "14 March 2014", "Date_Published": "7 August 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Costs in unfair preference payment proceedings where Commissioner joins a director to the proceedings to seek indemnity under s588FGA of the Corporations Act. Confirms the Court's discretion to order the Commissioner to pay the Liquidator's costs even if the Commissioner does not defend the claim.", "Overview_of_Facts": "This was a concurrent hearing of the Commissioner's application for leave to appeal an order for costs against him in an unfair preference claim commenced against him by the Liquidator of Rivercorp Pty Ltd in the Supreme Court of NSW. | The Commissioner exercised his right of indemnity under section 588FGA of the Act and joined the director of Rivercorp (Mr Rowe) to the Liquidator's proceedings. Both Mr Rowe and the Commissioner filed defences to the Liquidator's claim which challenged the issue of Rivercorp's insolvency during the relation back period. | On 20 September 2011, the Liquidator served an offer of compromise under Rule 20.26 of the UCPR 2005 on the Commissioner, which excluded a claim for interest on the principal amount and legal costs. The Commissioner rejected the offer. | The Commissioner then withdrew his defence on 14 December 2011 and Mr Rowe withdrew his defence on 30 March 2012. Consent judgment orders were entered in favour of the Liquidator against the Commissioner in respect of the preference claim; and in favour of the Commissioner against Mr Rowe in respect of the indemnity claim. | On 7 May 2012, Justice Brereton ordered the Commissioner to pay the Liquidator's costs of the entire proceedings. Costs after 21 September 2011 were payable on an indemnity basis premised on Rule 42.16 of the UCPR 2005. | The issue to be determined on appeal was the extent of the Commissioner's exposure to costs in circumstances where he withdrew his defence and Mr Rowe's defence kept the proceedings on foot after 14 December 2011. The Commissioner submitted that it was appropriate for the Liquidator to seek his costs after 14 December 2011 from Mr Rowe. | Issues Decided by the Court | The Court granted the Commissioner leave to appeal but dismissed the appeal with costs. The decision reflects that it is within the discretion of the Court to order that the Commissioner must bear the entire costs incurred by the Liquidator, as a consequence of the director's stance in challenging the Liquidator's claim, even if the Commissioner concedes the Liquidator's claim. The Court determined that the decision in Noxequin did not seek to establish a principle of general application as to when the Commissioner's liability for costs in a case should cease (para 76). | The liquidator's proceedings are a claim made by the liquidator against the Commissioner. The director is treated as a third party and is entitled to defend the liquidator's claim as against the Commissioner as if joined by cross-claim (para 90). However, the liquidator has no interest in the controversy between the Commissioner and the director. The liquidator's only remedy is as against the Commissioner (para 91).", "Issues_Decided": "The Court granted the Commissioner leave to appeal but dismissed the appeal with costs. The decision reflects that it is within the discretion of the Court to order that the Commissioner must bear the entire costs incurred by the Liquidator, as a consequence of the director's stance in challenging the Liquidator's claim, even if the Commissioner concedes the Liquidator's claim. The Court determined that the decision in Noxequin did not seek to establish a principle of general application as to when the Commissioner's liability for costs in a case should cease (para 76). The liquidator's proceedings are a claim made by the liquidator against the Commissioner. The director is treated as a third party and is entitled to defend the liquidator's claim as against the Commissioner as if joined by cross-claim (para 90). However, the liquidator has no interest in the controversy between the Commissioner and the director. The liquidator's only remedy is as against the Commissioner (para 91).", "ATO_View_of_Decision": "The decision may affect other unfair preference matters where an indemnity is sought from the directors of the company. There is a potential for adverse costs implications for the Commissioner in such matters, particularly where the liquidators utilise an offer of compromise or 'Calderbank offer'.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for impacted Law Administration Practice Statements | Nil", "Related_Documents": "None | [2014] NSWCA 59 | 308 ALR 571 | The Act | (2004) 56 ATR 171 | (2004) 56 ATR 615 | (2003) 53 ATR 663 | (2004) 57 ATR 413 | (2004) 57 ATR 441 | [1936] HCA 40 | (1936) 55 CLR 499 | (1969) 120 CLR 365 | [1998] HCA 11 | (1998) 193 CLR 72 | [2006] NSWSC 305 | (2006) 57 ACSR 249", "Legislative_References": "Civil procedure Act 2005 (NSW) Corporations Act 2001 (NSW) Supreme Court Act 1970 (NSW) Supreme Court Rules 1970 (NSW) Taxation Administration Act 1953 (Cth) The Act Uniform Civil Procedure Rules 2005 (NSW)", "Case_References": "Barakat v Bazdarova [2012] NSWCA 140 Barclays Bank v Tom [1923] 1 KB 221 Commissioner of Taxation v Sims [2008] NSWCA 298 (2008) 72 NSWLR 716 (2008) 73 ATR 838 Commonwealth of Australia v Gretton [2008] NSWCA 117 Condon v Commissioner of Taxation [2004] NSWSC 481 207 ALR 676 (2004) 56 ATR 171 Cooper as liquidator of Wanted World Wide (Australia) Ltd (in liq) v Commissioner of Taxation [2004] FCA 1063 (2004) 49 ACSR 325 (2004) 56 ATR 615 Crosbie v Commissioner of Taxation [2003] FCA 922 (2003) 130 FCR 275 (2003) 53 ATR 663 Dean-Willcocks v Commissioner of Taxation (No 2) [2004] NSWSC 286 (2004) 49 ACSR 325 (2004) 57 ATR 413 Duncan v Commissioner of Taxation Re trader Systems International Pty Ltd (in liq) [2006] FCA 885 (2006) 58 ACSR 555 Edginton v Clark [1964] 1 QB 367 Financial Wisdom Ltd v Newman [2005] VSCA 110 (2005) 12 VR 79 Georges v Locktonic Systems Pty Ltd [2009] VSC 523 Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation [2004] NSWSC 985 (2004) 186 FLR 111 (2004) 57 ATR 441 Hall v Poolman (No 2) [2007] NSWSC 1494 Harris v Commissioner of Taxation [2006] QSC 108 [2006] 2 Qd R 445 House v R [1936] HCA 40 (1936) 55 CLR 499 Insurance Exchange of Australasia Group v Dooley [2000] NSWCA 159 (2000) 50 NSWLR 222 Kazar (Liquidator) v Kargarian Re Frontier Architects Pty Ltd (in liq) [2011] FCAFC 136 (2011) 197 FCR 113 New South wales Insurance Ministerial Corp v Edkins (1998) 45 NSWLR 8 Noxequine Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 Olsson v Dyson [1969] HCA 3 (1969) 120 CLR 365 Oshlack v Richmond River Council [1998] HCA 11 (1998) 193 CLR 72 Peake v Carter [1916] 1 KB 652 Peters v Peters (1907) 7 SR (NSW) 398 Rasch Nominees Pty Ltd v Bartholomaeus [2013] SASCFC 105 Re Lockttonic Systems Pty Ltd (No1) [2008] VSC 626 Re Minister for Immigration and Ethnic Affairs Ex parte Lai Qin [1997] HCA 6 (1997) 186 CLR 622 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Sandtara Pty Ltd v Abigroup Ltd (1997) 42 NSWLR 5 Sims v Commissioner of Taxation [2007] NSWSC 1359 (2007) 25 ACLC 1829 Sims v Deputy Commissioner of Taxation [2006] NSWSC 305 (2006) 57 ACSR 249 Sims v Deputy Commissioner of Taxation [2007] NSWSC 998 (2007) 69 ATR 186 Woodgate (as liquidator of Fairlight ESP Pty Ltd) v Commissioner of Taxation [2006] NSWSC 778 Young v Commissioner of Taxation [2006] FCA 90 (2006) 56 ACSR 654", "Subject_References": "Unfair preference claim Indemnities against directors", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/174957/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v Qantas Airways Ltd", "Venue_Reference_No": "VID 333 of 2014", "Venue": "Federal Court of Australia", "Judgment_Date": "9 December 2014", "Date_Published": "16 February 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether the word 'public' within the definition of 'commercial parking station' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1936 (FBTAA) should be given its ordinary meaning or whether the statute requires 'public' to include commuting employees who would or could use the parking station.", "Overview_of_Facts": "This is a case about car parking spaces provided to some members of Qantas' staff as part of their remuneration. The staff work at various airports around the country. The car spaces are provided on Qantas' own premises at these airports and they are either at, or in the vicinity of, the premises at which the staff work. | The terms and conditions of parking at the Canberra Airport car parks contained the following clause: 'This Car Park is available only to airline passengers and meeters & greeters of airline passengers.' This is a contractual restriction imposed by the parking station operator. In Re Qantas Airways Limited v Commissioner of Taxation [2014] AATA 316 the Administrative Appeals Tribunal (Tribunal) held that the airport parking stations (other than those at Canberra) are 'commercial parking stations' such that the provision of car parking spaces at those parking stations is a 'car parking fringe benefit.' Qantas appealed against the decision in respect of the provision of car spaces at airport parking stations other than at Canberra Airport. The Commissioner appealed against the decision in respect of Canberra Airport parking stations. | Issues Decided by the Court | 1. Whether the provision of the car parking spaces is a 'car parking fringe benefit' as defined in the FBTAA. 2. Whether a different situation exists in the case of Canberra Airport. | 1. Whether the provision of the car parking spaces is a 'car parking fringe benefit' as defined in the FBTAA. 2. Whether a different situation exists in the case of Canberra Airport. | The answer to both questions turns on the meaning of the word 'public' as used within the subsection 136(1) of the FBTAA definition of 'commercial parking station'. | The Commissioner's position was that each of the airport parking stations (including the parking station at Canberra Airport) is a 'commercial parking station'. | Qantas' argument was that the airport parking stations are not commercial parking stations because those stations did not provide car spaces to the public in the ordinary course of their businesses. That is, the meaning of 'public' was to be understood as being the public including persons commuting between home and work and not some broader public constituted by anyone using an airport parking station, such that the airport parking stations should be disregarded because employees did not use them. | In the case of the Canberra Airport parking stations, Qantas argued that the Tribunal decision should be maintained because the contractual restriction at these parking stations meant that employees could not use that airport parking station. | The Court held in relation to all of the airport parking stations that the word 'public' should be given its ordinary meaning and that there is no rationale for imputing into the definition a requirement that a commercial parking station be one that employees of the employer commuting to work by car would or could in fact use. | The Court rejected Qantas' submissions for the following reasons: 1. First, the subject matter of the tax is the 'taxable value' of the car parking facilities provided by the employer to the employees, not the value to an employee of the provision of car parking by the employer. The FBTAA does not operate on the basis that the commercial parking station must be something the employee might or could use. Accordingly, it is apparent that the word 'public' should be given its ordinary meaning and there is no rationale for imputing into the definition a requirement that the commercial parking station be one that employees of the employer commuting to work by car would or could in fact use. 2. Secondly, the requirement that there be a commercial parking station within one kilometre of the employer's premises is a trigger for liability to the tax but it is not the concept which is taxed. The proximity requirement is simply the statute's way of working out which car spaces are likely to be sufficiently valuable to warrant assessment. 3. Thirdly, therefore, there is no ambiguity about the word 'public'. Consequently there is no reason to resort to extrinsic materials (the explanatory memorandum or second reading speech). | 1. First, the subject matter of the tax is the 'taxable value' of the car parking facilities provided by the employer to the employees, not the value to an employee of the provision of car parking by the employer. The FBTAA does not operate on the basis that the commercial parking station must be something the employee might or could use. Accordingly, it is apparent that the word 'public' should be given its ordinary meaning and there is no rationale for imputing into the definition a requirement that the commercial parking station be one that employees of the employer commuting to work by car would or could in fact use. 2. Secondly, the requirement that there be a commercial parking station within one kilometre of the employer's premises is a trigger for liability to the tax but it is not the concept which is taxed. The proximity requirement is simply the statute's way of working out which car spaces are likely to be sufficiently valuable to warrant assessment. 3. Thirdly, therefore, there is no ambiguity about the word 'public'. Consequently there is no reason to resort to extrinsic materials (the explanatory memorandum or second reading speech). | In addressing the Canberra Airport parking stations the Court found that despite the contractual restrictions imposed by the operator of the parking stations, the car parks are, in the ordinary course of the business, available to any member of the public on the contractual terms stipulated. The contractual terms do not mean that the car park spaces are not available to members of the public but, rather, that conditions are imposed on the use of the car park by members of the public. | The Court therefore found that the provision of the car parking spaces at each airport parking station gave rise to 'car parking fringe benefits', allowing the Commissioner's appeal in respect of Canberra Airport parking stations and dismissing the Taxpayer's appeal in respect of the other airport parking stations.", "Issues_Decided": "1. Whether the provision of the car parking spaces is a 'car parking fringe benefit' as defined in the FBTAA. 2. Whether a different situation exists in the case of Canberra Airport. 1. Whether the provision of the car parking spaces is a 'car parking fringe benefit' as defined in the FBTAA. 2. Whether a different situation exists in the case of Canberra Airport. The answer to both questions turns on the meaning of the word 'public' as used within the subsection 136(1) of the FBTAA definition of 'commercial parking station'. The Commissioner's position was that each of the airport parking stations (including the parking station at Canberra Airport) is a 'commercial parking station'. Qantas' argument was that the airport parking stations are not commercial parking stations because those stations did not provide car spaces to the public in the ordinary course of their businesses. That is, the meaning of 'public' was to be understood as being the public including persons commuting between home and work and not some broader public constituted by anyone using an airport parking station, such that the airport parking stations should be disregarded because employees did not use them. In the case of the Canberra Airport parking stations, Qantas argued that the Tribunal decision should be maintained because the contractual restriction at these parking stations meant that employees could not use that airport parking station. The Court held in relation to all of the airport parking stations that the word 'public' should be given its ordinary meaning and that there is no rationale for imputing into the definition a requirement that a commercial parking station be one that employees of the employer commuting to work by car would or could in fact use. The Court rejected Qantas' submissions for the following reasons: 1. First, the subject matter of the tax is the 'taxable value' of the car parking facilities provided by the employer to the employees, not the value to an employee of the provision of car parking by the employer. The FBTAA does not operate on the basis that the commercial parking station must be something the employee might or could use. Accordingly, it is apparent that the word 'public' should be given its ordinary meaning and there is no rationale for imputing into the definition a requirement that the commercial parking station be one that employees of the employer commuting to work by car would or could in fact use. 2. Secondly, the requirement that there be a commercial parking station within one kilometre of the employer's premises is a trigger for liability to the tax but it is not the concept which is taxed. The proximity requirement is simply the statute's way of working out which car spaces are likely to be sufficiently valuable to warrant assessment. 3. Thirdly, therefore, there is no ambiguity about the word 'public'. Consequently there is no reason to resort to extrinsic materials (the explanatory memorandum or second reading speech). 1. First, the subject matter of the tax is the 'taxable value' of the car parking facilities provided by the employer to the employees, not the value to an employee of the provision of car parking by the employer. The FBTAA does not operate on the basis that the commercial parking station must be something the employee might or could use. Accordingly, it is apparent that the word 'public' should be given its ordinary meaning and there is no rationale for imputing into the definition a requirement that the commercial parking station be one that employees of the employer commuting to work by car would or could in fact use. 2. Secondly, the requirement that there be a commercial parking station within one kilometre of the employer's premises is a trigger for liability to the tax but it is not the concept which is taxed. The proximity requirement is simply the statute's way of working out which car spaces are likely to be sufficiently valuable to warrant assessment. 3. Thirdly, therefore, there is no ambiguity about the word 'public'. Consequently there is no reason to resort to extrinsic materials (the explanatory memorandum or second reading speech). In addressing the Canberra Airport parking stations the Court found that despite the contractual restrictions imposed by the operator of the parking stations, the car parks are, in the ordinary course of the business, available to any member of the public on the contractual terms stipulated. The contractual terms do not mean that the car park spaces are not available to members of the public but, rather, that conditions are imposed on the use of the car park by members of the public. The Court therefore found that the provision of the car parking spaces at each airport parking station gave rise to 'car parking fringe benefits', allowing the Commissioner's appeal in respect of Canberra Airport parking stations and dismissing the Taxpayer's appeal in respect of the other airport parking stations.", "ATO_View_of_Decision": "The views expressed by the Court in interpreting the word 'public' are consistent with the Commissioner's view and current practices.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | The Commissioner will update Taxation Ruling TR 96/26 Fringe benefits tax: car parking fringe benefits. | Implications for impacted Law Administration Practice Statements | There are no implications for Law Administration Practice Statements.", "Related_Documents": "TR 96/26 | 2014 ATC 20-477 | The Act | 39A | 39C | 39D | 39DA | 136 | 148 | (1964) 112 CLR 276 | 2010 ATC 20-226", "Legislative_References": "Fringe Benefits Tax Act 1986 The Act Fringe Benefits Tax Assessment Act 1986 39A 39C 39D 39DA 136 148 Taxation Laws Amendment (Car Parking) Act 1992 The Act", "Case_References": "Lee v Evans (1964) 112 CLR 276 Australand Investments Ltd v Commissioner of State Revenue (Vic) [2009] VSC 453 (2009) 77 ATR 683 Commissioner of State Revenue (Vic) v Australand Investments Pty Ltd [2012] VSCA 152 (2012) 89 ATR 329 Queensland v Commonwealth (1987) 162 CLR 74 Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252 Virgin Blue Airlines Pty Ltd v Commissioner of Taxation (2010) 190 FCR 150 (2010) 81 ATR 85 2010 ATC 20-226", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID333of2014/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Commissioner of Taxation v Resource Capital Fund III", "Venue_Reference_No": "NSD 842 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "3 April 2014", "Date_Published": "16 September 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned the application of Division 855 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) and the Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion (US DTA) regarding Australia's right to tax a foreign resident on profits from the sale of shares in an Australian gold mining company.", "Overview_of_Facts": "The taxpayer, Resource Capital Fund III LP (RCF), was a limited partnership formed in the Cayman Islands and was not a resident in Australia. The general partner in RCF was a Cayman Islands resident entity, while the majority of the limited partners were resident in the United States (US). | The taxpayer invested in shares in an Australian company, St Barbara Mines Ltd. (SBM). During the relevant years, SBM owned and operated gold mines in Australia and held extensive mining rights over land in Australia. The taxpayer subsequently disposed of the shares in two tranches. The net capital gain derived by the taxpayer on the two sales was $58,250,000. | For Australian tax purposes, the taxpayer was a 'corporate limited partnership' and was taxed like a company. For US tax purposes, the taxpayer was treated as fiscally transparent such that the limited partners were taken to have derived the income of the limited partnership and were liable to any US tax on that income. | The Commissioner assessed the taxpayer on a net capital gain derived from the sale of shares in SBM on the basis that the capital gain was not disregarded under Division 855 of the ITAA 1997. Division 855 provides that certain capital gains derived by foreign residents are not taxed in Australia. | The taxpayer objected to the assessment and appealed to the Federal Court. | On 26 April 2013, the primary Judge handed down his decision. His Honour found that Article 13(1) of the US DTA only 'authorised' Australia to tax the US resident limited partners in RCF on their respective share of the gain from the sale of the shares in SBM, assuming the gain was not disregarded under Division 855 of the ITAA 1997. Therefore, in accordance with subsection 4(2) of the International Agreements Act 1953 (Cth) (the Agreements Act), the inconsistency between Australia's domestic law and US DTA was to be resolved in favour of the application of the US DTA and the Commissioner was precluded from issuing an assessment to the taxpayer. His Honour also concluded that the capital gain would have been disregarded under Division 855. | The Commissioner appealed the decision at first instance, and on 3 April 2014 the Full Federal Court handed down its judgment which was favourable to the Commissioner. The taxpayer subsequently filed an application for special leave to appeal to the High Court, which was refused. | Issues Decided by the Court | The Full Federal Court considered the following two issues: • whether the Commissioner was precluded by the Agreements Act from issuing an assessment to the taxpayer under Australia's domestic tax law; (Treaty issue); and • whether the capital gain derived by RCF must be disregarded under Division 855 because the value of St Barbara's taxable Australian real property (TARP) assets was less than the value of its other assets with the result that RCF's membership interest in SBM did not pass the 'principal asset test' in section 855-30 of the ITAA 1997 (Valuation issue). | • whether the Commissioner was precluded by the Agreements Act from issuing an assessment to the taxpayer under Australia's domestic tax law; (Treaty issue); and • whether the capital gain derived by RCF must be disregarded under Division 855 because the value of St Barbara's taxable Australian real property (TARP) assets was less than the value of its other assets with the result that RCF's membership interest in SBM did not pass the 'principal asset test' in section 855-30 of the ITAA 1997 (Valuation issue). | First issue | The Full Court found that the taxpayer was neither a resident of the US or Australia and therefore the US DTA did not apply to the taxpayer: [26]. | Accordingly, the Commissioner was not precluded by subsection 4(2) of the Agreements Act from assessing the taxpayer on the profits from the sale of the SBM shares. The Full Court also said at [29] that there was no inconsistency between the domestic law and the US DTA. Rather: | The inconsistency is between US tax law and Australian tax law with respect to the tax treatment of RCF. To put it another way, the inconsistency relates to the imposition of the liability for the tax on the gain, with the consequence that the provisions of the DTA apply differently between Australia as the source country and the US as the place of residence of many of RCF's partners. | The Full Court considered the relevance of the US DTA having regard to the OECD commentary and observed at [30] that: ...Though US law attributes to the partners the liability for any tax payable on the gain made by RCF, Australia attributes the liability for any tax payable to RCF. It may be open to argument by the US partners that they should obtain the benefits of the DTA on the basis that it was appropriate for Australia to view the gain as derived by the partners resident in the US, and to apply the provisions of the DTA accordingly, as discussed in the OECD commentary (about which we express no view) but that consideration is a separate issue to the question of whether the effect of the provisions of the DTA was to allocate the liability for the tax on the gain differently to the Assessment Act. | Second issue | The Full Court did not agree with the primary judge's conclusion that the principle asset test required that the market value of each asset should be determined as if each asset was the only asset offered for sale and then the sum of the values of TARP assets and sum of the values of non-TARP assets be calculated. Instead the Full Court found that the appropriate hypothesis upon which to value SBM's assets for the purposes of the principle asset test is a simultaneous sale of all of SBM's assets as a bundle to a single purchaser: at [51]. | In reaching that conclusion the Full Court found that the decision of the Full Court of Western Australia in Commissioner of State Taxation (WA) v Nischu Pty Limited (1991) 4 WAR 437 where the value of the mining tenement was determined on a stand-alone basis had no application to the valuation task required by section 855-30 of the ITAA 1997: at [53]. | The Full Court also observed that in the case of a simultaneous sale of SBM's assets as a bundle to a single purchaser, the hypothetical purchaser could expect to acquire the mining information and the plant and equipment for less than their recreation cost with little or no delay: at [54]. | On the basis that the taxpayer's valuation evidence was not premised on correct valuation hypothesis, the Full Court concluded that the taxpayer did not discharge its burden of proof under section 14ZZO of the Taxation Administration Act 1953 that the assessment was excessive.", "Issues_Decided": "The Full Federal Court considered the following two issues: • whether the Commissioner was precluded by the Agreements Act from issuing an assessment to the taxpayer under Australia's domestic tax law; (Treaty issue); and • whether the capital gain derived by RCF must be disregarded under Division 855 because the value of St Barbara's taxable Australian real property (TARP) assets was less than the value of its other assets with the result that RCF's membership interest in SBM did not pass the 'principal asset test' in section 855-30 of the ITAA 1997 (Valuation issue). • whether the Commissioner was precluded by the Agreements Act from issuing an assessment to the taxpayer under Australia's domestic tax law; (Treaty issue); and • whether the capital gain derived by RCF must be disregarded under Division 855 because the value of St Barbara's taxable Australian real property (TARP) assets was less than the value of its other assets with the result that RCF's membership interest in SBM did not pass the 'principal asset test' in section 855-30 of the ITAA 1997 (Valuation issue). | First issue: The Full Court found that the taxpayer was neither a resident of the US or Australia and therefore the US DTA did not apply to the taxpayer: [26]. Accordingly, the Commissioner was not precluded by subsection 4(2) of the Agreements Act from assessing the taxpayer on the profits from the sale of the SBM shares. The Full Court also said at [29] that there was no inconsistency between the domestic law and the US DTA. Rather: The inconsistency is between US tax law and Australian tax law with respect to the tax treatment of RCF. To put it another way, the inconsistency relates to the imposition of the liability for the tax on the gain, with the consequence that the provisions of the DTA apply differently between Australia as the source country and the US as the place of residence of many of RCF's partners. The Full Court considered the relevance of the US DTA having regard to the OECD commentary and observed at [30] that: ...Though US law attributes to the partners the liability for any tax payable on the gain made by RCF, Australia attributes the liability for any tax payable to RCF. It may be open to argument by the US partners that they should obtain the benefits of the DTA on the basis that it was appropriate for Australia to view the gain as derived by the partners resident in the US, and to apply the provisions of the DTA accordingly, as discussed in the OECD commentary (about which we express no view) but that consideration is a separate issue to the question of whether the effect of the provisions of the DTA was to allocate the liability for the tax on the gain differently to the Assessment Act. | Second issue: The Full Court did not agree with the primary judge's conclusion that the principle asset test required that the market value of each asset should be determined as if each asset was the only asset offered for sale and then the sum of the values of TARP assets and sum of the values of non-TARP assets be calculated. Instead the Full Court found that the appropriate hypothesis upon which to value SBM's assets for the purposes of the principle asset test is a simultaneous sale of all of SBM's assets as a bundle to a single purchaser: at [51]. In reaching that conclusion the Full Court found that the decision of the Full Court of Western Australia in Commissioner of State Taxation (WA) v Nischu Pty Limited (1991) 4 WAR 437 where the value of the mining tenement was determined on a stand-alone basis had no application to the valuation task required by section 855-30 of the ITAA 1997: at [53]. The Full Court also observed that in the case of a simultaneous sale of SBM's assets as a bundle to a single purchaser, the hypothetical purchaser could expect to acquire the mining information and the plant and equipment for less than their recreation cost with little or no delay: at [54]. On the basis that the taxpayer's valuation evidence was not premised on correct valuation hypothesis, the Full Court concluded that the taxpayer did not discharge its burden of proof under section 14ZZO of the Taxation Administration Act 1953 that the assessment was excessive.", "ATO_View_of_Decision": "First issue | The Full Court decision affirmed the ATO view that Australia was not precluded under subsection 4(2) of the Agreements Act from assessing a limited partnership that is taxed like a company in Australia but treated as fiscally transparent in a treaty partner country. | Whilst the Full Court did not express a view on whether the partners resident in the US could themselves claim the benefit of the US DTA, the Commissioner takes the view that the partners of a limited partnership who are resident in a treaty partner country, are entitled to claim the benefits of the applicable DTA on the basis that it is appropriate for Australia to view the profits derived by the limited partnership as having been derived by the partners. However, in this case, Australia had retained the right to tax the capital gain derived by RCF under Article 13 of the US DTA, so the Treaty did not afford a benefit to the partners which the partners could claim. | The situation would have been different though if Australia had assessed the limited partnership on income to which Article 7 (the Business Profits Article) applied, and the taxing right in respect of that income had been allocated to the treaty partner country under the relevant DTA. In that case, it would have been open for the partners to claim the benefit of the Treaty. The Commissioner's administrative practice on granting a treaty benefit to partners who are resident in a treaty partner country in accordance with the Business Profits Article is explained in paragraphs 34 to 43 in Taxation Determination TD 2011/25. | Second issue | The Full Court also affirmed the ATO view that the correct hypothesis upon which to value an entity's assets for the purposes of section 855-30 of the ITAA 1997 was a simultaneous sale of all of the entity's assets as a bundle to a single purchaser. The consequences that arise from applying the valuation hypothesis adopted by the Full Court was not expressly dealt with by the Full Court.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | The decision does not have any implications for ATO precedential documents. The Full Court referred to TD 2011/25 but noted that it does not address gains dealt with by Article 13, which was the focus of the decision. The Tax Determination deals only with Article 7. | Implications for impacted Law Administration Practice Statements | Not applicable.", "Related_Documents": "N/A | 2014 ATC 20-451 | 94H | 855-5 | 855-10 | 855-15 | 855-20 | 855-25 | 855-30 | (2012) 248 CLR 378 | 2012 ATC 20-363 | (1907) 5 CLR 418 | 90 ATC 4717", "Legislative_References": "Income Tax Assessment Act 1936 94H Income Tax Assessment Act 1997 855-5 855-10 855-15 855-20 855-25 855-30", "Case_References": "Certain Lloyd's Underwriters Subscribing to Contract No IH00AQS v Cross (2012) 248 CLR 378 Commissioner of State Taxation (WA) v Nischu Pty Ltd (1991) 4 WAR 437 Commonwealth Minister for Justice v Adamas (2013) 304 ALR 305 Intoll Management Pty Ltd v Federal Commissioner of Taxation (2012) 208 FCR 115 2012 ATC 20-363 (2012) 91 ATR 518 Leichhardt Municipal Council v Roads and Traffic Authority of New South Wales [2006] NSWCA 353 Spencer v Commonwealth (1907) 5 CLR 418 Thiel v Federal Commissioner of Taxation (1990) 171 CLR 338 90 ATC 4717 (1990) 21 ATR 531 Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2008) 233 CLR 259", "Subject_References": "Income tax Non-resident Double Tax Agreement Capital gains Indirect disposal of Australian real properties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD842of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Commissioner of Taxation v The Hunger Project Australia", "Venue_Reference_No": "NSD 1604 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "13 June 2014", "Date_Published": "17 May 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether an organisation that carries out, principally, fundraising activities can be a public benevolent institution within the meaning of subsection 57A(1) of the Fringe Benefits Tax Assessment Act 1986 .", "Overview_of_Facts": "The Applicant is part of a worldwide collaboration of organisations operating under the name 'The Hunger Project', whose principal aim is the relief of hunger. Its activities are, in the main, fundraising in Australia and applying those funds towards projects carried out by affiliated entities overseas. It is involved, but not in a central way, with some aspects of the strategic decision making of the global organisation. | Issues dDecided by the court | The Court agreed with the primary Judge (Perram J) and found that there was no good reason to read into the meaning of the expression 'public benevolent institution' (PBI) a requirement that the institution dispense relief directly. | The Court found that the ordinary contemporary meaning of a PBI is broad enough to encompass an institution which raises funds for provision to associated entities for use in programs for the relief of hunger in the developing world. The fact that it does not itself directly give or provide that relief, but does so via related or associated entities, is no bar to it being a PBI.", "Issues_Decided": "The Court agreed with the primary Judge (Perram J) and found that there was no good reason to read into the meaning of the expression 'public benevolent institution' (PBI) a requirement that the institution dispense relief directly. The Court found that the ordinary contemporary meaning of a PBI is broad enough to encompass an institution which raises funds for provision to associated entities for use in programs for the relief of hunger in the developing world. The fact that it does not itself directly give or provide that relief, but does so via related or associated entities, is no bar to it being a PBI.", "ATO_View_of_Decision": "The ATO will adopt the decision and reasoning of the Court. | The ATO observes that on 3 December 2012, the Australian Charities and Not-for-profits Commission (ACNC) became responsible for the registration of charities that are public benevolent institutions. The ACNC issued on 24 July 2014 a Commissioner's Interpretation Statement providing guidance as to the meaning and application of this decision. | For the purposes of the Fringe Benefits Tax Assessment Act 1986 , the ATO will endorse an entity as a PBI if it meets the conditions in section 123C of that Act, including that it has been registered by the ACNC as a charity that is a public benevolent institution.", "Administrative_Treatment": "Taxation Ruling TR 2003/5 has been withdrawn with effect from 17 May 2017. | Guidance from the Australian Charities and Not-for-profits Commission on this case, and the meaning of a 'public benevolent institution', is available in Commissioner's Interpretation Statement: Public Benevolent Institutions (CIS 2016/03). | Accordingly, the ATO will not be issuing a replacement public advice product. | Date of amendment Part Comment 17 May 2017 Comments section Deleted Administrative treatment Updated to reflect the withdrawal of TR 2003/5", "Related_Documents": "TR 2003/5 | 2014 ATC 20-458 | 57A | 123C | 2002 ATC 4681 | 2003 ATC 4674 | 82 ATC 4385 | 85 ATC 4235 | 90 ATC 4752 | 92 ATC 4307 | 2008 ATC 20-072 | (1931) 45 CLR 224", "Legislative_References": "Fringe Benefits Tax Assessment Act 1986 57A 123C", "Case_References": "Ambulance Service (NSW) v Deputy Commissioner of Taxation [2002] FCA 1023 2002 ATC 4681 (2002) 50 ATR 496 Ambulance Service (NSW) v Deputy Commissioner of Taxation (2003) 130 FCR 477 [2003] FCAFC 161 2003 ATC 4674 Australian Council of Social Service Inc v Commissioner of Pay-roll Tax (NSW) (1982) 13 ATR 290 82 ATC 4385 Australian Council of Social Service Inc v Commissioner of Pay-roll Tax (1985) 1 NSWLR 567 (1985) 16 ATR 394 85 ATC 4235 Commissioner of Pay-roll Tax (Vic) v Cairnmillar Institute (1990) 21 ATR 665 90 ATC 4752 Commissioner of Pay-roll Tax (Vic) v Cairnmillar Institute [1992] 2 VR 706 (1992) 23 ATR 314 92 ATC 4307 Federal Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204 2008 ATC 20-072 Perpetual Trustee Co. Ltd v .Federal Commissioner of Taxation (1931) 45 CLR 224 [1931] HCA 20", "Subject_References": "Public Benevolent Institution Fringe Benefits Tax", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1604of2013/00001", "Unmatched_Content": ""}
{"Case_Name": "Davsa Forty-Ninth Pty Ltd as Trustee for Krongold Ford Business Unit Trust and Commissioner of Taxation", "Venue_Reference_No": "2011/1945", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 May 2014", "Date_Published": "26 June 2019", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the Applicant was entitled to its claims for input tax credits (ITCs) in the relevant period and a decreasing luxury car tax (LCT) adjustment in relation to motor vehicles (cars).", "Overview_of_Facts": "Early in 2004, the director of the Applicant (the director) decided to commence a business activity of selling cars with the following attributes: quality, class, prestige distinction and performance. The director believed that there was a niche market for cars with these particular attributes and this was a business opportunity that could potentially be very lucrative in the future. | Over a period of some years the Applicant purchased a number of cars; the first being purchased in January 2004. | The cars purchased by the Applicant were stored at private premises of the director and parties related to him. | The Applicant did not keep records of all the expenditure incurred in holding, servicing or repairing the cars it had purchased and did not seek to claim input tax credits in respect of any of those costs. | During the relevant period, only one car was sold and that sale was to the director's daughter, and a loss on sale arose. | The Applicant claimed input tax credits in relation to the acquisition of the cars acquired after it was granted its motor car trading licence. It also claimed a decreasing luxury car tax (LCT) adjustment associated with the purchase of certain cars. | The Applicant commenced advertising its business and cars for sale in April 2009. In May 2009, the Commissioner commenced an examination of the Applicant's affairs and completed it in February 2010. The Commissioner assessed the Applicant on the basis that it was not entitled to input tax credits or a decreasing LCT adjustment because the Applicant was not carrying on an enterprise and the cars were not being held by the Applicant as trading stock. | The Commissioner imposed a penalty of 25% for lack of reasonable care. | The Applicant objected to the Commissioner's assessments of its net amount for relevant periods and assessment of penalty, and the Commissioner disallowed the objection. The Applicant applied to the Tribunal for review of the Commissioner's objection decision. | Issues decided by the Tribunal | As highlighted by the Tribunal at [6] the heart of the dispute between the Applicant and the Commissioner lay in whether the Applicant carried on an enterprise and acquired the cars subject to LCT to be used/held as trading stock. | Having regard to a number of specific facts (at [38]), the Tribunal held (at [38] & [39]) that, while finely balanced, the Applicant should be regarded as an entity that has engaged in a series of activities that have sufficient indicia of business to be regarded as carrying on an enterprise, or to have been carrying out steps in the commencement of an enterprise. | Entitlement to input tax credits | The Tribunal decided that the cars were acquired in carrying on an enterprise and were therefore creditable acquisitions, although the extent of creditable purpose would be subject to the apportionment rules for those cars which were used for private purposes. | The Tribunal also decided that the Applicant was not entitled to claim input tax credits in relation to the purchase of four of the cars purchased because the evidence did not disclose that the Applicant held valid tax invoices either at all or at the requisite time for the input tax credits claimed as required by, section 29-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). | Entitlement to LCT decreasing adjustment | The Tribunal decided the Applicant was not entitled to the LCT decreasing adjustment for some of the luxury cars bought because it became aware of the adjustment after the period in which it was claimed. Also, because of the part private use of another of its luxury cars, the Tribunal decided the Applicant had not established that the car was held solely as trading stock in the period since its acquisition and was thus not entitled to an adjustment because of the multiple use. | 25% penalty imposed for lack of reasonable care | The Tribunal decided that the Applicant and its agent had not shown that they had taken reasonable care to avoid the shortfall. It also decided not to remit the penalty as its imposition was not otherwise harsh and did not produce an unjust, inappropriate or unreasonable outcome.", "Issues_Decided": "As highlighted by the Tribunal at [6] the heart of the dispute between the Applicant and the Commissioner lay in whether the Applicant carried on an enterprise and acquired the cars subject to LCT to be used/held as trading stock. Having regard to a number of specific facts (at [38]), the Tribunal held (at [38] & [39]) that, while finely balanced, the Applicant should be regarded as an entity that has engaged in a series of activities that have sufficient indicia of business to be regarded as carrying on an enterprise, or to have been carrying out steps in the commencement of an enterprise. | Entitlement to input tax credits: The Tribunal decided that the cars were acquired in carrying on an enterprise and were therefore creditable acquisitions, although the extent of creditable purpose would be subject to the apportionment rules for those cars which were used for private purposes. The Tribunal also decided that the Applicant was not entitled to claim input tax credits in relation to the purchase of four of the cars purchased because the evidence did not disclose that the Applicant held valid tax invoices either at all or at the requisite time for the input tax credits claimed as required by, section 29-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). | Entitlement to LCT decreasing adjustment: The Tribunal decided the Applicant was not entitled to the LCT decreasing adjustment for some of the luxury cars bought because it became aware of the adjustment after the period in which it was claimed. Also, because of the part private use of another of its luxury cars, the Tribunal decided the Applicant had not established that the car was held solely as trading stock in the period since its acquisition and was thus not entitled to an adjustment because of the multiple use. | 25% penalty imposed for lack of reasonable care: The Tribunal decided that the Applicant and its agent had not shown that they had taken reasonable care to avoid the shortfall. It also decided not to remit the penalty as its imposition was not otherwise harsh and did not produce an unjust, inappropriate or unreasonable outcome.", "ATO_View_of_Decision": "The Commissioner accepts that while, as recognised by the Tribunal, it is finely balanced, the Tribunal's decision that the Applicant carried on an enterprise in the form of a business was open to it on the specific facts of this case. | In reaching the conclusion that the Applicant was carrying on an enterprise, the Tribunal appears to have implicitly accepted that the Applicant was therefore holding the luxury cars for a quotable purpose. The Commissioner considers that the existing, legally binding authority on the issue of quotable purpose continues to be the Federal Court's decision in Melbourne Car Shop Pty Ltd v Commissioner of Taxation [2010] FCA 373. | Notwithstanding the Tribunal's conclusion that the Applicant was not able to claim some of input tax credits sought because it did not hold the requisite tax invoices under subsection 29-10(3) of the GST Act, the A New Tax System (Goods and Services Tax) Act 1999 Waiver of Tax Invoice Requirement Determination (No. 1) 2004 - Decision of a Court or Tribunal (WTI 2004/1) waives the requirement for a tax invoice in circumstances where a Court or a Tribunal decides that a taxpayer is entitled to an input tax credit under section 11-5 of the GST Act. Therefore, in cases such as this where the Tribunal determines that there is an entitlement to input tax credits, the Commissioner will allow the taxpayer to claim that entitlement without the need to hold a tax invoice [1] .", "Administrative_Treatment": "None | Date of amendment Part Comment 26 June 2019 Issues decided by the Tribunal Corrected spelling errors ATO view of decision Inserted footnote 1 Throughout Applied current style | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] WTI 2004/1 expired on 1 April 2017 and has not been remade. The Tribunal standing in the shoes of the Commissioner, will exercise the discretion to treat a document as a tax invoice, in subsection 29-70(1B) of the GST Act, on a case by case basis.", "Related_Documents": "None | 2014 ATC 10-361 | 9-20 | 11-5 | 11-15 | 11-25 | 29-10(3) | 29-70(1B) | 69-10 | 9-5 | 15-30 | Sch1 284-75 | 2010 ATC 20-169 | [2006] FCA 71 | 2006 ATC 4098 | 89 ATC 4540 | 2009 ATC 20-100 | 82 ATC 4031 | 79 ATC 4261 | 91 ATC 4950 | 80 ATC 4386 | 2010 ATC 20-179 | [1998] HCA 28 | (1998) 194 CLR 355 | 153 ALR 490 | [1975] HCA 41 | [1949] HCA 15 | (1949) 78 CLR 47 | [1949] ALR (CN) 1055 | [1949] ALR 785 | (1949) 8 ATD 431 | 2011 ATC 20-240 | 2013 ATC 20-395 | 2003 ATC 5099 | 2009 ATC 20-109 | 89 ATC 4078 | 2013 ATC 10-340 | 72 ATC 4094 | 180 CLR 1 | 2002 ATC 4742 | 2003 ATC 5076 | 99 ATC 5306", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-20 11-5 11-15 11-25 29-10(3) 29-70(1B) 69-10 A New Tax System (Luxury Car Tax) Act 1999 9-5 15-30 Taxation Administration Act 1953 Sch1 284-75", "Case_References": "Commissioner of Taxation v BHP Billiton Finance Limited [2010] FCAFC 25 (2010) 182 FCR 526 2010 ATC 20-169 (2010) 76 ATR 472 Ell v Commissioner of Taxation [2006] FCA 71 2006 ATC 4098 (2006) 61 ATR 661 Envestra Limited (ACN 078 551 685) v Commissioner of Taxation [2008] FCA 249 (2008) 169 FCR 300 (2008) 70 ATR 115 Evans, R.J. v Commissioner of Taxation [1989] FCA 278 89 ATC 4540 20 ATR 922 Commissioner of Taxation v Swansea Services Pty Ltd [2009] FCA 402 72 ATR 120 2009 ATC 20-100 Commissioner of Taxation (Cth) v Whitfords Beach Pty Ltd [1982] HCA 8 (1982) 150 CLR 355 12 ATR 692 82 ATC 4031 39 ALR 521 Ferguson, Peter Ian Murdoch v The Commissioner of Taxation for the Commonwealth of Australia [1979] FCA 51 (1979) 37 FLR 310 79 ATC 4261 (1979) 9 ATR 873 (1979) 26 ALR 307 79 ATC 470 Fletcher v Commissioner of Taxation (Cth) [1991] HCA 42 (1991) 173 CLR 1 22 ATR 613 103 ALR 97 91 ATC 4950 Hope v Bathurst City Council [1980] HCA 16 (1980) 144 CLR 1 (1980) 29 ALR 577 (1980) 12 ATR 231 80 ATC 4386 Melbourne Car Shop Pty Ltd v Commissioner of Taxation [2010] FCA 373 76 ATR 42 2010 ATC 20-179 Prestcold (Central) Ltd v Minister of Labour [1969] 2 WLR 89 (Court of Appeal) Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28 (1998) 194 CLR 355 153 ALR 490 Registrar Of Titles (WA) v Franzon [1975] HCA 41 (1975) 132 CLR 611 (1975) 7 ALR 383 Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 (1949) 78 CLR 47 [1949] ALR (CN) 1055 [1949] ALR 785 (1949) 8 ATD 431 Russell v Commissioner of Taxation [2011] FCAFC 10 190 FCR 449 (2011) 79 ATR 315 (2011) 274 ALR 545 2011 ATC 20-240 Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50 2013 ATC 20-395 212 FCR 483 (2013) 90 ATR 762 Spassked Pty Limited v Commissioner of Taxation [2003] FCAFC 282 (2003) 54 ATR 546 136 FCR 441 2003 ATC 5099 (2003) 203 FLR 515 Spriggs v Commissioner of Taxation [2009] HCA 22 239 CLR 1 (2009) 256 ALR 596 (2009) 72 ATR 148 2009 ATC 20-109 State Authorities Superannuation Board v Commissioner of Taxation [1988] FCA 756 (1988) 21 FCR 535 (1988) 85 ALR 125 (1988) 20 ATR 211 89 ATC 4078 Stewart and Commissioner of Taxation [2013] AATA 845 2013 ATC 10-340 (2013) 97 ATR 963 Thomas v Commissioner of Taxation (Cth) (1972) 46 ALJR 397 [1972-73] ALR 368 72 ATC 4094 3 ATR 165 Tweddle v Federal Commissioner of Taxation [1942] HCA 40 180 CLR 1 (1942) 7 ATD 186 Vincent v Commissioner of Taxation [2002] FCAFC 291 (2002) 124 FCR 350 (2002) 51 ATR 18 2002 ATC 4742 (2002) 193 ALR 686 Walstern v Commissioner of Taxation [2003] FCA 1428 2003 ATC 5076 (2003) 54 ATR 423 (2003) 183 FCR 1 Woods v Deputy Commissioner of Taxation [1999] FCA 1589 99 ATC 5306 43 ATR 491", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/1945/00001", "Unmatched_Content": "This decision has no impact on any related advice or guidance."}
{"Case_Name": "Dempsey and Commissioner of Taxation", "Venue_Reference_No": "2013/4861; 2013/4862", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 May 2014", "Date_Published": "1 August 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the taxpayer was a 'resident of Australia' as defined by section 6(1) of the Income tax Assessment Act 1936 in the 2009 and 2010 years.", "Overview_of_Facts": "The facts as outlined reflect the oral evidence given by Mr Dempsey and accepted by the Administrative Appeals Tribunal (AAT) in making their decision. Mr Dempsey worked on a construction project in Saudi Arabia. He was employed under a contract of indefinite duration by the Saudi Arabian subsidiary of a multi-national construction industry group of companies. At the relevant time, the subsidiary also had a contract for another large construction project in Saudi Arabia and Mr Dempsey gave evidence to the AAT that he intended staying on to work on that project. In the end, he worked on the first project from September 2007 until May 2010 and then returned permanently to Australia. | For the duration of his stay in Saudi Arabia, Mr Dempsey lived in two furnished studio apartments supplied by his employer, in one for nine months and the other for the remainder of his stay. He had the right of exclusive occupancy of these properties, including during his weekends and holidays away. The properties were equipped with laundry and cooking facilities and Mr Dempsey self-catered in his apartment, acquiring his own beverages and groceries. | He spent most of each relevant year in Saudi Arabia, and when on leave travelled to Bahrain, Thailand and Australia. His trips to Australia were brief and when holidaying, Mr Dempsey spent more time in Thailand. On weekends, Mr Dempsey met and socialised with work colleagues and other expatriates at the nearby hotel club where he was a member. He held a Saudi Arabian driver's licence and had a work visa that he renewed annually. | Mr Dempsey owned a house at the Gold Coast where he had lived prior to leaving for Saudi Arabia. He chose not to sell or rent out this house while in Saudi Arabia and he advised the AAT that he also stopped paying off his housing loan over that period. As a hobby, Mr Dempsey maintained a collection of firearms, with the requisite Queensland weapons licences, and stored these in a secure armoury at his Gold Coast house. He also kept a motor vehicle at the house. | Mr Dempsey was single and his parents were deceased. While he had siblings, they did not keep in contact with one another. On his brief trips to Australia, he spent some time at his house on the Gold Coast and also travelled to Canberra to visit his son and daughter. His children and their mother lived interstate and had never resided with him in his Gold Coast house. They also did not visit him in Saudi Arabia. | On trips to Australia, Mr Dempsey indicated on his immigration cards that he was \"a resident returning to Australia\" or an \"Australian resident departing temporarily\". He explained to the AAT that of the available options on the cards these seemed the most relevant given he was an Australian citizen. While he also prepared a tax return in Australia indicating he was a resident, and giving his Gold Coast residence as his address, his evidence at the AAT was that this was not deliberate. | Issues Decided by the Court | The question considered by the AAT was whether Mr Dempsey was a resident of Australia in the 2009 and 2010 income years so that his assessable income included income derived by him from employment in Saudi Arabia in those years. In making this determination, the AAT considered the following questions: • Did Mr Dempsey \"reside\" in Australia in those years?; and • Given he was domiciled in Australia in those years, were they satisfied that his permanent place of abode was outside Australia? | • Did Mr Dempsey \"reside\" in Australia in those years?; and • Given he was domiciled in Australia in those years, were they satisfied that his permanent place of abode was outside Australia? | After weighing the facts presented to it at the hearing, the AAT concluded that Mr Dempsey did not reside in Australia in the 2009 and 2010 years and also that his permanent place of abode was outside Australia. | In making its decision the AAT considered a number of the relevant authorities on residency including Federal Commissioner of Taxation v Miller. It noted that in Miller the High Court found that the word \"resides\" was \"not a term of art denoting a field with precisely defined boundaries\" and also that it \"is an ordinary English word extending over a field the boundaries of which constitute a broad limbo with blurred edges\". In Miller, the High Court also found that the question as to where someone resides, \"therefore entails questions of degree and is one of fact\". The AAT noted that this is one reason why \"not all outcomes on particular facts on the subject of residency are readily reconcilable\". In considering Miller, the AAT noted that the word \"resides\" bears its ordinary meaning, not some broad meaning. In considering the authorities the AAT also noted that each case turns on its own facts, taking into account not just both the physical elements (such as physical presence) but also the taxpayer's intention (paragraphs 89 to 100). | The AAT concluded that Mr Dempsey's \"presence in Saudi Arabia was hardly casual or passing\". It noted that his apartments were neither transient nor temporary accommodation. They were where he settled as a matter of deliberate choice. It also noted that on his trips to Australia in that period he was 'but a casual visitor'. Viewing all the facts presented to it as a whole it reached the conclusion that Mr Dempsey had made Saudi Arabia his home for the indefinite future (paragraphs 104 to 122). | It also noted that while statements made by Mr Dempsey on his immigration passenger cards and income tax returns were relevant, they were not determinative of residency and had to be considered within the whole of the facts and circumstances. The AAT also considered that the reasons given by Mr Dempsey were plausible and did not indicate he regarded himself as an Australian resident for taxation purposes (paragraph 119). | The AAT also referred to the decision of Iyengar v Federal Commissioner of Taxation in which Senior Member Walsh \"developed from earlier cases a non-exhaustive list of criteria which she regarded as relevant to the determination of whether or not an individual was a resident of Australia for the purposes of the definition in s 6 of the ITAA 36\". The AAT noted that lists like these are useful but that \"they are no substitute for the text of the statute\" and the word resides must be construed and applied to the facts according to its ordinary meaning (paragraph 101). | The AAT further concluded that, for reasons which were peculiar to Mr Dempsey's circumstances, his permanent abode was outside Australia in the relevant years. It determined that in the 2009 and 2010 income years, Mr Dempsey \"had made a settled employment, lifestyle and residence choice for the indefinite future\" and that was \"to make his home in Saudi Arabia\". It also considered that his Gold Coast house was \"but a convenient place\" for him to visit briefly and to store items but it \"had ceased to be his habitual or usual place of abode\" (paragraphs 124-127).", "Issues_Decided": "The question considered by the AAT was whether Mr Dempsey was a resident of Australia in the 2009 and 2010 income years so that his assessable income included income derived by him from employment in Saudi Arabia in those years. In making this determination, the AAT considered the following questions: • Did Mr Dempsey \"reside\" in Australia in those years?; and • Given he was domiciled in Australia in those years, were they satisfied that his permanent place of abode was outside Australia? • Did Mr Dempsey \"reside\" in Australia in those years?; and • Given he was domiciled in Australia in those years, were they satisfied that his permanent place of abode was outside Australia? After weighing the facts presented to it at the hearing, the AAT concluded that Mr Dempsey did not reside in Australia in the 2009 and 2010 years and also that his permanent place of abode was outside Australia. In making its decision the AAT considered a number of the relevant authorities on residency including Federal Commissioner of Taxation v Miller. It noted that in Miller the High Court found that the word \"resides\" was \"not a term of art denoting a field with precisely defined boundaries\" and also that it \"is an ordinary English word extending over a field the boundaries of which constitute a broad limbo with blurred edges\". In Miller, the High Court also found that the question as to where someone resides, \"therefore entails questions of degree and is one of fact\". The AAT noted that this is one reason why \"not all outcomes on particular facts on the subject of residency are readily reconcilable\". In considering Miller, the AAT noted that the word \"resides\" bears its ordinary meaning, not some broad meaning. In considering the authorities the AAT also noted that each case turns on its own facts, taking into account not just both the physical elements (such as physical presence) but also the taxpayer's intention (paragraphs 89 to 100). The AAT concluded that Mr Dempsey's \"presence in Saudi Arabia was hardly casual or passing\". It noted that his apartments were neither transient nor temporary accommodation. They were where he settled as a matter of deliberate choice. It also noted that on his trips to Australia in that period he was 'but a casual visitor'. Viewing all the facts presented to it as a whole it reached the conclusion that Mr Dempsey had made Saudi Arabia his home for the indefinite future (paragraphs 104 to 122). It also noted that while statements made by Mr Dempsey on his immigration passenger cards and income tax returns were relevant, they were not determinative of residency and had to be considered within the whole of the facts and circumstances. The AAT also considered that the reasons given by Mr Dempsey were plausible and did not indicate he regarded himself as an Australian resident for taxation purposes (paragraph 119). The AAT also referred to the decision of Iyengar v Federal Commissioner of Taxation in which Senior Member Walsh \"developed from earlier cases a non-exhaustive list of criteria which she regarded as relevant to the determination of whether or not an individual was a resident of Australia for the purposes of the definition in s 6 of the ITAA 36\". The AAT noted that lists like these are useful but that \"they are no substitute for the text of the statute\" and the word resides must be construed and applied to the facts according to its ordinary meaning (paragraph 101). The AAT further concluded that, for reasons which were peculiar to Mr Dempsey's circumstances, his permanent abode was outside Australia in the relevant years. It determined that in the 2009 and 2010 income years, Mr Dempsey \"had made a settled employment, lifestyle and residence choice for the indefinite future\" and that was \"to make his home in Saudi Arabia\". It also considered that his Gold Coast house was \"but a convenient place\" for him to visit briefly and to store items but it \"had ceased to be his habitual or usual place of abode\" (paragraphs 124-127).", "ATO_View_of_Decision": "The ATO accepts that the decision was reasonably open to the AAT. | The AAT accepted that \"the facts of this case [were] not all one way\" but determined that \"viewing them as a whole\" the preferable conclusion was that \"Mr Dempsey, as a matter of deliberate choice, made Saudi Arabia his home for the duration of the project and ... beyond.\" They concluded that based on Mr Dempsey's peculiar circumstances and after weighing the evidence presented to them at the hearing, including Mr Dempsey's statements about his intention, he \"had made a settled employment, lifestyle and residence choice for the indefinite future\" and that was \"to make his home in Saudi Arabia\". For these reasons the conclusion they drew was that he was a resident of Saudi Arabia and not a resident of Australia during the relevant years. | The approach taken by the AAT in reaching its decision is consistent with the ATO's approach to issues of residency, including the ATO view expressed in IT 2650. This approach is that the question requires a weighing of all the relevant facts and circumstances and an application of the statute and authorities to those facts. We consider the outcome of the case is confined to its facts and creates no new law in this area. This is because, as stated by the AAT, each case is a matter of fact and degree.", "Administrative_Treatment": "The decision of the AAT does not change the ATO's approach to residency cases. As concluded by the Tribunal, these matters involve questions of fact and degree and different facts may result in different conclusions as to residency. The ATO will continue to approach residency cases by weighing all the relevant facts and circumstances and applying the relevant tax law and authorities to those facts. | Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for impacted Law Administration Practice Statements | Nil", "Related_Documents": "None | [2014] AATA 335 | 2014 ATC 10-363 | Taxation Ruling IT 2650 | 6(1) | 2009 ATC 20-134 | 78 ATC 4054 | 79 ATC 4307 | (1946) 73 CLR 93 | (1985) 6 FCR 444 | 60 ALR 674 | [1928] AC 234 | 2011 ATC 10-222 | (1941) 64 CLR 241 | [1928] AC 217 | 2002 ATC 2303", "Legislative_References": "Income Tax Assessment Act 1936 6(1)", "Case_References": "Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41 (2009) 239 CLR 27 (2009) 73 ATR 256 2009 ATC 20-134 Applegate v Federal Commissioner of Taxation [1978] 1 NSWLR 126 (1978) 18 ALR 459 78 ATC 4054 (1978) 8 ATR 372 Federal Commissioner of Taxation v Applegate [1979] FCA 66 (1979) 38 FLR 1 (1979) 9 ATR 899 79 ATC 4307 Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 Hafza v Director-General of Social Security (1985) 6 FCR 444 60 ALR 674 Inland Revenue Commissioners v Lysaght [1928] AC 234 [1928] All ER 575 Iyengar v Federal Commissioner of Taxation [2011] AATA 856 2011 ATC 10-222 (2011) 85 ATR 924 Koitaki Para Rubber Estates Ltd v Federal Commissioner of Taxation (1941) 64 CLR 241 (1941) 6 ATD 82 [1941] HCA 13 Levene v Inland Revenue Commissioners [1928] AC 217 Subrahmanyam v Commissioner of Taxation [2002] AATA 1298 2002 ATC 2303 (2002) 51 ATR 1173", "Subject_References": "Resident of Australia", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/4861-2013/4862/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Deputy Commissioner of Taxation v Zammitt", "Venue_Reference_No": "2012/299263 (NSW Court of Appeal) S103/2014 (High Court)", "Venue": "Miscellaneous - Australian", "Judgment_Date": "", "Date_Published": "14 January 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns a Director Penalty Notices (DPN) issued under former section 222AOE of the Income Tax Assessment Act 1936 (ITAA 1936), specifically whether the DPN had been validated by Schedule 7 of the Tax Laws Amendment Measures (No.7) Act 2011 and whether there was a requirement to issue a new notice pursuant to section 269-25 of Schedule 1 to the Taxation Administration Act 1953 (TAA).", "Overview_of_Facts": "On 27 November 2009, the ATO issued a DPN to the taxpayer in respect of unpaid pay as you go withholding (PAYGW) of Work Care Medical Pty Limited, of which he was a director. The DPN was drafted in conformance with the decision in DCT v Meredith (2007) 245 ALR 150, which was then authority for the proposition that a DPN is served at the time it is posted and the date for compliance runs from that date. | On 1 July 2010, as a result of the Tax Laws Amendment (Transfer of Provisions) Act 2010, section 222AOE of the ITAA 1936 was repealed and Division 269 was enacted as part of Schedule 1 to the TAA. Transitional rules (transitional provisions) provisions provided that the new Division 269 applied in respect of directors' penalties payable under the former provisions in the ITAA 1936 as though they were payable under Division 269, excluding section 269-20 which provides for the raising of the penalty (in order to avoid a double penalty). [1] | On 25 February 2011, the NSW Court of Appeal overruled Meredith in the matter of Soong v Deputy Commissioner of Taxation (2011) 278 ALR 538 (Soong) and held that the notice was given when it was delivered rather than when it was posted. | On 29 November 2011, Federal Parliament enacted the Tax Laws Amendment (2011 Measures No 7) Act 2011 (Amendment Act) in response to the decision in Soong. Schedule 7 of the Amendment Act relevantly provided that notices given on or after 10 December 2007 were to be treated as given at the time the Commissioner sent them by pre-paid post. | The taxpayer argued unsuccessfully at the Court of Appeal, and in his application for special leave, that: • that the Amendment Act was ineffective to validate the DPN; and • the transitional provisions had the effect of revoking the Commissioner's power to recover the penalty that arose after the expiration of the 14 day period for compliance under former section 222AOE of the ITAA 1936 as from 1 July 2010 when the new provisions became effective. | • that the Amendment Act was ineffective to validate the DPN; and • the transitional provisions had the effect of revoking the Commissioner's power to recover the penalty that arose after the expiration of the 14 day period for compliance under former section 222AOE of the ITAA 1936 as from 1 July 2010 when the new provisions became effective. | Issues Decided by the Court | On appeal, the NSW Court of Appeal (constituted by 5 judges) unanimously held that: • The Amendment Act operated to validate a notice issued under former section 222AOE of the ITAA 1936 which, but for the Amendment Act, may otherwise have been invalid. • The effect of Items 64 and 65 of the transitional provisions was not such to require a new notice to be issued under section 269-25 in Schedule 1 to the TAA when a notice had previously issued under former section 222AOE of the ITAA 1936. | • The Amendment Act operated to validate a notice issued under former section 222AOE of the ITAA 1936 which, but for the Amendment Act, may otherwise have been invalid. • The effect of Items 64 and 65 of the transitional provisions was not such to require a new notice to be issued under section 269-25 in Schedule 1 to the TAA when a notice had previously issued under former section 222AOE of the ITAA 1936. | The NSW Court of Appeal agreed with the earlier decision of the Queensland Court of Appeal in Reardon and Anor v Deputy Commissioner of Taxation [2013] QCA 46. | The High Court stated that the taxpayer failed in his application for special leave to identify any error in the reasons of the NSW Court of Appeal and there was no reason to doubt the conclusions reached by it. As such, the taxpayer had insufficient prospects of success to warrant a grant of special leave.", "Issues_Decided": "On appeal, the NSW Court of Appeal (constituted by 5 judges) unanimously held that: • The Amendment Act operated to validate a notice issued under former section 222AOE of the ITAA 1936 which, but for the Amendment Act, may otherwise have been invalid. • The effect of Items 64 and 65 of the transitional provisions was not such to require a new notice to be issued under section 269-25 in Schedule 1 to the TAA when a notice had previously issued under former section 222AOE of the ITAA 1936. • The Amendment Act operated to validate a notice issued under former section 222AOE of the ITAA 1936 which, but for the Amendment Act, may otherwise have been invalid. • The effect of Items 64 and 65 of the transitional provisions was not such to require a new notice to be issued under section 269-25 in Schedule 1 to the TAA when a notice had previously issued under former section 222AOE of the ITAA 1936. The NSW Court of Appeal agreed with the earlier decision of the Queensland Court of Appeal in Reardon and Anor v Deputy Commissioner of Taxation [2013] QCA 46. The High Court stated that the taxpayer failed in his application for special leave to identify any error in the reasons of the NSW Court of Appeal and there was no reason to doubt the conclusions reached by it. As such, the taxpayer had insufficient prospects of success to warrant a grant of special leave.", "ATO_View_of_Decision": "The decision of the Court of Appeal is consistent with the Commissioner's view and current procedures.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etcetera) | Not applicable | Implications for impacted Law Administration Practice Statements | Not applicable | [1] Tax Laws Amendment (Transfer of Provisions) Act 2010 Schedule1, items 64, 65.", "Related_Documents": "Not applicable | [2014] HCASL 187 | [2014] NSWCA 104 | 2014 ATC 20-452 | Section 269-25 of Schedule 1 | Former Division 9 | Schedule 1 section 10 | Part 3, Division 5 | Schedule 7 | 2000 ATC 4141 | 2007 ATC 5353 | 2011 ATC 20-245 | [2012] NSWDC 135 | [2013] QCA 46", "Legislative_References": "Taxation Administration Act 1953 (Cth) Section 269-25 of Schedule 1 Income Tax Assessment Act 1936 (Cth) Former Division 9 Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) Schedule 1 section 10 Part 3, Division 5 Tax Laws Amendment (2011 Measures No 7) Act 2011 (Cth) Schedule 7", "Case_References": "Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 (2000) 43 ATR 757 2000 ATC 4141 Deputy Commissioner of Taxation v Meredith (2007) 245 ALR 150 2007 ATC 5353 (2007) 69 ATR 876 Soong v Deputy Commissioner of Taxation (2011) 278 ALR 538 2011 ATC 20-245 (2011) 82 ATR 455 Deputy Commissioner of Taxation v Zammitt [2012] NSWDC 135 (2012) 90 ATR 568 Reardon and Anor v Deputy Commissioner of Taxation [2013] QCA 46", "Subject_References": "Validity of Director Penalty Notices Interaction between former section 222AOE (ITAA 1936) and section 269-25 Schedule 1 (TAA)", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012-299263;S103-2014/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Dominic B Fishing Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2013/3932-3934", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "10 April 2014", "Date_Published": "5 June 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether fishermen working on dories in a sharefishing arrangement with the owner of the main vessel are employees for the purposes of the Superannuation Guarantee (Administration) Act 1992 ('SGAA').", "Overview_of_Facts": "From the quarter ended 30 September 2009 through to the quarter ended 30 June 2011 ('the period under review'), the taxpayer company operated a commercial fishing vessel out of a port in central Queensland. | The vessel, usually captained by the director of the taxpayer, would put out to sea for an average of ten days at a time. The captain would be joined by up to four crew members. While the vessel was at sea, the main vessel would anchor at a central spot each day and the fishermen would each board a small motorised boat called a 'dory'. The dories would head off to various locations within five nautical miles of the main vessel, where the crew members would spend all or part of the day fishing on their own and then return to the vessel. | Each fisherman would unload his catch and the details of the catch would be tallied by the captain and the fish would be stored. At the end of the voyage, when the vessel returned to port, the catch would be unloaded and delivered to a wholesaler or processor under the terms of a contract with the taxpayer. The taxpayer would pay the individual fisherman under the terms of the separate agreement between the taxpayer and each fisherman. | Each member of the crew of the taxpayer's vessel was provided a written document, headed '[Name of taxpayer] Joint Fishing Adventure', in advance of a voyage. The document provided: a) The parties were 'joint venturers' for the purposes of a single voyage; b) The cost of maintaining the vessel and associated operating costs was the responsibility of the Applicant but all parties would make a contribution towards these costs; c) Fish would be sold to a buyer at the end of voyage and parties were entitled to their share of the proceeds; and d) Each party would bear the cost of their own accident and illness insurance. | a) The parties were 'joint venturers' for the purposes of a single voyage; b) The cost of maintaining the vessel and associated operating costs was the responsibility of the Applicant but all parties would make a contribution towards these costs; c) Fish would be sold to a buyer at the end of voyage and parties were entitled to their share of the proceeds; and d) Each party would bear the cost of their own accident and illness insurance. | Mr Hemingway, a fisherman on the taxpayer's vessel, gave evidence which the Tribunal accepted that: a) He lived near the port where the taxpayer's vessel was based and if he needed work, he would make himself known at the port amongst the various vessels that were berthed there. The taxpayer and others who were preparing to go to sea and who required a crew might contact him and invite him to become a member of the crew for that voyage; b) He could bring his own equipment (such as hooks and lines) or equipment would be supplied; c) Dories were allocated at the start of the voyage and crew members knew they were responsible for cleaning their gear and their dory (failing to do so might result in a surcharge withheld from their final pay). Crew members could delegate the cleaning of their dory at the end of the voyage; d) He would obtain advances from the boat owner for cigarettes and other personal items, which would be deducted out of payment at the end of the voyage; e) He was not directed by the Applicant as to where or how to fish in the dory, subject to fisheries regulations; and f) He had an Australian Business Number (ABN) but had not filed income tax returns, nor kept any records or books which would be indicative of a business. | a) He lived near the port where the taxpayer's vessel was based and if he needed work, he would make himself known at the port amongst the various vessels that were berthed there. The taxpayer and others who were preparing to go to sea and who required a crew might contact him and invite him to become a member of the crew for that voyage; b) He could bring his own equipment (such as hooks and lines) or equipment would be supplied; c) Dories were allocated at the start of the voyage and crew members knew they were responsible for cleaning their gear and their dory (failing to do so might result in a surcharge withheld from their final pay). Crew members could delegate the cleaning of their dory at the end of the voyage; d) He would obtain advances from the boat owner for cigarettes and other personal items, which would be deducted out of payment at the end of the voyage; e) He was not directed by the Applicant as to where or how to fish in the dory, subject to fisheries regulations; and f) He had an Australian Business Number (ABN) but had not filed income tax returns, nor kept any records or books which would be indicative of a business. | Evidence of both the director and Mr Hemingway, which was accepted, was: a) Decisions about where and when to fish would be made collectively between the skipper and the fishermen, with the skipper intervening only where safety was in issue; b) $2 per fish or per piece was deducted from the market price of the fish, and fishermen were then paid 30% or 32% of that price on the fish caught by that fisherman; c) Fishermen needed to hold a speedboat licence for the dories, but were not required to hold a commercial fisher's licence; and d) The parties agreed that there was no partnership relationship. | a) Decisions about where and when to fish would be made collectively between the skipper and the fishermen, with the skipper intervening only where safety was in issue; b) $2 per fish or per piece was deducted from the market price of the fish, and fishermen were then paid 30% or 32% of that price on the fish caught by that fisherman; c) Fishermen needed to hold a speedboat licence for the dories, but were not required to hold a commercial fisher's licence; and d) The parties agreed that there was no partnership relationship. | Issues decided by the court | Whether crew members on a commercial fishing vessel operated by the taxpayer were employees? | The Tribunal determined that the crew members fishing on dories were not employees, either according to the ordinary meaning of employee or under the extended definition contained in subsecton 12(3) of the SGAA. | The Tribunal relied on the recent Full Federal Court decision in ACE Insurance Limited v Trifunovski (2013) 209 FCR 146, which considered a right of control as an important factor in deciding whether an employee-employer relationship exists. The Tribunal placed particular reliance on its findings of fact that: - The terms of the contract contemplating a 'joint venture'; - That the parties managed each voyage by consensus, which provided limited scope for the exercise of supervision and control; - That each fisherman was not directed where or how to fish when he was in his own dory (excepting limits imposed through regulations); and - That the fishermen brought their skills and some equipment to the 'venture' and the equipment provided by the taxpayer was effectively placed at the service of the 'joint venture'. | - The terms of the contract contemplating a 'joint venture'; - That the parties managed each voyage by consensus, which provided limited scope for the exercise of supervision and control; - That each fisherman was not directed where or how to fish when he was in his own dory (excepting limits imposed through regulations); and - That the fishermen brought their skills and some equipment to the 'venture' and the equipment provided by the taxpayer was effectively placed at the service of the 'joint venture'. | The Tribunal decided that the extended definition did not apply as the contract was not wholly or principally for the labour of the fishermen. Rather, the Tribunal considered that the agreement was a joint venture agreement intended to produce fish for sale and fishermen are remunerated on the basis of an outcome. | In its decision, the Tribunal also noted at [2] that: \"Fishermen and their advisers expect the decision will have implications for how they conduct their operations and engage their workforce. If they are looking for authoritative guidance, they will be disappointed. Each case turns on its own particular set of facts. One must examine the precise details of the engagement in each case in order to characterise it. Generalisations - whether by the industry and its advisers, or by the Commissioner - are impossible, which is as it should be.\"", "Issues_Decided": "Whether crew members on a commercial fishing vessel operated by the taxpayer were employees?: The Tribunal determined that the crew members fishing on dories were not employees, either according to the ordinary meaning of employee or under the extended definition contained in subsecton 12(3) of the SGAA. The Tribunal relied on the recent Full Federal Court decision in ACE Insurance Limited v Trifunovski (2013) 209 FCR 146, which considered a right of control as an important factor in deciding whether an employee-employer relationship exists. The Tribunal placed particular reliance on its findings of fact that: - The terms of the contract contemplating a 'joint venture'; - That the parties managed each voyage by consensus, which provided limited scope for the exercise of supervision and control; - That each fisherman was not directed where or how to fish when he was in his own dory (excepting limits imposed through regulations); and - That the fishermen brought their skills and some equipment to the 'venture' and the equipment provided by the taxpayer was effectively placed at the service of the 'joint venture'. - The terms of the contract contemplating a 'joint venture'; - That the parties managed each voyage by consensus, which provided limited scope for the exercise of supervision and control; - That each fisherman was not directed where or how to fish when he was in his own dory (excepting limits imposed through regulations); and - That the fishermen brought their skills and some equipment to the 'venture' and the equipment provided by the taxpayer was effectively placed at the service of the 'joint venture'. The Tribunal decided that the extended definition did not apply as the contract was not wholly or principally for the labour of the fishermen. Rather, the Tribunal considered that the agreement was a joint venture agreement intended to produce fish for sale and fishermen are remunerated on the basis of an outcome. In its decision, the Tribunal also noted at [2] that: \"Fishermen and their advisers expect the decision will have implications for how they conduct their operations and engage their workforce. If they are looking for authoritative guidance, they will be disappointed. Each case turns on its own particular set of facts. One must examine the precise details of the engagement in each case in order to characterise it. Generalisations - whether by the industry and its advisers, or by the Commissioner - are impossible, which is as it should be.\"", "ATO_View_of_Decision": "The Tribunal's view that the case is limited to its own facts and does not provide any authoritative guidance on cases concerning whether a worker is an employee for the purposes of the SGAA is consistent with the Commissioner's position. | In relation to the Tribunal's finding that the fishermen were in a joint venture with the taxpayer, the Commissioner did not have an opportunity to make submissions to the Tribunal about this issue in this case. The Commissioner will seek to make full submissions on this point in similar cases that arise in the future, with a view to further clarifying the issue of when a fisherman or fishermen is or is not in a joint venture with a boat owner.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "N/A | [2014] AATA 205 | SGR 2005/1 Superannuation guarantee: who is an employee? | Section 12 | 2001 ATC 4508 | (2013) 209 FCR 146 | [2013] FCAFC 3", "Legislative_References": "Superannuation Guarantee Administration Act 1992 Section 12", "Case_References": "Wiltshire v Kuenzli (1945) 63 WN (NSW) 47 Hollis v Vabu Pty Ltd (2001) 207 CLR 21 [2001] HCA 44 47 ATR 559 2001 ATC 4508 ACE Insurance Ltd v Trifunovski (2013) 209 FCR 146 [2013] FCAFC 3", "Subject_References": "Superannuation guarantee Employer contributions", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013-3932-3934/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Dowling and Commissioner of Taxation", "Venue_Reference_No": "2012/2727 & 2012/2728", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "14 July 2014", "Date_Published": "11 December 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response which concerns if it was appropriate to disregard or allocate to another financial year all or part of the non-concessional contributions of the Applicant for a particular financial year, to relieve the Applicant from excess non concessional contributions tax for that year.", "Overview_of_Facts": "The taxpayer maintained a UniSuper account and her husband maintained a Sunsuper account. | During the 2008-2009 financial year, the taxpayer and her husband met with a Centrelink officer to discuss the husband's assets and income in relation to his entitlement to Centrelink benefits. They subsequently had a meeting with a financial planner to consider a strategy that would entitle the husband to receive an age pension when he turned 65. | That strategy was implemented. The husband was paid all his superannuation ($293,895.75) by Sunsuper on 6 February 2009. He contributed $293,858 to a new Sunsuper account for the taxpayer on 10 February 2009 (The first Tribunal described this as 'Transaction 1'). This amount was included in the taxpayer's non-concessional contributions for the 2008-2009 financial year. | It activated the 'three year bring forward rule' in subsections 292-85(3) & (4) of the Income Tax Assessment Act 1997 (ITAA 1997) such that the taxpayer's non-concessional contributions cap for the year was $450,000, not $150,000, so she did not have excess non-concessional contributions for the 2008-2009 financial year. It also meant that her non-concessional contributions cap for the next financial year was $156,142. The taxpayer had no non-concessional contributions for the 2009-2010 financial year, so her non-concessional contributions cap for the 2010-2011 financial year was also $156,142. | In the 2010-2011 financial year, the taxpayer read in the media that superannuation benefits would be minimally taxed when paid as a death benefit to estate beneficiaries if withdrawn and re-contributed as non-concessional contributions. | On 30 August 2010, the taxpayer implemented this strategy without obtaining any professional advice. Unisuper paid her $240,933.39. The taxpayer then made a $200,000.00 contribution to Unisuper, retaining the balance (The first Tribunal described this as 'Transaction 2'). This amount was included in the taxpayer's non-concessional contributions for the 2010-2011 financial year. | As a result, the taxpayer exceeded her non-concessional contributions cap for the 2010-2011 financial year by $43,858.00 and was accordingly assessed to excess non-concessional contributions tax of $20,393.95 in respect of that year. | The taxpayer applied to the Commissioner to have the $43,858.00 excess contribution disregarded or allocated to another year pursuant to subsection 292-465(1) of the ITAA 1997. | The taxpayer was ignorant of the superannuation laws and the non-concessional contributions cap. | The Commissioner did not exercise the discretion to disregard or allocate the excess contribution to another financial year and this decision was confirmed on the taxpayer's objection. | Issues Decided by the Tribunal | At first instance, [2013] AATA 49, the Tribunal found that the two preconditions of subsection 292-465(3) of the ITAA 1997 were satisfied and decided to disregard the contribution made as Transaction 1. | The Tribunal concluded that special circumstances existed in relation to Transaction 1 because of an 'amalgam' of factors and that making a determination to disregard that contribution was consistent with the object of Division 292 of the ITAA 1997 'as the funds concerned in Transaction 1 are all those of [the taxpayer's] husband, and are those which [the taxpayer's husband] made gradually over the course of his life'. However, the Tribunal concluded there were no special circumstances in relation to Transaction 2 and so did not consider disregarding that contribution or allocating it to another year. | The Commissioner appealed the AAT's decision to the Federal Court. | The Federal Court, [2014] FCA 252, decided that: • the Commissioner's power to exercise the discretion in subsection 292-465(1) of the ITAA 1997 is constrained by the two mandatory requirements in paragraph 292-465(3)(a) of the ITAA 1997 - that he or she considers there are special circumstances - and in paragraph 292-465(3)(b) of the ITAA 1997 - that he or she considers exercising the discretion is consistent with the object of Division 292 of the ITAA 1997: paragraph [93]; • those two considerations are absolute pre-conditions to any exercise of the discretion: paragraph [94]; • the findings of fact by the Tribunal did not enable it to be satisfied that either of the paragraph 292-465(3)(a) or (b) factors existed concerning Transaction 1: paragraph [118]; • specifically, none of the matters relied upon by the Tribunal in relation to Transaction 1 satisfy, as a matter of law, the description 'special circumstances': paragraph [102]'; • specifically, the object of Division 292 was not served because it could not be said that the Transaction 1 contribution represented contributions made gradually over the course of the taxpayer's lifetime. Instead, it was nothing more than an element in an arrangement to preserve the taxpayer's husband's entitlement to an age pension as he turned 65: paragraph [115]. • in any event, the Tribunal was wrong to seek to disregard the Transaction 1 (2009) contribution or allocate it to another financial year. The subsection 292-465(1) discretion could only be exercised in relation to the Transaction 2 (2010) contribution as it was the only contribution in the financial year the subject of the excess contributions tax assessment (and the consequential application by the taxpayer to have the excess in that year disregarded or allocated to another financial year): paragraphs [36] & [98]; • the power to exercise the subsection 292-465(1) discretion was not enlivened in respect of the Transaction 2 contribution. Neither of the two preconditions in subsection 292-465(3) to that power were satisfied: paragraph [124]; and • even if those two preconditions had been satisfied, the answer to the question posed by subsection 292-465(6) of the ITAA 1997 was that it was objectively perfectly obvious and predictable that making the $200,000 Transaction 2 contribution would give rise to excess contributions and an excess contributions tax liability: paragraph [123]. | • the Commissioner's power to exercise the discretion in subsection 292-465(1) of the ITAA 1997 is constrained by the two mandatory requirements in paragraph 292-465(3)(a) of the ITAA 1997 - that he or she considers there are special circumstances - and in paragraph 292-465(3)(b) of the ITAA 1997 - that he or she considers exercising the discretion is consistent with the object of Division 292 of the ITAA 1997: paragraph [93]; • those two considerations are absolute pre-conditions to any exercise of the discretion: paragraph [94]; • the findings of fact by the Tribunal did not enable it to be satisfied that either of the paragraph 292-465(3)(a) or (b) factors existed concerning Transaction 1: paragraph [118]; • specifically, none of the matters relied upon by the Tribunal in relation to Transaction 1 satisfy, as a matter of law, the description 'special circumstances': paragraph [102]'; • specifically, the object of Division 292 was not served because it could not be said that the Transaction 1 contribution represented contributions made gradually over the course of the taxpayer's lifetime. Instead, it was nothing more than an element in an arrangement to preserve the taxpayer's husband's entitlement to an age pension as he turned 65: paragraph [115]. • in any event, the Tribunal was wrong to seek to disregard the Transaction 1 (2009) contribution or allocate it to another financial year. The subsection 292-465(1) discretion could only be exercised in relation to the Transaction 2 (2010) contribution as it was the only contribution in the financial year the subject of the excess contributions tax assessment (and the consequential application by the taxpayer to have the excess in that year disregarded or allocated to another financial year): paragraphs [36] & [98]; • the power to exercise the subsection 292-465(1) discretion was not enlivened in respect of the Transaction 2 contribution. Neither of the two preconditions in subsection 292-465(3) to that power were satisfied: paragraph [124]; and • even if those two preconditions had been satisfied, the answer to the question posed by subsection 292-465(6) of the ITAA 1997 was that it was objectively perfectly obvious and predictable that making the $200,000 Transaction 2 contribution would give rise to excess contributions and an excess contributions tax liability: paragraph [123]. | The Federal Court allowed the Commissioner's appeal, set aside the Tribunal's decision and remitted the matter to the AAT to be heard and determined according to law. | At the remittal hearing, [2014] AATA 474, the Tribunal affirmed the Commissioner's objection decision. The Tribunal decided that having regard to all of the circumstances: • there were no special circumstances under paragraph 292-465(3)(a) of the ITAA 1997; and • disregarding or reallocating the 2010 contribution in whole or in part would not be consistent with the object of Division 292 of the ITAA 1997. | • there were no special circumstances under paragraph 292-465(3)(a) of the ITAA 1997; and • disregarding or reallocating the 2010 contribution in whole or in part would not be consistent with the object of Division 292 of the ITAA 1997.", "Issues_Decided": "At first instance, [2013] AATA 49, the Tribunal found that the two preconditions of subsection 292-465(3) of the ITAA 1997 were satisfied and decided to disregard the contribution made as Transaction 1. The Tribunal concluded that special circumstances existed in relation to Transaction 1 because of an 'amalgam' of factors and that making a determination to disregard that contribution was consistent with the object of Division 292 of the ITAA 1997 'as the funds concerned in Transaction 1 are all those of [the taxpayer's] husband, and are those which [the taxpayer's husband] made gradually over the course of his life'. However, the Tribunal concluded there were no special circumstances in relation to Transaction 2 and so did not consider disregarding that contribution or allocating it to another year. The Commissioner appealed the AAT's decision to the Federal Court. The Federal Court, [2014] FCA 252, decided that: • the Commissioner's power to exercise the discretion in subsection 292-465(1) of the ITAA 1997 is constrained by the two mandatory requirements in paragraph 292-465(3)(a) of the ITAA 1997 - that he or she considers there are special circumstances - and in paragraph 292-465(3)(b) of the ITAA 1997 - that he or she considers exercising the discretion is consistent with the object of Division 292 of the ITAA 1997: paragraph [93]; • those two considerations are absolute pre-conditions to any exercise of the discretion: paragraph [94]; • the findings of fact by the Tribunal did not enable it to be satisfied that either of the paragraph 292-465(3)(a) or (b) factors existed concerning Transaction 1: paragraph [118]; • specifically, none of the matters relied upon by the Tribunal in relation to Transaction 1 satisfy, as a matter of law, the description 'special circumstances': paragraph [102]'; • specifically, the object of Division 292 was not served because it could not be said that the Transaction 1 contribution represented contributions made gradually over the course of the taxpayer's lifetime. Instead, it was nothing more than an element in an arrangement to preserve the taxpayer's husband's entitlement to an age pension as he turned 65: paragraph [115]. • in any event, the Tribunal was wrong to seek to disregard the Transaction 1 (2009) contribution or allocate it to another financial year. The subsection 292-465(1) discretion could only be exercised in relation to the Transaction 2 (2010) contribution as it was the only contribution in the financial year the subject of the excess contributions tax assessment (and the consequential application by the taxpayer to have the excess in that year disregarded or allocated to another financial year): paragraphs [36] & [98]; • the power to exercise the subsection 292-465(1) discretion was not enlivened in respect of the Transaction 2 contribution. Neither of the two preconditions in subsection 292-465(3) to that power were satisfied: paragraph [124]; and • even if those two preconditions had been satisfied, the answer to the question posed by subsection 292-465(6) of the ITAA 1997 was that it was objectively perfectly obvious and predictable that making the $200,000 Transaction 2 contribution would give rise to excess contributions and an excess contributions tax liability: paragraph [123]. • the Commissioner's power to exercise the discretion in subsection 292-465(1) of the ITAA 1997 is constrained by the two mandatory requirements in paragraph 292-465(3)(a) of the ITAA 1997 - that he or she considers there are special circumstances - and in paragraph 292-465(3)(b) of the ITAA 1997 - that he or she considers exercising the discretion is consistent with the object of Division 292 of the ITAA 1997: paragraph [93]; • those two considerations are absolute pre-conditions to any exercise of the discretion: paragraph [94]; • the findings of fact by the Tribunal did not enable it to be satisfied that either of the paragraph 292-465(3)(a) or (b) factors existed concerning Transaction 1: paragraph [118]; • specifically, none of the matters relied upon by the Tribunal in relation to Transaction 1 satisfy, as a matter of law, the description 'special circumstances': paragraph [102]'; • specifically, the object of Division 292 was not served because it could not be said that the Transaction 1 contribution represented contributions made gradually over the course of the taxpayer's lifetime. Instead, it was nothing more than an element in an arrangement to preserve the taxpayer's husband's entitlement to an age pension as he turned 65: paragraph [115]. • in any event, the Tribunal was wrong to seek to disregard the Transaction 1 (2009) contribution or allocate it to another financial year. The subsection 292-465(1) discretion could only be exercised in relation to the Transaction 2 (2010) contribution as it was the only contribution in the financial year the subject of the excess contributions tax assessment (and the consequential application by the taxpayer to have the excess in that year disregarded or allocated to another financial year): paragraphs [36] & [98]; • the power to exercise the subsection 292-465(1) discretion was not enlivened in respect of the Transaction 2 contribution. Neither of the two preconditions in subsection 292-465(3) to that power were satisfied: paragraph [124]; and • even if those two preconditions had been satisfied, the answer to the question posed by subsection 292-465(6) of the ITAA 1997 was that it was objectively perfectly obvious and predictable that making the $200,000 Transaction 2 contribution would give rise to excess contributions and an excess contributions tax liability: paragraph [123]. The Federal Court allowed the Commissioner's appeal, set aside the Tribunal's decision and remitted the matter to the AAT to be heard and determined according to law. At the remittal hearing, [2014] AATA 474, the Tribunal affirmed the Commissioner's objection decision. The Tribunal decided that having regard to all of the circumstances: • there were no special circumstances under paragraph 292-465(3)(a) of the ITAA 1997; and • disregarding or reallocating the 2010 contribution in whole or in part would not be consistent with the object of Division 292 of the ITAA 1997. • there were no special circumstances under paragraph 292-465(3)(a) of the ITAA 1997; and • disregarding or reallocating the 2010 contribution in whole or in part would not be consistent with the object of Division 292 of the ITAA 1997.", "ATO_View_of_Decision": "The approach taken by the AAT on remittal of the matter is consistent with the principles stated by the Federal Court, both in this case and in Liwszyc v Commissioner of Taxation [2014] FCA 112, as to the correct approach to applying the discretion to disregard or allocate contributions to another financial year in accordance with section 292-465 of the ITAA 1997.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | The principles stated by the Federal Court and the AAT's application of them on remittal of the matter do not change the ATO's approach to excess contributions cases. The ATO will continue to approach excess contributions cases by weighing all the relevant facts and circumstances to determine whether the two mandatory pre-conditions to the exercise of the discretion are satisfied and, if so, whether the discretion should be exercised. The Commissioner will apply the relevant tax law and authorities to those facts. | Implications for impacted Law Administration Practice Statements | The ATO has reviewed PS LA 2008/1 and no further amendments were necessary. This decision has no impact for other ATO precedential documents or Law Administration Practice Statements. | Date of amendment Part Comment 11 December 2014 Administrative treatment Updated to advise no amendments required to PS LA 2008/1.", "Related_Documents": "Nil | PS LA 2008/1 | 2014 ATC 10-371 | 292-5 | 292-465 | (1985) 7 ALD 670 | 2012 ATC 10-242 | 2014 ATC 20-447 | [1995] FCA 1708 | (1995) 40 ALD 541 | 2007 ATC 2488 | 2014 ATC 20-441 | [2012] AATA 667 | 2012 ATC 10-250 | (1993) 42 FCR 443 | [2012] AATA 62 | 2012 ATC 10-236", "Legislative_References": "Income Tax Assessment Act 1997 292-5 292-465", "Case_References": "Beadle v Director-General of Social Security (1985) 60 ALR 225 (1985) 7 ALD 670 Chantrell and Commissioner of Taxation [2012] AATA 179 2012 ATC 10-242 (2012) 87 ATR 957 Commissioner of Taxation v Dowling [2014] FCA 252 2014 ATC 20-447 Groth v Secretary, Department of Social Security [1995] FCA 1708 (1995) 40 ALD 541 Kerr and Commissioner of Taxation [2007] AATA 1732 2007 ATC 2488 (2007) 67 ATR 710 Liwszyc v Commissioner of Taxation [2014] FCA 112 2014 ATC 20-441 Lynton and Commissioner of Taxation [2012] AATA 667 Rawson and Commissioner of Taxation [2012] AATA 322 2012 ATC 10-250 (2012) 88 ATR 612 Riddell v Secretary, Department of Social Security (1993) 42 FCR 443 Schuurmans-Stekhoven and Federal Commissioner of Taxation [2012] AATA 62 (2012) 82 ATR 731 Tran and Commissioner of Taxation [2012] AATA 123 2012 ATC 10-236", "Subject_References": "Superannuation excess contributions tax Non-concessional contributions cap Commissioner's determination - disregard or allocate to another year superannuation contributions Excess non-concessional contributions", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/2727and2012/2728/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "GHP 104 160 689 Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "[2014] AATA 515", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 July 2014", "Date_Published": "20 August 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether certain expenditure was to be disallowed deductibility at the rate of 125% because it was 'feedstock expenditure' within the meaning of former subsection 73B(1) of the Income Tax Assessment Act 1936 ('ITAA 1936').", "Overview_of_Facts": "GHP 104 160 689 Pty Ltd ('the applicant') carried on the business of mining operations which included certain research and development ('R&D') activities. | In total, seven projects were undertaken in the 2003 to 2007 income years ('the relevant years'). Those projects related to copper concentrator and smelter processes at Mount Isa, zinc-lead concentrator processes at Mount Isa and McArthur River, and copper-gold concentrator processes at the Ernest Henry mine. | The R&D activities involved experimentation with a range of items, including but not limited to mill liners, grinding media, cyclones, rod mills, oxygen and chemical consumables. | The Commissioner disallowed certain claims for deductions at the rate of 125% in the relevant years, contending that they related to 'feedstock expenditure' for the purposes of subsection 73B(1) of the ITAA 1936. | There was some overlap between the activities in the applicant's copper concentrator and its smelter in Mount Isa, in that some of the copper concentrate was subsequently fed into plant trials being conducted in the smelter. The Commissioner contended that all expenditure incurred in producing copper concentrate which was fed into the smelter comprised 'feedstock expenditure'. | Issues Decided by the Tribunal | 1. Whether the disputed expenditure was incurred in acquiring or producing materials or goods 'to be the subject of' processing or transformation for the purposes of the definition of 'feedstock expenditure' in subsection 73B(1) of the ITAA 1936. | 2. Whether expenditure incurred in producing copper concentrate which was then fed into the copper smelter constituted 'feedstock expenditure' for the purposes of subsection 73B(1) of the ITAA 1936. | The Tribunal's Decision | The Tribunal decided that the applicant's 'feedstock expenditure' comprised: • expenditure on acquiring and producing ores to be the subject of concentrator processes • expenditure on aquiring or producing copper concentrate to be fed into the smelter process, and • expenditure on oxygen which was inserted into the furnace during the copper blow and in the anode furnace. | • expenditure on acquiring and producing ores to be the subject of concentrator processes • expenditure on aquiring or producing copper concentrate to be fed into the smelter process, and • expenditure on oxygen which was inserted into the furnace during the copper blow and in the anode furnace. | The Tribunal decided that the remainder of the disputed expenditure was not incurred in acquiring or producing materials or goods 'to be the subject of processing or transformation' in the applicant's R&D activities. | The Tribunal considered that, as a matter of statutory construction, things acquired to be the subject of some process in an activity could not share a common identity with those acquired to subject them to that activity. The expression requires a distinction between expenditure on materials or goods to be the subject of processing or transformation and expenditure on actions or processes which thereby subject those materials or goods to processing or transformation. | In respect of the copper concentrate 'overlap', the Tribunal decided that expenditure incurred in producing copper concentrates to be used in the smelter trials was properly characterised as 'feedstock expenditure' by reason of its relationship to the smelter trials. The words 'to be' in subsection 73B(1) could not be read as meaning one thing for some forms of goods and materials the subject of processing and transformation, and another when there was an overlap.", "Issues_Decided": "1. Whether the disputed expenditure was incurred in acquiring or producing materials or goods 'to be the subject of' processing or transformation for the purposes of the definition of 'feedstock expenditure' in subsection 73B(1) of the ITAA 1936. 2. Whether expenditure incurred in producing copper concentrate which was then fed into the copper smelter constituted 'feedstock expenditure' for the purposes of subsection 73B(1) of the ITAA 1936. | The Tribunal's Decision: The Tribunal decided that the applicant's 'feedstock expenditure' comprised: • expenditure on acquiring and producing ores to be the subject of concentrator processes • expenditure on aquiring or producing copper concentrate to be fed into the smelter process, and • expenditure on oxygen which was inserted into the furnace during the copper blow and in the anode furnace. • expenditure on acquiring and producing ores to be the subject of concentrator processes • expenditure on aquiring or producing copper concentrate to be fed into the smelter process, and • expenditure on oxygen which was inserted into the furnace during the copper blow and in the anode furnace. The Tribunal decided that the remainder of the disputed expenditure was not incurred in acquiring or producing materials or goods 'to be the subject of processing or transformation' in the applicant's R&D activities. The Tribunal considered that, as a matter of statutory construction, things acquired to be the subject of some process in an activity could not share a common identity with those acquired to subject them to that activity. The expression requires a distinction between expenditure on materials or goods to be the subject of processing or transformation and expenditure on actions or processes which thereby subject those materials or goods to processing or transformation. In respect of the copper concentrate 'overlap', the Tribunal decided that expenditure incurred in producing copper concentrates to be used in the smelter trials was properly characterised as 'feedstock expenditure' by reason of its relationship to the smelter trials. The words 'to be' in subsection 73B(1) could not be read as meaning one thing for some forms of goods and materials the subject of processing and transformation, and another when there was an overlap.", "ATO_View_of_Decision": "The ATO accepts the Tribunal's decision and will adopt its reasoning, where applicable, for the purposes of construing the definition of 'feedstock expenditure' in former subsection 73B(1) of the ITAA 1936. | The ATO also considers that the Tribunal's decision is of assistance in interpreting the feedstock adjustment provisions in section 355-465 of the Income Tax Assessment Act 1997. The ATO will take the Tribunal's reasoning into account in applying those provisions to analogous cases.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | Taxation Ruling TR 2013/3 was amended on 19 August 2015 following the decision of the AAT in this matter. The revision has clarified distinction between expenditure on materials or goods to be the subject of processing or transformation and expenditure on actions or processes which thereby subject those materials or goods to processing or transformation. | Implications for impacted Law Administration Practice Statements | The decision has no impact on Law Administration Practice Statements | Date of amendment Part Comment 20 August 2015 Administrative treatment Updated to advise amendment of TR 2013/3.", "Related_Documents": "Taxation Ruling TR 2013/3: Income tax: research and development tax offsets: feedstock adjustments | [2014] AATA 515 | 2014 ATC 10-373 | s 355-465 | (2012) 248 CLR 1 | [2012] HCA 3 | (2012) 248 CLR 378 | [2012] HCA 56 | [2013] HCA 16 | [2011] FCAFC 154 | (1998) 194 CLR 355 | [1998] HCA 28 | [1911] HCA 28 | (1911) 12 CLR 463 | [2006] HCA 25", "Legislative_References": "Income Tax Assessment Act 1936 s 73B s 73B(1AAA) s 73B(1) s 73B(1A) s 73B(2B) s 73B(2BA) s 73B(2C) s 73B(14) s 73B(14B) s 73B(34) Income Tax Assessment Act 1997 s 355-465", "Case_References": "Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) (2009) 239 CLR 27 [2009] HCA 41 Australian Education Union v Department of Education and Children's Services (2012) 248 CLR 1 [2012] HCA 3 Certain Lloyd's Underwriters v Cross (2012) 248 CLR 378 [2012] HCA 56 Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 87 ALJR 98 [2012] HCA 55 Commissioner of Taxation v Unit Trend Services Pty Ltd (2013) 87 ALJR 588 [2013] HCA 16 Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (2011) 199 FCR 226 [2011] FCAFC 154 Haoucher v Minister for Immigration and Ethnic Affairs [1990] HCA 22 (1990) 169 CLR 648 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28 Richardson v Austin [1911] HCA 28 (1911) 12 CLR 463 Sea Shepherd Australia Ltd v Federal Commissioner of Taxation (2013) 212 FCR 252 [2013] FCAFC 68 Taylor v The Owners - Strata Plan No 11564 (2014) 88 ALJR 473 [2014] HCA 9 XYZ v Commonwealth (2006) 227 CLR 532 [2006] HCA 25", "Subject_References": "Income Taxation deductions for research and development expenditure whether expenditure 'feedstock expenditure' 73B(1) of the Income Tax Assessment Act 1936", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014AATA515/00001", "Unmatched_Content": ""}
{"Case_Name": "Guru 4U and Commissioner of Taxation", "Venue_Reference_No": "2013/1343-1344", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "14 October 2014", "Date_Published": "14 November 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2014 ATC 10-379", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/1343-1344/00001", "Unmatched_Content": "Guru 4U and Commissioner of Taxation [2014] AATA 740 2014 ATC 10-379 (2014) 95 ATR 481 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Howard v Commissioner of Taxation", "Venue_Reference_No": "M140/2013", "Venue": "High Court", "Judgment_Date": "11 June 2014", "Date_Published": "14 August 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case concerns whether an award of equitable damages was received by the taxpayer in his personal capacity or as a constructive trustee, or was assigned such that it was otherwise not derived beneficially by the taxpayer.", "Overview_of_Facts": "In 1999 the taxpayer and five other individuals formed a joint venture to pursue a property investment opportunity (\"the investment opportunity\") involving the purchase of a property in Rowville, Victoria, on which was conducted the public golf course known as \"Kingston Links Golf Course\" (\"the property\"). | The investment opportunity involved the purchase, letting, and thereafter, the sale, of the property to a third party investor for a day one profit. | The taxpayer was a director of Disctronics Ltd (\"Disctronics\"). | The taxpayer and two other directors of Disctronics who were also joint venture members asserted Disctronics' intention and right to become the equity participant for the investment opportunity and purchaser of the property as the third party investor. Two other joint venture members disputed this right, entered into a new arrangement with a third party, acquired the property and carried out the investment opportunity to the exclusion of the other joint venture members (including the taxpayer). | The taxpayer, other excluded joint venture members and Disctronics instituted proceedings in the Supreme Court of Victoria for breach of fiduciary duty. The court of appeal of the Supreme Court of Victoria upheld the decision of the primary judge in favour of the excluded joint venture members (including the taxpayer, but not Distronics) and awarded them each an amount of equitable damages. | The Commissioner included the taxpayer's share of the award of damages in the taxpayer's assessable income for the year ended 30 June 2005. | At first instance in the Federal Court, the primary judge held that the award was not assessable income in the taxpayer's hands as he had received it in a fiduciary capacity as a director of Disctronics. This was overturned by the Full Federal Court. | Issues Decided by the Court | The issues in the High Court appeal were: 1. Whether the taxpayer received the sum of equitable compensation awarded by the Supreme Court as constructive trustee for Disctronics? (No). 2. If not, whether the taxpayer had assigned the right to receive that amount such that the income was not derived by him beneficially? (No). 3. Whether the taxpayer incurred liability in respect of the costs of the proceedings in the Supreme Court which should properly have been taken into account in ascertaining the amount of any gain made by the taxpayer and, alternatively, whether those costs were an outgoing of a revenue nature incurred in gaining the income comprised in the award made by the Supreme Court? (No). | 1. Whether the taxpayer received the sum of equitable compensation awarded by the Supreme Court as constructive trustee for Disctronics? (No). 2. If not, whether the taxpayer had assigned the right to receive that amount such that the income was not derived by him beneficially? (No). 3. Whether the taxpayer incurred liability in respect of the costs of the proceedings in the Supreme Court which should properly have been taken into account in ascertaining the amount of any gain made by the taxpayer and, alternatively, whether those costs were an outgoing of a revenue nature incurred in gaining the income comprised in the award made by the Supreme Court? (No).", "Issues_Decided": "The issues in the High Court appeal were: 1. Whether the taxpayer received the sum of equitable compensation awarded by the Supreme Court as constructive trustee for Disctronics? (No). 2. If not, whether the taxpayer had assigned the right to receive that amount such that the income was not derived by him beneficially? (No). 3. Whether the taxpayer incurred liability in respect of the costs of the proceedings in the Supreme Court which should properly have been taken into account in ascertaining the amount of any gain made by the taxpayer and, alternatively, whether those costs were an outgoing of a revenue nature incurred in gaining the income comprised in the award made by the Supreme Court? (No). 1. Whether the taxpayer received the sum of equitable compensation awarded by the Supreme Court as constructive trustee for Disctronics? (No). 2. If not, whether the taxpayer had assigned the right to receive that amount such that the income was not derived by him beneficially? (No). 3. Whether the taxpayer incurred liability in respect of the costs of the proceedings in the Supreme Court which should properly have been taken into account in ascertaining the amount of any gain made by the taxpayer and, alternatively, whether those costs were an outgoing of a revenue nature incurred in gaining the income comprised in the award made by the Supreme Court? (No).", "ATO_View_of_Decision": "The views expressed by the High Court are consistent with the Commissioner's view and current practices.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | N/A | Implications for impacted Law Administration Practice Statements | N/A", "Related_Documents": "Decision Impact Statement | N/A | [2014] HCA 21 | 2014 ATC 20-457 | 14ZZ | 6(1) | 97 | 197(1) | Pt 2D.1 | (1929) 42 CLR 384 | 35 ALR 273 | 87 ATC 5100 | (1996) 138 ALR 259 | (1996) 186 CLR 71 | [2006] HCA 41 | 229 CLR 386 | 229 ALR 58 | (1984) 154 CLR 178 | (1984) 53 ALR 417 | (1980) 80 ATC 4076 | (1984) 156 CLR 41 | (2012) 2012 ATC 20-355 | (2011) 2011 ATC 20-298 | (1726) Sel Cas T King 61 | (1938) 60 CLR 150 | (1963) 109 CLR 9 | 49 ATR 324 | (1985) 157 CLR 1", "Legislative_References": "Taxation Administration Act 1953 14ZZ Income Tax Assessment Act 1936 6(1) 69 97 Corporations Act 2001 197(1) Pt 2D.1", "Case_References": "Barnes v Addy Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 35 ALR 273 Booth v Commissioner of Taxation [1987] HCA 61 164 CLR 159 19 ATR 514 87 ATC 5100 Bray v Ford [1896] AC 44 [1895] All ER Rep 1009 Breen v Williams (1996) 138 ALR 259 (1996) 186 CLR 71 Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41 229 CLR 386 229 ALR 58 Canadian Aero Service Ltd v O'Malley [1974] SCR 592 Chan v Zacharia (1984) 154 CLR 178 (1984) 53 ALR 417 Clay v Clay (2001) 202 CLR 410 (2001) 178 ALR 193 [2001] HCA 9 Disctronics Ltd v Edmonds (No. 2) [2002] VSC 534 Disctronics Ltd v Edmonds [2002] VSC 454 Edmonds v Donovan [2005] VSCA 27 (2005) 12 VR 513 Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 (1980) 80 ATC 4076 (1980) 10 ATR 608 Furs Ltd v Tomkies (1936) 54 CLR 583 [1936] HCA 3 Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 [1968] HCA 37 Hirsche v Sims [1894] AC 654 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 [1984] HCA 64 Howard v Federal Commissioner of Taxation (2012) 206 FCR 329 [2012] FCAFC 149 (2012) 2012 ATC 20-355 Howard v Federal Commissioner of Taxation (No 2) (2011) 86 ATR 753 [2011] FCA 1421 (2011) 2011 ATC 20-298 Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443 Keech v Sandford (1726) Sel Cas T King 61 Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd (1958) 100 CLR 342 Maguire v Makaronis (1997) 188 CLR 449 Mills v Mills (1938) 60 CLR 150 Ngurli Ltd v McCann (1953) 90 CLR 425 [1953] HCA 39 Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 Pacifica Shipping Co Ltd v Andersen [1986] 2 NZLR 328 Phelan v Middle States Oil Corporation 220 F 2d 593 at 602 (1955) Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 49 ATR 324 R v Byrnes (1995) 183 CLR 501 [1995] HCA 1 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Richard Brady Franks Ltd v Price (1937) 58 CLR 112 [1937] HCA 42 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Warman International Ltd v Dwyer (1995) 182 CLR 544", "Subject_References": "Accountability of company officers & directors (Directors duties) Assignment of rights and entitlements Constructive trusts Derivation of income Equitable interests Fiduciary duties Whether expense incurred", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M140/2013/00001", "Unmatched_Content": "Note: A separate aspect of the Howard litigation concerned whether distributions of trust corpus received by an Australian resident individual in the 2006 year from a Jersey Trust were assessable income of the taxpayer in that year. This aspect of the litigation is dealt within a separate Decision Impact Statement | This decision has no impact for ATO precedential documents and Law Administration Practice Statements"}
{"Case_Name": "LNNB and Ors and Commissioner of Taxation", "Venue_Reference_No": "2011/4054 - 2011/4061", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 July 2014", "Date_Published": "9 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2014] AATA 527", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/4054-2011/4061/00001", "Unmatched_Content": "LNNB and Ors and Commissioner of Taxation [2014] AATA 527 | The adverse aspect/s of the decision concerns administrative penalties and have no wider ramifications | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "North Sydney Developments Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2013/4756", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "6 June 2014", "Date_Published": "26 June 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which is concerned with entitlement to input tax credits for acquisitions made more than 4 years previously, whether adequate notice was given within the 4 year period, and the effect of a lodgment and payment notice issued to the taxpayer.", "Overview_of_Facts": "Tribunal review from a disallowance of an objection against an unfavourable private binding ruling. 1. Between May 2004 and November 2005, North Sydney Developments Pty Ltd ('North Sydney') lodged monthly Business Activity Statements ('BASs') reporting acquisitions of $11.78 million, and no sales. The acquisitions related to the development of a substantial, but uncompleted property. The Commissioner accepted that North Sydney was entitled to input tax credits in relation to the acquisitions reported in each of the lodged BASs. 2. North Sydney did not lodge BASs for the December 2005 or January 2006 tax periods. 3. In February and March 2006, the Commissioner issued 'lodgment and payment' notices requiring North Sydney to lodge its December 2005 and January 2006 BASs respectively and pay any outstanding liabilities immediately. 4. On 8 March 2006, a mortgagee appointed a controller of the incomplete building and on 23 June 2006, North Sydney was placed into receivership. The Receiver subsequently sold the partially completed building. 5. On 3 September 2009, North Sydney wrote to the Commissioner. The letter advised that: a) Receivers were appointed for North Sydney on 8 March 2006 and 'ASIC and the receivers have taken the entities books and records and refused to return them or provide access'; b) North Sydney could not complete the lodgment of the December 2005 and January 2006 BASs; c) 'Substantial GST refunds' were due for these months; and d) North Sydney could not lodge BASs for these months until it gained access to the necessary books and records. 6. On 6 June 2013, the Commissioner ruled that although North Sydney was entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) 1999 ('GST Act') for the December 2005 and January 2006 tax periods, the entitlement had ceased under the time limit set in section 105-55 of Schedule 1 to the Taxation Administration Act 1953 ('TAA'). [1] | 1. Between May 2004 and November 2005, North Sydney Developments Pty Ltd ('North Sydney') lodged monthly Business Activity Statements ('BASs') reporting acquisitions of $11.78 million, and no sales. The acquisitions related to the development of a substantial, but uncompleted property. The Commissioner accepted that North Sydney was entitled to input tax credits in relation to the acquisitions reported in each of the lodged BASs. 2. North Sydney did not lodge BASs for the December 2005 or January 2006 tax periods. 3. In February and March 2006, the Commissioner issued 'lodgment and payment' notices requiring North Sydney to lodge its December 2005 and January 2006 BASs respectively and pay any outstanding liabilities immediately. 4. On 8 March 2006, a mortgagee appointed a controller of the incomplete building and on 23 June 2006, North Sydney was placed into receivership. The Receiver subsequently sold the partially completed building. 5. On 3 September 2009, North Sydney wrote to the Commissioner. The letter advised that: a) Receivers were appointed for North Sydney on 8 March 2006 and 'ASIC and the receivers have taken the entities books and records and refused to return them or provide access'; b) North Sydney could not complete the lodgment of the December 2005 and January 2006 BASs; c) 'Substantial GST refunds' were due for these months; and d) North Sydney could not lodge BASs for these months until it gained access to the necessary books and records. 6. On 6 June 2013, the Commissioner ruled that although North Sydney was entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) 1999 ('GST Act') for the December 2005 and January 2006 tax periods, the entitlement had ceased under the time limit set in section 105-55 of Schedule 1 to the Taxation Administration Act 1953 ('TAA'). [1] | a) Receivers were appointed for North Sydney on 8 March 2006 and 'ASIC and the receivers have taken the entities books and records and refused to return them or provide access'; b) North Sydney could not complete the lodgment of the December 2005 and January 2006 BASs; c) 'Substantial GST refunds' were due for these months; and d) North Sydney could not lodge BASs for these months until it gained access to the necessary books and records. | Issues Decided by the Tribunal | 1. Whether North Sydney's letter of 3 September 2009, to the Commissioner, satisfied the 'notification' requirement in section 105-55, thereby extending the four year time limit in that section in relation to entitlements to input tax credits for acquisitions made more than four years ago? | The Tribunal concluded at [31] that North Sydney's 3 September 2009 letter did notify the Commissioner of \"the refund, other payment or credit\", and was a complying notification for the purposes of the 4 year limitation in section 105-55, in relation to input tax credits relating to the December 2005 and January 2006 tax periods. | In reaching its conclusion, the Tribunal at [14] rejected the Commissioner's submission that in order to be a valid notice, the communication relied on by a taxpayer must provide \"the specific nature of the refund and the circumstances under which the refund arises\". | The Tribunal held at [31] that the section requires no greater specification than the tax period involved and the nature of the refund or input tax credit claimed, and that the letter, by describing the notification as relating to the expected outcome of specified BASs, satisfied those requirements. The Tribunal also went on to say that even if the letter did require some greater degree of specificity, it satisfied that requirement by indicating that the reason for the notification was the lack of access to contemporary books and records in the possession of the Receiver. | In reaching these findings, the Tribunal considered earlier decisions [2] and determined that there was no requirement for formal content notification, a specific amount, or further sufficiency of notice to be communicated other than that a claim is being made for a particular tax period. The Tribunal considered that section 105-55 did not support a requirement for further circumstances for notification when this section is satisfied by lodging a GST return without such circumstances stated. North Sydney's letter satisfied the requisite notification requirements because it referred to an expected entitlement to GST refunds for the December 2005 and January 2006 BASs and explained that the BASs were not completed because of a lack of access to books and records. | 2. Whether circumstances previously notified to the Commissioner could rectify an otherwise 'deficient' 105-55 notice (letter) for the notice to provide 'sufficient notice'? | Consistent with the Commissioner's submissions, the Tribunal concluded that if North Sydney's letter had been deficient as a section 105-55 notice, then that deficiency could not have been overcome by referring to information that had been provided to the Commissioner about North Sydney's activities in relation to previous tax periods. The Tribunal considered at [35] that 'whatever informality may be permissible for the purpose of an effective notification, it is the communication relied on as the notification that must provide the requisite information'. Further at [35], the Tribunal stated that 'expectation and inference are not the same as notification'. | 3. Whether the 'lodgment and payment notices' issued by the Commissioner for the December 2005 and January 2006 tax periods were 'notices' under paragraph 105-50(3)(a)? | North Sydney argued in the alternative that the lodgment and payment notices issued by the Commissioner for the December 2005 and January 2006 tax periods were effective notices for the purposes of paragraph 105-50(3)(a). Accordingly, their entitlement to the relevant input tax credits would have been preserved, even in the absence of an effective section 105-55 notice. [3] | The Tribunal concluded at [33] that the lodgment and payment notices did not relate to any \"unpaid amount of tax\" of the kind to which section 105-50 applied. There was no evidence that North Sydney had any unpaid liability at all for the relevant tax periods. Accordingly, the notices did not operate to remove the 4 year time limit that would otherwise apply.", "Issues_Decided": "1. Whether North Sydney's letter of 3 September 2009, to the Commissioner, satisfied the 'notification' requirement in section 105-55, thereby extending the four year time limit in that section in relation to entitlements to input tax credits for acquisitions made more than four years ago?: The Tribunal concluded at [31] that North Sydney's 3 September 2009 letter did notify the Commissioner of \"the refund, other payment or credit\", and was a complying notification for the purposes of the 4 year limitation in section 105-55, in relation to input tax credits relating to the December 2005 and January 2006 tax periods. In reaching its conclusion, the Tribunal at [14] rejected the Commissioner's submission that in order to be a valid notice, the communication relied on by a taxpayer must provide \"the specific nature of the refund and the circumstances under which the refund arises\". The Tribunal held at [31] that the section requires no greater specification than the tax period involved and the nature of the refund or input tax credit claimed, and that the letter, by describing the notification as relating to the expected outcome of specified BASs, satisfied those requirements. The Tribunal also went on to say that even if the letter did require some greater degree of specificity, it satisfied that requirement by indicating that the reason for the notification was the lack of access to contemporary books and records in the possession of the Receiver. In reaching these findings, the Tribunal considered earlier decisions [2] and determined that there was no requirement for formal content notification, a specific amount, or further sufficiency of notice to be communicated other than that a claim is being made for a particular tax period. The Tribunal considered that section 105-55 did not support a requirement for further circumstances for notification when this section is satisfied by lodging a GST return without such circumstances stated. North Sydney's letter satisfied the requisite notification requirements because it referred to an expected entitlement to GST refunds for the December 2005 and January 2006 BASs and explained that the BASs were not completed because of a lack of access to books and records. | 2. Whether circumstances previously notified to the Commissioner could rectify an otherwise 'deficient' 105-55 notice (letter) for the notice to provide 'sufficient notice'?: Consistent with the Commissioner's submissions, the Tribunal concluded that if North Sydney's letter had been deficient as a section 105-55 notice, then that deficiency could not have been overcome by referring to information that had been provided to the Commissioner about North Sydney's activities in relation to previous tax periods. The Tribunal considered at [35] that 'whatever informality may be permissible for the purpose of an effective notification, it is the communication relied on as the notification that must provide the requisite information'. Further at [35], the Tribunal stated that 'expectation and inference are not the same as notification'. | 3. Whether the 'lodgment and payment notices' issued by the Commissioner for the December 2005 and January 2006 tax periods were 'notices' under paragraph 105-50(3)(a)?: North Sydney argued in the alternative that the lodgment and payment notices issued by the Commissioner for the December 2005 and January 2006 tax periods were effective notices for the purposes of paragraph 105-50(3)(a). Accordingly, their entitlement to the relevant input tax credits would have been preserved, even in the absence of an effective section 105-55 notice. [3] The Tribunal concluded at [33] that the lodgment and payment notices did not relate to any \"unpaid amount of tax\" of the kind to which section 105-50 applied. There was no evidence that North Sydney had any unpaid liability at all for the relevant tax periods. Accordingly, the notices did not operate to remove the 4 year time limit that would otherwise apply.", "ATO_View_of_Decision": "1. Whether the letter sent to the Commissioner by North Sydney on 3 September 2009 satisfied the 'notification' requirement in section 105-55 to extend the conditional four year time limit to claim input tax credits for a particular tax period? | The Commissioner accepts the conclusion of the Tribunal that North Sydney's letter of 3 September 2009 satisfied the 'notification' requirement in section 105-55. | 2. Whether circumstances previously notified to the Commissioner could rectify an otherwise 'deficient' 105-55 notice (letter) for the notice to provide 'sufficient notice'? | The Tribunal's conclusions at [34 to 35] are consistent with the Commissioner's submissions in this case. That is, as stated by the Tribunal, a notification under section 105-55 should not be based on expectation and inference drawn from previously lodged information that discloses the general nature of activities conducted for previous tax periods. It is the notification that is relied on to provide the requisite information. | 3. Whether the 'lodgment and payment notices' issued by the Commissioner for the December 2005 and January 2006 tax periods were 'notices' under paragraph 105-50(3)(a)? | This issue arose from North Sydney's alternative argument in the event that the letter of 3 September 2009 was not an effective notice for the purposes of section 105-55. | The Tribunal's finding at [33] that the lodgment and payment notices did not engage the exception in subparagraph 93-10(1)(a)(i) of the GST Act because North Sydney's claim to input tax credits did not arise out of an unpaid net amount or an amount of indirect tax is consistent with the Commissioner's view. | Consistent with the Tribunal's decision, the Commissioner's view is that a lodgment and payment demand notice is not an effective notice for the purpose of subparagraph 105-50(3)(a)(i) in the specific circumstances (such as in this case) where there is no GST liability attributable to the relevant tax periods for which the notice was originally issued. Consequently, the exception in subparagraph 93-10(1)(a)(i) does not apply in these circumstances.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | An addendum to MT 2009/1 [4] was published on 24 June 2015 to reflect the Tribunal's decision in this case and the views set out in this Decision Impact Statement. | Implications for impacted Law Administration Practice Statements | The Commissioner has published changes to PS LA 2009/3 [5] to reflect the Tribunal's decision in this case and the views set out in this Decision Impact Statement. | [1] All further legislative references are to Schedule 1 to the TAA unless otherwise specified. | [2] In particular, Central Equity Ltd v Federal Commissioner of Taxation [2011] FCA 908, Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370, MTAA Superannuation Fund ( RG Casey Building ) Property Pty Ltd v Commissioner of Taxation [2011] AATA 769, and National Jet Systems Pty Ltd v Commissioner of Taxation [2011] AATA 766. | [3] Under subsection 93-10(1) of the GST Act, the 4 year time limit on entitlement to input tax credits does not apply where the input tax credit arises out of circumstances that also gave rise to an unpaid amount in relation to which the Commissioner has provided a notice under paragraph 105-50(3)(a) requiring payment. | [4] Miscellaneous Tax Ruling MT 2009/1 Miscellaneous taxes: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953 . | [5] Law Administration Practice Statement PS LA 2009/3 Time limit on recovery by the Commissioner .", "Related_Documents": "MT 2009/1 | PS LA 2009/3 | 2014 ATC 10-365 | 93-5 | 93-10(1) | 2011 ATC 20-274 | 2011 ATC 10-213 | 2011 ATC 10-212 | 2013 ATC 10-301 | 2012 ATC 20-362 | 2009 ATC 20-143 | (2011) 2011 ATC 10-180", "Legislative_References": "Taxation Administration Act 1953 105-55 105-50(3)(a) A New Tax System (Goods and Services Tax) Act 1999 93-5 93-10(1) 93-10(3)", "Case_References": "Central Equity Limited and Another v Federal Commissioner of Taxation (2011) 214 FCR 255 [2011] FCA 908 2011 ATC 20-274 (2011) 82 ATR 550 MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd and Federal Commissioner of Taxation [2011] AATA 769 2011 ATC 10-213 (2011) 84 ATR 334 National Jet Systems Pty Ltd and Federal Commissioner of Taxation [2011] AATA 766 (2011) 82 ATR 740 2011 ATC 10-212 Brookdale Investments Pty Ltd v Federal Commissioner of Taxation [2013] AATA 154 2013 ATC 10-301 Cyonara Snowfox Pty Ltd v Federal Commissioner of Taxation (2012) 208 FCR 471 [2012] FCAFC 177 2012 ATC 20-362 (2012) 89 ATR 122 Russell v Federal Commissioner of Taxation [2009] FCA 1224 2009 ATC 20-143 (2009) 74 ATR 466 Wynnum Holdings No. 1 v Commissioner of Taxation [2011] AATA 296 (2011) 2011 ATC 10-180 (2011) 83 ATR 444", "Subject_References": "GST input tax credits and creditable acquisitions GST refunds GST returns, payments and refunds", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/4756/00001", "Unmatched_Content": ""}
{"Case_Name": "Power v Deputy Commissioner of Taxation", "Venue_Reference_No": "2012/368875; S104/2014", "Venue": "Miscellaneous - Australian", "Judgment_Date": "15 October 2014", "Date_Published": "15 October 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "The ATO issued four DPNs to the taxpayer in respect of seven periods of unpaid pay as you go withholding (PAYGW) of Oakdale Formwork Pty Ltd (Oakdale), of which he was a director. Two notices were sent on 8 February 2011, one on 11 April 2011 and one on 25 May 2011. | The DPNs set out the provision pursuant to which notice was given (section 269-15), the particular source of the recipient's liability by reference to their status as a director of the relevant company, the provision that gave rise to the Oakdale's liability (section 16-70), and consequently the recipient's liability to make payments to the Commissioner, and the periods in respect of which the notice was being given. | On 30 June 2011, the Commissioner filed a Statement of Claim against the taxpayer in the Supreme Court of New South Wales seeking to recover the director penalty liabilities. | The taxpayer sought to defend the proceedings on the basis that the Commissioner was not entitled to recover the director penalties liabilities on the basis that the DPNs were invalid as they failed to comply with the following specification in paragraph 269-25(2)(b) of Schedule 1 to the TAA 1953: must...state that you are liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount because of an obligation you have or had under this Division. | On 9 November 2012, Justice Johnson of the Supreme Court of New South Wales rejected the taxpayer's argument and entered judgment against the taxpayer. The taxpayer appealed the decision to the NSW Court of Appeal and subsequently filed an application to the High Court seeking special leave to appeal. | Issues Decided by the Court | The NSW Court of Appeal rejected the taxpayer's argument that paragraph 269-25(2)(b) requires that a DPN must expressly state that the taxpayer's liability arises because of an obligation they have under Division 269 of Schedule 1 to the TAA 1953. | The Court held that the notice satisfied the requirements of s 269-25(2)(b) because it informed the director he was liable because of statutory provisions associated with s 269-25. The notice effectively called attention to Division 269. There was no separate requirement that the recipient be expressly informed that the source of the obligation was Division 269. | The High Court determined that the NSW Court of Appeal decision was plainly right and accordingly dismissed the special leave application", "Issues_Decided": "The NSW Court of Appeal rejected the taxpayer's argument that paragraph 269-25(2)(b) requires that a DPN must expressly state that the taxpayer's liability arises because of an obligation they have under Division 269 of Schedule 1 to the TAA 1953. The Court held that the notice satisfied the requirements of s 269-25(2)(b) because it informed the director he was liable because of statutory provisions associated with s 269-25. The notice effectively called attention to Division 269. There was no separate requirement that the recipient be expressly informed that the source of the obligation was Division 269. The High Court determined that the NSW Court of Appeal decision was plainly right and accordingly dismissed the special leave application", "ATO_View_of_Decision": "The decision of the Supreme Court and the Court of Appeal, which the High Court stated was plainly right, is consistent with the Commissioner's view and current procedures.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | Not applicable | Implications for impacted Law Administration Practice Statements | Not applicable", "Related_Documents": "Not Applicable | Power v Deputy Commissioner of Taxation | Deputy Commissioner of Taxation v Power | Section 269-15 of Schedule 1 | Subsection 269-25(2) of Schedule 1 | Paragraph 269-25(2)(b) of Schedule 1 | 2000 ATC 4141 | 2010 ATC 20-174 | [2012] WADC 70", "Legislative_References": "Taxation Administration Act 1953 Section 269-15 of Schedule 1 Subsection 269-25(2) of Schedule 1 Paragraph 269-25(2)(b) of Schedule 1", "Case_References": "Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 2000 ATC 4141 (2000) 43 ATR 757 Robertson v Deputy Commissioner of Taxation [2010] NSWCA 58 239 FLR 29 2010 ATC 20-174 78 ATR 850 Deputy Commissioner of Taxation v Di Florio (No. 2) [2012] WADC 70", "Subject_References": "Validity of director penalty notices Requirements of paragraph 269-25(2) (b) of Schedule 1 to the TAA 1953", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S104/2014/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "PTTEP Australasia (Ashmore Cartier) Pty Ltd v Commissioner of Taxation; and PTTEP Australasia (Ashmore Cartier) Pty Ltd v Commissioner of Taxation (No 2)", "Venue_Reference_No": "VID 1327 of 2013; VID 1328 of 2013; VID 1329 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "13 June 2014", "Date_Published": "12 November 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerns whether an 'Interest Value' expense under a contract for the sale of stabilised crude oil reduced the taxpayer's assessable petroleum receipts for the purposes of paragraph 24(1)(b) of the Petroleum Resource Rent Tax Assessment Act 1987 (Cth) (PRRTAA) or, alternatively, was deductible expenditure under section 38. | On appeal from the decision of Gordon J, the Full Federal Court found that the relevant contractual provisions effected a replacement of the 'actual amount payable' for the stabilised crude oil with an 'Adjusted Payment Amount'.", "Overview_of_Facts": "The taxpayer sold stabilised crude oil (Crude) produced in the Jabiru-Challis petroleum project to the buyer under an agreement, dated 22 February 2005 (the sale agreement). The sale of the Crude was on a 'Shipment by Shipment' basis. The point at which the Crude was sold, and at which all title, risk and property in the Crude passed to buyer, was defined under the sale agreement as the point at which the Crude passed the loading hose flange on the manifold of the receiving oil tanker. The date each loading of Crude was completed was defined as the 'Bill of Lading Date'. The price for each barrel of Crude was calculated pursuant to a formula, which was based on the arithmetic mean of the 'APPI' (Asian Petroleum Price Index) for Tapis crude for 30 days commencing 60 days prior to the Bill of Lading Date (the clause 4.1 price). The taxpayer was obliged to promptly provide the buyer with an invoice for the clause 4.1 price for each Shipment of Crude. Shipments from each of the Jabiru field and Challis field were separately invoiced. The buyer was obliged to make payment of the clause 4.1 price within 30 days of the Bill of Lading Date. | The sale agreement was amended on 1 June 2005 to insert a new clause 8 entitled 'Cash Flow Equalisation'. Under new clause 8.3, on the tenth business day of the last month of each quarter the seller was obliged to give the buyer notice of the expected Crude production for the quarter. Pursuant to clause 8.4, the buyer was obliged to pay an amount described as the 'Quarterly Deemed Payment Amount' (QDPA). The QDPA was based on the 'Expected Quarterly Production' and a 'Deemed Price' (using a deemed Bill Of Lading Date at the mid-point of the quarter) and was payable no later than 10 days after the end of the quarter. | Clause 8.7 provided that the amount payable by the buyer for each Shipment of Crude was subject to adjustment as follows: The Adjusted Payment Amount in USD = A - B. | The Adjusted Payment Amount in USD = A - B. | A was the actual amount payable in accordance with clause 4 (that is, the clause 4.1 price). B was the sum of the 'Value of Lifted QDPA Barrels' (in effect, the amount of the QDPA(s) actually allocated to particular Shipments of Crude) and the 'Interest Value' (an amount of interest on the QDPA(s) actually allocated to the particular Shipments, calculated from the date of payment of the QDPA(s) to the date of allocation). Clause 8.8 provided that if the Adjusted Payment Amount was positive, then the buyer shall make payment of the Adjusted Payment Amount in substitution of the amount payable for the Shipment of Crude. Conversely, if the Adjusted Paymenty Amount was negative the buyer was not required to make any payment for the Shipment of Crude and the taxpayer would instead be obliged to pay the Adjusted Payment Amount to the buyer. | The sale agreement was further amended on 1 March 2006 to include new clause 8.9, which provided for the repayment by the taxpayer of any QDPA not allocated to a Shipment and the payment of interest by the taxpayer on any such (unallocated) QDPA. The further amendments also made the application of the Cash Flow Equalisation under clause 8 subject to an election by the taxpayer. In each relevant quarter, the taxpayer elected to apply clause 8. | Issues Decided by the Court | The appeals concerned the identification of the consideration receivable by the taxpayer for the purposes of paragraph 24(1)(b) of the PRRTAA in respect of the sale of Crude under the sale agreement for the years of tax ended 30 June 2006 to 30 June 2008. In particular, whether clause 8 of the sale agreement operated to substitute the amount payable under that clause for the clause 4.1 price (in effect, to reduce the amount payable by the Interest Value in respect of the QDPA(s) allocated to the particular Shipment of Crude). | The Full Court found that her Honour Justice Gordon below erred in accepting the Commissioner's argument that clause 8.7 did not replace the consideration receivable that had been provided under clause 4.1. According to their Honours at paragraph 20, the agreement between the taxpayer and the buyer was intended to secure for the taxpayer the economic returns struck in clause 4.1 (that is, the clause 4.1 price). However, the payment of the QDPA in advance of the lifting of Crude meant that the taxpayer had the use of funds before they were appropriated to particular Shipments. For that reason, their Honours concluded that 'clause 8 needed to be and was a replacement for the consideration receivable.' | In determining the relevant character of the QDPA, their Honours at paragraph 17 agreed with the findings of her Honour Justice Gordon below that when paid the QDPA did not constitute consideration receivable for the purposes of the PRRTAA. However, their Honours concluded at paragraph 22 that upon part of the QDPA being carefully and specifically appropriated in discharge of amounts due for a specific Shipment of Crude, each such amount as appropriated became part of the consideration for the purposes of paragraph 24(1)(b) of the PRRTAA. | Their Honours held at paragraph 20, that clause 8.7 in its terms made it clear that the amount payable for each shipment was to be adjusted and that clause 4 would no longer operate in isolation, but rather through the mechanism in clause 8.7. That is, the calculation of the clause 8.7 amount required determination of the clause 4.1 price and an adjustment to it by taking into account the value of the appropriated QDPA, less an allowance for the time value of the money that is, the Interest Value). | At paragraph 21, their Honours justified their conclusion on the basis that the 'net effect of the arrangement was the economic recognition that the actual amount payable to the taxpayer had to take into account the fact that it, as the seller, has the economic use of the funds for a short period of time. It was conceptually no different from the parties agreeing to accept an amount if paid in advance for a different amount if paid on the date of transfer.' | Their Honours concluded at paragraph 33 that if they were correct in relation to the construction of clause 8 of the sale agreement, then it is the consideration for the purposes of paragraph 24(1)(b) of the PRRTAA. Their Honours also concluded that the fact that the adjustment to the amount payable was not made at the time of delivery is not determinative of the question of the consideration receivable in relation to the sale under paragraph 24(1)(b). | It was not necessary for their Honours to address the alternative contentions, namely, whether the Interest Value was an expense payable in relation to the sale for the purposes of paragraph 24(1)(b) of the PRRTAA, or deductible expenditure under section 38.", "Issues_Decided": "The appeals concerned the identification of the consideration receivable by the taxpayer for the purposes of paragraph 24(1)(b) of the PRRTAA in respect of the sale of Crude under the sale agreement for the years of tax ended 30 June 2006 to 30 June 2008. In particular, whether clause 8 of the sale agreement operated to substitute the amount payable under that clause for the clause 4.1 price (in effect, to reduce the amount payable by the Interest Value in respect of the QDPA(s) allocated to the particular Shipment of Crude). The Full Court found that her Honour Justice Gordon below erred in accepting the Commissioner's argument that clause 8.7 did not replace the consideration receivable that had been provided under clause 4.1. According to their Honours at paragraph 20, the agreement between the taxpayer and the buyer was intended to secure for the taxpayer the economic returns struck in clause 4.1 (that is, the clause 4.1 price). However, the payment of the QDPA in advance of the lifting of Crude meant that the taxpayer had the use of funds before they were appropriated to particular Shipments. For that reason, their Honours concluded that 'clause 8 needed to be and was a replacement for the consideration receivable.' In determining the relevant character of the QDPA, their Honours at paragraph 17 agreed with the findings of her Honour Justice Gordon below that when paid the QDPA did not constitute consideration receivable for the purposes of the PRRTAA. However, their Honours concluded at paragraph 22 that upon part of the QDPA being carefully and specifically appropriated in discharge of amounts due for a specific Shipment of Crude, each such amount as appropriated became part of the consideration for the purposes of paragraph 24(1)(b) of the PRRTAA. Their Honours held at paragraph 20, that clause 8.7 in its terms made it clear that the amount payable for each shipment was to be adjusted and that clause 4 would no longer operate in isolation, but rather through the mechanism in clause 8.7. That is, the calculation of the clause 8.7 amount required determination of the clause 4.1 price and an adjustment to it by taking into account the value of the appropriated QDPA, less an allowance for the time value of the money that is, the Interest Value). At paragraph 21, their Honours justified their conclusion on the basis that the 'net effect of the arrangement was the economic recognition that the actual amount payable to the taxpayer had to take into account the fact that it, as the seller, has the economic use of the funds for a short period of time. It was conceptually no different from the parties agreeing to accept an amount if paid in advance for a different amount if paid on the date of transfer.' Their Honours concluded at paragraph 33 that if they were correct in relation to the construction of clause 8 of the sale agreement, then it is the consideration for the purposes of paragraph 24(1)(b) of the PRRTAA. Their Honours also concluded that the fact that the adjustment to the amount payable was not made at the time of delivery is not determinative of the question of the consideration receivable in relation to the sale under paragraph 24(1)(b). It was not necessary for their Honours to address the alternative contentions, namely, whether the Interest Value was an expense payable in relation to the sale for the purposes of paragraph 24(1)(b) of the PRRTAA, or deductible expenditure under section 38.", "ATO_View_of_Decision": "The appeals were concerned with the identification of the consideration receivable by the taxpayer in respect of Crude it sold under the sale agreement. The Full Court found that clause 8 of the sale agreement operated to substitute the amount payable under that clause for the amount payable under clause 4.1. | The decision in the case turned on the construction of the particular sale agreement between the taxpayer and buyer and the application to that agreement of principles concerning paragraph 24(1)(b) of the PRRTAA established in Woodside Energy Ltd v Federal Commissioner of Taxation (No 2) [2007] FCA 1961 and Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation [2011] FCAFC 154. This was confirmed by the Full Court in [2014] FCAFC 96 at paragraph 8. | The ATO accepts the Full Court's reasoning and will seek to administer the law in a consistent manner in future cases. Whether future cases are analogous to this case will depend on a careful analysis of the contractual arrangements in question.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | N/A | Implications for impacted Law Administration Practice Statements | N/A", "Related_Documents": "N/A | section 24 | [2011] FCA 360 | 194 FCR 32 | (2011) 83 ATR 47 | [2011] FCAFC 154 | [2007] FCA 1961 | [2009] FCAFC 12 | (2009) 174 FCR 91", "Legislative_References": "Petroleum Resource Rent Tax Assessment Act 1987 section 24", "Case_References": "Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation [2011] FCA 360 194 FCR 32 (2011) 83 ATR 47 Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation [2011] FCAFC 154 (2011) 199 FCR 226 (2011) 86 ATR 525 PTTEP Australasia (Ashmore Cartier) Pty Ltd v Commissioner of Taxation [2013] FCA 1175 Woodside Energy Ltd v Federal Commissioner of Taxation (No 2) [2007] FCA 1961 (2007) 69 ATR 465 Woodside Energy Ltd v Federal Commissioner of Taxation [2009] FCAFC 12 (2009) 174 FCR 91 (2009) 74 ATR 922", "Subject_References": "Petroleum Resource Rent Tax stabilised crude oil assessable petroleum receipts consideration receivable cash flow equalisation interest value interpretation of contract", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1327of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Rigoli v Commissioner of Taxation", "Venue_Reference_No": "VID 891 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "18 March 2014", "Date_Published": "30 April 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether, to establish in a tax appeal that a default assessment is excessive, a taxpayer can 'concede' parts of the Commissioner's calculation or must prove the actual amount of his taxable income.", "Overview_of_Facts": "During the 1994 to 2001 income years, the taxpayer carried on business in partnership. The partnership did not keep business records. The taxpayer did not initially lodge an income tax return for any of those years of income, and the Commissioner made default assessments under section 167 of the Income Tax Assessment Act 1936 ('ITAA 1936') of the amount upon which, in his judgment, income tax ought to be levied for each year. The taxpayer objected to the assessments on the simple ground that he had 'no taxable income'. | Before the AAT, the taxpayer treated the assessments as if they were assessments for each year of his assessable income less allowable deductions. In so doing, his counsel informed the AAT that the taxpayer no longer challenged the amounts which he claimed had been identified by the Commissioner as his assessable income ('the concession'). He maintained that what was then left in dispute before the AAT was his entitlement to deductions by way of depreciation which the Commissioner had not allowed. | The AAT (SM Fice) [2012] AATA 757 accepted the taxpayer's arguments that the Commissioner had made assessments of the taxpayer's taxable income, in the sense of assessable income less allowable deductions, and that a taxpayer could prove that such assessments were excessive simply by a correction to one element of the assessments. The AAT accepted the 'concession' of the taxpayer about the amount of his assessable income and proceeded to determine that the assessments were excessive because the taxpayer was entitled to some depreciation deductions. | On the Commissioner's appeal from the decision of the AAT, the Federal Court (Pagone J) [2013] FCA 784 made it clear that, for a taxpayer to succeed in establishing that an assessment under section 167 was excessive, the taxpayer must establish what was the actual amount of his taxable income, and not just point to some error made by the Commissioner in his calculation. That could not be done, as the AAT thought in this case, by assuming that only part of the assessment was in contention before it. The AAT erred in thinking that what was before it under section 167 was an assessment of taxable income, being assessable income less allowable deductions, rather than an assessment of the amount on which the Commissioner considered income tax ought to be levied. The Court concluded that the taxpayer had not discharged his burden of proof, allowed the Commissioner's appeal, set aside the decision of the AAT and remitted the proceeding to it. | The taxpayer appealed to the Full Court. The Commissioner filed a cross-appeal from the order of the Court remitting the matter to the AAT, on the basis that, having found that the burden of proof under section 14ZZK of the Taxation Administration Act 1953 had not been discharged by the taxpayer, remitter was futile. | Issues decided by the court | The Taxpayer's appeal | The Full Court dismissed the taxpayer's appeal, finding that the 'reasoning and conclusions of the primary judge were entirely correct'. [27] | The taxpayer's central argument was that the primary judge mischaracterised both the substance and the effect of the 'concession' made before the AAT. In essence, the proposition was that, in accepting the 'concession', the AAT was engaged under subsection 43(1) of the Administrative Appeals Tribunal Act 1975 ('AAT Act') in a merits review of what the Commissioner had done under section 167, which was different to what a court would do in judicial review. The AAT was said to have treated the 'concession' as the taxpayer adopting evidence of the Commissioner. | The Full Court found that the taxpayer's burden of proof was not discharged by the 'concession' made. The concession was not understood by the AAT to be the taxpayer adducing any evidence about his taxable income, rather it was an acceptance that his assessable income was not in dispute before the AAT. The AAT was not purporting to form any judgment of an amount under section 167. [20]-[22]. | The Full Court also noted that the taxpayer's argument about merits review by the AAT ignores the effect of section 14ZZK, which requires the taxpayer to prove that an assessment is excessive. [26] | The Commissioner's cross-appeal | The Full Court dismissed the cross-appeal on the basis that it was difficult to identify any legal error in the exercise of the trial judge's discretion under subsection 44(5) of the AAT Act to remit the matter to the AAT, especially as the Commissioner made no express submissions to his Honour that doing so would be futile, and that he should simply affirm the Commissioner's objection decisions. [33] | However, the Court observed at [34] that: \"Doubtless because the question of remittal was not raised before the primary judge, his Honour did not consider the practicalities of the course which he ordered. Now that the question has been raised, and debated, on the cross-appeal, and while we would not interfere with the exercise of his Honour's discretion, we do propose to introduce a limitation on the nature of the proceeding which the AAT will then conduct.\" | The condition imposed on the return of the proceeding to the AAT is that no further evidence be adduced unless proper cause is shown.", "Issues_Decided": "The Taxpayer's appeal: The Full Court dismissed the taxpayer's appeal, finding that the 'reasoning and conclusions of the primary judge were entirely correct'. [27] The taxpayer's central argument was that the primary judge mischaracterised both the substance and the effect of the 'concession' made before the AAT. In essence, the proposition was that, in accepting the 'concession', the AAT was engaged under subsection 43(1) of the Administrative Appeals Tribunal Act 1975 ('AAT Act') in a merits review of what the Commissioner had done under section 167, which was different to what a court would do in judicial review. The AAT was said to have treated the 'concession' as the taxpayer adopting evidence of the Commissioner. The Full Court found that the taxpayer's burden of proof was not discharged by the 'concession' made. The concession was not understood by the AAT to be the taxpayer adducing any evidence about his taxable income, rather it was an acceptance that his assessable income was not in dispute before the AAT. The AAT was not purporting to form any judgment of an amount under section 167. [20]-[22]. The Full Court also noted that the taxpayer's argument about merits review by the AAT ignores the effect of section 14ZZK, which requires the taxpayer to prove that an assessment is excessive. [26] | The Commissioner's cross-appeal: The Full Court dismissed the cross-appeal on the basis that it was difficult to identify any legal error in the exercise of the trial judge's discretion under subsection 44(5) of the AAT Act to remit the matter to the AAT, especially as the Commissioner made no express submissions to his Honour that doing so would be futile, and that he should simply affirm the Commissioner's objection decisions. [33] However, the Court observed at [34] that: \"Doubtless because the question of remittal was not raised before the primary judge, his Honour did not consider the practicalities of the course which he ordered. Now that the question has been raised, and debated, on the cross-appeal, and while we would not interfere with the exercise of his Honour's discretion, we do propose to introduce a limitation on the nature of the proceeding which the AAT will then conduct.\" The condition imposed on the return of the proceeding to the AAT is that no further evidence be adduced unless proper cause is shown.", "ATO_View_of_Decision": "The ATO notes that the Court's decision is consistent with the Commissioner's view on what is required by a taxpayer in a tax appeal to discharge the onus of showing that an assessment issued under section 167 is excessive. The ATO also respectfully accepts the decision of the Full Court on the Commissioner's cross-appeal.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "None | 2014 ATC 20-446 | s 166 | s 167 | s 14ZZ | s 14ZZK | s 43(1) | s 44(5) | 90 ATC 4088 | 2013 ATC 20-377 | (1936) 55 CLR 499 | 92 ATC 4373 | (1982) 42 ALR 209 | [2000] HCA 9 | 2013 ATC 20-374 | [2008] HCA 31 | PS LA 2007/24", "Legislative_References": "Income Tax Assessment Act 1936 s 166 s 167 Taxation Administration Act 1953 s 14ZZ s 14ZZK Administrative Appeals Tribunal Act 1975 s 43(1) s 44(5)", "Case_References": "Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 [1990] HCA 3 90 ATC 4088 (1990) 20 ATR 1370 Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301 [2013] FCAFC 30 2013 ATC 20-377 House v R (1936) 55 CLR 499 Ma v Federal Commissioner of Taxation (1992) 37 FCR 225 92 ATC 4373 (1992) 23 ATR 485 Minister for Immigration and Ethnic Affairs v Gungor (1982) 42 ALR 209 Minister for Immigration and Multicultural Affairs v Thiyagarajah (2000) 199 CLR 343 [2000] HCA 9 Peacock v Repatriation Commission (2007) 161 FCR 256 [2007] FCAFC 156 Rawson Finances Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 26 2013 ATC 20-374 (2013) 296 ALR 307 Repatriation Commission v Nation (1995) 57 FCR 25 Shi v Migration Agents Registration Authority (2008) 235 CLR 286 [2008] HCA 31", "Subject_References": "Income tax Default assessments Burden of proof Merits review Excessive", "Other_References": "PS LA 2007/24", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID891of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "RV Investments (Aust) Pty Ltd as Trustee for the RV Unit Trust and Commissioner of Taxation", "Venue_Reference_No": "2012/3282", "Venue": "Federal Court of Australia", "Judgment_Date": "5 November 2014", "Date_Published": "19 January 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012-3282/00001", "Unmatched_Content": "RV Investments (Aust) Pty Ltd as Trustee for the RV Unit Trust and Commissioner of Taxation [2014] FCA 1169 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Ryan and Commissioner for Taxation", "Venue_Reference_No": "[2014] AATA 818", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 October 2014", "Date_Published": "14 January 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2014] AATA 818", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014AATA818/00001", "Unmatched_Content": "The adverse aspect/s of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "The Engineering Manager and Commissioner of Taxation", "Venue_Reference_No": "2014/0089", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "24 December 2014", "Date_Published": "2 March 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the taxpayer [\"Mr M\"] was a 'resident of Australia', as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), in the 2011 year.", "Overview_of_Facts": "The facts as outlined reflect the oral and written evidence given by Mr M and his wife Mrs M and accepted by the Administrative Appeals Tribunal (AAT) in making the decision. | In 2003 Mr and Mrs M jointly purchased a residential property in the suburbs of Perth and built a house there to accommodate their family which included their four children [the Perth Property]. Mr M started working overseas in 2004 at about the same time that Mrs M and their four children moved into the Perth Property. Mrs M gave evidence that only some of Mr M's personal possessions, such as some clothes, were moved to and kept at the Perth Property. Mr M took 'his favourite personal belongings 'including squash gear, laptop, guitar and most of his clothes when he left Australia and lived overseas. | Mr M, an engineer, gave evidence that part of his decision to work overseas from 2004 was 'marital issues' he and Mrs M started having at around that time. Mrs M and the four children stayed in the Perth Property while he worked overseas. Mr M worked overseas for various employers in various locations - Thailand, South Korea, Qatar, Japan and Oman - from 2004 to 2011. Relevantly, Mr M's final overseas contract before returning permanently to Australia was in Oman from January 2010 to April 2011. | In January 2010 Mr M commenced work as an engineering manager in Oman on an ongoing project - he expected his role to continue for a considerable period. His contract was based on a one year term and was renewable annually. The contract was renewed in early 2011. The contract negotiated by Mr M entitled him to employer paid travel to Perth for each period of leave. He was entitled to about 14 days of leave every couple of months. Mr M stated he took as much leave as he could to return to Perth to see his children. His leave was subject to approval and did not follow a set pattern like that of a fly in fly out worker. His visa to work in Oman was renewable every two years. | In Oman Mr M lived alone in a house he leased privately. He had an employer provided car which he drove to work each day. | Mr M had a bank account in Oman into which his income from Oman was paid. He transferred the bulk of this income into an Australian bank account held jointly with his wife which was used by her to cover family living expenses. The balance of his income was used by Mr M to cover his living expenses in Oman. | Between 1 July 2010 and his permanent return to Australia in April 2011, Mr M travelled to Perth four times for approximately two weeks each time. He stated that the purpose of these trips was to see his children and spend as much time as possible with them. In doing so, he stayed at the Perth property where they lived with his wife for the duration of his stay. Mr M gave evidence he had been estranged from his wife since 2004 and that their relationship was on 'shaky ropes' during the 2011 year but that he had hoped it would improve. Mrs M gave evidence that she consulted a divorce lawyer in 2009. | Although Mr M had planned to return to Australia eventually, he had intended to continue to work overseas as he had done since 2004. He expected to remain in Oman for a considerable period. However he changed his mind in about April 2011 when Mrs M began to talk to him about how overwhelmed she was with raising their four children on her own. Mrs M wanted him to stop working overseas and return to Perth so that he could play a greater role in 'fathering' the children. | Issues Decided by the Tribunal | The question considered by the AAT was whether Mr M was a resident of Australia in the 2011 income year so that his assessable income included income derived from employment in Oman that year. In making this determination, the AAT considered the following questions: • did Mr M 'reside' in Australia in the 2011 year and, • given Mr M was domiciled in Australia in the 2011 year, was his permanent place of abode outside Australia? | • did Mr M 'reside' in Australia in the 2011 year and, • given Mr M was domiciled in Australia in the 2011 year, was his permanent place of abode outside Australia? | After considering the evidence presented to it at the hearing, the AAT concluded that while a person can have more than one residence, this was not the case in relation to Mr M. Instead, the AAT concluded that for the period up until 29 April 2011, Mr M was not a resident of Australia. It was also satisfied that until that date, Mr M's permanent place of abode was outside Australia. | In making its decision the AAT considered a number of the relevant authorities on residency and referred to a recent decision of the AAT Re Dempsey v Commissioner of Taxation which canvassed the law with respect to an individual's residency in Australia for tax purposes. The AAT noted Rich J's emphasis in Federal Commissioner of Taxation v Miller that the word resides 'is an ordinary English word extending over a field the boundaries of which constitute a broad limbo with blurred edges'. The High Court noted in Miller that 'the question as to where someone resided entailed questions of degree and was one of fact' [51 and 54]. | The AAT also noted Dixon's observations in Gregory v Deputy Commissioner of Taxation that it had long been settled that a person could 'reside in two or more places' but found that Mr M did not have more than one residence (paragraphs 51 and 54). | The AAT found that Mr M intended to return to Perth eventually. The AAT also accepted Mr M's evidence that he had intended to continue to pursue his career overseas as he had done since 2004 and that he expected to remain in Oman for a considerable period of time due to the size and ongoing nature of the project he was employed on. The AAT accepted the evidence of Mr and Mrs M that he changed his mind about remaining overseas in about April 2011, due to family circumstances and his wife's urging, and returned to Perth permanently in April 2011. | The AAT stated that whether a person is a resident of Australia is determined on the totality of the taxpayer's factual circumstances and not those of his or her family unit. The AAT found that for the most part Mr M 'was not physically present in Australia nor did he intend to live in Australia'. It noted that Mr M's attachment to his work was a very significant factor in deciding he was not a resident when weighed 'with other considerations'. The AAT considered that Mr M's connection with his children and travel back to Perth to see them was a significant factor but not determinative of the question of whether he was a resident of Australia. It also noted that Mr M's 'far from harmonious' marital relationship was a 'very significant factor' (paragraphs 55 to 56). The AAT also concluded that Mr M did not regard the Perth Property as home during the relevant year (paragraph 57). | The AAT also referred to Federal Commissioner of Taxation v Applegate the principal authority on the meaning of 'permanent place of abode' in section 6 of ITAA 1936. Fisher J in Applegate held that the proper construction of that term was that it is 'the taxpayer's fixed and habitual place of abode' and the factors he particularly relied on to assess that were the continuity or otherwise of the taxpayer's presence, the duration of his presence and the durability of his association with the particular place. The AAT also relied on Sheahan J in Commissioner of Taxation v Jenkins to find that a stay outside of Australia by a person for a fixed period is not prevented from being 'permanent' in the relevant sense simply because the stay is for a fixed period. The AAT found that Mr M's permanent place of abode was outside Australia even though he intended to return to Australia in the future (and in fact did return in April 2011). It found that Mr M had established his fixed and habitual place of abode in Oman close to his work. The AAT considered that Mr M's intention to treat Oman as his home for the time being was an important aspect of that finding.", "Issues_Decided": "The question considered by the AAT was whether Mr M was a resident of Australia in the 2011 income year so that his assessable income included income derived from employment in Oman that year. In making this determination, the AAT considered the following questions: • did Mr M 'reside' in Australia in the 2011 year and, • given Mr M was domiciled in Australia in the 2011 year, was his permanent place of abode outside Australia? • did Mr M 'reside' in Australia in the 2011 year and, • given Mr M was domiciled in Australia in the 2011 year, was his permanent place of abode outside Australia? After considering the evidence presented to it at the hearing, the AAT concluded that while a person can have more than one residence, this was not the case in relation to Mr M. Instead, the AAT concluded that for the period up until 29 April 2011, Mr M was not a resident of Australia. It was also satisfied that until that date, Mr M's permanent place of abode was outside Australia. In making its decision the AAT considered a number of the relevant authorities on residency and referred to a recent decision of the AAT Re Dempsey v Commissioner of Taxation which canvassed the law with respect to an individual's residency in Australia for tax purposes. The AAT noted Rich J's emphasis in Federal Commissioner of Taxation v Miller that the word resides 'is an ordinary English word extending over a field the boundaries of which constitute a broad limbo with blurred edges'. The High Court noted in Miller that 'the question as to where someone resided entailed questions of degree and was one of fact' [51 and 54]. The AAT also noted Dixon's observations in Gregory v Deputy Commissioner of Taxation that it had long been settled that a person could 'reside in two or more places' but found that Mr M did not have more than one residence (paragraphs 51 and 54). The AAT found that Mr M intended to return to Perth eventually. The AAT also accepted Mr M's evidence that he had intended to continue to pursue his career overseas as he had done since 2004 and that he expected to remain in Oman for a considerable period of time due to the size and ongoing nature of the project he was employed on. The AAT accepted the evidence of Mr and Mrs M that he changed his mind about remaining overseas in about April 2011, due to family circumstances and his wife's urging, and returned to Perth permanently in April 2011. The AAT stated that whether a person is a resident of Australia is determined on the totality of the taxpayer's factual circumstances and not those of his or her family unit. The AAT found that for the most part Mr M 'was not physically present in Australia nor did he intend to live in Australia'. It noted that Mr M's attachment to his work was a very significant factor in deciding he was not a resident when weighed 'with other considerations'. The AAT considered that Mr M's connection with his children and travel back to Perth to see them was a significant factor but not determinative of the question of whether he was a resident of Australia. It also noted that Mr M's 'far from harmonious' marital relationship was a 'very significant factor' (paragraphs 55 to 56). The AAT also concluded that Mr M did not regard the Perth Property as home during the relevant year (paragraph 57). The AAT also referred to Federal Commissioner of Taxation v Applegate the principal authority on the meaning of 'permanent place of abode' in section 6 of ITAA 1936. Fisher J in Applegate held that the proper construction of that term was that it is 'the taxpayer's fixed and habitual place of abode' and the factors he particularly relied on to assess that were the continuity or otherwise of the taxpayer's presence, the duration of his presence and the durability of his association with the particular place. The AAT also relied on Sheahan J in Commissioner of Taxation v Jenkins to find that a stay outside of Australia by a person for a fixed period is not prevented from being 'permanent' in the relevant sense simply because the stay is for a fixed period. The AAT found that Mr M's permanent place of abode was outside Australia even though he intended to return to Australia in the future (and in fact did return in April 2011). It found that Mr M had established his fixed and habitual place of abode in Oman close to his work. The AAT considered that Mr M's intention to treat Oman as his home for the time being was an important aspect of that finding.", "ATO_View_of_Decision": "The Tribunal has approached the question of residency by weighing the facts and circumstances it considered relevant. This is consistent with the ATO's approach to issues of residency, including the ATO view expressed in IT 2650. | The ATO considers that the AAT's decision creates no new law in this area. | Whether a person who leaves Australia to live and work overseas for a period of time remains an Australian resident for income tax purposes will depend on their particular circumstances. More information can be found in the International Tax for Individuals section of the ATO website (https://www.ato.gov.au/Individuals/International-tax-for-individuals/).", "Administrative_Treatment": "The decision of the AAT does not change the ATO's approach to residency cases. As concluded by the AAT, these matters involve questions of fact and degree and different facts may result in different conclusions as to residency. The ATO will continue to approach residency cases by weighing all the relevant facts and circumstances and applying the relevant tax law and authorities to those facts. | Implications for impacted ATO precedential documents (Public Rulings and Determinations) | None | Implications for impacted Law Administration Practice Statements | None", "Related_Documents": "None | 2014 ATC 1-071 | 6(1) | 82 ATC 4098 | 79 ATC 4307 | (1946) 73 CLR 93 | (1937) 57 CLR 774 | 2014 ATC 10-363", "Legislative_References": "Income Tax Assessment Act 1936 6(1)", "Case_References": "Commissioner of Taxation v Jenkins (1982) 12 ATR 745 82 ATC 4098 Federal Commissioner of Taxation v Applegate [1979] FCA 66 (1979) 9 ATR 899 79 ATC 4307 Federal Commissioner of Taxation v Miller (1946) 73 CLR 93 (1946) 8 ATD 146 Gregory v Deputy Commissioner of Taxation (1937) 57 CLR 774 (1937) 4 ATD 397 Re Dempsey and Commissioner of Taxation [2014] AATA 335 2014 ATC 10-363", "Subject_References": "Resident of Australia", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2014/0089/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "The Taxpayers and Commissioner of Taxation", "Venue_Reference_No": "2007/1955, 2007/1956-61, 2007/1964, 2007/1966-69, 2007/2905-2910", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "14 August 2014", "Date_Published": "9 October 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned audit adjustments made in relation to GST payable, superannuation and interest deductions claimed, deemed dividends and undeclared income.", "Overview_of_Facts": "One of the applicants was the sole shareholder and director of the other two applicants, the second of which was incorporated to act as the manager of a low cost government loan program. The applicants argued that the second company served as an agent of the first company. The Commissioner did not accept this proposition. All three applicants were subject to an audit with respect to their Business Activity Statements and Income Tax Returns. | As a result of the audit, the Commissioner: disallowed deductions claimed by the companies for superannuation and interest expenses; increased the remuneration received by the first company from government agencies; included deemed dividends in the income of the individual taxpayer; and imposed penalty at the rate of 75% for intentional disregard (a 20% uplift factor was applied to the penalty for obstructing the Commissioner during course of the audit). | Issues decided by the tribunal | 1. Was the second company an agent of the first company? | The applicants argued that the second company received its income as agent for the first company. The Tribunal agreed with the Commissioner that there was not an agency relationship [67]. | 2. Was the company entitled to claim a deduction for superannuation expenses? | The Tribunal agreed that one of the companies had failed to make superannuation contributions for two of its employees. The Tribunal also found that the company was entitled to have its assessment varied to the extent of any amount wrongly disallowed for superannuation expenses [88]. | 3. Was the first company entitled to a deduction for interest expenses? | The Tribunal was satisfied that there was sufficient evidence to be satisfied that the first company was entitled to a deduction for the amount of the interest expenses claimed in the 2002 income year [95]. | 4. Quantum of money attributable to the second company for money received from government agencies. | With respect to the quantum of the remuneration received by the second company for the Department of Housing contract, the Tribunal accepted the evidence of the applicant of the amounts actually received [121]. | 5. Should the individual's assessable income include a deemed dividend? | The Tribunal found that there were no payments made by the second company to the first company for the benefit of the individual which could attract the operation of sections 109C or 109D of the Income Tax Assessment Act 1936 (ITAA 36). The Tribunal also accepted that there was a complying loan agreement for the purposes of section 109N ot the ITAA 36 in relation to a loan made by another company to the individual [153], [167] and [182]. | 6. Should the base penalty be maintained at 75% for intentional disregard? | The Tribunal found that the correct base penalty finding should be based on recklessness and not intentional disregard - the applicants were 'grossly indifferent as to whether or not the material was true or correct and whether the Act and regulations may not operate correctly' [207] and [208]. | 7. Penalty uplift | The Tribunal found that the facts did not support a penalty uplift - the applicants did not seek to, nor did in fact, prevent or obstruct the audit process in the sense of impeding it taking its course [239]. | 8. Should the penalty be remitted? | The Tribunal noted that a penalty being harsh in all of the circumstances of a taxpayer will be a proper basis on which the discretion to remit the penalty could be exercised In this case, the Tribunal found that the penalties imposed ought to be remitted to reflect the extent to which any one entity's \"shortfall amount\" did not actually result in a loss to revenue [240] - [243].", "Issues_Decided": "1. Was the second company an agent of the first company?: The applicants argued that the second company received its income as agent for the first company. The Tribunal agreed with the Commissioner that there was not an agency relationship [67]. | 2. Was the company entitled to claim a deduction for superannuation expenses?: The Tribunal agreed that one of the companies had failed to make superannuation contributions for two of its employees. The Tribunal also found that the company was entitled to have its assessment varied to the extent of any amount wrongly disallowed for superannuation expenses [88]. | 3. Was the first company entitled to a deduction for interest expenses?: The Tribunal was satisfied that there was sufficient evidence to be satisfied that the first company was entitled to a deduction for the amount of the interest expenses claimed in the 2002 income year [95]. | 4. Quantum of money attributable to the second company for money received from government agencies.: With respect to the quantum of the remuneration received by the second company for the Department of Housing contract, the Tribunal accepted the evidence of the applicant of the amounts actually received [121]. | 5. Should the individual's assessable income include a deemed dividend?: The Tribunal found that there were no payments made by the second company to the first company for the benefit of the individual which could attract the operation of sections 109C or 109D of the Income Tax Assessment Act 1936 (ITAA 36). The Tribunal also accepted that there was a complying loan agreement for the purposes of section 109N ot the ITAA 36 in relation to a loan made by another company to the individual [153], [167] and [182]. | 6. Should the base penalty be maintained at 75% for intentional disregard?: The Tribunal found that the correct base penalty finding should be based on recklessness and not intentional disregard - the applicants were 'grossly indifferent as to whether or not the material was true or correct and whether the Act and regulations may not operate correctly' [207] and [208]. | 7. Penalty uplift: The Tribunal found that the facts did not support a penalty uplift - the applicants did not seek to, nor did in fact, prevent or obstruct the audit process in the sense of impeding it taking its course [239]. | 8. Should the penalty be remitted?: The Tribunal noted that a penalty being harsh in all of the circumstances of a taxpayer will be a proper basis on which the discretion to remit the penalty could be exercised In this case, the Tribunal found that the penalties imposed ought to be remitted to reflect the extent to which any one entity's \"shortfall amount\" did not actually result in a loss to revenue [240] - [243].", "ATO_View_of_Decision": "The ATO accepts that the decision on income tax and GST was reasonably open to the Tribunal on the facts as found. | It is not clear whether the Tribunal's decision to reduce all of the penalties imposed under section 284-75 of Schedule 1 to the Taxation Administration Act 1953 to nil was influenced by the conclusion that there was no loss to the revenue (see paragraph [243]). However, the Commissioner would note that the Full Federal Court in Dixon v FCT (2008) 167 FCR 287, at [19] to [21], made it clear that absence of loss of revenue is not a relevant consideration in relation to the exercise of the discretion to remit a penalty for a false statement. | The Commissioner would also note that the Full Federal Court in Sanctuary Lakes Pty Ltd v FCT [2013] FCAFC 50, at [247] to [249], said that the correct question when remitting a penalty for a false statement is not expressed in terms of 'harshness', but rather as to whether the decision maker is satisfied, having regards to a taxpayer's particular circumstances, that it is appropriate to remit the penalty.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for impacted Law Administration Practice Statements | Nil | PS LA 2006/2 | PS LA 2012/4 | PS LA 2012/5", "Related_Documents": "None | [2014] AATA 572 | PS LA 2006/2 | PS LA 2012/4 | PS LA 2012/5 | Part III, Division 7A | (2003) 2003 ATC 4665 | [2001] FCA 164", "Legislative_References": "Income Tax Assessment Act 1936 Part III, Division 7A Taxation Administration Act 1953 Schedule 1, Part 4-25", "Case_References": "Hart v Commissioner of Taxation (2003) 131 FCR 203 [2003] FCAFC 105 (2003) 2003 ATC 4665 (2003) 53 ATR 371 BRK (Bris) Pty Ltd v Federal Commissioner of Taxation [2001] FCA 164 [2001] FCA 164 (2001) 2001 ATC 4111 (2001) 46 ATR 347", "Subject_References": "GST payable intentional disregard penalties recklessness remission undeclared income uplift factor", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/1955/00001", "Unmatched_Content": ""}
{"Case_Name": "Tier Toys Limited and Commissioner of Taxation", "Venue_Reference_No": "2013/0322 & 2013/6065", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 March 2014", "Date_Published": "30 April 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2014 ATC 10-353", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013-0322;2013-6065/00001", "Unmatched_Content": "Tier Toys Limited and Commissioner of Taxation [2014] AATA 156 2014 ATC 10-353 (2014) 98 ATR 231 | The decision concerns the remission of administrative penalties and has no wider ramification. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Vuong and Commissioner of Taxation", "Venue_Reference_No": "2013/3241 and 2013/6761", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "23 June 2014", "Date_Published": "22 October 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2014 ATC 10-367", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/3241and2013/6761/00001", "Unmatched_Content": "Vuong v Commissioner of Taxation [2014] AATA 402 2014 ATC 10-367 | The adverse aspect of the decision only concerns the remission of administrative penalties and has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact LPSMaintenancandSupport@ato.gov.au"}
{"Case_Name": "XVQY and Commissioner of Taxation", "Venue_Reference_No": "2013/3292-3293", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "22 May 2014", "Date_Published": "13 June 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2014 ATC 1-065", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013-3292-3293/00001", "Unmatched_Content": "XVQY and Commissioner of Taxation [2014] AATA 319 2014 ATC 1-065 | The adverse aspect/s of the decision has no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "YPFD and Commissioner of Taxation", "Venue_Reference_No": "2012/2357-2359", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "10 January 2014", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2014] AATA 9 | 2014 ATC 1-063", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/2357-2359/00001", "Unmatched_Content": "YPFD and Commissioner of Taxation [2014] AATA 9 2014 ATC 1-063 (2014) 94 ATR 484 | The adverse aspects of the decision have no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "AP Group Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 1569 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "18 September 2013", "Date_Published": "28 October 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns the GST treatment of various incentive payments made by motor vehicle manufacturers to a motor vehicle dealer.", "Overview_of_Facts": "The taxpayer is a motor vehicle dealer that acquires motor vehicles from various motor vehicle manufacturers/distributors (manufacturers), through an interposed finance company, under a bailment arrangement. Immediately before the supply of the motor vehicle by the dealer to the customer, the finance company transfers title of the motor vehicle to the dealer, enabling the dealer to sell the motor vehicle to the customer. | The manufacturers made the following incentive payments to the taxpayer: • Toyota fleet rebates - paid when certain floor stock vehicles are sold at a discount price to certain classes of customers • Toyota run-out model support payments - paid when certain floor stock vehicles are sold and recorded in the sales system • Holden transit/interest protection payments - paid to cover interest fees charged by financiers to the taxpayer while the taxpayer either does not have physical possession of the vehicle or the vehicle is not yet ready for sale or display. • Ford retail target incentive payments - paid when certain monthly retail sales targets are reached • Subaru wholesale target incentive payments - paid when dealer orders a specified number of vehicles from the manufacturer. | • Toyota fleet rebates - paid when certain floor stock vehicles are sold at a discount price to certain classes of customers • Toyota run-out model support payments - paid when certain floor stock vehicles are sold and recorded in the sales system • Holden transit/interest protection payments - paid to cover interest fees charged by financiers to the taxpayer while the taxpayer either does not have physical possession of the vehicle or the vehicle is not yet ready for sale or display. • Ford retail target incentive payments - paid when certain monthly retail sales targets are reached • Subaru wholesale target incentive payments - paid when dealer orders a specified number of vehicles from the manufacturer. | Before the Administrative Appeals Tribunal (Tribunal), the Commissioner contended that the payments were consideration for taxable supplies made by the taxpayer to the manufacturers. Alternatively, the Commissioner argued that the fleet rebates, run-out model support and retail target incentive payments were consideration for supplies by the taxpayer to its customers. | On 2 July 2012, the Tribunal (comprising Deputy Presidents Frost and Deutsch) handed down its decision in A.P. Group Limited and Commissioner of Taxation [2012] AATA 409. The Tribunal's conclusions were summarised at [109]: Commissioner's first argument - Consideration for a supply to the manufacturer? Commissioner's second argument - Consideration for a supply to the customer? Fleet rebates No Yes Run-out model support payments No Yes Transit/interest protection payments No Argument not relied on Retail target incentive payments No No Wholesale target incentive payments No Argument not relied on | The taxpayer appealed the Tribunal's decision in relation to the fleet rebates and run-out support payments to the Full Federal Court. The Commissioner cross-appealed in respect of the retail and wholesale target incentive payments. The Commissioner did not appeal the Tribunal's findings in respect of the transit/interest protection payments. | Issues Decided by the Full Federal Court | The issues in dispute were whether the four incentive payments on appeal were consideration for taxable supplies under paragraph 9-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | The Court unanimously upheld the Tribunal's decision, finding that the Tribunal's 'construction of s 9-5 was orthodox and did not involve error' (at [37]). | Do the payments constitute consideration for supplies made by the dealer to the manufacturer? | The Court concluded that none of the payments constituted consideration for supplies made by the dealer to the manufacturer, as none of the acts done by the taxpayer represented supplies made to the manufacturers. | At [53], Edmonds and Jagot JJ noted that the relationship between the taxpayer and each manufacturer involves 'a whole raft of obligations from one to the other' and contemplates a 'continuing dialogue' between the parties in which 'promises are routinely exchanged'. Their Honours stated that the 'so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacturer and the dealer to the mutual benefit of both', and that 'to characterise this dialogue as involving supply after supply is unrealistic and impractical'. Their Honours further observed that there was 'no basis to infer that the taxpayer would not behave in the same way for free'. | Do the payments constitute consideration for supplies made by the dealer to the customer? | The Court found that the fleet rebates and run-out model support payments were consideration for supplies made by the dealer to its customers, while the retail and wholesale target incentive payments were not consideration for any supplies made by the dealer. | Supply 'for' consideration | Edmonds and Jagot JJ stated that substituting the definitions of 'supply' and 'consideration' into paragraph 9-5(a) did not result in the omission of the word 'for': '… you make [any form of supply whatsoever] for [any consideration, within the meaning given by sections 9-15 and 9-17 in connection with the supply or acquisition].' [1] | Instead, their Honours considered that the word 'for' 'functions in the statutory description to identify the character of the connection which is required' and 'ensures that not every connection between the giving of consideration and the provision satisfy the first condition of making a taxable supply'. [2] | Consistent with this view, their Honours noted the Tribunal's comments that a 'tenuous' or 'remote' connection between the supply and consideration would be insufficient and stated that the supply must be made for the consideration, even if the consideration was not given by the recipient of the supply. [3] | Appropriate level of generality or particularity | Edmonds and Jagot JJ noted the difficulties in resolving the competing approaches submitted by the taxpayer and the Commissioner as to the correct level of focus when determining whether a payment is 'for' and 'in connection with' a supply. | Their Honours found that 'selection of the appropriate level of generality or particularity' at which to determine whether the dealer has made a supply for consideration is fact-dependent, [4] and that all aspects of the arrangements between the dealer, the manufacturer and the customer had to be considered'. [5] | For the fleet rebates and run-out model support payments, Edmonds and Jagot JJ found that the correct level of focus was the supply of the particular motor vehicle by the dealer which triggers the payment. For the retail and wholesale target incentive payments, it was the overall relationship between the dealer and the manufacturer. | Fleet rebates and run-out support payments | After considering the relevant provisions of each dealership agreement as set out by the Tribunal and the Tribunal's reasoning, Edmonds and Jagot JJ considered that '[t]he appropriate level for the assessment [for the fleet rebate] is the particular supply of the motor vehicle in question by the dealer and the payment which that supply triggers' (emphasis added). [6] | In coming to this conclusion, their Honours noted that the fleet rebate was only payable by the manufacturer for the supply of a particular (non-fleet) motor vehicle to a particular (fleet) customer, and the fact that the payment was made by the manufacturer rather than the customer did not matter. Their Honours also found that whilst relevant, the customer's lack of knowledge and the internal characterisation of the transaction as a 'rebate' are not determinative. [7] | Edmonds and Jagot JJ concluded that a fleet rebate was consideration 'for' and 'in connection with' the supply of the motor vehicle to a customer. [8] Under the same analysis, they held that a run-out model support payment also was consideration for the supply of the motor vehicle by a dealer to the customer. [9] | Retail and wholesale target incentives | Edmonds and Jagot JJ found that the retail target incentive payments and the wholesale target incentive payments were not triggered by the supply of a particular motor vehicle, and were instead 'part of wider programs in which dealers would have a strong incentive to participate but which do not depend on the supply of any particular motor vehicle in any particular way'. [10] | As the payments act to encourage 'conduct relating to the overall management of the business enterprise comprised in the dealership, including sound ordering practices and clearance of old stock to make way for new stock, to the presumed mutual benefit of the dealer and the manufacturer', the 'required level of focus is the overall relationship between the dealer and the manufacturer'. [11] | In a separate judgment, Bromberg J agreed with Edmonds and Jagot JJ's conclusions, although for different reasons.", "Issues_Decided": "The issues in dispute were whether the four incentive payments on appeal were consideration for taxable supplies under paragraph 9-5(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The Court unanimously upheld the Tribunal's decision, finding that the Tribunal's 'construction of s 9-5 was orthodox and did not involve error' (at [37]). | Do the payments constitute consideration for supplies made by the dealer to the manufacturer?: The Court concluded that none of the payments constituted consideration for supplies made by the dealer to the manufacturer, as none of the acts done by the taxpayer represented supplies made to the manufacturers. At [53], Edmonds and Jagot JJ noted that the relationship between the taxpayer and each manufacturer involves 'a whole raft of obligations from one to the other' and contemplates a 'continuing dialogue' between the parties in which 'promises are routinely exchanged'. Their Honours stated that the 'so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacturer and the dealer to the mutual benefit of both', and that 'to characterise this dialogue as involving supply after supply is unrealistic and impractical'. Their Honours further observed that there was 'no basis to infer that the taxpayer would not behave in the same way for free'. | Do the payments constitute consideration for supplies made by the dealer to the customer?: The Court found that the fleet rebates and run-out model support payments were consideration for supplies made by the dealer to its customers, while the retail and wholesale target incentive payments were not consideration for any supplies made by the dealer. Supply 'for' consideration Edmonds and Jagot JJ stated that substituting the definitions of 'supply' and 'consideration' into paragraph 9-5(a) did not result in the omission of the word 'for': '… you make [any form of supply whatsoever] for [any consideration, within the meaning given by sections 9-15 and 9-17 in connection with the supply or acquisition].' [1] Instead, their Honours considered that the word 'for' 'functions in the statutory description to identify the character of the connection which is required' and 'ensures that not every connection between the giving of consideration and the provision satisfy the first condition of making a taxable supply'. [2] Consistent with this view, their Honours noted the Tribunal's comments that a 'tenuous' or 'remote' connection between the supply and consideration would be insufficient and stated that the supply must be made for the consideration, even if the consideration was not given by the recipient of the supply. [3] Appropriate level of generality or particularity Edmonds and Jagot JJ noted the difficulties in resolving the competing approaches submitted by the taxpayer and the Commissioner as to the correct level of focus when determining whether a payment is 'for' and 'in connection with' a supply. Their Honours found that 'selection of the appropriate level of generality or particularity' at which to determine whether the dealer has made a supply for consideration is fact-dependent, [4] and that all aspects of the arrangements between the dealer, the manufacturer and the customer had to be considered'. [5] For the fleet rebates and run-out model support payments, Edmonds and Jagot JJ found that the correct level of focus was the supply of the particular motor vehicle by the dealer which triggers the payment. For the retail and wholesale target incentive payments, it was the overall relationship between the dealer and the manufacturer. Fleet rebates and run-out support payments After considering the relevant provisions of each dealership agreement as set out by the Tribunal and the Tribunal's reasoning, Edmonds and Jagot JJ considered that '[t]he appropriate level for the assessment [for the fleet rebate] is the particular supply of the motor vehicle in question by the dealer and the payment which that supply triggers' (emphasis added). [6] In coming to this conclusion, their Honours noted that the fleet rebate was only payable by the manufacturer for the supply of a particular (non-fleet) motor vehicle to a particular (fleet) customer, and the fact that the payment was made by the manufacturer rather than the customer did not matter. Their Honours also found that whilst relevant, the customer's lack of knowledge and the internal characterisation of the transaction as a 'rebate' are not determinative. [7] Edmonds and Jagot JJ concluded that a fleet rebate was consideration 'for' and 'in connection with' the supply of the motor vehicle to a customer. [8] Under the same analysis, they held that a run-out model support payment also was consideration for the supply of the motor vehicle by a dealer to the customer. [9] Retail and wholesale target incentives Edmonds and Jagot JJ found that the retail target incentive payments and the wholesale target incentive payments were not triggered by the supply of a particular motor vehicle, and were instead 'part of wider programs in which dealers would have a strong incentive to participate but which do not depend on the supply of any particular motor vehicle in any particular way'. [10] As the payments act to encourage 'conduct relating to the overall management of the business enterprise comprised in the dealership, including sound ordering practices and clearance of old stock to make way for new stock, to the presumed mutual benefit of the dealer and the manufacturer', the 'required level of focus is the overall relationship between the dealer and the manufacturer'. [11] In a separate judgment, Bromberg J agreed with Edmonds and Jagot JJ's conclusions, although for different reasons.", "ATO_View_of_Decision": "1. GST consequences of motor vehicle incentive payments | The ATO view before the AP Group decision was that dealers were making taxable supplies for the motor vehicle incentive payments. | Following this decision, the Commissioner accepts that the GST consequences of a motor vehicle incentive payment will be fact and circumstance specific. The dealer's conduct may give rise to the dealer having made: • a supply to the manufacturer for consideration • a supply to the customer for consideration, or • no supply for consideration* • For motor vehicle incentive payments made after 1 July 2010, the payment may give rise to adjustments under Division 134 of the GST Act. | • a supply to the manufacturer for consideration • a supply to the customer for consideration, or • no supply for consideration* • For motor vehicle incentive payments made after 1 July 2010, the payment may give rise to adjustments under Division 134 of the GST Act. | The Commissioner has published GSTR 2014/1 Goods and services tax: motor vehicle incentive payments. This public ruling explains the Commissioner's view on the GST consequences of motor vehicle incentive payments made by manufacturers to dealers. | 2. Tripartite arrangements | Edmonds and Jagot JJ expressed the view that there is 'nothing equivalent' to the circumstances in Secretary to the Department of Transport (Victoria) v Commissioner of Taxation [2009] FCA 1209, however there is no analysis of the relevant differences. [12] | The Commissioner considers that whether a set of actions gives rise to supplies to more than one party is fact and circumstance dependent. The Commissioner notes the subsequent decision of Edmonds J in Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123 provides further analysis of when the one set of actions will give rise to two or more supplies. | The Commissioner is maintaining his existing views in GSTR 2006/9. | 3. Motor vehicle holdback payments | The Commissioner is maintaining his existing view in GSTD 2005/4 [13] that wholesale and retail holdbacks are not consideration for supplies. | 4. Other GST Public Rulings | The Commissioner does not consider that any significant amendments need to be made to any other GST public rulings.", "Administrative_Treatment": "Implications for motor vehicle dealers | 1. Payments that are consideration for taxable supplies to customers (3rd party consideration) | GST will continue to be payable on fleet rebates, run-out model support payments and equivalent payments from other manufacturers/distributors, as these form part of the consideration for a taxable supply from the dealer to the customer. | Equivalent payments from other manufacturers/distributors mean payments which have the same characteristics as the Toyota fleet rebates or run-out model support payments that were considered by the Courts. | Consequential implications for luxury car tax (LCT) | The Court's findings that fleet rebates and run-out model support payments are consideration for a supply to the customer also means that these (GST-inclusive) payments need to be added to the consideration provided by the customer for the purchase of the motor vehicle for the purposes of calculating the \"price\" for LCT purposes. | This means that supplies of motor vehicles that would not have met the LCT threshold under the Commissioner's view before the AP Group decision may now have an LCT liability where the total consideration (including the incentive payment) for the motor vehicle exceeds the LCT threshold ($60,316 for the 2013-14 financial year [14] ). | For motor vehicles that were subject to LCT before the AP Group decision, the LCT liability will increase as a result of the incentive payment being added to the consideration paid by the customer. | Transitional arrangements | The Commissioner expected taxpayers to be in a position to implement the AP Group decision for contracts of sale entered into on or after 1 May 2014. | 2. Payments found not to be consideration for any supplies | Dealers operating under a bailment arrangement are not liable for GST in respect of the following payments received from manufacturers/distributors: • retail target incentive payments which are not triggered by the supply of an identifiable motor vehicle and are equivalent to the Ford retail target incentive payment • wholesale target incentive payments that are equivalent to the Subaru target incentive payment • transit allowance or interest protection payments that are equivalent to the Holden transit allowance or interest protection payments. | • retail target incentive payments which are not triggered by the supply of an identifiable motor vehicle and are equivalent to the Ford retail target incentive payment • wholesale target incentive payments that are equivalent to the Subaru target incentive payment • transit allowance or interest protection payments that are equivalent to the Holden transit allowance or interest protection payments. | For payments made on or after 1 July 2010, the Commissioner considers that dealers will have increasing adjustments under Division 134. See GSTR 2014/1 for further information. | 3. Entitlement to GST refunds | Dealers who notified the Commissioner of their entitlement to a GST refund may claim a refund in respect of the payments listed under the heading '2. Payments found not to be consideration for any supplies' above, only if the restrictions outlined below do not apply. • Unless a dealer's GST refund relates to a tax period which started before 1 July 2008, section 105-65 [15] will generally apply to restrict a refund where the GST has been included in the amount of the incentive payment. This means that for tax periods after 1 July 2008, the Commissioner will generally not give a refund in business to business transactions. [16] • Dealers are also not entitled to a refund unless they provided a valid notification of their entitlement to the refund within the relevant time limits prescribed by section 105-55. [17] - To be a valid notification, the notification must have been given to the Commissioner before the 4 year time limit for the relevant tax periods expired and must also contain sufficient information to clearly identify an entitlement to a refund of GST overpaid on the motor vehicle incentive payments. [18] - A notification which only referred to 'holdback payments' is not a valid notice for claiming a GST refund for motor vehicle incentive payments. Such a notification only applies GST refunds relating to the wholesale and retail 'holdback payments'. [19] | • Unless a dealer's GST refund relates to a tax period which started before 1 July 2008, section 105-65 [15] will generally apply to restrict a refund where the GST has been included in the amount of the incentive payment. This means that for tax periods after 1 July 2008, the Commissioner will generally not give a refund in business to business transactions. [16] • Dealers are also not entitled to a refund unless they provided a valid notification of their entitlement to the refund within the relevant time limits prescribed by section 105-55. [17] - To be a valid notification, the notification must have been given to the Commissioner before the 4 year time limit for the relevant tax periods expired and must also contain sufficient information to clearly identify an entitlement to a refund of GST overpaid on the motor vehicle incentive payments. [18] - A notification which only referred to 'holdback payments' is not a valid notice for claiming a GST refund for motor vehicle incentive payments. Such a notification only applies GST refunds relating to the wholesale and retail 'holdback payments'. [19] | - To be a valid notification, the notification must have been given to the Commissioner before the 4 year time limit for the relevant tax periods expired and must also contain sufficient information to clearly identify an entitlement to a refund of GST overpaid on the motor vehicle incentive payments. [18] - A notification which only referred to 'holdback payments' is not a valid notice for claiming a GST refund for motor vehicle incentive payments. Such a notification only applies GST refunds relating to the wholesale and retail 'holdback payments'. [19] | For payments made on or after 1 July 2010, the Commissioner considers that dealers will have increasing adjustments under Division 134. See GSTR 2014/1 for further information. | 4. Income tax | Subject to the relevant time limits imposed by section 170 of the Income Tax Assessment Act 1936, a dealer should amend their relevant prior year income tax returns to ensure that where they claim a GST refund for a motor vehicle incentive payment (eg transit/interest protection payment and retail or wholesale target incentive) the entirety of that motor vehicle incentive payment is included as assessable income in each income year in which the receipts were originally derived. | Any interest paid to a dealer is assessable income in the year it is paid or in the year it is set off or applied against another tax debt. | 5. How can you claim a refund? | Dealers who have lodged objections | Only the motor vehicle incentive payments considered by the Tribunal and Court, including equivalent payments made by other manufacturers, are within the scope of the objection. | Dealers who have lodged valid entitlement notices but have not objected or have claims that are outside the scope of their objection | If you meet the requirements of the Correcting GST Errors Determination 2013, you can claim a refund you are entitled to in your next business activity statement. For further information on correcting GST errors, refer to the Correcting GST errors guide on www.ato.gov.au . | When you make your claim in a current business activity statement, you should send an email to GSTMVPayments@ato.gov.au with the following details: a. the tax period in which you are claiming the refund, and b. a schedule listing: i. the tax periods in which you overpaid the GST ii. the amount of overpaid GST for each of those tax periods. | a. the tax period in which you are claiming the refund, and b. a schedule listing: i. the tax periods in which you overpaid the GST ii. the amount of overpaid GST for each of those tax periods. | i. the tax periods in which you overpaid the GST ii. the amount of overpaid GST for each of those tax periods. | If you have any queries about progressing your refund claim, you can contact us at GSTMVPayments@ato.gov.au or call 13 28 66 and ask for Wayne Tripp on extension 33842. | 6. Records and documents | If you are claiming a refund, you must have the relevant documentation and evidence to support your claims. This includes being able to identify those payments on which GST was overpaid and the tax periods in which the amounts were overpaid. | Implications for motor vehicle manufacturers and distributors | There is no entitlement to input tax credits for payments that are not consideration for any taxable supply or are consideration for a supply to a third party. [20] | For tax periods before 1 July 2010, Federal Chamber of Automotive Industries members are protected by industry letters issued by the ATO, which were public rulings, in respect of input tax credits previously claimed. | For tax periods after 1 July 2010, Division 134 adjustments may arise. See GSTR 2014/1 Goods and services tax: motor vehicle incentive payments, which explains the Commissioner's view on the GST consequences of motor vehicle incentive payments made by manufacturers to dealers, including the application of Division 134. | Incentive payments in other industries | The Commissioner notes that bailment arrangements, which involve an interposed entity, may be an important factual distinction. For example, suppliers may pay rebates to customers who reach certain levels of purchases (such as volume rebates). These rebates are typically expressed as a percentage of the purchases made in a particular period. Where there is no interposed entity, a payment of this type is generally regarded by the Commissioner as a reduction in the consideration for the relevant purchases and so is an adjustment event. [21] | Whether other types of incentive payments will be consideration for taxable supplies is dependent on the relevant facts and circumstances. Following the AP Group decision, the Commissioner is not seeking to disturb the GST treatment of incentives payments made in other industries. | For third party payments made on or after 1 July 2010, Division 134 may apply. In these circumstances, an entity (the payer) may have a decreasing adjustment if the payer makes a payment to an entity (the payee) that acquires something the payer had supplied to another entity. An entity receiving a payment (the payee) may have an increasing adjustment. | Further information | Taxpayers who require further advice about GST treatment of incentive payments in other industries should email GSTMVPayments@ato.gov.au . | Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | ATO ID 2008/166: GST and motor vehicle industry incentive payments: fleet sales support - margin support - discretionary payments has been withdrawn. | Minor amendments have been made to: • GSTR 2006/9: Goods and services tax: supplies • GSTR 2000/19: Goods and services tax: making adjustments under Division 19 for adjustment events. • GSTR 2012/2: Goods and services tax: financial assistance payments | • GSTR 2006/9: Goods and services tax: supplies • GSTR 2000/19: Goods and services tax: making adjustments under Division 19 for adjustment events. • GSTR 2012/2: Goods and services tax: financial assistance payments | Implications for impacted Law Administration Practice Statements | Nil. | [1] At [32]. | [2] At [33]. | [3] At [35]. | [4] At [43]. | [5] At [42]. | [6] At [43]. | [7] At [44]. | [8] At [35] and [44]. | [9] At [46]. | [10] At [48]. | [11] At [48]. | [12] At [50]. | [13] Goods and services tax: are 'wholesale holdback' and 'retail holdback' payments made by a motor vehicle manufacturer or importer of new motor vehicles to a dealer consideration for a supply? | [14] LCTD 2013/1: Luxury car tax: what is the luxury car tax threshold and the fuel-efficient car limit for the 2013-14 financial year? | [15] Schedule 1 to the Taxation Administration Act 1953 . | [16] See MT 2010/1 Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 . Section 105-65 was amended with effect from 1 July 2008 to ensure that the restriction on GST refunds applies where transactions have been treated as taxable supplies, whether or not the transaction is in fact a supply. | [17] Schedule 1 to the Taxation Administration Act 1953 . | [18] See MT 2009/1 Miscellaneous taxes: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953 . | [19] See the KAP Motors decision impact statement and GSTD 2005/4: Goods and services tax: are 'wholesale holdback' and 'retail holdback' payments made by a motor vehicle manufacturer or importer of new motor vehicles to a dealer consideration for a supply? | [20] See Division 11 of the GST Act. | [21] Paragraph 24 of GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events .", "Related_Documents": "GSTR 2000/19: Goods and services tax: making adjustments under Division 19 for adjustment events | GSTR 2006/9: Goods and services tax: supplies | GSTR 2012/2: Goods and services tax: financial assistance payments | 2013 ATC 20-417 | GSTR 2006/9: supplies | s 9-5 | s 9-10 | s 9-15 | Div 134 | 2012 ATC 10-256 | 2012 ATC 20-352 | 2013 ATC 20-424 | 2009 ATC 20-140", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 s 9-5 s 9-10 s 9-15 s 195-1 (definition of 'consideration') Div 134 Taxation Administration Act 1953 (CTH) s 105-55 of Schedule 1 s 105-65 of Schedule 1", "Case_References": "A.P. Group Ltd and Commissioner of Taxation [2012] AATA 409 2012 ATC 10-256 83 ATR 493 Federal Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41 (2012) 247 CLR 286 2012 ATC 20-352 (2012) 83 ATR 1 Professional Admin Service Centres Pty Ltd v Federal Commissioner of Taxation [2013] FCA 1123 2013 ATC 20-424 Department of Transport (Vic) v Federal Commissioner of Taxation [2009] FCA 1209 2009 ATC 20-140 (2009) 73 ATR 690", "Subject_References": "Consideration Discretion to refund overpaid GST GST Motor vehicle incentives Nexus Refunds Supply Third party adjustments Third party consideration", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1569of2012/00001", "Unmatched_Content": "This decision has no further impact for ATO precedential documents and Law Administration Practice Statements"}
{"Case_Name": "Applicant and Commissioner of Taxation", "Venue_Reference_No": "2012/2949", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "30 August 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/2949/00001", "Unmatched_Content": "Applicant and Commissioner of Taxation [2013] AATA 624 (2013) 94 ATR 222 | The adverse aspects of the decision concern administrative penalties and have no wider ramifications. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "ATS Pacific Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 1730 of 2010; NSD 235 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "15 April 2013", "Date_Published": "2 May 2014", "Document_Type": "Interim Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's interim response to this case which concerned the characterisation, for GST purposes, of supplies made by an inbound tour operator (ITO) to its non-resident travel agent clients.", "Overview_of_Facts": "The taxpayer entered into contracts with numerous non-resident travel agents ('NR travel agents') relating to the provision, in Australia, of the components of a tour package ('Products') by Australian-based entities ('Australian Providers') to non-resident tourist clients of the NR travel agents ('NR tourists'). The Products included accommodation in hotels and serviced apartments, transfers, car hire, tour guides, meals, and similar products and services. | Many dealings between the taxpayer and the NR travel agents occurred through the taxpayer's website which allowed NR travel agents to (amongst other things): • review the Products of the Australian Providers that were available for booking by the taxpayer; • access lists of tariffs, inclusive of the taxpayer's fees, for the Products; • build a tour package for a NR Tourist by selecting particular Australian Providers and their Products; and • obtain (in many cases) instant confirmation that the taxpayer was able to book the Products selected | • review the Products of the Australian Providers that were available for booking by the taxpayer; • access lists of tariffs, inclusive of the taxpayer's fees, for the Products; • build a tour package for a NR Tourist by selecting particular Australian Providers and their Products; and • obtain (in many cases) instant confirmation that the taxpayer was able to book the Products selected | The terms and conditions on the website stated that the amount the taxpayer charged included both the cost of the Products and a fee for arranging the Products. | Once agreement with an NR travel agent had been reached, the taxpayer entered into contracts with Australian Providers relating to the provision of Products to the NR tourists. In doing so, the taxpayer acted as principal, and not as an agent of the NR travel agent. The taxpayer was obliged to pay the Australian Providers and claimed the associated input tax credits. | The GST in dispute related only to dealings the taxpayer had with NR travel agents that it did not have specific written contracts with. The taxpayer had entered into specific written agreements with a small number of NR travel agents, but it sought no refund of GST paid under these agreements. | Issues decided by the court | The primary issue considered by the Court was whether the supply made by the taxpayer to the NR travel agents was properly characterised as: • supply of arranging or booking services (as the taxpayer contended); or • supply of the Products or the right to that supply or the promise to provide it (as the Commissioner contended) | • supply of arranging or booking services (as the taxpayer contended); or • supply of the Products or the right to that supply or the promise to provide it (as the Commissioner contended) | It was common ground that: • if the taxpayer's contended characterisation was correct - the supply would be GST-free; • if the Commissioner's contended characterisation was correct - the supply would not be GST-free (although the taxpayer did advance a number of arguments in support of the proposition that various components of the supply may be GST-free which were considered but not accepted by the Court [1] ). | • if the taxpayer's contended characterisation was correct - the supply would be GST-free; • if the Commissioner's contended characterisation was correct - the supply would not be GST-free (although the taxpayer did advance a number of arguments in support of the proposition that various components of the supply may be GST-free which were considered but not accepted by the Court [1] ). | As it found in favour of the Commissioner on the primary issue, the Court also considered the secondary issue of whether, in addition to supplying the Products or the rights or promises, the taxpayer also supplied an arranging or booking service (for which it charged its margin). It was not in dispute that this separate supply, if it existed, would be GST-free. | The Court also considered whether section 105-65 in Schedule 1 to the Taxation Administration Act 1953 could apply to deny a refund of overpayments of GST made by the taxpayer in relation to tax periods ending on or before 30 June 2008. The taxpayer contended that section 105-65, as it then was, could not apply where a particular supply that a taxpayer treated as having been made by it (supply of the Products or the rights or promises) was, at least to some extent, not made at all and instead a different supply (arranging or booking services) was made. It was common ground that: • if the taxpayer's contention was correct - the Commissioner would be required to refund the relevant overpayments of GST; • if the Commissioner's contention was correct (and section 105-65 was not precluded from applying) - the Commissioner would have a discretion to refund the relevant GST overpayments, in which case the appropriate course of action would be for the Court to remit the matter to the Commissioner to consider whether or not to exercise this discretion [2] | • if the taxpayer's contention was correct - the Commissioner would be required to refund the relevant overpayments of GST; • if the Commissioner's contention was correct (and section 105-65 was not precluded from applying) - the Commissioner would have a discretion to refund the relevant GST overpayments, in which case the appropriate course of action would be for the Court to remit the matter to the Commissioner to consider whether or not to exercise this discretion [2] | A summary of the Court's findings and reasoning follows: | Primary characterisation issue | Bennett J noted, after referring to several previous GST cases, that the proper characterisation of a supply \" is not always answered by a mere contractual analysis and must be addressed having regard to the substance, purpose and commercial reality of the transactions \" [3] . | Her Honour stated that there were a number of difficulties associated with the view that the taxpayer supplied arranging or booking services only [4] . One such difficulty was that, in the event the Australian Provider did not provide the Products, NR tourists would have rights against an NR travel agent [5] . However, the NR travel agent in question would have no rights against the Australian Providers and no recourse to the taxpayer if the taxpayer had properly completed the booking. [6] | Applying the test in BP Refinery [7] , Bennett J found that the contract between the taxpayer and NR travel agents contained an implied term [8] and concluded that [9] : The analysis of the entirety of the relationship between [ the taxpayer ] and the NR Travel Agents makes it clear that ..., [ the taxpayer ] supplied the NR Travel Agents with a contractual right or promise that the Products would be provided to the NR Tourists (our emphasis). | Her Honour further concluded that the supply of the contractual right or promise that the Products would be provided was not GST-free under section 38-190 on the basis that: • to the extent the supply related to the accommodation components of a tour package - the supply was a supply of real property, as defined in section 195-1, and that it therefore did not fall within the scope of section 38-190 • to the extent the supply related to the non-accommodation components - the supply was the supply of a right to which subsection 38-190(2) would apply [10] (and, as such, the supply would not be GST-free under section 38-190) | • to the extent the supply related to the accommodation components of a tour package - the supply was a supply of real property, as defined in section 195-1, and that it therefore did not fall within the scope of section 38-190 • to the extent the supply related to the non-accommodation components - the supply was the supply of a right to which subsection 38-190(2) would apply [10] (and, as such, the supply would not be GST-free under section 38-190) | Secondary characterisation issue | Bennett J found that, in addition to supplying a promise to provide the Products, the taxpayer made a separate supply of arranging services. Her Honour noted that: • the contract the taxpayer has with the NR travel agents makes a distinction between the Products supplied and the taxpayer's fee for arranging services and, \"[ a ] s such, there were two separate supplies \" [11] ; and • if the Products were not supplied by the Australian Provider, the taxpayer refunded the cost of the Products, but did not refund the margin [12] | • the contract the taxpayer has with the NR travel agents makes a distinction between the Products supplied and the taxpayer's fee for arranging services and, \"[ a ] s such, there were two separate supplies \" [11] ; and • if the Products were not supplied by the Australian Provider, the taxpayer refunded the cost of the Products, but did not refund the margin [12] | Bennett J further stated that the separate supply of arranging services was not \" merely ancillary or incidental to the supply of the Products \", noting (amongst other things) that the arranging service was a service sought for its own sake, rather than as \" a means of better enjoying the principal service \" [13] . It was concluded that the separate supply of arranging services was GST-free under section 38-190 [14] . | Pre-1 July 2008 discretion to refund issue | Bennett J referred to KAP Motors [15] (on which the taxpayer relied) and concluded that it was distinguishable on the basis that, in the present situation, it was the nature of the taxpayer's supply, and not its existence, that was in dispute [16] . From this, her Honour concluded that section 105-65 (as it then was) gave the Commissioner a discretion in relation to the refunds sought by the taxpayer for periods ending on or before 30 June 2008 [17] .", "Issues_Decided": "The primary issue considered by the Court was whether the supply made by the taxpayer to the NR travel agents was properly characterised as: • supply of arranging or booking services (as the taxpayer contended); or • supply of the Products or the right to that supply or the promise to provide it (as the Commissioner contended) • supply of arranging or booking services (as the taxpayer contended); or • supply of the Products or the right to that supply or the promise to provide it (as the Commissioner contended) It was common ground that: • if the taxpayer's contended characterisation was correct - the supply would be GST-free; • if the Commissioner's contended characterisation was correct - the supply would not be GST-free (although the taxpayer did advance a number of arguments in support of the proposition that various components of the supply may be GST-free which were considered but not accepted by the Court [1] ). • if the taxpayer's contended characterisation was correct - the supply would be GST-free; • if the Commissioner's contended characterisation was correct - the supply would not be GST-free (although the taxpayer did advance a number of arguments in support of the proposition that various components of the supply may be GST-free which were considered but not accepted by the Court [1] ). As it found in favour of the Commissioner on the primary issue, the Court also considered the secondary issue of whether, in addition to supplying the Products or the rights or promises, the taxpayer also supplied an arranging or booking service (for which it charged its margin). It was not in dispute that this separate supply, if it existed, would be GST-free. The Court also considered whether section 105-65 in Schedule 1 to the Taxation Administration Act 1953 could apply to deny a refund of overpayments of GST made by the taxpayer in relation to tax periods ending on or before 30 June 2008. The taxpayer contended that section 105-65, as it then was, could not apply where a particular supply that a taxpayer treated as having been made by it (supply of the Products or the rights or promises) was, at least to some extent, not made at all and instead a different supply (arranging or booking services) was made. It was common ground that: • if the taxpayer's contention was correct - the Commissioner would be required to refund the relevant overpayments of GST; • if the Commissioner's contention was correct (and section 105-65 was not precluded from applying) - the Commissioner would have a discretion to refund the relevant GST overpayments, in which case the appropriate course of action would be for the Court to remit the matter to the Commissioner to consider whether or not to exercise this discretion [2] • if the taxpayer's contention was correct - the Commissioner would be required to refund the relevant overpayments of GST; • if the Commissioner's contention was correct (and section 105-65 was not precluded from applying) - the Commissioner would have a discretion to refund the relevant GST overpayments, in which case the appropriate course of action would be for the Court to remit the matter to the Commissioner to consider whether or not to exercise this discretion [2] A summary of the Court's findings and reasoning follows: | Primary characterisation issue: Bennett J noted, after referring to several previous GST cases, that the proper characterisation of a supply \" is not always answered by a mere contractual analysis and must be addressed having regard to the substance, purpose and commercial reality of the transactions \" [3] . Her Honour stated that there were a number of difficulties associated with the view that the taxpayer supplied arranging or booking services only [4] . One such difficulty was that, in the event the Australian Provider did not provide the Products, NR tourists would have rights against an NR travel agent [5] . However, the NR travel agent in question would have no rights against the Australian Providers and no recourse to the taxpayer if the taxpayer had properly completed the booking. [6] Applying the test in BP Refinery [7] , Bennett J found that the contract between the taxpayer and NR travel agents contained an implied term [8] and concluded that [9] : The analysis of the entirety of the relationship between [ the taxpayer ] and the NR Travel Agents makes it clear that ..., [ the taxpayer ] supplied the NR Travel Agents with a contractual right or promise that the Products would be provided to the NR Tourists (our emphasis). Her Honour further concluded that the supply of the contractual right or promise that the Products would be provided was not GST-free under section 38-190 on the basis that: • to the extent the supply related to the accommodation components of a tour package - the supply was a supply of real property, as defined in section 195-1, and that it therefore did not fall within the scope of section 38-190 • to the extent the supply related to the non-accommodation components - the supply was the supply of a right to which subsection 38-190(2) would apply [10] (and, as such, the supply would not be GST-free under section 38-190) • to the extent the supply related to the accommodation components of a tour package - the supply was a supply of real property, as defined in section 195-1, and that it therefore did not fall within the scope of section 38-190 • to the extent the supply related to the non-accommodation components - the supply was the supply of a right to which subsection 38-190(2) would apply [10] (and, as such, the supply would not be GST-free under section 38-190) | Secondary characterisation issue: Bennett J found that, in addition to supplying a promise to provide the Products, the taxpayer made a separate supply of arranging services. Her Honour noted that: • the contract the taxpayer has with the NR travel agents makes a distinction between the Products supplied and the taxpayer's fee for arranging services and, \"[ a ] s such, there were two separate supplies \" [11] ; and • if the Products were not supplied by the Australian Provider, the taxpayer refunded the cost of the Products, but did not refund the margin [12] • the contract the taxpayer has with the NR travel agents makes a distinction between the Products supplied and the taxpayer's fee for arranging services and, \"[ a ] s such, there were two separate supplies \" [11] ; and • if the Products were not supplied by the Australian Provider, the taxpayer refunded the cost of the Products, but did not refund the margin [12] Bennett J further stated that the separate supply of arranging services was not \" merely ancillary or incidental to the supply of the Products \", noting (amongst other things) that the arranging service was a service sought for its own sake, rather than as \" a means of better enjoying the principal service \" [13] . It was concluded that the separate supply of arranging services was GST-free under section 38-190 [14] . | Pre-1 July 2008 discretion to refund issue: Bennett J referred to KAP Motors [15] (on which the taxpayer relied) and concluded that it was distinguishable on the basis that, in the present situation, it was the nature of the taxpayer's supply, and not its existence, that was in dispute [16] . From this, her Honour concluded that section 105-65 (as it then was) gave the Commissioner a discretion in relation to the refunds sought by the taxpayer for periods ending on or before 30 June 2008 [17] .", "ATO_View_of_Decision": "Primary characterisation issue | Although this decision relates to specific facts, the Commissioner considers that aspects of her Honour's reasoning would apply to all ITOs which: • transact as principal (and not as an agent of a NR travel agent); • are engaged by NR travel agents to enter into contracts with Australian Providers for the provision of Products to NR tourists | • transact as principal (and not as an agent of a NR travel agent); • are engaged by NR travel agents to enter into contracts with Australian Providers for the provision of Products to NR tourists | In particular, the difficulties that her Honour identified with the alternative arranging or booking services characterisation (such as the one noted above) would seemingly arise in relation to all such ITOs. Accordingly, the Commissioner considers that the supply made by an ITO of this kind to a NR travel agent would (to the extent that the consideration for the supply equates with the price the ITO paid for a particular Product) properly be characterised as the supply of a contractual right or promise that the Product will be provided to the NR tourist. The same characterisation would apply in instances where an ITO is engaged directly by a NR tourist to enter into contracts with Australian providers (as principal) for the provision of Products to the NR tourist. | The supply of the contractual right or promise would be subject to GST, unless there is a specific provision in the GST Act which makes the supply GST-free or input taxed (the supply of a right to, or promise of, accommodation in certain serviced apartments may, for example, be input taxed [18] ) | Secondary characterisation issue | Bennett J referred to two factors (noted above) that led to the conclusion that, in addition to supplying a promise to the Products, the taxpayer also supplied an arranging or booking service for which it charged its margin. | On the first factor, the Commissioner respectfully considers that her Honour's comments (when viewed in context) do not provide support for the proposition that, if a contract draws a distinction between two separate supplies [19] , it follows from this alone that there are two separate supplies. Subject to any advice he receives, the Commissioner proposes to submit to the Full Federal Court that the description of an arrangement given by one or both the parties, in the contract or otherwise, is not determinative of whether or not there is a supply, nor is it is determinative of the character of any supply in fact made. | On the second factor, the Commissioner acknowledges that, if it were the case that the taxpayer was entitled to retain its margin in the event that an Australian Provider did not provide the Products, this may support the conclusion that the taxpayer made two separate supplies. However, subject to any advice he may receive, the Commissioner proposes to submit to the Full Court that the available evidence in the matter does not support this finding. | Section 105-65 discretion prior to 1 July 2008 | Bennett J's findings are consistent with the Commissioner's views regarding section 105-65, as it existed prior to being amended in 2008.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Taking into account all relevant circumstances, the Commissioner considers it appropriate to administer the law in the manner outlined below between now and the time the appeal and cross-appeal are decided. | Overview of administrative treatment | During this period, the Commissioner will not make any amended assessments in a manner that is inconsistent with the existing Federal Court decision. Accordingly, taxpayers may lodge returns on the basis of either this decision or the published ATO view, without the Commissioner making amended assessments [20] . However, the Commissioner will make amended assessments where taxpayers lodge on the basis that their entire transaction (and not just the margin) is GST-free. | If the Commissioner is successful in his cross-appeal, he will (subject to further appeal processes being exhausted) amend assessments and seek to recover any unpaid GST on the margin. Similarly, if the Commissioner is not successful in his cross-appeal, but the Full Court's reasoning suggests that only a class of ITOs would be affected by the decision, he will seek to recover any unpaid GST on the margin from ITOs that do not fit within the relevant class. | Claims for refunds of overpaid GST on the margin for previous tax periods will be subject to the operation of section 105-65. Further guidance on how to apply for such refunds and the principles and circumstances which the Commissioner will take into account in deciding whether to exercise the discretion to refund the relevant overpaid GST in any given case appears under the heading below: Section 105-65 - application to refunds of overpaid GST . | The above treatment can be summarised in the following table. Scenario Will the Commissioner amend assessments? 1 Taxpayer lodges in accordance with published ATO view No 2 Taxpayer lodges in accordance with Bennett J's decision (margin GST-free) No 3 Taxpayer lodges on basis entire supplies are GST-free Yes, in line with Bennett J's decision | Affected taxpayers | Consistent with the decision of Bennett J [21] , the administrative treatment outlined above applies to supplies an ITO makes to a non-resident entity (NR entity) if requirements 1 and 2 and either of 3A or 3B in the table below are satisfied: Requirement 1 The ITO is engaged by the NR entity* to enter into contracts with Australian Providers for the provision of Products to a NR tourist or tourists * The NR entity may be a NR travel agent or a NR tourist that is not in Australia at the time the ITO performs its arranging or booking services. 2 The ITO transacts as principal (and not as agent for the NR entity) in its dealings with the Australian Providers; and 3A The contract the ITO has with the NR entity (including the ITO's web-based or other material if the ITO has no express written agreement with the NR entity): • refers to a service of arranging supply of the Products or booking the Products; and • requires the ITO to refund the cost of the Products only and not its margin in circumstances where the NR entity pays the ITO for its supply of a promise to provide a Product, but the Product is not supplied by the Australian Provider* * If the contracts are silent in relation to refunds in these circumstances, we accept that this requirement is met if the taxpayer's practices are not inconsistent with this requirement (that is, if the taxpayer does not have a practice of refunding the whole of the price paid by the NR entity if the Provider fails to provide the Product); 3B The ITO: • in its contract with the NR entity (including its web-based or other material if it has no express written agreement with the NR entity) does not refer to a service of arranging supply of the Products or booking the Products; but • can establish that they have a practice of refunding the cost of the Product only and not their margin if the Australian Provider fails to provide the Product | • refers to a service of arranging supply of the Products or booking the Products; and • requires the ITO to refund the cost of the Products only and not its margin in circumstances where the NR entity pays the ITO for its supply of a promise to provide a Product, but the Product is not supplied by the Australian Provider* | * If the contracts are silent in relation to refunds in these circumstances, we accept that this requirement is met if the taxpayer's practices are not inconsistent with this requirement (that is, if the taxpayer does not have a practice of refunding the whole of the price paid by the NR entity if the Provider fails to provide the Product); | • in its contract with the NR entity (including its web-based or other material if it has no express written agreement with the NR entity) does not refer to a service of arranging supply of the Products or booking the Products; but • can establish that they have a practice of refunding the cost of the Product only and not their margin if the Australian Provider fails to provide the Product | The ATO will review this position when the decision of the Full Federal Court is available. | Section 105-65 - application to refunds of overpaid GST | If a taxpayer overpays GST on a supply that it erroneously treats as taxable, section 105-65 says that the Commissioner need not refund the amount overpaid if one or both of the following apply: • the Commissioner is not satisfied that the taxpayer has reimbursed a corresponding amount to the recipient of the supply; • the recipient is registered for GST or required to be registered for GST | • the Commissioner is not satisfied that the taxpayer has reimbursed a corresponding amount to the recipient of the supply; • the recipient is registered for GST or required to be registered for GST | The Commissioner reads the words \"need not\" in section 105-65 to mean that, although he would be under no obligation to provide a refund, he has the discretion to do so [22] . | The original version of this DIS noted that the Commissioner was seeking independent legal advice on the application of section 105-65. The Commissioner has since received and reviewed that advice. | Miscellaneous Tax Ruling MT 2010/1 sets out 'guiding principles' that the Commissioner will have regard to in determining whether or not to exercise the section 105-65 discretion in any given case [23] . These principles take into account the legislative intention of section 105-65. In MTAA Superannuation Fund [24] , the Administrative Appeals Tribunal said of this intention: The intention of the legislature in enacting the s 105-65 discretion included preventing windfall gains... and the Commissioner and the Tribunal standing in his shoes are permitted to have regard to this intention in deciding whether that discretion ought to be exercised in a particular circumstance. ... Having regard to the legislative intention, prevention of windfall gains is the principal criterion to be addressed before any exercise of the discretion . ... A practical business approach to administration of the GST laws is not consistent with allowing windfall gains. And to the extent that community standards and expectations have a role to play, those standards and expectations would require denial of windfall gains for two large organisations that do not bear the cost of the overpaid amount [emphasis added] | In considering whether to exercise the section 105-65 discretion in relation to any given ITO, the Commissioner will have regard to all relevant circumstances. We have identified relevant factors as including whether the overpaid amount has been passed on to the recipient of the supply and also the change of ATO view resulting in the ATO requiring that GST be paid on the margin with effect from 1 April 2005. Subject to the relevant facts and circumstances of each case, the Commissioner would generally expect to exercise the discretion to refund overpaid GST on the margin to an ITO if there is evidence which shows that the ITO bore the cost of the GST and did not pass it on to the recipient of the supply. | For ITOs that began operation before 1 April 2005 [25] , the evidence may take the form of a comparison between their pricing methodology prior to 1 April 2005 (if they treated their margin as GST-free up to this point) and their pricing methodology after this date. If, for example, an ITO determines its price by applying a percentage mark-up to the Products it acquires from an Australian Provider and, for any given Product or Product category, that percentage has remained constant from 1 July 2000 to the present day, this would (all other things being equal) weigh in favour of the exercise of the discretion to refund the overpaid GST on the margin [26] . It would not matter that the ITO's prices would have fluctuated in line with fluctuations in the Australian Provider's prices. | Any ITOs that are seeking refunds for arranging supplies made to non-resident entities that were registered, or (to the best of the ITO's knowledge) were required to be registered, for GST should identify this in their refund application. | Submitting evidence to the ATO | Affected taxpayers may submit any evidence in support of a claim for a refund of GST overpaid for previous tax periods to GSTmail@ato.gov.au or by fax to 1300 139 031 or by mail to: Australian Taxation Office PO Box 3524 ALBURY NSW 2640 | Please include the words \"Inbound Tour Operator Refund Request\" in the subject heading. | Any queries about the nature of the evidence that needs to be provided can be directed to one of the following officers: Kevin Burns 08 8208 2039 Michelle Nourse 08 8218 9203 Romeo Barone 08 7422 2556 | Claiming the entire refund on one business activity statement (BAS) | If the Commissioner does exercise the discretion under section 105-65 to pay refunds to an ITO, that ITO may, as an alternative to amending previous BASs, claim the one 'aggregate refund' on the next BAS that they lodge. In working out their aggregate refund, the ITO must take into account the four-year time limit which applies to the claiming of GST refunds [27] . | Refunds to be returned if the Commissioner is successful in his cross-appeal | If he is successful in his cross-appeal, the Commissioner will seek to recover any refunds of overpaid GST for past periods that he pays out, together with any delayed refund interest that he may have paid. | This is because any refunds would have been paid on the basis that the margin was GST-free. If the Full Court was to find in favour of the Commissioner (that the margin is in fact taxable), there would have been no legislative entitlement to the refunds. | Affected taxpayers therefore have the choice to claim refunds for past periods now (knowing that any refunds they receive may have to be paid back at a later date) or await the outcome of the appeal and cross appeal and submit refund requests at that time (should the Full Court affirm the decision that the margin is GST-free). | Taxpayers that choose to await the outcome of the appeal before they claim refunds may wish to lodge a notification of their entitlement to a refund to ensure they are not disadvantaged by the four-year time limit (see directly below for further information). | Extensions of the four-year time limit on GST refunds | A taxpayer's entitlement to a refund of overpaid GST relating to a tax period commencing before 1 July 2012 will generally expire unless, within four years from the end of that tax period, the taxpayer notifies the Commissioner of their entitlement to the refund [28] . | To preserve any entitlement to refunds for past transactions, taxpayers can notify the ATO (through one of the methods outlined below) of their intention to claim the refund at a later date (for example, as soon as practical after the appeal and cross-appeal have been decided and any further appeal processes are exhausted). | Requirements for a valid refund notification | A valid notification of a refund entitlement must: • identify the taxpayer that is entitled to the refund • provide a description of the nature of the entitlement to a refund which is sufficient to bring to the Commissioner's attention the basis for the entitlement (such that when the refund is subsequently claimed, it can reasonably be identified as being covered by the notification). For example, \"the taxpayer is an inbound tour operator who, in accordance with the decision in ATS Pacific Pty Ltd v Commissioner of Taxation , has overpaid GST on its supplies of arranging services.\" • specify the reporting period or periods that the refund relates to. If the refund relates to a number of consecutive reporting periods, it is sufficient to specify a range only without identifying each period (for example, \"the refunds relate to the quarterly tax periods spanning 1 June 2009 to 30 June 2012\") | • identify the taxpayer that is entitled to the refund • provide a description of the nature of the entitlement to a refund which is sufficient to bring to the Commissioner's attention the basis for the entitlement (such that when the refund is subsequently claimed, it can reasonably be identified as being covered by the notification). For example, \"the taxpayer is an inbound tour operator who, in accordance with the decision in ATS Pacific Pty Ltd v Commissioner of Taxation , has overpaid GST on its supplies of arranging services.\" • specify the reporting period or periods that the refund relates to. If the refund relates to a number of consecutive reporting periods, it is sufficient to specify a range only without identifying each period (for example, \"the refunds relate to the quarterly tax periods spanning 1 June 2009 to 30 June 2012\") | The notification does not need to quantify the amount of the refund. In the circumstances, the Commissioner will not require a taxpayer to take steps to quantify the amount of the refund until after the appeal and cross-appeal have been decided. | Where to send the notification | Notifications of refund entitlements should be sent to: | Australian Taxation Office PO Box 3524 | ALBURY NSW 2640; | or faxed to 1300 139 031. | Taxpayers will receive a letter from the ATO acknowledging their notification. | [1] In particular, the taxpayer contended that, the supply of the promise was not excluded from being GST-free under subsection 38-190(2) on the basis that it was not the \"supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free\" (paragraph 140, 3rd dot point) | [2] Paragraph 9 | [3] At paragraph 71, referring to Saga Holidays Ltd v Commissioner of Taxation [2005] FCA 1892; (2005) 149 FCR 41; Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 115; (2006) 152 FCR 461; Travelex v Commissioner of Taxation [2010] HCA 33; (2010) 241 CLR 510. | [4] Paragraph 110 | [5] Paragraph 114 | [6] Paragraph 114 | [7] BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 | [8] Paragraph 89 | [9] Paragraph 166 | [10] Paragraph 143 | [11] Paragraph 149 | [12] Paragraph 149 | [13] Paragraph 151 | [14] At paragraph 169 | [15] KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159; (2008) 168 FCR 319 | [16] Paragraph 163 | [17] At paragraph 163 | [18] In the case of a supply of accommodation in a serviced apartment, subsection 9-30(2) and section 40-35 of the GST Act may apply to render the supply input-taxed | [19] In this case, the supplies in question are the supply of the promise to provide the Products and the supply of the arranging or booking services | [20] That is, the amendments of the 'deemed assessment' that will be taken to be made at the time the taxpayer lodges their GST return (section 155-15 in Schedule 1 to the Taxation Administration Act 1953) | [21] See paragraph 149 in particular | [22] MT 2010/1 sets out the Commissioner's views on the operation of section 105-65 in Schedule 1 to the Taxation Administration Act 1953. | [23] See section 105-55 in Schedule 1 to the Taxation Administration Act 1953. For tax periods starting on or after 1 July 2012, a period of review (generally four years) applies to amending assessments. The period of review cannot be extended by a notification | [24] MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd and Commissioner of Taxation [2011] AATA 769, at paragraphs 64 and 65 | [25] This is the date on which the Commissioner's public view that the margin was taxable took effect | [26] This is assuming that GST is not then imposed on the marked-up amount | [27] In accordance with the four-year time limit in section 105-55 of Schedule 1 to the Taxation Administration Act 1953, an entitlement to a refund of overpaid GST for a tax period which commenced before 1 July 2012 will cease four years from the end of that tax period. Broadly, this is unless, within the four-year period, the ITO lodged a valid section 105-55 notice in relation to the refund. | [28] See section 105-55 in Schedule 1 to the Taxation Administration Act 1953. For tax periods starting on or after 1 July 2012, a period of review (generally four years) applies to amending assessments. The period of review cannot be extended by a notification", "Related_Documents": "Decision Impact Statement | After the appeal and cross-appeal have been decided, the Commissioner will review the impact of the Court's decision on ATO precedential documents including: | Goods and Services Tax Industry Issues - Land product supplied to non-residents (as principal) | GSTR 2006/9 | 2013 ATC 20-383 | Section 38-190 | (1977) 180 CLR 266 | 2008 ATC 20-007", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 Section 38-190 Taxation Administration Act 1953 Section 105-65 of Schedule 1", "Case_References": "BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159 (2008) 168 FCR 319 2008 ATC 20-007 68 ATR 927", "Subject_References": "", "Other_References": "", "Is_Interim": true, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1730of2010-NSD235of2011/00001", "Unmatched_Content": "A new interim Decision Impact Statement is now available following the Full Federal Court's decision handed down on 27 March 2014. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | The ATO will review the impact of this decision on precedential documents and Law Administration Practice Statements when the appeal is decided. A final DIS will be published when the matter is finalised."}
{"Case_Name": "August v Commissioner of Taxation", "Venue_Reference_No": "NSD 1109 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "7 August 2013", "Date_Published": "16 February 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which was concerned with whether the profit from the sale of properties was income according to ordinary concepts or income of a capital nature.", "Overview_of_Facts": "In 1995, Helen and Peter August established various companies and trusts including Toorak Management Pty Ltd (Toorak) and Toorak Unit Trust. Toorak was the sole trustee of the Toorak Unit Trust. Each taxpayer held 50% of the issued units in the trust. Helen and Peter August were the sole directors and shareholders of Toorak. | Directional Developments Pty Ltd (Directional Developments) was a company in which Mr August had an interest as a shareholder. He was also a director of the company. | Toorak, as trustee for Toorak Unit Trust, acquired a number of properties between late 1997 and the middle of 2000 (the Melba Properties). The properties were developed and ultimately sold for a profit in early 2007. | Directional Developments acquired a lease of land (the Hume Property)in late 2001. The property was sold in late 2005 for a profit. | The issue at first instance was whether the profits on the sale of the Melba Properties and the sale of the Hume Property was income according to ordinary concepts or income of a capital nature. The trial judge found in favour of the Commissioner. | Issues Decided by the Court | In their reasons for decision, the Full Court considered the three issues raised by the applicants and on each issue found for the Commissioner. | Firstly, in respect of the applicant's application to adduce three further expert's reports to address the authenticity of a document which had been relied on by the taxpayers and rejected by the trial judge, the Full Court dismissed their application. Their Honours found that the trial did not miscarry in relation to the document and that it was not appropriate for the Court to determine the issue of the authenticity of the document [115]. | Secondly, the Full Court rejected the applicants argument that the trial judge erred in law in that he applied the incorrect test for determining what was income according to ordinary concepts. | Thirdly, the Full Court rejected each of the applicants' submissions on the findings of fact.", "Issues_Decided": "In their reasons for decision, the Full Court considered the three issues raised by the applicants and on each issue found for the Commissioner. Firstly, in respect of the applicant's application to adduce three further expert's reports to address the authenticity of a document which had been relied on by the taxpayers and rejected by the trial judge, the Full Court dismissed their application. Their Honours found that the trial did not miscarry in relation to the document and that it was not appropriate for the Court to determine the issue of the authenticity of the document [115]. Secondly, the Full Court rejected the applicants argument that the trial judge erred in law in that he applied the incorrect test for determining what was income according to ordinary concepts. Thirdly, the Full Court rejected each of the applicants' submissions on the findings of fact.", "ATO_View_of_Decision": "The Full Court applied settled principles of law to the facts in this case. The decision has no wider ramifications.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | None | Implications for impacted Law Administration Practice Statements | None", "Related_Documents": "TR 92/3 | [2013] FCAFC 85 | 2013 ATC 20-406 | O 18 r 2 | 26(a) | 95 | 97(1) | 175A | 6-5 | 14ZZ | 14ZZO | 87 ATC 4363 | 70 ATC 4043 | 79 ATC 4111 | 82 ATC 4031 | 91 ATC 4234", "Legislative_References": "Evidence Act 1995 140 Federal Court of Australia Act 1976 24 27 28 Federal Court Rules O 18 r 2 Income Tax Assessment Act 1936 26(a) 95 97(1) 175A Income Tax Assessment Act 1997 6-5 Taxation Administration Act 1953 (Cth) 14ZZ 14ZZO", "Case_References": "Commissioner of Taxation (Cth) v Myer Emporium Ltd [1987] HCA 18 (1987) 163 CLR 199 87 ATC 4363 (1987) 18 ATR 693 Council of the City of Greater Wollongong v Cowan [1955] HCA 16 (1955) 93 CLR 435 Kratzmann v Federal Commissioner of Taxation (Cth) (1970) 44 ALJR 293 (1970) 1 ATR 827 70 ATC 4043 McCormack v The Commissioner of Taxation of the Commonwealth of Australia [1979] HCA 18 (1979) 143 CLR 284 (1979) 9 ATR 619 79 ATC 4111 Orr v Holmes and Another [1948] HCA 16 (1948) 76 CLR 632 The Commissioner of Taxation of the Commonwealth of Australia v Whitfords Beach Proprietary Limited [1982] HCA 8 (1982) 150 CLR 355 (1982) 12 ATR 692 82 ATC 4031 Westfield Limited v Commissioner of Taxation (1991) 28 FCR 333 91 ATC 4234 (1991) 21 ATR 1398", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1109of2012/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Bai and Commissioner of Taxation", "Venue_Reference_No": "2010/4191-4194", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 August 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/4191-4194/00001", "Unmatched_Content": "Bai and Commissioner of Taxation [2013] AATA 612 (2013) 95 ATR 711 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Bell v Deputy Commissioner of Taxation", "Venue_Reference_No": "M40 of 2013 (High Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "16 August 2013", "Date_Published": "11 October 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case concerning whether an entitity satisfied the maximum net asset value test prescribed by section 152-15 of the Income Tax Assessment Act 1997 .", "Overview_of_Facts": "The trustee of the Bell Family Trust, entered into a contract to sell units it held in the Barry Plant Holding Unit Trust (BPHT) and the Plant Bell Unit Trust (PBUT). | In its return for the 2007 year, the Bell Family Trust (\"the Trust\") claimed, inter alia, the small business CGT concession under Division 152 of the Income Tax Assessment Act 1997 (\"ITAA 1997\"). The taxpayer, Christopher Bell, was presently entitled to 100% of the Trust's income. The assessable income of the taxpayer therefore included the net income of the Trust for that year pursuant to section 97 of the Income Tax Assessment Act 1936 (\"ITAA 1936\") and section 6-10 of the ITAA 1997. | The Commissioner concluded at audit that the CGT assets of the Trust just before the CGT event, 14 March 2007, exceeded $5,000,000. As such, the Trust did not satisfy the section 152-15 ITAA 1997 maximum net asset value (MNAV) test and was not entitled to apply the small business concessions to discount the relevant capital gains. | The Bank Accounts | The AAT found that the Trust's Adelaide Bank facility comprised two accounts; a loan account and a linked offset account. The two accounts were not one CGT asset with a single value as contended by the taxpayer, but rather were two independent CGT assets, each having an independent value. Accordingly, whether each account was related to the assets included in the calculation of the \"net value of the CGT assets\" under section 152-20 of the ITAA 1997 is an enquiry that is made by treating each account as a separate CGT asset. | The AAT found that the loan account was a liability that had its origins in moneys borrowed to purchase a dwelling of the individual. That type of asset is excluded from the calculation of the net value of the CGT assets by subparagraph 152-20(b)(ii) of the ITAA 1997 and accordingly the loan account liability is excluded from the calculation [33-34]. | On appeal to the Federal Court, Justice Gordon refused to disturb the findings of the AAT in relation to the Bank accounts and refused to admit further evidence tendered by the taxpayer after the conclusion of the hearing. The Full Court found that her Honour did not err in law by adopting that approach. | The $2,018,000 liability | The AAT found that in October 2006 the Trust resolved to distribute $2,018,000 from the capital of the Trust to the taxpayer. The Trust did not have sufficient cash reserves to pay the distribution to the taxpayer [9]. BPHT made available to the Trust a Macquarie Bank loan facility to the extent of $2,018,000 with repayment of that amount to be made by the Trust to BPHT. | The AAT found that the debt of $2,018,000 owed by the Trust related to the discharge of an obligation to distribute capital and therefore was not related to the assets relevant to the calculation required by section 152-20 of the ITAA 1997. | On appeal to the Federal Court, Justice Gordon held that the AAT had erred in concluding that the $2,018,000 liability was not related to the CGT assets of the Trust for the purpose of section 152-20 of the ITAA 1997. | The Full Court disagreed with her Honour's conclusion that there was a real and substantial connection between the relevant assets of the Trust and the debt. | The Full Court held that \"as part of the one series of transactions on a single day, the [$2,018,000 of] borrowed funds were applied directly by Macquarie Bank to the appellant's own end purposes. Although, as a matter of accounting, the records of the Trust ultimately (although not, it seems, originally - as the result of a mistake) showed that the sum of $2,018,000 had been disbursed to the appellant pursuant to the distribution resolution of October 2006, in fact no money ever passed through the Trust. It may be correct to conclude that the Trust never had an asset to which the debt to the BPHT related. It is, however, sufficient to note that any such asset had been disposed of (to the appellant) on 13 March 2007, and that, \"just before the CGT event\" there was no asset to which the liability to the BPHT related\" [40]. | Penalty | The taxpayer was liable under section 284-75 of Schedule 1 to the Taxation Administration Act 1953 (\"TAA\") to an administrative penalty because the taxpayer, or his agent, made a false or misleading statement resulting in a shortfall amount. | The AAT found that the shortfall amount arose because the taxpayer, or his agent, failed to take reasonable care. The Commissioner had assessed the taxpayer to administrative penalty on the basis that the behaviour constituted recklessness. The Commissioner did not seek to disturb the AAT's finding on appeal. | Appeals | The taxpayer appealed each decision. The Full Court dismissed each of the taxpayer's grounds of appeal and upheld the Commissioner's notice of contention concerning the primary judge's finding in relation to the $2,018,000 liability. | The High Court found that the conclusions reached by the Full Court of the Federal Court were not attended by sufficient doubt to warrant the grant of special leave, nor were there raised questions of principle that would warrant the grant of special leave. | Issues Decided by the Court | 1.1 Is the Adelaide Bank facility, being the loan account and the linked offset account, two CGT assets? | 1.2 Is each account related to the assets of the Trust for the purpose of the calculation in section 152-20 of the ITAA 1997? | The AAT found that the Adelaide Bank facility consisted of two CGT assets, the loan account and the linked offset account. The loan account was a liability relating to an asset excluded from the section 152-20 of the ITAA 1997 calculation of the net value of the CGT assets and accordingly is not included in that calculation. | On appeal, each Court refused to disturb the AAT's findings in relation to the Adelaide Bank accounts. | The Full Court held that the AAT's conclusion that the Adelaide Bank facility consisted of two accounts was reasonably open on the material before it and the question of characterisation is one of fact for the AAT. | 2. Did the $2,018,000 liability relate to the assets of the trust just before the CGT event? | The Full Court agreed with the Commissioner's contention that the Trust's debt to the BPHT did not relate to the CGT assets of the Trust within the meaning of section 152-20 of the ITAA 1997 because there was not a relevant ongoing relation between the liability and the generality of the assets of the Trust [41]. | The Full Court held that the AAT did not err in law in finding as it did and explained that \"[t]he error into which the primary judge fell, in our respectful view, was to regard the Trust's purpose - that of preserving its existing assets - as dispositive of the question arising under s 152-20\" [41]. | 3. Did either the Full Court or the primary judge err in law by refusing to disturb the AAT's finding that the taxpayer, or his agent, failed to take reasonable care? | The Full Court noted that its role was limited to questions of law and that it saw no error in the conclusions of the primary judge on the issue of penalty.", "Issues_Decided": "1.2 Is each account related to the assets of the Trust for the purpose of the calculation in section 152-20 of the ITAA 1997?: The AAT found that the Adelaide Bank facility consisted of two CGT assets, the loan account and the linked offset account. The loan account was a liability relating to an asset excluded from the section 152-20 of the ITAA 1997 calculation of the net value of the CGT assets and accordingly is not included in that calculation. On appeal, each Court refused to disturb the AAT's findings in relation to the Adelaide Bank accounts. The Full Court held that the AAT's conclusion that the Adelaide Bank facility consisted of two accounts was reasonably open on the material before it and the question of characterisation is one of fact for the AAT. | 2. Did the $2,018,000 liability relate to the assets of the trust just before the CGT event?: The Full Court agreed with the Commissioner's contention that the Trust's debt to the BPHT did not relate to the CGT assets of the Trust within the meaning of section 152-20 of the ITAA 1997 because there was not a relevant ongoing relation between the liability and the generality of the assets of the Trust [41]. The Full Court held that the AAT did not err in law in finding as it did and explained that \"[t]he error into which the primary judge fell, in our respectful view, was to regard the Trust's purpose - that of preserving its existing assets - as dispositive of the question arising under s 152-20\" [41]. | 3. Did either the Full Court or the primary judge err in law by refusing to disturb the AAT's finding that the taxpayer, or his agent, failed to take reasonable care?: The Full Court noted that its role was limited to questions of law and that it saw no error in the conclusions of the primary judge on the issue of penalty.", "ATO_View_of_Decision": "The decision of the Full Court of the Federal Court of Australia, which the High Court determined was not attended with sufficient doubt to warrant the granting of special leave to appeal, is consistent with the Commissioner's view and current practices.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "N/A | High Court | [2013] HCA Trans 179 | Full Federal Court | 2013 ATC 20-380 | Federal Court | 2012 ATC 20-350 | Administrative Appeals Tribunal | 2012 ATC 10-230 | 152-10 | 152-15 | 152-20 | Sch 1 284-75 | Sch 1 284-90 | 96 ATC 5240 | 2012 ATC 20-321 | (1986) 162 CLR 1 | 2005 ATC 4925 | [1936] HCA 40 | (1936) 55 CLR 499 | 80 ATC 4386 | [1956] HCA 80 | 88 ATC 4279", "Legislative_References": "Administrative Appeals Tribunal Act 1975 44 Income Tax Assessment Act 1997 152-10 152-15 152-20 Taxation Administration Act 1953 Sch 1 284-75 Sch 1 284-90 Sch 1 284-215", "Case_References": "Collector of Customs v Agfa-Gevaert Limited [1996] HCA 36 (1995) 186 CLR 389 35 ATR 249 96 ATC 5240 Commissioner of Taxation v Traviati [2012] FCA 546 (2012) 205 FCR 136 2012 ATC 20-321 Coulton v Holcombe [1986] HCA 33 (1986) 162 CLR 1 CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53 (2005) 224 CLR 98 2005 ATC 4925 60 ATR 371 Hope v Bathurst City Council [1980] HCA 16 (1980) 144 CLR 1 House v The King [1936] HCA 40 (1936) 55 CLR 499 12 ATR 231 80 ATC 4386 NSW Associated Blue-Metal Quarries Ltd v Federal Commissioner of Taxation (1956) 94 CLR 309 [1956] HCA 80 TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation [1988] FCA 119 (1988) 82 ALR 175 19 ATR 1067 88 ATC 4279 Saunders v Vautier [1841] EngR 629 49 ER 49 [1841] 4 Beav 115", "Subject_References": "Small business CGT concessions Maximum net asset value test Calculation of the net value of CGT assets Penalty Failure to exercise reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M40of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Binetter v Deputy Commissioner of Taxation", "Venue_Reference_No": "S269 of 2012 (High Court of Australia)", "Venue": "High Court", "Judgment_Date": "15 February 2013", "Date_Published": "11 April 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to a case which concerned whether the taxpayer is required to comply with a notice for information served on her by the Commissioner, so that a proper assessment could be made.", "Overview_of_Facts": "In 2010, the taxpayer became the subject of an audit which identified several bank deposits made into a joint account belonging to the taxpayer and her late husband. The majority of the deposits came from entities of which the taxpayer and her late husband were directors. Throughout the audit requests for information were unanswered other than requests for extensions of time within which to provide the information. | The Commissioner included 50% of the unexplained deposits in the assessable income (director's fees, salary, wages or more generally unexplained income) of the taxpayer. The relevant income years were 1993-94 and 2000-2001. The taxpayer subsequently objected to the inclusion of the amounts in her income, explaining that the amounts received were repayments of unspecified, unsubstantiated loans from companies associated with her and her late husband. As the taxpayer had made no reference to these amounts being loan amounts during the audit, in 2011 the Commissioner made information requests seeking documents to substantiate the loans and characterise the payments. The taxpayer provided six hand written extracts from the accounts of the associated entities, relating to various periods throughout 1993 to 2001. | The Commissioner issued a s264 notice early in 2012 to obtain more information in order to determine the objection, however the taxpayer did not provide any information. The taxpayer sought several extensions of time to respond to the s.264 notice and then ultimately commenced proceedings to set aside the notice. | On 20 March 2012, the Federal Court (Rares J) granted an extension of time to the taxpayer in respect of compliance with the notice. His Honour made directions for the progression of the matter and ordered that the taxpayer have 14 days after the making of final orders to comply with the notice:[2012] FCA 377. | On 6 July 2012, the Federal Court (Robertson J) dismissed the taxpayer's application for judicial review of the Commissioner's decision to issue the notice Binetter v Deputy Commissioner of Taxation (No 3) [2012] FCA 704 (6 July 2012). In her application, the taxpayer had submitted that she was entitled to refuse to comply with the s.264 notice on the basis that to do so would require her to \"...provide information that would tend to self-incriminate her...\" . It was the taxpayer's submission that this asserted fact, of which there was no direct evidence, meant that the decision of the Full Federal Court in Deputy Commissioner of Taxation v De Vonk (1995) 61 FCR 564 no longer applied because the decision of the High Court in Daniels Corporation International Pty Ltd and Another v ACCC [2002] HCA 49 meant that absent express words of abrogation in s.264, s.264 did not expressly abrogate the privilege against self-incrimination. Finally, the taxpayer submitted the s.264 notice issued for the purpose of anticipated litigation which was an improper purpose | Robertson J did not accept any of the taxpayer's submission. His reasoning was that given he was sitting as a single judge, he was bound to follow the Full Federal Court decision of De Vonk's case ; that in any event, the evidence of the taxpayer did not support any of their submissions, and that the Commissioner was not engaging in an improper purpose by issuing the s264 notice to the taxpayer in order to decide the taxpayer's objection. | The taxpayer's appeal to the Full Federal Court (Edmonds, Jagot and Perram JJ) was heard on 17 August 2012. The Court stated per curiam at [30]: \"In our view, the decision in De Vonk should be followed because it is a unanimous decision of this Court which is not clearly or plainly wrong. It has stood for 17 years and despite subsequent amendments to ss 8C and 8D of the TAA, none of those amendments have sought to interfere with the position for which it stand as authority. More importantly for present purposes, we agree with the learned primary judge at R[23] that De Vonk has not been overruled either in Daniels or elsewhere.\" | On 6 September 2012, the Court dismissed the taxpayer's appeal with costs and ordered that the time for compliance with the s264 notice be extended until 20 September 2012, or until such further time and date as the Commissioner may allow. | The taxpayer sought leave of the High Court of Australia to file an application for special leave to appeal, which was refused on 15 February 2013. | Issues decided by the court | In view of the High Court's decision that the Full Federal Court decision, in respect of Deputy Commissioner of Taxation v De Vonk (1995) 61 FCR 564 was \"plainly correct\", the Full Federal Court's decision applies. | The Full Federal Court decision clarifies that taxpayers cannot claim the privilege of self-incrimination to refuse to comply with, or to apply to have set aside, a section 264(1)(a) notice for information.", "Issues_Decided": "In view of the High Court's decision that the Full Federal Court decision, in respect of Deputy Commissioner of Taxation v De Vonk (1995) 61 FCR 564 was \"plainly correct\", the Full Federal Court's decision applies. The Full Federal Court decision clarifies that taxpayers cannot claim the privilege of self-incrimination to refuse to comply with, or to apply to have set aside, a section 264(1)(a) notice for information.", "ATO_View_of_Decision": "The ATO has been applying the law in the manner in which the Full Court found. There are no negative implications arising from this decision.", "Administrative_Treatment": "Nil | Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "Nil | High Court of Australia | Full Federal Court of Australia | 2012 ATC 20-345 | Section 264 | 95 ATC 4820 | [2011] HCA 8 | (2011) 242 CLR 421 | (1994) 179 CLR 427 | (1983) 152 CLR 328 | [1983] HCA 9 | (1989) 89 ATC 4442 | 92 ATC 4114 | [2002] HCA 49", "Legislative_References": "Income Tax Assessment Act 1936 Section 264", "Case_References": "Deputy Commissioner of Taxation v De Vonk (1995) 61 FCR 564 (1995) 31 ATR 481 95 ATC 4820 Dyson v Attorney General [1911] 1 KB 410 [1912] 1 Ch 158 Edwards v Santos Ltd & Others [2011] HCA 8 (2011) 242 CLR 421 Coco v The Queen (1994) 179 CLR 427 Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328 [1983] HCA 9 Stergis v Boucher (1989) 20 ATR 591 (1989) 89 ATC 4442 Donovan v Commissioner of Taxation (1992) 34 FCR 355 (1992) 23 ATR 129 92 ATC 4114 Daniels Corporation International Pty Ltd and Another v ACCC [2002] HCA 49 (2002) 213 CLR 543", "Subject_References": "Self-incrimination Notice to produce documents", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S269of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Boyd and Commissioner of Taxation", "Venue_Reference_No": "2012/2178", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "12 July 2013", "Date_Published": "16 October 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2013 ATC 10-326", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012-2178/00001", "Unmatched_Content": "Boyd and Commissioner of Taxation [2013] AATA 494 2013 ATC 10-326 (2013) 95 ATR 136 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Caporale v Deputy Commissioner of Taxation", "Venue_Reference_No": "NSD 590 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "9 May 2013", "Date_Published": "29 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns the constitutional validity of provisions relating to the Legal Services Directions. The taxpayer sought to raise allegations of a breach of the Model Litigant Obligations before a court.", "Overview_of_Facts": "On 5 April 2013, the taxpayer commenced proceedings invoking section 39B of the Judiciary Act 1903 , essentially challenging the constitutional validity of subsections 55ZG(2) and (3) of that Act. Those sections relate to the Legal Services Directions 2005 , issued by the Attorney-General pursuant to section 55ZF of that Act. Those directions include the Commonwealth's obligation to act as a model litigant. | Justice Robertson set out aspects of the taxpayer's claim for interlocutory relief; extracts of her affidavit; and uncontroversial facts. The background does not need to be reproduced. It is sufficient to repeat Robertson J's observations at [4]: \" The applicant's point was that the Model Litigant Policy, which forms Appendix B to Schedule 1 to the Legal Services Directions 2005 made by the Attorney-General pursuant to s 55ZF of the Judiciary Act 1903, had not been complied with by the respondent ; that this gave rise to legal rights in her ; and the relevant provisions of s 55ZG of the Judiciary Act 1903, ss 55ZG(2) and (3 ), were invalid to the extent that they purported to prevent those rights from arising or being enforceable in the courts .\" | Issues decided by the court | Subsections 55ZG(2) and (3) of the Judiciary Act 1903 provide that: (2) Compliance with a Legal Services Direction is not enforceable except by, or upon the application of, the Attorney-General. (3) The issue of non-compliance with a Legal Services Direction may not be raised in any proceeding (whether in a court, tribunal or other body) except by, or on behalf of, the Commonwealth. | (2) Compliance with a Legal Services Direction is not enforceable except by, or upon the application of, the Attorney-General. (3) The issue of non-compliance with a Legal Services Direction may not be raised in any proceeding (whether in a court, tribunal or other body) except by, or on behalf of, the Commonwealth. | The taxpayer's challenge to the validity of subsections 55ZG(2) and (3) failed. | His Honour held that \" no private rights are conferred by Appendix B \" The Commonwealth's obligation to act as a model litigant \": at [39]. That \"[ t ] he terms of [ provisions in the Legal Services Directions ] indicate an intention that the Directions are a means of control by the Attorney-General of Commonwealth legal work. In my opinion they are not designed to create obligations owed by the persons or bodies referred to in s 55ZG to others, especially other litigants \" at [44]. And, at [50], that: \"... the provisions do not direct courts that they should not, for example, enforce or give effect to a right which a litigant has. Rather, the provision is a corollary of the limited nature of the obligations and to whom they are owed : a litigant may not rely on a breach of an obligation not owed to him or her .\"", "Issues_Decided": "Subsections 55ZG(2) and (3) of the Judiciary Act 1903 provide that: (2) Compliance with a Legal Services Direction is not enforceable except by, or upon the application of, the Attorney-General. (3) The issue of non-compliance with a Legal Services Direction may not be raised in any proceeding (whether in a court, tribunal or other body) except by, or on behalf of, the Commonwealth. (2) Compliance with a Legal Services Direction is not enforceable except by, or upon the application of, the Attorney-General. (3) The issue of non-compliance with a Legal Services Direction may not be raised in any proceeding (whether in a court, tribunal or other body) except by, or on behalf of, the Commonwealth. The taxpayer's challenge to the validity of subsections 55ZG(2) and (3) failed. His Honour held that \" no private rights are conferred by Appendix B \" The Commonwealth's obligation to act as a model litigant \": at [39]. That \"[ t ] he terms of [ provisions in the Legal Services Directions ] indicate an intention that the Directions are a means of control by the Attorney-General of Commonwealth legal work. In my opinion they are not designed to create obligations owed by the persons or bodies referred to in s 55ZG to others, especially other litigants \" at [44]. And, at [50], that: \"... the provisions do not direct courts that they should not, for example, enforce or give effect to a right which a litigant has. Rather, the provision is a corollary of the limited nature of the obligations and to whom they are owed : a litigant may not rely on a breach of an obligation not owed to him or her .\"", "ATO_View_of_Decision": "We do not consider the decision to have broader implications.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "None | [2013] FCA 427 | (2013) 212 FCR 220 | (2013) 302 ALR 246", "Legislative_References": "", "Case_References": "", "Subject_References": "Constitutional law Legal Services Directions 2005 Model litigant obligations", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD590of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Chang and Commissioner of Taxation", "Venue_Reference_No": "2010/4195", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 August 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/4195/00001", "Unmatched_Content": "Chang and Commissioner of Taxation [2013] AATA 611 (2013) 96 ATR 406 | 2010/4195 2010/4197 2010/4198 2011/0902 | The adverse aspects of the decision have no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Collection Point Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 527 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "3 July 2013", "Date_Published": "15 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerns whether the Commissioner had to provide certain information under the Freedom of Information Act 1982 ('FOI Act').", "Overview_of_Facts": "The taxpayer runs a commercial business to help people retrieve unclaimed money. It applied for information contained in a register kept by the Commissioner under the Superannuation (Unclaimed Money and Lost Members) Act 1999. | The Commissioner could not produce the document requested without writing a new computer program. This led the Commissioner to reject the application under section 24A of the FOI Act because the document did not exist. | Before the AAT, the taxpayer argued that subsection 17(1) of the FOI Act nevertheless required the Commissioner to produce the document. The Tribunal construed subsection 17(1) and found it did not apply to the taxpayer's request because the document could not be produced by a computer 'ordinarily available'. The Federal Court agreed with Tribunal's construction, on appeal. | Issues Decided by the Court | Could subparagraph 17(1)(c)(i) of the FOI Act apply to the taxpayer's request? | The Full Federal Court found that, as a matter of construction, it was open to the primary judge to conclude the Commissioner could not \"produce the document by the use of a computer that is ordinarily available\" to him within the meaning of subparagraph 17(1)(c)(i) where a new computer program was needed (at [52]). | A computer or other equipment is not \"ordinarily available\" if it is or becomes available outside the ordinary course of the Agency's operations. Generally, \"whether an item is ordinarily available will depend upon the facts of the particular case, which may include whether access to it would involve a departure from the agency's ordinary or usual conduct and operations\" (at [48]). | The Court also noted that the 'computer' referred to in subparagraph 17(1)(c)(i) is not merely the computer hardware, but the functioning computer system including software, that can produce the requested document without the aid of other components (at [43]).", "Issues_Decided": "Could subparagraph 17(1)(c)(i) of the FOI Act apply to the taxpayer's request? The Full Federal Court found that, as a matter of construction, it was open to the primary judge to conclude the Commissioner could not \"produce the document by the use of a computer that is ordinarily available\" to him within the meaning of subparagraph 17(1)(c)(i) where a new computer program was needed (at [52]). A computer or other equipment is not \"ordinarily available\" if it is or becomes available outside the ordinary course of the Agency's operations. Generally, \"whether an item is ordinarily available will depend upon the facts of the particular case, which may include whether access to it would involve a departure from the agency's ordinary or usual conduct and operations\" (at [48]). The Court also noted that the 'computer' referred to in subparagraph 17(1)(c)(i) is not merely the computer hardware, but the functioning computer system including software, that can produce the requested document without the aid of other components (at [43]).", "ATO_View_of_Decision": "The decision of the Court is consistent with the Commissioner's submissions in the case.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | N/A | Implications for impacted Law Administration Practice Statements | N/A", "Related_Documents": "None | [2013] FCAFC 67 | 17 | (2009) 2009 ATC 20-134", "Legislative_References": "Freedom of Information Act 1982 17", "Case_References": "Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 (2009) 73 ATR 256 (2009) 2009 ATC 20-134", "Subject_References": "Statutory Interpretation Freedom of Information Act", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID527of2012/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements"}
{"Case_Name": "Commissioner of Taxation and Fabig & Dickinson", "Venue_Reference_No": "NSD 247 of 2013", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 August 2013", "Date_Published": "30 June 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to these cases which concerned whether partial scrip-for-scrip rollover relief was available to the taxpayers in relation to their exchange of shares in one company for those in another, where the consideration received by them was disproportionate to their shareholding.", "Overview_of_Facts": "Ms Fabig and Mr Dickinson, along with all other shareholders in iMega Pty Ltd ( iMega ), entered into a Share Purchase Agreement to dispose of 90% of the shares they held for cash as well as shares in Photon Group Ltd ( Photon ). | Photon, the purchaser, did not pay the shareholders the same consideration for each of their shares. This was, the Tribunal below found, a direct result of a Shareholders' Agreement. Mr Dickinson held 50% of the shares in iMega but was relevantly entitled to 80% of any consideration on their sale under that agreement. Ms Fabig held 32.3% of the shares in iMega, but was entitled to 15.5% of the consideration. | A Deed of Variation was also entered into by the shareholders to dispose of the remaining 10% of the shares in iMega. The consideration was also cash and shares in a manner consistent with the Shareholders' Agreement. | The Tribunal held that the taxpayers were entitled to partial scrip-for-scrip rollover as each arrangement was one in which participation was available on substantially the same terms for all the iMega shareholders, as required by paragraph 124-780(2)(c). | Justice Davies summarised the Tribunal's reasoning as follows: '... even though the arrangement [defined by s 995-1] is broadly defined by the terms of the Share Purchase Agreement and the Deed of Variation, and cannot be contradicted by the terms of rejected offers, the general circumstances that led to the finalisation of those terms can be and are in this instance part of the arrangement. Critically, here the indifference of Photon as to the break-up between the Shareholders of the consideration is such a circumstance which is a relevant part of the arrangement.' | And that: 'Photon was willing to buy out the Shareholders in iMega on the same terms for all and that offer could have been accepted on those terms. They do not have to accept on the same terms in order to conclude that participation was available on the same terms: ...' | The Commissioner appealed from the Administrative Appeals Tribunal's decisions. | Issues Decided by the Court | The issues were whether the Tribunal erred in the identification of the arrangement and whether the arrangement was one in which participation was available on substantially the same terms for all the shareholders (see paragraph 124-780(2)(c)). | Justice Davies held (at [25]) that: 'The \"arrangement\" in this case was the contractual relationship entered into' and that: 'If, and in so far as, the Tribunal took the circumstance of Photon's indifference about the allocation of the purchase price as amongst the shareholders into account in defining the \"arrangement\" it fell into legal error. Photon's indifference did not form part of the relevant \"arrangement\" because of the terms on which the parties did contract.' | Her Honour went on to say that: 'This case does not turn on the proper identification of the \"arrangement\" ... but upon the fact ... that the disparity in consideration amongst the shareholders arose as the direct result of their private Shareholders' Agreement. In that context, Photon's indifference to the allocation of the consideration bore upon the question that the Tribunal had to decide although for the reasons that follow, I have concluded that the Tribunal was wrong to conclude that Photon's indifference meant that ... the condition in s 124-780(2)(c) was satisfied.' | Her Honour concluded (at [27]) that: The Tribunal reasoned that the condition in s 124-780(2)(c) was satisfied because Photon was willing to buy the shares on the same terms for all shareholders and was indifferent to the break-up of consideration amongst the shareholders. The Tribunal thereby concluded at Fabig [38] and Dickinson at [37] that Photon's offer could have been accepted by the shareholders on the same terms. However, that conclusion was reached without regard to the legal obligations on the shareholders under the Shareholders' Agreement. Photon may have been indifferent about the allocation of consideration when it made the offers but the Shareholders' Agreement meant that it was not open to the shareholders to accept Photon's offer on the same terms. They were contractually obliged to sell their shares for different consideration and in consequence, participation in the share sales was not available to them on substantially the same terms. The Tribunal was wrong to conclude otherwise. | Justices Edmonds (with additional reasons) and Griffiths agreed with Davies J.", "Issues_Decided": "The issues were whether the Tribunal erred in the identification of the arrangement and whether the arrangement was one in which participation was available on substantially the same terms for all the shareholders (see paragraph 124-780(2)(c)). Justice Davies held (at [25]) that: 'The \"arrangement\" in this case was the contractual relationship entered into' and that: 'If, and in so far as, the Tribunal took the circumstance of Photon's indifference about the allocation of the purchase price as amongst the shareholders into account in defining the \"arrangement\" it fell into legal error. Photon's indifference did not form part of the relevant \"arrangement\" because of the terms on which the parties did contract.' Her Honour went on to say that: 'This case does not turn on the proper identification of the \"arrangement\" ... but upon the fact ... that the disparity in consideration amongst the shareholders arose as the direct result of their private Shareholders' Agreement. In that context, Photon's indifference to the allocation of the consideration bore upon the question that the Tribunal had to decide although for the reasons that follow, I have concluded that the Tribunal was wrong to conclude that Photon's indifference meant that ... the condition in s 124-780(2)(c) was satisfied.' Her Honour concluded (at [27]) that: The Tribunal reasoned that the condition in s 124-780(2)(c) was satisfied because Photon was willing to buy the shares on the same terms for all shareholders and was indifferent to the break-up of consideration amongst the shareholders. The Tribunal thereby concluded at Fabig [38] and Dickinson at [37] that Photon's offer could have been accepted by the shareholders on the same terms. However, that conclusion was reached without regard to the legal obligations on the shareholders under the Shareholders' Agreement. Photon may have been indifferent about the allocation of consideration when it made the offers but the Shareholders' Agreement meant that it was not open to the shareholders to accept Photon's offer on the same terms. They were contractually obliged to sell their shares for different consideration and in consequence, participation in the share sales was not available to them on substantially the same terms. The Tribunal was wrong to conclude otherwise. Justices Edmonds (with additional reasons) and Griffiths agreed with Davies J.", "ATO_View_of_Decision": "The decision does not impact upon the Commissioner's practices. In applying paragraph 124-780(2)(c), we will evaluate whether participation was available on substantially the same terms by reference to the arrangement in question and also, consistent with Justice Davies' judgment (at [25]), other matters beyond the arrangement itself. This will include, in appropriate cases, any Shareholders' Agreement.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | Not applicable. | Implications for impacted Law Administration Practice Statements | Not applicable. | Your comments | We invite you to advise us if you feel this decision has consequences we have not identified, or if a precedential decision such as a Public Ruling or an ATO ID requires reconsideration or amendment. Please forward your comments to the contact officer by the due date. Date issued: 30 June 2014 Contact officer: Contact officer details have been removed as the comments period has ended.", "Related_Documents": "2013 ATC 20-413 | Subdivision 124-M | 995-1 | (2009) 2009 ATC 20-137 | (2012) 2012 ATC 20-332", "Legislative_References": "Income Tax Assessment Act 1997 Subdivision 124-M 995-1", "Case_References": "S v Crimes Compensation Tribunal [1998] 1 VR 83 Australand Investments Ltd v Commissioner of State Revenue (2009) 2009 ATC 20-137 (2009) 77 ATR 683 Commissioner of State Revenue v Australand Investments Ltd (2012) 2012 ATC 20-332 [2012] VSCA 152", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD247of2013/00001", "Unmatched_Content": "Impacted Advice: This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v Altnot Pty Ltd", "Venue_Reference_No": "VID 280 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "13 March 2014", "Date_Published": "24 July 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the AAT had erred in its construction of the former subsection 152-30(2) of the Income Tax Assessment Act 1997 (ITAA 1997).", "Overview_of_Facts": "On 30 March 2007, the taxpayer entered into a contract to sell a 50% interest in a carwash business and made a capital gain of $1,029,449. There was a dispute about whether the small business concessions in Division 152 of the ITAA 1997 applied to that gain. The Commissioner considered that the taxpayer did not satisfy the maximum net asset value test in section 152-15 just before the sale. There was no dispute that, for the purposes of paragraph 152-15(b), the taxpayer's sole director, who owns 50% of the taxpayer's shares, was an entity connected with the taxpayer. The dispute was about whether the director's wife, who owns no shares in the taxpayer, was also an entity connected with the taxpayer. | The AAT [2013] AATA 140 found that, for the purposes of the former section 152-30, the director's wife was not an entity connected with the taxpayer because she did not control the taxpayer in the way described in the section, that is she did not own any shares in the taxpayer. The Commissioner appealed this aspect of the AAT decision to the Federal Court. | The AAT separately found that a property owned by the director and his wife that had previously been used by them as a holiday home and then a rental property, was not 'being used solely for the personal use and enjoyment' of the director and his wife just before the sale of the carwash business. Whilst at this time the property was no longer being rented, the director and his wife had not yet resumed using it as a holiday house, such that it was not actually 'being used' by them just before the sale. This aspect of the AAT decision was not appealed. | Issues Decided by the Court | The Court recognised that the AAT's construction of the former subsection 152-30(2) raised a question of law for the purposes of section 44 of the Administrative Appeals Tribunal Act 1975 . The Court also recognised that, when determining whether an entity controlled the taxpayer under the former subsection 152-30(2), the AAT was required to consider whether the entity, or its small business CGT affiliates, or the entity together with such affiliates, owned shares in the taxpayer carrying the right to exercise at least 40% of the voting power in the taxpayer. | The Court found that the AAT misapplied the covering words in subsection 152-30(2) by only considering whether the director's wife owned shares in the taxpayer, and failed to consider the other two bases on which the wife might control the taxpayer, i.e., whether the wife's small business CGT affiliates (the director), or the wife together with the director, owned the required percentage of shares. The director was his wife's small business CGT affiliate because he was her spouse under the former paragraph 152-25(1)(a).", "Issues_Decided": "The Court recognised that the AAT's construction of the former subsection 152-30(2) raised a question of law for the purposes of section 44 of the Administrative Appeals Tribunal Act 1975 . The Court also recognised that, when determining whether an entity controlled the taxpayer under the former subsection 152-30(2), the AAT was required to consider whether the entity, or its small business CGT affiliates, or the entity together with such affiliates, owned shares in the taxpayer carrying the right to exercise at least 40% of the voting power in the taxpayer. The Court found that the AAT misapplied the covering words in subsection 152-30(2) by only considering whether the director's wife owned shares in the taxpayer, and failed to consider the other two bases on which the wife might control the taxpayer, i.e., whether the wife's small business CGT affiliates (the director), or the wife together with the director, owned the required percentage of shares. The director was his wife's small business CGT affiliate because he was her spouse under the former paragraph 152-25(1)(a).", "ATO_View_of_Decision": "The ATO notes that the decision of the Court is consistent with the Commissioner's submissions to the Court. | The ATO also notes that, while section 152-30 was repealed in 2007, the test for determining whether an entity is connected with a taxpayer is now to be found in section 328-125, when read with section 152-78. The ATO considers that the Court's construction of the covering words in the former subsection 152-30(2) is equally applicable to the covering words of subsection 328-125(2).", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for impacted Law Administration Practice Statements | None", "Related_Documents": "Nil | [2014] FCA 362 | 2014 ATC 20-454", "Legislative_References": "", "Case_References": "", "Subject_References": "Capital gains Small business concessions Maximum net asset value test Connected with Being used solely for personal use and enjoyment", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID280of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v Boyn", "Venue_Reference_No": "NSD 1651 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "20 March 2013", "Date_Published": "29 April 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerned the meaning of \"employment termination remainder\" and the correct method of calculating the tax payable by a taxpayer who received an employment termination payment.", "Overview_of_Facts": "On 30 July 2009 the taxpayer received an employment termination payment (\"ETP\"), a life benefit termination payment, from his former employer. The taxpayer was a resident for Australian income tax purposes and he had already reached preservation age for superannuation purposes. | The ETP comprised a taxable component of $250,880 and a tax free component of $144,120. Only the taxable component was included in his assessable income. The taxable component exceeded the $150,000 ETP cap amount for the 2010 financial or income year. | For the 2010 income year, the taxpayer had a taxable income of $75,261. The Commissioner calculated tax payable on the basis that his taxable income consisted entirely of employment termination remainder (ETR). Under paragraph (aa) in clause 1 of Part I of Schedule 7 to the Income Tax Rates Act 1986 (ITRA), the rate of tax of 45% was applied to the taxable income. | On review of the Commissioner's objection decision, the AAT considered that this approach was not supported by the legislation. It set aside the objection decision and remitted the matter to the Commissioner to recalculate the tax payable. The Commissioner appealed the AAT decision to the Federal Court. | Issues decided by the Federal Court | The Federal Court held that the definition of \"employment termination remainder\" in subsection 3(1) of the ITRA places a cap on the amount of taxable income that can be the ETR. The ETR cannot be greater than the taxable income. The Federal Court also said that the relevant provisions were 'clear and unambiguous'. | In this case, the taxable component of the ETP represented taxable income that otherwise satisfied the definition in subsection 3(1), and the excess of the taxable component over the ETP cap amount (i.e. $100,880) was greater than the taxable income of $75,261. The Federal Court held that the definition of ETR therefore applied so that the taxable income was an ETR, concluding that the Commissioner had correctly calculated the tax payable by the taxpayer.", "Issues_Decided": "The Federal Court held that the definition of \"employment termination remainder\" in subsection 3(1) of the ITRA places a cap on the amount of taxable income that can be the ETR. The ETR cannot be greater than the taxable income. The Federal Court also said that the relevant provisions were 'clear and unambiguous'. In this case, the taxable component of the ETP represented taxable income that otherwise satisfied the definition in subsection 3(1), and the excess of the taxable component over the ETP cap amount (i.e. $100,880) was greater than the taxable income of $75,261. The Federal Court held that the definition of ETR therefore applied so that the taxable income was an ETR, concluding that the Commissioner had correctly calculated the tax payable by the taxpayer.", "ATO_View_of_Decision": "The Federal Court confirmed the Commissioner's interpretation of the definitions of \"employment termination remainder\" and \"ordinary taxable income\" in the ITRA. It also confirmed the Commissioner's method of calculation of the tax payable for an income year in those cases where: • the taxable component of an ETP exceeds the ETP cap amount (i.e. there is an ETR as per the ITRA); and • that taxable component is greater than the taxable income for the income year. | • the taxable component of an ETP exceeds the ETP cap amount (i.e. there is an ETR as per the ITRA); and • that taxable component is greater than the taxable income for the income year. | The decision affirms the Commissioner's view that, whenever the taxable component of an ETP exceeds the ETP cap amount, the taxable income will contain an ETR. Under step 3 in subsection 4-15(1) of the ITAA 1997 if total deductions equal or exceed assessable income then there is no taxable income. | It follows that the Commissioner's methodology will remain correct wherever there is a \"superannuation remainder\" as defined in subsection 3(1) of the ITRA. A superannuation remainder is taxed the same way as an ETR. | A superannuation remainder can only arise when a superannuation lump sum is paid from an untaxed plan. If the \"element untaxed in the fund\" part of the taxable component of that superannuation lump sum exceeds the \"untaxed plan cap amount\" then the taxable income of the taxpayer will include a superannuation remainder.", "Administrative_Treatment": "None | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "None | 2013 ATC 20-378 | 4-10(3) | 4-15(1) | 82-10 | 82-160 | 960-265 | 6(1) | 3(1) | 4 | 12(1) | Schedule 7 Part 1 | 2009 ATC 20-134 | 2012 ATC 20-361", "Legislative_References": "Income Tax Assessment Act 1997 4-10(3) 4-15(1) 82-10 82-160 960-265 Income Tax Assessment Act 1936 6(1) Income Tax Rates Act 1986 3(1) 4 12(1) Schedule 7 Part 1", "Case_References": "Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) (2009) 239 CLR 27 (2009) 73 ATR 256 2009 ATC 20-134 Commissioner of Taxation v Consolidated Media Ltd (2012) 293 ALR 257 (2012) 84 ATR 1 2012 ATC 20-361", "Subject_References": "Employment termination payment Employment termination remainder", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1651of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Cancer and Bowel Research Association Inc as Trustee for the Cancer and Bowel Research Trust", "Venue_Reference_No": "SAD 150 of 2013 and SAD 151 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "25 November 2013", "Date_Published": "21 January 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the AAT correctly exercised its power to remit an objection decision to the ATO for reconsideration and correctly limited the Commissioner's power to revoke the endorsement of an entity.", "Overview_of_Facts": "As from 1 July 2000, the Commissioner had endorsed the trustee as exempt from income tax as a charitable institution under section 50-105 of the Income Tax Assessment Act 1997 (ITAA 1997), and the trust as a Deductible Gift Recipient (DGR) under item 2 of the table in subsection 30-15(2) of the ITAA 1997. The Commissioner later endorsed the trustee as a charitable institution under subsection 176-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and under section 123E of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as from 1 July 2005. | After review, the Commissioner concluded that the trustee did not meet the requirements for endorsement as a charitable institution or as a DGR, and had not met those requirements since 1 July 2000. | The Commissioner notified the trustee on 16 February 2012 that he had decided to revoke the endorsements as from 1 July 2000 under section 426-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | In [2013] AATA 336, the Administrative Appeals Tribunal ('AAT') affirmed the Commissioner's objection decision in respect of the revocation of the endorsement as a DGR. | However, under section 42D of the Administrative Appeals Tribunal Act 1975 (AAT Act), the AAT remitted the objection decision relating to the charitable institution status back to the Commissioner for further consideration. The remittal by the AAT was done on the basis that subsection 426-55(1) requires consideration of an entity's entitlement to endorsement at the time the decision to revoke is made. The AAT considered that the Commissioner was only empowered to retrospectively revoke an endorsement under subsection 426-55(2) if the entity was not entitled to be endorsed at the time of the revocation decision. | Issues decided by the court | On appeal to the Federal Court, the Commissioner argued that the AAT expressed a direction of law at paragraphs 79 and 80 of its decision, namely that section 426-55 did not permit a revocation of endorsement from a date earlier than the date of the revocation decision. The Commissioner argued that the direction to reconsider on those terms, for the purpose of ascertaining the position as at 16 February 2012, was a decision under subparagraph 43(1)(c)(ii), not section 42D, of the AAT Act. | Accordingly, the Commissioner appealed to the Federal Court under section 44 of the AAT Act on the basis that the AAT had made a decision under section 43 of the AAT Act that incorrectly narrowed the application of section 426-55. | In the alternative, the Commissioner sought relief under section 39B(1A) of the Judiciary Act 1903 . | The Commissioner's appeal under section 44 of the AAT Act. | The Full Court held that the Commissioner's appeal was incompetent as no appealable decision had been made by the AAT [paragraph 10]. | The Full Court found that the AAT formed a view about a question of law upon which its final decision upon the review of the objection decision depended, namely the construction of section 426-55, and in consequence of that construction, considered that the application of the section to the trustee required further evidence before a final decision could be made. | The Full Court found that the AAT chose not to determine the application for review by making a decision under section 43 of the AAT Act, but instead chose to remit the objection decision to the Commissioner under section 42D for further consideration. | A decision by the AAT to reconvene at a later date to receive further evidence itself would not have been an appealable decision (in the Chaney sense). | The AAT's decision to remit the further consideration of the trustee's entitlement to endorsement as at 16 February 2012 was similarly not a decision in the sense explained in Chaney [1] as no part of the proceeding was decided or determined. | Judicial review proceedings | The Commissioner contended that the AAT had erred in its view of subsection 426-55, and that section 42D did not permit the AAT to remit the matter under review to the Commissioner with a direction as to the construction of section 426-55. | The Full Court found no error in the AAT's exercise of the section 42D power. The Court rejected the Commissioner's contention that the AAT had wrongly exercised the power in section 42D by remitting the objection decision to the Commissioner with an impermissible direction to apply section 426-55 in a particular way. | The Full Court considered that the AAT's view on section 426-55 did not bind the Commissioner, and the Commissioner acting responsibly could affirm his earlier decision.[15] | While the Full Court considered that the AAT's construction of section 426-55 could be considered in any appeal from a final decision of the AAT, that construction was the catalyst for the exercise of the power in section 42D, and it was desirable to bring to finality the question of construction by determining the question of law.[16] | The Full Court supported the AAT's construction of section 426-55 [19-21]. The Court considered that, as a matter of policy, there is nothing intrinsically erroneous in the construction of a power for the retrospective cancellation of an endorsement being made to depend upon lack of entitlement to the endorsement as at the date the decision is being made. The Court observed that this would preserve endorsement during periods where the entitlement for endorsement had ceased but where any defect had been cured by the date the Commissioner had made the decision. | The Full Court found that nothing prevents the Commissioner from enquiring into the past to determine the period from which any revocation is to take effect. However, the Court agreed with the AAT that subsection 426-55(1) required that the condition for revocation must exist both at the date of the decision by the Commissioner and from any earlier period the Commissioner may consider to revoke the endorsement. | The Full Court considered that this view was supported by subsection 426-55(3), the absence of any provision for partial suspension or revocation, and the absence in section 426-55 of any provision like those permitting amended assessments. | The Full Court found that the subject matter of the power in section 426-55 as one of revocation is capable of attaching only to the single fact of a prior endorsement so that any revocation of the endorsement is complete and must necessarily take effect for the whole of the time it had otherwise applied. The provisions cannot operate to effect a suspension of endorsement over time.", "Issues_Decided": "On appeal to the Federal Court, the Commissioner argued that the AAT expressed a direction of law at paragraphs 79 and 80 of its decision, namely that section 426-55 did not permit a revocation of endorsement from a date earlier than the date of the revocation decision. The Commissioner argued that the direction to reconsider on those terms, for the purpose of ascertaining the position as at 16 February 2012, was a decision under subparagraph 43(1)(c)(ii), not section 42D, of the AAT Act. Accordingly, the Commissioner appealed to the Federal Court under section 44 of the AAT Act on the basis that the AAT had made a decision under section 43 of the AAT Act that incorrectly narrowed the application of section 426-55. In the alternative, the Commissioner sought relief under section 39B(1A) of the Judiciary Act 1903 . | The Commissioner's appeal under section 44 of the AAT Act.: The Full Court held that the Commissioner's appeal was incompetent as no appealable decision had been made by the AAT [paragraph 10]. The Full Court found that the AAT formed a view about a question of law upon which its final decision upon the review of the objection decision depended, namely the construction of section 426-55, and in consequence of that construction, considered that the application of the section to the trustee required further evidence before a final decision could be made. The Full Court found that the AAT chose not to determine the application for review by making a decision under section 43 of the AAT Act, but instead chose to remit the objection decision to the Commissioner under section 42D for further consideration. A decision by the AAT to reconvene at a later date to receive further evidence itself would not have been an appealable decision (in the Chaney sense). The AAT's decision to remit the further consideration of the trustee's entitlement to endorsement as at 16 February 2012 was similarly not a decision in the sense explained in Chaney [1] as no part of the proceeding was decided or determined. | Judicial review proceedings: The Commissioner contended that the AAT had erred in its view of subsection 426-55, and that section 42D did not permit the AAT to remit the matter under review to the Commissioner with a direction as to the construction of section 426-55. The Full Court found no error in the AAT's exercise of the section 42D power. The Court rejected the Commissioner's contention that the AAT had wrongly exercised the power in section 42D by remitting the objection decision to the Commissioner with an impermissible direction to apply section 426-55 in a particular way. The Full Court considered that the AAT's view on section 426-55 did not bind the Commissioner, and the Commissioner acting responsibly could affirm his earlier decision.[15] While the Full Court considered that the AAT's construction of section 426-55 could be considered in any appeal from a final decision of the AAT, that construction was the catalyst for the exercise of the power in section 42D, and it was desirable to bring to finality the question of construction by determining the question of law.[16] The Full Court supported the AAT's construction of section 426-55 [19-21]. The Court considered that, as a matter of policy, there is nothing intrinsically erroneous in the construction of a power for the retrospective cancellation of an endorsement being made to depend upon lack of entitlement to the endorsement as at the date the decision is being made. The Court observed that this would preserve endorsement during periods where the entitlement for endorsement had ceased but where any defect had been cured by the date the Commissioner had made the decision. The Full Court found that nothing prevents the Commissioner from enquiring into the past to determine the period from which any revocation is to take effect. However, the Court agreed with the AAT that subsection 426-55(1) required that the condition for revocation must exist both at the date of the decision by the Commissioner and from any earlier period the Commissioner may consider to revoke the endorsement. The Full Court considered that this view was supported by subsection 426-55(3), the absence of any provision for partial suspension or revocation, and the absence in section 426-55 of any provision like those permitting amended assessments. The Full Court found that the subject matter of the power in section 426-55 as one of revocation is capable of attaching only to the single fact of a prior endorsement so that any revocation of the endorsement is complete and must necessarily take effect for the whole of the time it had otherwise applied. The provisions cannot operate to effect a suspension of endorsement over time.", "ATO_View_of_Decision": "The ATO accepts that it was open for the Court to conclude that the AAT had not made a decision under section 43 of the AAT Act and, therefore, that the Commissioner's appeal under section 44 was incompetent. | The ATO also accepts the Court's finding that the AAT correctly exercised its power under section 42D when remitting the matter to the Commissioner. The ATO notes that the Court found that section 42D does not permit the AAT to remit a matter back to the Commissioner with a direction as to how he must reconsider the objection decision under section 426-55. | The ATO accepts the Court's view in relation to the construction of section 426-55 of the TAA 1953, i.e., that section 426-55 requires the condition for revocation to exist both at the date of the decision by the Commissioner to revoke and from any earlier period the Commissioner may consider to revoke the endorsement. | Subsection 426-55(2) provides that any revocation has effect from a day specified by the Commissioner (which may be a day before the Commissioner decided to revoke the endorsement.) However, in exercising this discretion it is a precondition that the entity was not entitled to endorsement at the time of the decision to revoke.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "None | 2013 ATC 20-426 | s 42D | s 43 | s 44 | Division 176 | s 123D | Subdivision 50-B | Part IVC | Schedule 1 s 426-55 | [1980] FCA 87 | (1980) 31 ALR 571 | [2000] FCA 1877 | [2010] HCA 1 | (2010) 239 CLR 531 | (1953) 88 CLR 549 | [2010] AATA 935 | [2000] HCA 57", "Legislative_References": "Administrative Appeals Tribunal Act 1975 s 42D s 43 s 44 A New Tax System (Goods and Services Tax) Act 1999 Division 176 Fringe Benefits Tax Assessment Act 1986 s 123D Income Tax Assessment Act 1997 Subdivision 50-B Judiciary Act 1903 s 39B(1A) Taxation Administration Act 1953 Part IVC Schedule 1 s 426-55", "Case_References": "Director-General of Social Services v Chaney [1980] FCA 87 (1980) 31 ALR 571 FC of T v Futuris Corporation Ltd (2008) 237 CLR 146 Geographical Indications Committee v The Hon Justice O'Connor [2000] FCA 1877 (2000) 64 ALD 325 Kirk v Industrial Court (NSW) [2010] HCA 1 (2010) 239 CLR 531 R v Foster ex parte Clth Steamship Owners' Association [1953] HCA 86 (1953) 88 CLR 549 Re Ego Pharmaceuticals P/L and Minister for Health and Ageing [2010] AATA 935 Re Refugee Review Tribunal ex parte Aala [2000] HCA 57 (2000) 204 CLR 82 SZBYR v Minister for Immigration and Citizenship [2007] HCA 26 (2007) 81 ALJR 1190", "Subject_References": "AAT power to remit for reconsideration Endorsement as exempt from tax Revocation of endorsement Charitable institution Deductible gift recipient", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/SAD150of2013;SAD151of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements. | Footnotes: [1] Director-General of Social Services v Chaney (1980) 31 ALR 571"}
{"Case_Name": "Commissioner of Taxation v Ludekens & Anor", "Venue_Reference_No": "VID 264 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "29 August 2013", "Date_Published": "7 May 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether two investment advisers were promoters of a tax exploitation scheme, or had implemented a product ruling scheme in a way that was materially different from that described in the ruling.", "Overview_of_Facts": "On 8 March 2006, the Commissioner issued product ruling, PR 2006/8, in relation to the Gunns Plantations Limited Woodlot Project 2006, a managed investment scheme (MIS). In part, the ruling dealt with income tax deductions available to investors who were accepted into the Project by 30 June 2007. | In 2007, Dr Ludekens was the sole director of Lotus Capital Group P/L (Lotus), the holder of a financial services licence. In early 2007, he came to an arrangement with Gunns to be paid 15% commission on investments procured by him in their MIS. | During 2007, Mr Van de Steeg carried on business as a financial investment adviser and financial services provider with Mr Jonathan Ezzy through Meloka P/L, which had equity in a foreign exchange trading business. | In May and June 2007, Dr Ludekens, Mr Van de Steeg and Mr Ezzy developed a Plan to acquire fully financed woodlots in the Project to a total value of over $20m through separate and discrete 'partnerships', and to later 'on sell' some woodlots (to the value of about $13m) to Secondary Investors known to them. The 'partnerships' comprised different pairings of Dr Ludekens, Mr Van de Steeg, Mr and Mrs Smithson and Mr and Mrs Velardi (the signatories). The Secondary Investors were not the same entities as the signatories. | As part of the Plan, loan obligations under the Project were to be met from profits obtained by investing in Meloka a fund comprising: commissions received by Dr Ludekens from Gunns (about $3m); GST refunds in respect of the acquisition of the woodlots (about $2m); and income tax refunds thought to be receivable by the Secondary Investors (about $6m) according to the terms of PR 2006/8. | The advisers procured Mr Ezzy's personal assistant, Mrs Smithson and her husband, and Mr Van de Steeg's personal assistant, Mrs Velardi, and her husband, to sign, on 30 June 2007, 7 of 10 application forms to acquire woodlots in the Project to the total value of $22,165,000. The advisers told the signatories that they had no obligations under the Project, and that their names would be removed from the investments once the woodlots were 'on-sold' to investors. | On 12 July 2007, Lotus received $3,324,750 in commissions from Gunns in relation to the acquisitions made on 30 June. Lotus then paid $3m to Meloka. | In the second half of 2007, Dr Ludekens and Mr Van de Steeg each encouraged 4 Secondary Investors known to them to enter into purported partnerships in relation to woodlots already acquired (to the value of about $13m), and to then lodge income returns claiming partnership losses (the Secondary Investment). Most of the expected income tax refunds never eventuated, largely due to ATO action. | In January 2008, Lotus received GST refunds of $2,015,000 in relation to the acquisition of the woodlots. Lotus distributed most of that amount to Meloka. | The Commissioner applied to the Federal Court for orders that Dr Ludekens and Mr Van de Steeg pay civil penalties to the Commonwealth for contraventions of section 290-50 of Schedule 1 to the Taxation Administration Act 1953 (TAA). On 18 March 2013, Middleton J dismissed the application ([2013] FCA 142), finding that neither respondent had engaged in conduct that resulted in them being a promoter of a tax exploitation scheme (subsection 290-50(1)), and that neither had engaged in conduct that resulted in a product ruling scheme being implemented in a materially different way from that described in the ruling (subsection 290-50(2)). | The Full Court (Allsop CJ, Gilmour and Gordon JJ) allowed the Commissioner's appeal, declaring that both respondents had engaged in conduct that contravened subsection 290-50(1), and remitted the application for a penalty hearing by a judge. However, the Court agreed with Middleton J that neither respondent had contravened subsection 290-50(2). On 11 April 2014, French CJ and Bell J refused special leave to the respondents to appeal to the High Court from the Full Court's decision. Their Honours noted that the Court's decision involved characterisation of the purposes of the scheme in a way that did not raise a question of construction to warrant the grant of special leave. | Issues decided by the court | Decision of Middleton J - subsection 290-50(1) | Middleton J found that Mr Van de Steeg was a 'promoter' of the Plan within the meaning of section 290-60, but that Dr Ludekens was not. However, Mr Van de Steeg did not contravene subsection 290-50(1) because his Honour found that the Plan was not a 'tax exploitation scheme' within the meaning of section 290-65. | His Honour found that paragraph 290-60(1)(a) is confined to active promotional and selling activities, and does not include the mere development and implementation of a scheme. Most of the respondents' conduct relied on by the Commissioner related to the mere development and implementation of the Plan. While his Honour accepted that 'consideration' in paragraph 290-60(1)(b) can include both monetary and non-monetary benefits, he found that the material connection between the Gunns commissions and the GST refunds was with the acquisition of the woodlots, and not with the offers to the Secondary Investors. The only material connection was between one income tax refund paid to Meloka and the offer to one Secondary Investor by Mr Van de Steeg. His Honour then found that, for the purposes of paragraph 290-60(1)(c), Mr Van de Steeg had a substantial role in respect of the marketing to that Investor. | His Honour concluded that, for the purposes of paragraph 290-65(1)(a), the definition of 'scheme benefit' in section 284-150 of Schedule 1 to the TAA required proof by the Commissioner of the difference between the tax liability under the Plan and that under an alternative postulate. The Commissioner failed to demonstrate that the Secondary Investors would not have had the same reduced income tax liability, or that the signatories would not have had an entitlement to GST refunds, in the absence of the Plan. His Honour also found that it was reasonable to conclude that the dominant purpose of the respondents was to make a profit for themselves from the Plan, and not to get scheme benefits for the Secondary Investors or the signatories. However, he was prepared to accept that, under subparagraph 290-65(1)(b)(i), it was not reasonably arguable that a reduced income tax liability was available at law to the Secondary Investors, or that GST refunds were available to the signatories. | Decision of Middleton J - subsection 290-50(2) | His Honour accepted that the Project was promoted by Gunns on the basis of conformity with PR 2006/8. However, he concluded that the respondents did not engage in conduct that resulted in the Project being implemented in a materially different way from that described in PR 2006/8. The purpose of subsection 290-50(2) is to protect the integrity of the product ruling system by ensuring taxpayers can rely on a ruling when investing in the scheme to which the ruling specifically relates. Accordingly, the 'implementation' of a product ruling scheme refers to the way in which the scheme as a whole is carried out. As PR 2006/8 covered neither the Secondary Investment, nor the signing of documents by the Smithsons and Velardis, the Plan could not result in the Project being implemented in a materially different way from that described in PR 2006/8. | Decision of the Full Court | The Full Court considered 6 major issues raised by the Commissioner on his appeal and an issue raised by the respondents on their notice of contention. 1. The Court concluded that Middleton J was wrong to find that the definition of 'scheme benefit', when read as part of section 290-65, required the pleading and proving by the Commissioner of what would have been the tax-related liabilities of the relevant entities apart from the scheme, i.e., the 'alternative postulate'. The proper starting point for the statutory interaction is to recognise that subsection 290-65(1) is concerned with the purpose for which an entity has entered into or carried out a scheme. The focus of the provision, at the time of the conduct in subsection 290-50(1), is on what it was reasonable to conclude that the entity was proposing to do and why, and not on positing what might have been done, removed from what was done. That subsection 290-65(1) does not require an analysis of an 'alternative postulate' is further supported by the fact that it can apply in situations where a scheme has not been implemented, and where promotion has occurred without success and without bringing identified persons into the scheme. [226] - [236] 2. The Court concluded that Middleton J was wrong to find that it was not reasonable to conclude that each respondent entered into or carried out the Plan with the dominant purpose of the signatories or the Secondary Investors getting a scheme benefit. While the respondents wished to make profits from the purchase of woodlots and from running a foreign exchange trading business, they chose the Plan to effect that. It was integral to the Plan that the signatories would obtain GST refunds from the purchase of the woodlots, and that the Secondary Investors would obtain income tax deductions. The getting of those scheme benefits was vital to the carrying out of the Plan, and was the dominant purpose of the respondents. The additional purposes of profit making and the getting of commissions do not affect that conclusion. [238] - [246] 3. The Court concluded that the construction by Middleton J of the definition of 'promoter' in section 290-60 was too narrow. The words used in paragraph 290-60(1)(a) are wide, and are not limited to making offers to participate in a scheme. In an appropriate context, 'otherwise encourages the growth of the scheme or interest in it', can include conduct of developing and implementing a scheme. The Court found that both respondents encouraged the growth of the Plan or interest in it to the Secondary Investors. [248] - [278] 4. The Court also concluded that Middleton J should have found that the conduct of the respondents in procuring the participation of the Smithsons and Velardis as signatories encouraged growth of the Plan. [279] - [284] 5. The Court concluded that the construction by Middleton J of 'consideration in respect of that marketing or encouragement' in paragraph 290-60(1)(b) was too narrow, and that his Honour was wrong to conclude that there was no consideration received by the respondents in respect of marketing or encouragement. The commissions and the GST refunds received by the respondents had a clear relationship to the procurement of the Smithsons and Velardis into the Plan. Those amounts received also bore a clear relationship to the conduct of the respondents in procuring the Secondary Investors. The Court agreed that his Honour was not wrong to not allow the Commissioner to rely on any promises by the Secondary Investors to pay over their income tax refunds as relevant consideration under paragraph 290-60(1)(b) by virtue of this being raised too late in proceedings. [285] - [292] 6. The Court agreed that subsection 290-50(2) did not apply. [293] - [323] 7. The Court rejected the respondents' contention that it was reasonably arguable, for the purposes of paragraph 290-65(1)(b), that the entities which acquired the woodlots were entitled to GST input tax credits in relation to those acquisitions. Those 'partnership' entities did not make acquisitions in carrying on an enterprise, either by carrying on a business or an adventure in the nature of trade. [324] - [331] | 1. The Court concluded that Middleton J was wrong to find that the definition of 'scheme benefit', when read as part of section 290-65, required the pleading and proving by the Commissioner of what would have been the tax-related liabilities of the relevant entities apart from the scheme, i.e., the 'alternative postulate'. The proper starting point for the statutory interaction is to recognise that subsection 290-65(1) is concerned with the purpose for which an entity has entered into or carried out a scheme. The focus of the provision, at the time of the conduct in subsection 290-50(1), is on what it was reasonable to conclude that the entity was proposing to do and why, and not on positing what might have been done, removed from what was done. That subsection 290-65(1) does not require an analysis of an 'alternative postulate' is further supported by the fact that it can apply in situations where a scheme has not been implemented, and where promotion has occurred without success and without bringing identified persons into the scheme. [226] - [236] 2. The Court concluded that Middleton J was wrong to find that it was not reasonable to conclude that each respondent entered into or carried out the Plan with the dominant purpose of the signatories or the Secondary Investors getting a scheme benefit. While the respondents wished to make profits from the purchase of woodlots and from running a foreign exchange trading business, they chose the Plan to effect that. It was integral to the Plan that the signatories would obtain GST refunds from the purchase of the woodlots, and that the Secondary Investors would obtain income tax deductions. The getting of those scheme benefits was vital to the carrying out of the Plan, and was the dominant purpose of the respondents. The additional purposes of profit making and the getting of commissions do not affect that conclusion. [238] - [246] 3. The Court concluded that the construction by Middleton J of the definition of 'promoter' in section 290-60 was too narrow. The words used in paragraph 290-60(1)(a) are wide, and are not limited to making offers to participate in a scheme. In an appropriate context, 'otherwise encourages the growth of the scheme or interest in it', can include conduct of developing and implementing a scheme. The Court found that both respondents encouraged the growth of the Plan or interest in it to the Secondary Investors. [248] - [278] 4. The Court also concluded that Middleton J should have found that the conduct of the respondents in procuring the participation of the Smithsons and Velardis as signatories encouraged growth of the Plan. [279] - [284] 5. The Court concluded that the construction by Middleton J of 'consideration in respect of that marketing or encouragement' in paragraph 290-60(1)(b) was too narrow, and that his Honour was wrong to conclude that there was no consideration received by the respondents in respect of marketing or encouragement. The commissions and the GST refunds received by the respondents had a clear relationship to the procurement of the Smithsons and Velardis into the Plan. Those amounts received also bore a clear relationship to the conduct of the respondents in procuring the Secondary Investors. The Court agreed that his Honour was not wrong to not allow the Commissioner to rely on any promises by the Secondary Investors to pay over their income tax refunds as relevant consideration under paragraph 290-60(1)(b) by virtue of this being raised too late in proceedings. [285] - [292] 6. The Court agreed that subsection 290-50(2) did not apply. [293] - [323] 7. The Court rejected the respondents' contention that it was reasonably arguable, for the purposes of paragraph 290-65(1)(b), that the entities which acquired the woodlots were entitled to GST input tax credits in relation to those acquisitions. Those 'partnership' entities did not make acquisitions in carrying on an enterprise, either by carrying on a business or an adventure in the nature of trade. [324] - [331]", "Issues_Decided": "Decision of Middleton J - subsection 290-50(1): Middleton J found that Mr Van de Steeg was a 'promoter' of the Plan within the meaning of section 290-60, but that Dr Ludekens was not. However, Mr Van de Steeg did not contravene subsection 290-50(1) because his Honour found that the Plan was not a 'tax exploitation scheme' within the meaning of section 290-65. His Honour found that paragraph 290-60(1)(a) is confined to active promotional and selling activities, and does not include the mere development and implementation of a scheme. Most of the respondents' conduct relied on by the Commissioner related to the mere development and implementation of the Plan. While his Honour accepted that 'consideration' in paragraph 290-60(1)(b) can include both monetary and non-monetary benefits, he found that the material connection between the Gunns commissions and the GST refunds was with the acquisition of the woodlots, and not with the offers to the Secondary Investors. The only material connection was between one income tax refund paid to Meloka and the offer to one Secondary Investor by Mr Van de Steeg. His Honour then found that, for the purposes of paragraph 290-60(1)(c), Mr Van de Steeg had a substantial role in respect of the marketing to that Investor. His Honour concluded that, for the purposes of paragraph 290-65(1)(a), the definition of 'scheme benefit' in section 284-150 of Schedule 1 to the TAA required proof by the Commissioner of the difference between the tax liability under the Plan and that under an alternative postulate. The Commissioner failed to demonstrate that the Secondary Investors would not have had the same reduced income tax liability, or that the signatories would not have had an entitlement to GST refunds, in the absence of the Plan. His Honour also found that it was reasonable to conclude that the dominant purpose of the respondents was to make a profit for themselves from the Plan, and not to get scheme benefits for the Secondary Investors or the signatories. However, he was prepared to accept that, under subparagraph 290-65(1)(b)(i), it was not reasonably arguable that a reduced income tax liability was available at law to the Secondary Investors, or that GST refunds were available to the signatories. | Decision of Middleton J - subsection 290-50(2): His Honour accepted that the Project was promoted by Gunns on the basis of conformity with PR 2006/8. However, he concluded that the respondents did not engage in conduct that resulted in the Project being implemented in a materially different way from that described in PR 2006/8. The purpose of subsection 290-50(2) is to protect the integrity of the product ruling system by ensuring taxpayers can rely on a ruling when investing in the scheme to which the ruling specifically relates. Accordingly, the 'implementation' of a product ruling scheme refers to the way in which the scheme as a whole is carried out. As PR 2006/8 covered neither the Secondary Investment, nor the signing of documents by the Smithsons and Velardis, the Plan could not result in the Project being implemented in a materially different way from that described in PR 2006/8. | Decision of the Full Court: The Full Court considered 6 major issues raised by the Commissioner on his appeal and an issue raised by the respondents on their notice of contention. 1. The Court concluded that Middleton J was wrong to find that the definition of 'scheme benefit', when read as part of section 290-65, required the pleading and proving by the Commissioner of what would have been the tax-related liabilities of the relevant entities apart from the scheme, i.e., the 'alternative postulate'. The proper starting point for the statutory interaction is to recognise that subsection 290-65(1) is concerned with the purpose for which an entity has entered into or carried out a scheme. The focus of the provision, at the time of the conduct in subsection 290-50(1), is on what it was reasonable to conclude that the entity was proposing to do and why, and not on positing what might have been done, removed from what was done. That subsection 290-65(1) does not require an analysis of an 'alternative postulate' is further supported by the fact that it can apply in situations where a scheme has not been implemented, and where promotion has occurred without success and without bringing identified persons into the scheme. [226] - [236] 2. The Court concluded that Middleton J was wrong to find that it was not reasonable to conclude that each respondent entered into or carried out the Plan with the dominant purpose of the signatories or the Secondary Investors getting a scheme benefit. While the respondents wished to make profits from the purchase of woodlots and from running a foreign exchange trading business, they chose the Plan to effect that. It was integral to the Plan that the signatories would obtain GST refunds from the purchase of the woodlots, and that the Secondary Investors would obtain income tax deductions. The getting of those scheme benefits was vital to the carrying out of the Plan, and was the dominant purpose of the respondents. The additional purposes of profit making and the getting of commissions do not affect that conclusion. [238] - [246] 3. The Court concluded that the construction by Middleton J of the definition of 'promoter' in section 290-60 was too narrow. The words used in paragraph 290-60(1)(a) are wide, and are not limited to making offers to participate in a scheme. In an appropriate context, 'otherwise encourages the growth of the scheme or interest in it', can include conduct of developing and implementing a scheme. The Court found that both respondents encouraged the growth of the Plan or interest in it to the Secondary Investors. [248] - [278] 4. The Court also concluded that Middleton J should have found that the conduct of the respondents in procuring the participation of the Smithsons and Velardis as signatories encouraged growth of the Plan. [279] - [284] 5. The Court concluded that the construction by Middleton J of 'consideration in respect of that marketing or encouragement' in paragraph 290-60(1)(b) was too narrow, and that his Honour was wrong to conclude that there was no consideration received by the respondents in respect of marketing or encouragement. The commissions and the GST refunds received by the respondents had a clear relationship to the procurement of the Smithsons and Velardis into the Plan. Those amounts received also bore a clear relationship to the conduct of the respondents in procuring the Secondary Investors. The Court agreed that his Honour was not wrong to not allow the Commissioner to rely on any promises by the Secondary Investors to pay over their income tax refunds as relevant consideration under paragraph 290-60(1)(b) by virtue of this being raised too late in proceedings. [285] - [292] 6. The Court agreed that subsection 290-50(2) did not apply. [293] - [323] 7. The Court rejected the respondents' contention that it was reasonably arguable, for the purposes of paragraph 290-65(1)(b), that the entities which acquired the woodlots were entitled to GST input tax credits in relation to those acquisitions. Those 'partnership' entities did not make acquisitions in carrying on an enterprise, either by carrying on a business or an adventure in the nature of trade. [324] - [331] 1. The Court concluded that Middleton J was wrong to find that the definition of 'scheme benefit', when read as part of section 290-65, required the pleading and proving by the Commissioner of what would have been the tax-related liabilities of the relevant entities apart from the scheme, i.e., the 'alternative postulate'. The proper starting point for the statutory interaction is to recognise that subsection 290-65(1) is concerned with the purpose for which an entity has entered into or carried out a scheme. The focus of the provision, at the time of the conduct in subsection 290-50(1), is on what it was reasonable to conclude that the entity was proposing to do and why, and not on positing what might have been done, removed from what was done. That subsection 290-65(1) does not require an analysis of an 'alternative postulate' is further supported by the fact that it can apply in situations where a scheme has not been implemented, and where promotion has occurred without success and without bringing identified persons into the scheme. [226] - [236] 2. The Court concluded that Middleton J was wrong to find that it was not reasonable to conclude that each respondent entered into or carried out the Plan with the dominant purpose of the signatories or the Secondary Investors getting a scheme benefit. While the respondents wished to make profits from the purchase of woodlots and from running a foreign exchange trading business, they chose the Plan to effect that. It was integral to the Plan that the signatories would obtain GST refunds from the purchase of the woodlots, and that the Secondary Investors would obtain income tax deductions. The getting of those scheme benefits was vital to the carrying out of the Plan, and was the dominant purpose of the respondents. The additional purposes of profit making and the getting of commissions do not affect that conclusion. [238] - [246] 3. The Court concluded that the construction by Middleton J of the definition of 'promoter' in section 290-60 was too narrow. The words used in paragraph 290-60(1)(a) are wide, and are not limited to making offers to participate in a scheme. In an appropriate context, 'otherwise encourages the growth of the scheme or interest in it', can include conduct of developing and implementing a scheme. The Court found that both respondents encouraged the growth of the Plan or interest in it to the Secondary Investors. [248] - [278] 4. The Court also concluded that Middleton J should have found that the conduct of the respondents in procuring the participation of the Smithsons and Velardis as signatories encouraged growth of the Plan. [279] - [284] 5. The Court concluded that the construction by Middleton J of 'consideration in respect of that marketing or encouragement' in paragraph 290-60(1)(b) was too narrow, and that his Honour was wrong to conclude that there was no consideration received by the respondents in respect of marketing or encouragement. The commissions and the GST refunds received by the respondents had a clear relationship to the procurement of the Smithsons and Velardis into the Plan. Those amounts received also bore a clear relationship to the conduct of the respondents in procuring the Secondary Investors. The Court agreed that his Honour was not wrong to not allow the Commissioner to rely on any promises by the Secondary Investors to pay over their income tax refunds as relevant consideration under paragraph 290-60(1)(b) by virtue of this being raised too late in proceedings. [285] - [292] 6. The Court agreed that subsection 290-50(2) did not apply. [293] - [323] 7. The Court rejected the respondents' contention that it was reasonably arguable, for the purposes of paragraph 290-65(1)(b), that the entities which acquired the woodlots were entitled to GST input tax credits in relation to those acquisitions. Those 'partnership' entities did not make acquisitions in carrying on an enterprise, either by carrying on a business or an adventure in the nature of trade. [324] - [331]", "ATO_View_of_Decision": "The ATO notes that the views of the Full Court about the operation of sections 290-60 and 290-65 are consistent with the Commissioner's submissions to the Court. The ATO also respectfully accepts the views of both Middleton J and the Full Court about why neither respondent had contravened subsection 290-50(2).", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "None | 2013ATC20-415\">2013 ATC 20-415 | PR 2006/8 | PS LA 2008/7 | PS LA 2008/8 | s 7-1(2) | s 7-5 | s 7-10 | s 9-20 | s 11-5 | s 11-15 | s 23-1 | Pt 7.6 Div 4 | s 177C | s 177D | s 177F | s 960-100 | s 995-1(1) | Schedule 1 | s 255-1 | s 284-150(1) | s 290-5 | s 290-50 | s 290-50(1) | s 290-50(2) | s 290-55(4) | s 290-60 | s 290-60(1) | s 290-65 | s 295-65(1) | 248 CLR 1 | [2012] HCA 3 | [2012] HCA 56 | 248 CLR 378 | [2007] NSWCA 328 | 2001 ATC 4343 | 2004 ATC 4599 | [2012] HCA 39 | 2013 ATC 20-397 | [2013] FCAFC 71", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 s 7-1(2) s 7-5 s 7-10 s 9-20 s 11-5 s 11-15 s 17-15 s 23-1 Corporations Act 2001 (Cth) Pt 7.6 Div 4 Income Tax Assessment Act 1936 s 177C s 177D s 177F Income Tax Assessment Act 1997 s 960-100 s 995-1(1) Taxation Administration Act 1953 Schedule 1 s 255-1 s 284-150(1) s 290-5 s 290-50 s 290-50(1) s 290-50(2) s 290-55(4) s 290-60 s 290-60(1) s 290-65 s 295-65(1)", "Case_References": "Australian Education Union v Dept of Education and Children's Services 248 CLR 1 [2012] HCA 3 (2012) 86 ALJR 217 Certain Lloyd's Underwriters v Cross (2012) 87 ALJR 131 [2012] HCA 56 248 CLR 378 Commissioner of Police v Kennedy [2007] NSWCA 328 Federal Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235 [2001] HCA 32 2001 ATC 4343 (2001) 47 ATR 229 Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 [2004] HCA 26 55 ATR 712 2004 ATC 4599 Forrest v ASIC (2012) 86 ALJR 1183 [2012] HCA 39 247 CLR 486 Sea Shepherd Australia Ltd v Federal Commissioner of Taxation (2013) 212 FCR 252 [2013] FCAFC 68 2013 ATC 20-397 SZGIZ v Minister for Immigration and Citizenship (2013) 212 FCR 235 [2013] FCAFC 71", "Subject_References": "Civil penalty Tax exploitation scheme Scheme Benefit Promoter Markets or otherwise encourages growth or interest in scheme Consideration received in respect of marketing or encouragement Implementation of product ruling scheme", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID264of2013/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision including any precedential documents and Law Administration Practice Statements"}
{"Case_Name": "Commissioner of Taxation v Messenger Press Pty Ltd", "Venue_Reference_No": "NSD 1257 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "25 July 2013", "Date_Published": "17 April 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a currency exchange loss was incurred under former Division 3B of the Income Tax Assessment Act 1936 on the discharge by a company of USD indebtedness to its subsidiary.", "Overview_of_Facts": "In 1989 The News Corporation Limited (TNCL), incorporated in Australia, was the parent company of the News group; News Finance Pty Ltd (NF), News Limited (NL) and News Publishing Holdings Pty Ltd (NPHP) were wholly owned subsidiaries and News Publishing Investments Pty Ltd (NPIP) was a subsidiary of NPHP. | NL had built up a large debt (its capital and reserves were negative $239 million) in funding the foreign expansion of the News Group through its interest in News Publishers Limited (NPL) incorporated in Bermuda. NL was a borrower and guarantor of external debt and its accounts were publicly disclosed. To address this problem, News group undertook a reorganisation with the objective of reducing NL's debt. | On 31 May 1989, pursuant to a Standby Credit Agreement, NF loaned $2,974,708,426 to NPHP which used the funds to subscribe for shares in NPIP. NF and NPHP accounted for this transaction as three separate loans in AUD, USD and GBP although the cheque was in AUD. NPIP then used the funds to acquire NL's interest in NPL and NL used the proceeds of that sale to retire debt. | In 1991 the News group undertook a global reorganisation of its operations in response to a downturn in the economy and a liquidity crisis. The restructure involved NPIP disposing of its interest in NPL by that company redeeming and buying back the redeemable preference shares and ordinary shares held by NPIP and assigning or endorsing a series of promissory notes to various companies within the News Australia group. Relevant aspects of the transactions to give effect to this reorganisation include: 1. NPL issued an unsecured demand note in favour of NPIP for the sum of USD$3,020,000,000. NPL then endorsed 15 promissory notes of various currencies (AUD, USD, GBP & DM ) to NPIP 2. NPHP issued an unsecured demand note in favour of NPIP for the sum of USD$2,847,080,544. The note was expressed to be issued \"in consideration\" of NPIP making a loan of that amount to NPHP and was payable on demand to the bearer of the note. NPIP then endorsed 7 of the promissory notes referred to above to NPHP 3. NPHP then endorsed 5 of the notes to NF which had the effect of discharging the 1989 loan under the standby credit agreement (News claims this was a novation not a discharge). | 1. NPL issued an unsecured demand note in favour of NPIP for the sum of USD$3,020,000,000. NPL then endorsed 15 promissory notes of various currencies (AUD, USD, GBP & DM ) to NPIP 2. NPHP issued an unsecured demand note in favour of NPIP for the sum of USD$2,847,080,544. The note was expressed to be issued \"in consideration\" of NPIP making a loan of that amount to NPHP and was payable on demand to the bearer of the note. NPIP then endorsed 7 of the promissory notes referred to above to NPHP 3. NPHP then endorsed 5 of the notes to NF which had the effect of discharging the 1989 loan under the standby credit agreement (News claims this was a novation not a discharge). | Various other transactions between NPIP and NPHP had occurred between 1991 and 2002 with the result that at 28 June 2002, NPHP was indebted to NPIP on intercompany account for USD3,481,527,042 and NPIP owed NPHP AUD7,403,425,151 | On 8 June 2001, NPHP purchased two USD promissory notes (USD750m and USD265m) from TNCL for AUD1,983,453,267 and endorsed them to NPIP in partial reduction of the 1991 loan. | On 28 June 2002, NPIP issued two promissory notes for USD3,481,527,042 and AUD1,230,504,849 to NPHP in satisfaction of its indebtedness. NPHP then presented the USD3,481,527,042 note to NPIP on the basis that the liability of NPHP to NPIP would be satisfied by set off against the liability of NPIP to NPHP on that note. | NPHP claims a forex loss of $2,097,553,323 occurred when it endorsed the two USD promissory notes (USD750m and USD265m) to NPIP in 2001 and when it presented the USD3,481,527,042 promissory note to NPIP in 2002 in final satisfaction of the 1991 loan. | Issues decided by the court | There were essentially two issues for the Full Court to determine in the appeal. First, whether there had been a realisation of a currency exchange loss and secondly, whether any such loss had been incurred under an eligible contract as required by Division 3B. | 1. Realisation of a currency exchange loss | The Commissioner had submitted, in reliance on the decision of the High Court in Commissioner of Taxation v Energy Resources of Australia Ltd (1996) 185 CLR 66 (\"ERA\") that the primary judge had erred in concluding that a currency exchange loss could be realised without a related exchange, being necessarily a payment or outgoing involving exchanges of foreign and Australian currency. The Commissioner argued that more was required than an exchange of promissory notes and an extinguishment of liabilities in foreign currencies. In the present case, the discharge of NPHP's US dollar indebtedness was done by the tender and acceptance of promissory notes denominated in US dollars. | The Full Court quoted extensively from the Explanatory Memorandum for the Bill that introduced the 1987 amedment, noting that the purpose of the amendment was to remove the distinction between revenue and capital account in the area of foreign exchange gains and losses. | Their Honours relied on the fact that the term \"currency exchange loss\" was defined in section 82Z as \"a loss to the extent to which it is attributable to currency exchange rate fluctuations\". Considering the definition, the loss must be attributable to fluctuations in the the currency exchange rate; that is to say, \"currency exchange is now read as adjectival apropos rate\" and noted that the Explanatory Memorandum also supported that interpretation. Had it not been so defined they acknowledged that an argument that an actual exchange of currency was required for the section to be activated might have a plausible basis. | The Full Court considered the High Court's reasoning in ERA and distinguished it on the basis that the High Court was referring to a hypothetical taxpayer and identifying a paradigm instance of a currency exchange gain or loss, which was a tool in their reasoning process rather than defining the limits of Div 3B or saying anything about what might constitute a sufficient exchange transaction on other facts. Their Honours held that the circumstances of the present case take it outside anything said by the High Court in ERA.. | Their Honours decided that a relevant loss had been realised for the purposes of paragraph 82V(2)(b) in June 2001, when the promissory notes totalling USD1,023,453,698 (which had been purchased the same day by NPHP for AUD1,983,453,267) had been accepted by NPIP in partial discharge of the debts. If an \"exchange transaction\" were required, this was satisfied by the exchange of the assets for which NPHP had paid in Australian currency for the discharge of the debt. | Their Honours also accepted that a relevant loss had been realised upon repayment of NPHPs remaining debt to NPIP in June 2002. Their Honours held that NPHP's tender of NPIP's own promissory note of USD3,481,527,042, (which NPHP had earlier that same day accepted in satisfaction of NPIP's debt to it of AUD6,172,920,292) was sufficient to realise a loss. This was because NPHP had obtained the promissory note for a consideration measured in Australian dollars and due to the adverse movement in the exchange rate this sum was more than the Australian dollar benefit which NPHP had originally derived from obtaining the funds on loan. | Their Honours considered that whether there was an \"exchange or transfer of liabilities\" was not responsive to the terms of section 82Z but doubted that anything turned upon the terminology used by the primary judge. They accepted that his Honour was not suggesting that one entity might transfer its liability to a second entity and stated that: 'What matters is whether a difference is made if the taxpayer in question funds the discharge of his or her existing foreign currency debt by supplying a note obtained in return for an increase in his or her Australian currency borrowings rather than borrowing Australian money as such and using that money to discharge the debt. The primary judge considered not and we agree .'\" | In respect of the repayment in June 2002, their Honours noted the facts were different but the same conclusion should be reached as NPHP used an asset denominated in Australian dollars (the debt owing to it by NPIP) to obtain a note which the creditor (NPIP) was prepared to accept in discharge of the US dollar debt. | 2. Under an eligible contract | The Full Court, relying on what it had said earlier in respect of a realisation of a loss, stated that: '... once it is held as we would for reasons given above, that Div 3B does not require there to have been an exchange of currency as such, the proposition that an admitted loss should not be regarded as having been incurred \" under \" an admittedly eligible contract because the contract neither required not facilitated an exchange of currency becomes an untenable one .'", "Issues_Decided": "There were essentially two issues for the Full Court to determine in the appeal. First, whether there had been a realisation of a currency exchange loss and secondly, whether any such loss had been incurred under an eligible contract as required by Division 3B. 1. Realisation of a currency exchange loss The Commissioner had submitted, in reliance on the decision of the High Court in Commissioner of Taxation v Energy Resources of Australia Ltd (1996) 185 CLR 66 (\"ERA\") that the primary judge had erred in concluding that a currency exchange loss could be realised without a related exchange, being necessarily a payment or outgoing involving exchanges of foreign and Australian currency. The Commissioner argued that more was required than an exchange of promissory notes and an extinguishment of liabilities in foreign currencies. In the present case, the discharge of NPHP's US dollar indebtedness was done by the tender and acceptance of promissory notes denominated in US dollars. The Full Court quoted extensively from the Explanatory Memorandum for the Bill that introduced the 1987 amedment, noting that the purpose of the amendment was to remove the distinction between revenue and capital account in the area of foreign exchange gains and losses. Their Honours relied on the fact that the term \"currency exchange loss\" was defined in section 82Z as \"a loss to the extent to which it is attributable to currency exchange rate fluctuations\". Considering the definition, the loss must be attributable to fluctuations in the the currency exchange rate; that is to say, \"currency exchange is now read as adjectival apropos rate\" and noted that the Explanatory Memorandum also supported that interpretation. Had it not been so defined they acknowledged that an argument that an actual exchange of currency was required for the section to be activated might have a plausible basis. The Full Court considered the High Court's reasoning in ERA and distinguished it on the basis that the High Court was referring to a hypothetical taxpayer and identifying a paradigm instance of a currency exchange gain or loss, which was a tool in their reasoning process rather than defining the limits of Div 3B or saying anything about what might constitute a sufficient exchange transaction on other facts. Their Honours held that the circumstances of the present case take it outside anything said by the High Court in ERA.. Their Honours decided that a relevant loss had been realised for the purposes of paragraph 82V(2)(b) in June 2001, when the promissory notes totalling USD1,023,453,698 (which had been purchased the same day by NPHP for AUD1,983,453,267) had been accepted by NPIP in partial discharge of the debts. If an \"exchange transaction\" were required, this was satisfied by the exchange of the assets for which NPHP had paid in Australian currency for the discharge of the debt. Their Honours also accepted that a relevant loss had been realised upon repayment of NPHPs remaining debt to NPIP in June 2002. Their Honours held that NPHP's tender of NPIP's own promissory note of USD3,481,527,042, (which NPHP had earlier that same day accepted in satisfaction of NPIP's debt to it of AUD6,172,920,292) was sufficient to realise a loss. This was because NPHP had obtained the promissory note for a consideration measured in Australian dollars and due to the adverse movement in the exchange rate this sum was more than the Australian dollar benefit which NPHP had originally derived from obtaining the funds on loan. Their Honours considered that whether there was an \"exchange or transfer of liabilities\" was not responsive to the terms of section 82Z but doubted that anything turned upon the terminology used by the primary judge. They accepted that his Honour was not suggesting that one entity might transfer its liability to a second entity and stated that: 'What matters is whether a difference is made if the taxpayer in question funds the discharge of his or her existing foreign currency debt by supplying a note obtained in return for an increase in his or her Australian currency borrowings rather than borrowing Australian money as such and using that money to discharge the debt. The primary judge considered not and we agree .'\" In respect of the repayment in June 2002, their Honours noted the facts were different but the same conclusion should be reached as NPHP used an asset denominated in Australian dollars (the debt owing to it by NPIP) to obtain a note which the creditor (NPIP) was prepared to accept in discharge of the US dollar debt. 2. Under an eligible contract The Full Court, relying on what it had said earlier in respect of a realisation of a loss, stated that: '... once it is held as we would for reasons given above, that Div 3B does not require there to have been an exchange of currency as such, the proposition that an admitted loss should not be regarded as having been incurred \" under \" an admittedly eligible contract because the contract neither required not facilitated an exchange of currency becomes an untenable one .'", "ATO_View_of_Decision": "The Full Court concluded that no actual exchange of currency is required in order to realise a 'currency exchange loss'. | The Commissioner had taken the view that the High Court's decision in ERA had so restricted the application of Division 3B that that there were very few transactions to which it could be applied. The decision of the Full Court and the way in which the Full Court distinguished ERA, means that Division 3B may apply to foreign currency liabilities which are discharged using a promissory note (or foreign currency) obtained on that day: • in return for an increase in the taxpayer's Australian currency borrowings, or • in exchange for an asset denominated in Australian dollars. | • in return for an increase in the taxpayer's Australian currency borrowings, or • in exchange for an asset denominated in Australian dollars. | The High Court decision in ERA is still binding authority that no foreign currency exchange gain or loss arises where a taxpayer deals exclusively in foreign currency. The High Court held that \"there is nothing in the Act that requires the making of notional conversions of taxpayer's transactions\". Absent an exchange transaction, including the kinds of exchange transactions found on the facts of this case, a taxpayer cannot rely on a 'notional' conversion to realise a loss or gain on the discharge of a foreign currency liability. | The Full Federal Court rejected the Commissioner's argument that the contract must require or facilitate an exchange of currency in order for a foreign currency exchange loss to be realised 'under' the contract. While rejecting the primary judge's reliance on the reasoning of the Full Court in ERA, the Full Federal Court did not provide detailed reasons for its decision that the loss in this case was incurred \"under\" an eligible contract. In the Commissioner's view, the Full Court appears to accept the conclusion of Perram J at first instance that: \"... it is sufficient for the purposes of Division 3B for a loss to result from the repayment, as here, of a foreign currency loan when there has been a decline in the value of the Australian dollar . In such cases the loss arises under the loan agreement \". Further, the Full Court did not consider that the Commissioner had challenged the decision of Perram J at first instance that the reference to 'eligible contract' in sections 82Y and 82Z includes a reference to the plural. | A number of ATO Interpretative Decisions and references to Division 3B in a Taxation Determination will be withdrawn following this decision. Division 3B was repealed in 2003 and the Commissioner considers that this decision will have a limited ongoing impact on other taxpayers. As a result, there is no intention to replace the withdrawn ATO precedential documents.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | The following ATOIDs have been withdrawn, as they refer to an interpretation of the High Court decision in ERA which is inconsistent with the decision in this case: • ATO ID 2003/126 • ATO ID 2006/64 • ATO ID 2006/124 • ATO ID 2006/291 • ATO ID 2009/16 • ATO ID 2010/221 | • ATO ID 2003/126 • ATO ID 2006/64 • ATO ID 2006/124 • ATO ID 2006/291 • ATO ID 2009/16 • ATO ID 2010/221 | Paragraph 19 of Taxation Determination TD 2006/57 has been withdrawn. | Taxation Ruling TR 93/8 Income tax: foreign exchange gains and losses of a capital nature - realisation of gains and losses and the meaning of 'eligible contract' in Division 3B was withdrawn on 3 July 1996 following the decision of the High Court in ERA. However, following that decision it was not clear when Division 3B applied. This was so notwithstanding the legislative purpose to bring to account for tax purposes business foreign exchange gains and losses of a capital nature. To alleviate those uncertainties, the former Chief Tax Counsel announced that unless there was clearer legislative or judicial direction on the application of Division 3B, the ATO's practice would be not to disturb assessments which brought to account for tax purposes foreign exchange gains and losses in accordance with the principles established in Taxation Ruling TR 93/8. | The Commissioner considers that the decision of the Full Federal Court represents clearer judicial direction on the application of Division 3B. The ATO practice contained in an article by former Chief Tax Counsel Michael D'Ascenzo that was published in the Weekly Tax Bulletin of 7 April 1997 [Bulletin number 16, paragraph 406] and in similar tax-related publications about that time, is withdrawn and will not apply to any gains or losses realised under Division 3B after 17 April 2014.", "Related_Documents": "TD 2006/57 - Income tax: consolidation: what is an excluded asset under subsection 705-35(2) of the Income Tax Assessment Act 1997? | ATO ID 2003/126 - International tax: Foreign Currency Exchange Gains and Losses - Non-resident repays whole or part of foreign currency loan | ATO ID 2006/64 - Income Tax: Tax implications of the functional currency transitional rules on foreign denominated liabilities | ATO ID 2006/124 - Income Tax: Income Tax Application of foreign exchange (forex) provisions to a facility agreement entered into before 1 July 2003 where rollovers occur after 1 July 2003 | ATO ID 2006/291 - Income Tax: Foreign currency exchange gains and losses: income-producing security denominated in foreign currency acquired when taxpayer is a non-resident but disposed of after becoming a resident of Australia | ATO ID 2009/16 - Income Tax: Foreign exchange (forex) gains and losses: bond maturity | ATO ID 2010/221 - Income Tax: Division 3B: foreign exchange (forex) gains and losses - re-exchange of currencies under a cross currency swap | TR 93/8W - Income tax: foreign exchange gains and losses of a capital nature - realisation of gains and losses and the meaning of 'eligible contract' in Division 3B (Withdrawn 3 July 1996) | 2013 ATC 20-400 | 76 CLR 584 | 82 ATC 4246 | 151 CLR 514 | (1959) 106 CLR 205 | (1946) 73 CLR 604 | 77 ATC 4375 | 94 ATC 4923 | 96 ATC 4536 | (1940) 63 CLR 382", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) Part III, Division 3B", "Case_References": "Armco (Australia) Pty Ltd v Federal Commissioner of Taxation [1948] HCA 49 76 CLR 584 Avco Financial Services Ltd v Commissioner of Taxation [1982] HCA 36 150 CLR 510 13 ATR 63 82 ATC 4246 Bank of New South Wales v Brown [1983] HCA 1 151 CLR 514 Caltex Ltd v Federal Commissioner of Taxation [1960] HCA 17 (1959) 106 CLR 205 Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation [1946] HCA 60 (1946) 73 CLR 604 Commercial and General Acceptance Ltd v Federal Commissioner of Taxation (1977) 137 CLR 373 7 ATR 716 77 ATC 4375 Commissioner of Taxation v Energy Resources of Australia Ltd [1994] FCA 1521 54 FCR 25 29 ATR 553 94 ATC 4923 Commissioner of Taxation v Energy Resources of Australia Ltd [1996] HCA 10 185 CLR 66 33 ATR 52 96 ATC 4536 Royal Insurance Company Ltd v Stephen (1928) 14 TC 22 The Texas Company (Australasia) Ltd v Federal Commissioner of Taxation [1940] HCA 9 (1940) 63 CLR 382 Westminster Bank Ltd v Osler [1933] AC 139", "Subject_References": "currency exchange losses eligible contract realisation of losses", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1257of2012/00001", "Unmatched_Content": "• affected ATO IDs, as noted • para 19 of TR 2006/57 • the treatment of Forex gains and losses under former Division 3B"}
{"Case_Name": "Commissioner of Taxation v Nash", "Venue_Reference_No": "NSD 1822 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "16 April 2013", "Date_Published": "14 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a taxpayer is entitled to claim a deduction for general interest charge (GIC) in each year in which GIC becomes due and payable.", "Overview_of_Facts": "On 20 December 2007 the taxpayer (through his tax agent) lodged his income tax returns for the years ended 30 June 2001 to 30 June 2006. On 26 February 2008, the Commissioner issued notices of assessment to the taxpayer for those income years. | On 4 January 2008, the FCT issued a notice to the taxpayer advising him of his tax debt, including GIC in the amount of $145,319.91 imposed under subsection 204(3) of the Income Tax Assessment Act 1936 (ITAA 1936). That GIC related to the following years: No Income Year GIC accrued 1 2003 $10,256.29 2 2004 $19,248.03 3 2005 $23,994.43 4 2006 $31,636.90 5 2007 $38,850.17 6 2008 $21,334.09 | Issues decided by the court | On 26 February 2008, the Commissioner issued an assessment to the taxpayer in relation to the income year 30 June 2007, which was a credit assessment. | In 2008, the Commissioner issued three further notices claiming the GIC in amounts of $8,089.40, $945.75 and $14,045.70 respectively. The Administrative Appeals Tribunal (AAT) assumed that each of these three amounts was referable to the 2008 income year. | The taxpayer objected to the original Notices of Assessment and sought to claim GIC deductions in respect of each year following the year to which the assessment related (that is, in each year of income to which the GIC amounts were referable). The Commissioner disallowed that objection, determining that no deduction was allowed for GIC in the 2003 to 2007 income years, with the entire GIC liability amount allowed as a deduction in the year ended 30 June 2008. | The taxpayer sought a review of the objection decision in the AAT. The AAT (DP Deutsch) decided in Nash and Commissioner of Taxation [2012] AATA 719 that each amount of GIC (in respect of each year between 2003 and 2008) gave rise to a deductible expense in the year of income from which section 8AAE of the Taxation Administration Act 1953 specified the GIC was due and payable. | The Commissioner appealed to the Federal Court against the AAT's decision. The Commissioner argued that on a proper construction of paragraph 25-5(1)(c) of ITAA 1997, GIC is only incurred and therefore deductible upon the issue of an assessment for the tax liability on which the GIC has accrued. The Commissioner argued that there was no entitlement to a deduction for GIC referrable to tax liabilities for income tax years 2003 to 2007, and that GIC in respect of those years is deductible in 2008 once an assessment was made. | Issues Decided by the Court | The only issue raised by the appeal was whether the expenditure for the GIC was incurred within the meaning of paragraph 25-5(1)(c) of the ITAA 1997 in the years in which the GIC accrues on the tax debts to which it relates or whether it was incurred only when an assessment is issued for those tax debts. The appeal was allowed. | The Court held that the liability to pay GIC attaches to tax which the taxpayer is liable to pay and has not paid. Therefore, there is a nexus between the relevant statutory provisions governing when income tax is due and payable and the statutory provisions governing when GIC is due and payable (paragraph 35). | The Court found that the AAT erred in law in not factoring into its analysis the importance of the giving of a notice of assessment in creating a liability to pay income tax. Tax is not due or payable until such time as a notice of assessment is given and where paragraph 204(1)(b) applies, the time for payment may be earlier than the date the notice of assessment was given. The Court observed that subsection 204(3) links the obligation to pay the GIC to the fact that tax (which the taxpayer is liable to pay) is unpaid after the time when the tax was due to be paid. No liability to pay the tax arises until a notice of assessment even though under paragraph 204(1)(b) of the ITAA 1936 the due date for payment of the tax may precede the date of giving the notice of assessment (paragraph 60). | The Court referred to a long line of authority which supports the view that the service of a notice of assessment is a precondition for an amount of tax becoming due and payable (paragraphs 42 to 59). | The Court distinguished the decision in Commissioner of Taxation v H (2010) 188 FCR 519, where it was held that, for the purposes of section 109Y of the ITAA 1936, an obligation to pay tax (that obligation being contingent on an assessment being made) arose by the operation of the Income Tax Act 1986 and not by the issue of a notice of assessment. The Court distinguished a 'present legal obligation' to pay tax (which can arise before an assessment as in the case of Commissioner of Taxation v H ) from a 'presently existing liability' to pay tax and GIC (which requires an assessment of an amount that is due and payable).", "Issues_Decided": "On 26 February 2008, the Commissioner issued an assessment to the taxpayer in relation to the income year 30 June 2007, which was a credit assessment. In 2008, the Commissioner issued three further notices claiming the GIC in amounts of $8,089.40, $945.75 and $14,045.70 respectively. The Administrative Appeals Tribunal (AAT) assumed that each of these three amounts was referable to the 2008 income year. The taxpayer objected to the original Notices of Assessment and sought to claim GIC deductions in respect of each year following the year to which the assessment related (that is, in each year of income to which the GIC amounts were referable). The Commissioner disallowed that objection, determining that no deduction was allowed for GIC in the 2003 to 2007 income years, with the entire GIC liability amount allowed as a deduction in the year ended 30 June 2008. The taxpayer sought a review of the objection decision in the AAT. The AAT (DP Deutsch) decided in Nash and Commissioner of Taxation [2012] AATA 719 that each amount of GIC (in respect of each year between 2003 and 2008) gave rise to a deductible expense in the year of income from which section 8AAE of the Taxation Administration Act 1953 specified the GIC was due and payable. The Commissioner appealed to the Federal Court against the AAT's decision. The Commissioner argued that on a proper construction of paragraph 25-5(1)(c) of ITAA 1997, GIC is only incurred and therefore deductible upon the issue of an assessment for the tax liability on which the GIC has accrued. The Commissioner argued that there was no entitlement to a deduction for GIC referrable to tax liabilities for income tax years 2003 to 2007, and that GIC in respect of those years is deductible in 2008 once an assessment was made. | Issues Decided by the Court: The only issue raised by the appeal was whether the expenditure for the GIC was incurred within the meaning of paragraph 25-5(1)(c) of the ITAA 1997 in the years in which the GIC accrues on the tax debts to which it relates or whether it was incurred only when an assessment is issued for those tax debts. The appeal was allowed. The Court held that the liability to pay GIC attaches to tax which the taxpayer is liable to pay and has not paid. Therefore, there is a nexus between the relevant statutory provisions governing when income tax is due and payable and the statutory provisions governing when GIC is due and payable (paragraph 35). The Court found that the AAT erred in law in not factoring into its analysis the importance of the giving of a notice of assessment in creating a liability to pay income tax. Tax is not due or payable until such time as a notice of assessment is given and where paragraph 204(1)(b) applies, the time for payment may be earlier than the date the notice of assessment was given. The Court observed that subsection 204(3) links the obligation to pay the GIC to the fact that tax (which the taxpayer is liable to pay) is unpaid after the time when the tax was due to be paid. No liability to pay the tax arises until a notice of assessment even though under paragraph 204(1)(b) of the ITAA 1936 the due date for payment of the tax may precede the date of giving the notice of assessment (paragraph 60). The Court referred to a long line of authority which supports the view that the service of a notice of assessment is a precondition for an amount of tax becoming due and payable (paragraphs 42 to 59). The Court distinguished the decision in Commissioner of Taxation v H (2010) 188 FCR 519, where it was held that, for the purposes of section 109Y of the ITAA 1936, an obligation to pay tax (that obligation being contingent on an assessment being made) arose by the operation of the Income Tax Act 1986 and not by the issue of a notice of assessment. The Court distinguished a 'present legal obligation' to pay tax (which can arise before an assessment as in the case of Commissioner of Taxation v H ) from a 'presently existing liability' to pay tax and GIC (which requires an assessment of an amount that is due and payable).", "ATO_View_of_Decision": "The decision is consistent with the long-standing ATO view that income tax (and any GIC on unpaid income tax) is due and payable only once income tax has been assessed. Although GIC is calculated retrospectively for each day in the GIC liability period, the earliest time the GIC liability crystallises into a presently existing liability is when all of the steps necessary for its imposition have occurred - namely the making of an assessment by the Commissioner with the amount of tax payable. | We note that this decision, whilst concerning GIC, is consistent with the ATO view as to the deductibility of any shortfall interest charge (SIC) in relation to an amended assessment. Taxation Determination TD 2012/2 provides that SIC is incurred for the purposes of paragraph 25-5(1)(c) of the ITAA 1997 in the year of income the Commissioner gives a taxpayer a notice of amended assessment. | Although section 204 of the ITAA 1936 was repealed (by the Tax Laws Amendment (Transfer of Provisions) Act 2010 ) and replaced by Division 5, Part 1-3 of Chapter 1 of the ITAA 1997, we consider the decision is consistent with the operation of section 5-5 of the ITAA 1997 and equally applies in determining the deductibility of GIC (and now also SIC) under those provisions. | The Court's decision concerned GIC imposed as a result of unpaid income tax as a result of a late lodgement of an income tax return, and does not apply to GIC accruing after the issue date of the assessment, which is deductible on a daily basis.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not Applicable", "Related_Documents": "None | 2013 ATC 20-384 | TR 97/7 | TD 2012/2 | PS LA 2011/12 | s 109Y | s 204 | s 5-5 | s 25-5 | The Act | s 8AAE | s 8AAG | (1935) 54 CLR 295 | 2007 ATC 5302 | (1981) 81 ATC 4429 | (1990) 90 ATC 4215 | (1963) 109 CLR 243 | (2012) 2012 ATC 20-361 | 2010 ATC 20-218 | (1993) 93 ATC 5220 | 77 ATC 4151 | (2008) 2008 ATC 20-045 | [2012] FCA 594 | (1999) 99 ATC 4373 | (1995) 95 ATC 4067 | (1984) 84 ATC 4642 | (2006) 2006 ATC 4404 | (1953) 88 CLR 492 | (1994) 94 ATC 4570 | (2012) 2012 ATC 20-313 | (1988) 88 ATC 4392 | 97 ATC 4938 | (1938) 61 CLR 179 | (1981) 81 ATC 4031 | (1987) 87 ATC 4441 | (1937) 56 CLR 290", "Legislative_References": "Administrative Appeals Tribunal Act 1975 (Cth) s 44 Income Tax Assessment Act 1936 (Cth) s 109Y s 204 Income Tax Assessment Act 1997 (Cth) s 5-5 s 25-5 Pay-roll Tax Assessment Act 1971 (WA) The Act Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) The Act Taxation Administration Act 1953 (Cth) s 8AAE s 8AAG", "Case_References": "Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation (1935) 54 CLR 295 Bluebottle UK Ltd v Deputy Commissioner of Taxation [2007] HCA 54 232 CLR 598 67 ATR 1 2007 ATC 5302 Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 (1981) 12 ATR 173 (1981) 81 ATC 4429 Cronulla Sutherland Leagues Club Ltd v Commissioner of Taxation (1990) 23 FCR 82 (1990) 21 ATR 300 (1990) 90 ATC 4215 Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55 (2012) 84 ATR 1 (2012) 2012 ATC 20-361 Commissioner of Taxation v H (2010) 188 FCR 440 [2010] FCAFC 128 2010 ATC 20-218 Commissioner of State Taxation (WA) v Pollock (1993) 11 WAR 64 (1993) 93 ATC 5220 (1993) 27 ATR 108 Commonwealth Aluminium Corporation Ltd v Federal Commissioner of Taxation (1977) 32 FLR 210 77 ATC 4151 (1977) 7 ATR 376 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 (2008) 69 ATR 357 (2008) 2008 ATC 20-045 Deputy Commissioner of Taxation v Cranswick (No 2) (2010) 189 FCR 287 (2010) 80 ATR 796 Deputy Commissioner of Taxation v Hua Wang Bank Berhand (No 3) [2012] FCA 594 Deputy Commissioner of Taxation v Jones (1999) 86 FCR 282 (1999) 41 ATR 460 (1999) 99 ATC 4373 Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 (1995) 29 ATR 644 (1995) 95 ATC 4067 Federal Commissioner of Taxation v Australian Guarantee Corporation Ltd (1984) 84 ATC 4642 (1984) 15 ATR 982 Federal Commissioner of Taxation v Citylink Melbourne Ltd (2006) 228 ALR 301 (2006) 62 ATR 648 (2006) 2006 ATC 4404 Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 (1994) 28 ATR 336 (1994) 94 ATC 4570 Federal Commissioner of Taxation v Noza Holdings Pty Ltd (2012) 201 FCR 445 (2012) 2012 ATC 20-313 (2012) 82 ATR 567 Hooker Rex Pty Ltd v FCT (1988) 79 ALR 181 (1988) 19 ATR 1241 (1988) 88 ATC 4392 Layala Enterprises Pty Ltd (in Liq) v Federal Commissioner of Taxation (1998) 86 FCR 348 36 ATR 409 97 ATC 4938 New Zealand Flax Investments Ltd v FCT (1938) 61 CLR 179 Nilsen Development Laboratories Pty Ltd v Federal Commissioner of Taxation (1981) 144 CLR 616 (1981) 11 ATR 505 (1981) 81 ATC 4031 Re Medonca Ex parte Commissioner of Taxation (1969) 15 FLR 256 (1969) 1 ATR 571 Taylor v Commissioner of Taxation (1997) 16 FCR 212 (1987) 18 ATR 715 (1987) 87 ATC 4441 W Neville & Co Ltd v Federal Commissioner of Taxation (1937) 56 CLR 290", "Subject_References": "General Interest Charge Deductions Incurred Due and payable Notice of assessment Presently existing liability", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1822of2012/00001", "Unmatched_Content": "This decision has no impact for the ATO including precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v Pham & Ors", "Venue_Reference_No": "NSD 436 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "13 June 2013", "Date_Published": "28 June 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the Commissioner of Taxation ('the Commissioner') was entitled to seek relief in relation to a decision made by the Administrative Appeals Tribunal ('the AAT') by which it purported to make an order under paragraph 35(2)(b) of the Administrative Appeals Tribunal Act 1975 (Cth) ('the AAT Act') which prohibited the Commissioner from disclosing or publishing any evidence or documents lodged with the AAT.", "Overview_of_Facts": "These proceedings concerned an application for relief under section 39B of the Judiciary Act 1903 (Cth) in relation to an order purported to have been made by the Administrative Appeals Tribunal ('AAT') under paragraph 35(2)(b) of the Administrative Appeals Tribunal Act 1975 (Cth) ('the AAT Act') ordering that: Until further order, the [Commissioner] and the [AAT] are not to disclose or publish any of the evidence given before the [AAT], or of the matters contained in documents lodged with the [AAT], or received by the [AAT]. | Issues Decided by the Court | The Court found that the AAT did not have the power to make the order.", "Issues_Decided": "The Court found that the AAT did not have the power to make the order.", "ATO_View_of_Decision": "The decision confirms the ATO view that the AAT does not have power to give a direction that the Commissioner not disclose any of the evidence given or documents lodged with the AAT. The section only empowers the AAT to give a direction to prohibit or restrict the publication of evidence given before the AAT.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for impacted Law Administration Practice Statements | Nil", "Related_Documents": "Nil | [2013] FCA 579 | s 35(2)", "Legislative_References": "Administrative Appeals Tribunal Act 1975 s 35(2) Judiciary Act 1903 s 39B", "Case_References": "", "Subject_References": "Decision Impact Statement Disclose or publish evidence or documents given to or filed with the Administrative Appeals Tribunal", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD436of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v Resource Capital Fund IV LP & Ors", "Venue_Reference_No": "1817 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "22 October 2013", "Date_Published": "23 January 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerns whether foreign currency can be the subject of a notice under section 255 of the Income Tax Assessment Act 1936 (ITAA 1936 ).", "Overview_of_Facts": "The First Respondent (\"RCF IV\") and the Second Respondent (\"RCF V\") are two limited partnerships formed in the Cayman Islands. RCF IV and RCF v owned shares in Talison Lithium Pty Ltd (\"Talison\"), which is an Australian incorporated company. | Under an approved scheme of arrangement, RCF IV and RCF v disposed of their shares in Talison to a purchaser, Windfield Holdings Pty Ltd. The amount payable to RCF IV and RCF v by the purchaser was denominated in Canadian currency. The amount was payable out of a Canadian bank account maintained by Talison, who was acting as agent of the sellers for the purposes of collecting and distributing the sale proceeds. | On 26 March 2013, the Commissioner issued assessments to RCF IV and RCF V, with the effect of assessing a tax liability in an amount denominated in Australian dollars arising from the disposal of their shares in Talison. | On 13 May 2013, the Commissioner issued separate notices to Talison under section 255 of the Income Tax Assessment Act 1936 (\"ITAA 1936\") in respect of RCF IV and RCF v The notices required Talison, \"as a person having the receipt and control or disposal of money belonging to the Taxpayer\" (the \"controller\") and being required to \"pay the tax due and payable by the Taxpayer\", to retain the amounts assessed to the Taxpayers from the amount that Talison had receipt, control or disposal of. | The primary judge declared that the notices did not impose an obligation on Talison to retain or pay to the Commissioner, or convert into Australian currency and retain and pay to the Commissioner, any amount of Canadian currency. | This decision follows an appeal by the Commissioner against the findings of the primary Judge. | Issues decided by the court | The primary issue determined by the Court is whether the reference to \"money\" in the context of subsection 255(1) of the ITAA 1936 is confined to Australian currency or whether it extends to foreign currency. Their Honours unanimously concluded that subsection 255(1) does extend to money denominated in foreign currency. | In the lead decision, Gordon J addressed the central question of the meaning of \"money\" in the provision, by observing at [45] that: \"Nothing in the text or context of s 255 suggests that the phrase all money due does not extend to debts due by the controller to the non-resident if those debts are denominated in foreign currency...\" | Her Honour went on to say that to restrict the phrase as such would render the operation of the provision \"impractical, if not absurd\". | Gordon J highlighted that while section 255 imposes an obligation to pay the tax due and payable by the non-resident, and to do so in Australian currency, the obligation must be read in conjunction with section 255(1)(b), which provides the controllers with the authority to retain \"so much is as sufficient to pay the tax which is or will become due by the non-resident\": Bluebottle UK limited v Deputy Commissioner of Taxation (2007) 232 CLR 598. In this respect, her Honour stated at [48] that: \"...s255 does not oblige the recipient of the notice (the controller) to apply the money retained from the non-resident in satisfaction of the tax liability...However...the section caps the quantum of the liability to the amount that the recipient of the notice...retained or should have retained.\" | Her Honour further observed that the operation of the section is neither affected nor changed by the fact that the money retained by the controller is in foreign currency. In acknowledging the Commissioner's submissions, her Honour observed that: \"...if the controller's liability is to pay the non-resident taxpayer in foreign currency, then the controller is authorised to retain so much of that foreign currency as is sufficient to pay the tax debt in Australian dollars.\" | While not pertinent to the Court's ultimate finding, her Honour also considered the reliance placed by the Respondents on section 218 and 255 of the ITAA 1936, and noted that the sections are not materially of the same effect and purpose.", "Issues_Decided": "The primary issue determined by the Court is whether the reference to \"money\" in the context of subsection 255(1) of the ITAA 1936 is confined to Australian currency or whether it extends to foreign currency. Their Honours unanimously concluded that subsection 255(1) does extend to money denominated in foreign currency. In the lead decision, Gordon J addressed the central question of the meaning of \"money\" in the provision, by observing at [45] that: \"Nothing in the text or context of s 255 suggests that the phrase all money due does not extend to debts due by the controller to the non-resident if those debts are denominated in foreign currency...\" Her Honour went on to say that to restrict the phrase as such would render the operation of the provision \"impractical, if not absurd\". Gordon J highlighted that while section 255 imposes an obligation to pay the tax due and payable by the non-resident, and to do so in Australian currency, the obligation must be read in conjunction with section 255(1)(b), which provides the controllers with the authority to retain \"so much is as sufficient to pay the tax which is or will become due by the non-resident\": Bluebottle UK limited v Deputy Commissioner of Taxation (2007) 232 CLR 598. In this respect, her Honour stated at [48] that: \"...s255 does not oblige the recipient of the notice (the controller) to apply the money retained from the non-resident in satisfaction of the tax liability...However...the section caps the quantum of the liability to the amount that the recipient of the notice...retained or should have retained.\" Her Honour further observed that the operation of the section is neither affected nor changed by the fact that the money retained by the controller is in foreign currency. In acknowledging the Commissioner's submissions, her Honour observed that: \"...if the controller's liability is to pay the non-resident taxpayer in foreign currency, then the controller is authorised to retain so much of that foreign currency as is sufficient to pay the tax debt in Australian dollars.\" While not pertinent to the Court's ultimate finding, her Honour also considered the reliance placed by the Respondents on section 218 and 255 of the ITAA 1936, and noted that the sections are not materially of the same effect and purpose.", "ATO_View_of_Decision": "The decision is significant in that it confirms the ATO view that the reference to \"money\" in subsection 255(1) (b) is not confined to Australian currency, but extends to foreign currency. | Importantly, the decision confirms that while the amount of tax due and payable by the non-resident entity is to be paid in Australian dollars, section 255 does not require the payment of this amount to come directly from the money which was the subject of the retention by the person having the receipt, control or disposal of money belonging to a non-resident taxpayer. | All that is required by section 255 is for the controller to retain sufficient money to address the tax liability. Accordingly, if the money retained by the controller is denominated in foreign currency, a sufficient amount of such foreign currency must be retained to pay the liability. The quantum of amount to be retained is capped to the liability set out in the notice. | There are no negative implications arising from this decision.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "N/A | [2013] FCAFC 118 | The Act | 2007 ATC 5302 | [1948] HCA 2 | (1948) 75 CLR 589 | 2009 ATC 20-125 | 94 ATC 4923 | 2012 ATC 20-308 | 2002 ATC 4676 | 98 ATC 5090 | [2005] HCA 55 | (2005) 221 CLR 646 | (1998) 194 CLR 355 | [2008] HCA 5", "Legislative_References": "Income Tax Assessment Act 1915 (Cth) The Act Income Tax Assessment Act 1922 (Cth) The Act Income Tax Assessment Act 1936 (Cth) The Act Taxation Administration Act 1953 (Cth) The Act", "Case_References": "Bluebottle UK Limited v Deputy Commissioner of Taxation [2007] HCA 54 (2007) 232 CLR 598 67 ATR 1 2007 ATC 5302 Bonython v The Commonwealth of Australia [1948] HCA 2 (1948) 75 CLR 589 Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation [2009] HCA 32 (2009) 239 CLR 346 72 ATR 856 2009 ATC 20-125 Commissioner of Taxation v Energy Resources of Australia Ltd (1994) 54 FCR 25 29 ATR 553 94 ATC 4923 Consolidated Media Holdings Ltd v Federal Commissioner of Taxation [2012] FCAFC 36 (2012) 201 FCR 470 2012 ATC 20-308 83 ATR 793 Cusack v Federal Commissioner of Taxation [2002] FCA 1012 (2002) 120 FCR 520 2002 ATC 4676 50 ATR 443 Deputy Commissioner of Taxation v Conley (1988) 88 FCR 98 40 ATR 227 98 ATC 5090 McNamara v Consumer Trader and Tenancy Tribunal [2005] HCA 55 (2005) 221 CLR 646 Moore v Commonwealth [1951] HCA 10 (1951) 82 CLR 547 Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5 (2008) 233 CLR 259", "Subject_References": "Income tax Foreign currency Non-resident", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/1817of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v Unit Trend Services Pty Ltd", "Venue_Reference_No": "B61/2012", "Venue": "High Court", "Judgment_Date": "1 May 2013", "Date_Published": "29 March 2017", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case involving the application of the general anti-avoidance provisions in Division 165 of the GST Act to a scheme that sought to reduce GST payable on sales of new residential premises.", "Overview_of_Facts": "Unit Trend Services Pty Ltd (Unit Trend) is the representative member of a GST group. At all relevant times, this GST group included Simnat Pty Ltd (Simnat), Blesford Pty Ltd (\"Blesford\") and Mooreville Investments Pty Ltd (Mooreville). | Simnat was engaged in the development of three residential apartment towers on land that it had acquired prior to 1 July 2000. When construction of Tower I was completed, a strata plan was registered for each of the individual residential units in the tower. Simnat sold the units in Tower I 'off the plan' and applied the margin scheme in working out the GST applicable to those sales. | When construction of each of Towers II and III was almost complete, Simnat sold the towers for their market value as GST-free going concerns to Blesford and Mooreville respectively. Blesford and Mooreville completed construction of the towers and sold the completed residential units to home buyers and investors. | Blesford and Mooreville applied the margin scheme for the purposes of working out their GST liability on the sale of each of the completed residential units and calculated the margin for those sales with reference to the market value consideration that they had provided for their acquisition of the respective towers. | The Commissioner made a declaration in relation to Unit Trend under Division 165 of the GST Act to negate the GST benefit obtained on sales of completed residential units in Towers II and III. The GST benefit was the difference between GST payable under the margin scheme on the sale of the completed units by Blesford and Mooreville compared to GST that would have been payable under the margin scheme if Simnat had completed the towers and sold completed units to home buyers and investors. | The declaration under Division 165 for sales of completed units in Towers II and III that occurred prior to 17 March 2005 was upheld by the Administrative Appeals Tribunal (AAT), which found that the companies were engaged in a scheme under subsection 165-10(2). The GST benefit got from the scheme, which Division 165 was invoked to negate, was the benefit obtained as a result of intermediate sales by Simnat to Blesford and Mooreville respectively of a going concern. The GST benefit reflected the amount agreed to be paid to Simnat by Blesford and Mooreville as consideration for the intermediate sales, and which brought about an uplift in the intermediate cost base of units supplied by them to buyers and investors. As a result, the GST payable by Unit Trend was less than it would have been if the scheme had not existed. | On appeal, a majority of the Full Federal Court (Greenwood and Bennett J) overturned the AAT decision. It was held that the GST benefit obtained by Unit Trend was attributable to the making of a choice, election, application or agreement expressly provided for by the GST Act and, therefore, that Division 165 did not apply to the pre-17 March 2005 sales of units in Towers II and III. In particular, the majority referred to the choice by Simnat, Blesford and Mooreville to enter into a GST-free supply of a going concern and the choice by Blesford and Mooreville to apply the margin scheme to the sales of units in each tower. | By special leave, the Commissioner appealed to the High Court. | Issues decided by the court | The issue before the High Court was whether a declaration under Division 165 operated to negate the GST benefit that Unit Trend got from the scheme because the GST benefit obtained by Unit Trend was 'not attributable to' the making of a choice, election, application or agreement that was expressly provided for by the GST Act. | The Court unanimously held in a joint judgment that Division 165 operated to negate the GST benefit obtained by Unit Trend in relation to pre-17 March 2005 sales of units in Towers II and III. The Court held that the phrase 'not attributable to' in paragraph 165-5(1)(b) is concerned with whether the GST benefit in question is not one to which the taxpayer was entitled by exercise of a statutory choice. | It was noted by the Court at [48] that paragraph 165-5(1)(a) poses a question which must be answered before one enters on the inquiry invited by paragraph 165-5(1)(b); that question being whether ' an entity ... gets or got a GST benefit from a scheme' . The Court said at [49] that paragraph 165-5(1)(b) assumes, in accordance with paragraph 165-5(1)(a), that an identified GST benefit has been ' got ... from the scheme ; and proceeds from this postulate to invite attention to whether the particular GST benefit ' got' from the scheme is ' not attributable to' the making of a choice expressly provided for by the GST Act' . | The Court noted at [50] that the crucial phrase in paragraph 165-5(1)(b) is 'not attributable to' and went on to say that paragraph 165-5(1)(b) is concerned to include, within the scope of Division 165, GST benefits got from a scheme in which the exercise of statutory choice has had some operation. The phrase ' not attributable to' is concerned with whether the GST benefit in question, which has (as had been found) been got from the scheme, is not one which the exercise of a statutory choice has entitled the taxpayer. The purpose of paragraph 165-5(1)(b) is to ensure that GST benefits got from a scheme, but not attributable to the making of a statutory choice, are not immunised against the possible effect of Division 165. | The Court said that the Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 confirmed the mischief to which paragraph 165-5(1)(b) was directed - that being, ' to ensure that the GST Act did not contradict itself by allowing the general anti-avoidance provisions of Division 165 to trump specific provisions of the Act which allow an entity to get a GST benefit' . This was also confirmed by section 165-1 as an 'explanatory section' within Division 165. | The Court concluded at [58] that the GST benefit that Unit Trend got from the scheme was not something that Unit Trend was entitled to as a matter of any statutory choice. Rather, it was the transfer of the towers to Blesford and Mooreville at market value under the scheme at a time when there had been a substantial increase in the value of the properties. It was this which brought about an uplift in the intermediate cost base on which Blesford's and Mooreville's margin was determined and which gave rise to the GST benefit that Unit Trend got from the scheme.", "Issues_Decided": "The issue before the High Court was whether a declaration under Division 165 operated to negate the GST benefit that Unit Trend got from the scheme because the GST benefit obtained by Unit Trend was 'not attributable to' the making of a choice, election, application or agreement that was expressly provided for by the GST Act. The Court unanimously held in a joint judgment that Division 165 operated to negate the GST benefit obtained by Unit Trend in relation to pre-17 March 2005 sales of units in Towers II and III. The Court held that the phrase 'not attributable to' in paragraph 165-5(1)(b) is concerned with whether the GST benefit in question is not one to which the taxpayer was entitled by exercise of a statutory choice. It was noted by the Court at [48] that paragraph 165-5(1)(a) poses a question which must be answered before one enters on the inquiry invited by paragraph 165-5(1)(b); that question being whether ' an entity ... gets or got a GST benefit from a scheme' . The Court said at [49] that paragraph 165-5(1)(b) assumes, in accordance with paragraph 165-5(1)(a), that an identified GST benefit has been ' got ... from the scheme ; and proceeds from this postulate to invite attention to whether the particular GST benefit ' got' from the scheme is ' not attributable to' the making of a choice expressly provided for by the GST Act' . The Court noted at [50] that the crucial phrase in paragraph 165-5(1)(b) is 'not attributable to' and went on to say that paragraph 165-5(1)(b) is concerned to include, within the scope of Division 165, GST benefits got from a scheme in which the exercise of statutory choice has had some operation. The phrase ' not attributable to' is concerned with whether the GST benefit in question, which has (as had been found) been got from the scheme, is not one which the exercise of a statutory choice has entitled the taxpayer. The purpose of paragraph 165-5(1)(b) is to ensure that GST benefits got from a scheme, but not attributable to the making of a statutory choice, are not immunised against the possible effect of Division 165. The Court said that the Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 confirmed the mischief to which paragraph 165-5(1)(b) was directed - that being, ' to ensure that the GST Act did not contradict itself by allowing the general anti-avoidance provisions of Division 165 to trump specific provisions of the Act which allow an entity to get a GST benefit' . This was also confirmed by section 165-1 as an 'explanatory section' within Division 165. The Court concluded at [58] that the GST benefit that Unit Trend got from the scheme was not something that Unit Trend was entitled to as a matter of any statutory choice. Rather, it was the transfer of the towers to Blesford and Mooreville at market value under the scheme at a time when there had been a substantial increase in the value of the properties. It was this which brought about an uplift in the intermediate cost base on which Blesford's and Mooreville's margin was determined and which gave rise to the GST benefit that Unit Trend got from the scheme.", "ATO_View_of_Decision": "Paragraph 165-5(1)(b) | As held by the AAT, and confirmed on appeal by the Full Federal Court, amendments to the margin scheme provisions in Division 75 of the GST Act mean that a GST benefit no longer arises in relation to sales of real property made on or after 17 March 2005, as part of a scheme that is similar to the one considered in this case. | However, the High Court decision has broad application to all GST, Wine Equalisation Tax (WET) and Luxury Car Tax (LCT) schemes involving one or more statutory choices. The decision means that inclusion of a statutory choice or choices as an integer or step in a GST, WET or LCT scheme does not automatically preclude the operation of the general anti-avoidance provisions in Division 165. | Paragraph 165-5(1)(b) will only preclude the operation of the general anti-avoidance provisions in Division 165 to a GST, WET or LCT schemes that include statutory choices in cases where the GST benefit got from the scheme is the particular benefit or benefits that the taxpayer is entitled to access as a result of an exercise of the statutory choice or choices in question. | At [60], the High Court confirmed that an identified GST benefit is not attributable to the making of a choice by an entity if: (a) the GST Act or another relevant law does not operate to confer the identified GST benefit by reference to that choice; or (b) the choice made in fact as part of the scheme would have been made in any event without the scheme. Reference to a choice that would have been made in any event without the scheme is consistent with the Commissioner's submission that the GST benefit that Unit Trend got from the scheme was not attributable to the choice to apply the margin scheme. The declaration made in this case sought to negate the GST benefit that Unit Trend got from the scheme because sales of residential units were made by Blesford and Mooreville respectively under the margin scheme, rather than by Simnat under the margin scheme. | Subsection 165-5(3) - creating circumstances or state of affairs | The High Court [at 66] agreed with the Commissioner's submission that insertion of subsection 165-5(3) into Division 165 in 2008 did not affect the meaning of the phrase 'not attributable to ' in paragraph 165-5(1)(b), and that it is only if the GST benefit is attributable to the statutory choice that one then addresses whether it was the purpose of the scheme to create the occasion for the exercise of that choice. | This is taken to mean that, in cases where a scheme includes a statutory choice and the GST benefit got from that scheme is the benefit that the taxpayer is entitled to as a result of the exercise of the statutory choice, Division 165 may still operate if the conditions stated in paragraphs 165-5(3)(a) and 165-5(3)(b) are met. | Relevance to Part IVA of the Income Tax Assessment Act 1936 | Part IVA includes a provision that is similar in important respects to paragraph 165-5(1)(b). Relevantly, subparagraph 177C(2)(a)(i) precludes the operation of Part IVA if the tax benefit obtained by a taxpayer in connection with a scheme 'is attributable to the making of [ a ] choice ... expressly provided for by' the income tax legislation. | Walters v Commissioner of Taxation [2007] FCA 1270 is a decision which considers subsection 177C(2). In that case, Greenwood J observed at [83] that the phrase in subparagraph 177C(2)(a)(i) 'attributable to' the particular election, choice or event means there must be a direct relationship between the non-inclusion of the relevant amount and the choice or election made by the taxpayer. | Subsection 177C(2) in Part IVA refers to a tax benefit that is attributable to a 'choice', unlike paragraph 165-5(1)(b) which refers to a GST benefit that is not attributable to a 'choice' and section 165-5 has no analogue to subsection 177C(3), which deems tax benefits to be attributable to statutory choices in particular circumstances. However, having regard to the analogous purpose of the provisions and in the absence of contrary authority, the Commissioner will apply subsection 177C(2) in the same general way as the High Court applied paragraph 165-5(1)(b) in the present case. That is, a tax benefit is considered to be attributable to a 'choice' only if it is the actual benefit which the taxpayer is entitled to by virtue of the exercise of that statutory choice.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | GSTR 2005/4 and GSTR 2005/5 were withdrawn on 29 March 2017 as they are no longer current following legislative amendments to Division 75 and the High Court's decision.", "Related_Documents": "Goods and Services Tax Ruling GSTR 2005/4 | Goods and Services Tax Ruling GSTR 2005/5 | Law Administration Practice Statement PS LA 2005/24 | [2013] HCA 16 | 2013 ATC 20-389 | Div 75 | 165-5 | 165-5(1) | 165-5(1)(a) | 165-5(1)(b) | 165-5(3) | 2010 ATC 1-022 | 2012 ATC 20-342", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 Div 75 165-5 165-5(1) 165-5(1)(a) 165-5(1)(b) 165-5(3)", "Case_References": "Re Taxpayer v Commissioner of Taxation [2010] AATA 497 2010 ATC 1-022 76 ATR 917 77 ATR 170 Unit Trend Services Pty Ltd v Commissioner of Taxation [2012] FCAFC 112 2012 ATC 20-342", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/B61-2012/00001", "Unmatched_Content": "Implications on Law Administration Practice Statements: Law Administration Practice Statement PS LA 2005/24 Application of General Anti Avoidance Rules was updated on 16 September 2016 to reflect statements made by the High Court in this case, on the interpretation of the phrase 'attributable to' under paragraph 165-5(1)(b). Refer to paragraphs 208-209 of PS LA 2005/24. | Updated to advise the update of PS LA 2005/24 has and the withdrawal of GSTR 2005/4 and GSTR 2005/5"}
{"Case_Name": "Cooper Bros Holdings Pty Ltd trading as Triple R Waste Management v Commissioner of Taxation", "Venue_Reference_No": "2011/3815", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "26 February 2013", "Date_Published": "1 October 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerned whether or not the taxpayer was manufacturing excisable goods when it applied a filtering and de-watering process to 'used oil' collected from a variety of sources.", "Overview_of_Facts": "The taxpayer collects used oils drained from automotive sumps, machinery and transmissions serviced in mechanical workshops and industrial engineering workshops. The used oil is \"quite suitable as fuel oil\" [1] at the time it is drained from an automotive sump. When the oil is drained from automotive sumps, it may contain microscopic particles of metal from friction wear and traces of unignited fuel, condensed moisture and glycol coolant. | Prior to collection, the used oil is stored in vessels where it may become further contaminated by sludge, redundant fuel, used glycol coolant and various other prescribed waste substances. In many cases, foreign objects such as nuts, bolts, rags, gloves and other matter become deposited with the oil in the storage vessels. | Drivers of collection vehicles are trained to extract the used oil out of the storage vessels to the approximate 'free water' point. The oil is passed through two separate filters, one (a coarse mesh filter) at collection point and the other (a 'filter sock or bag' with a nominal rating of 400 micron) at the taxpayer's depot. | At its depot, the taxpayer uses steam to raise the temperature of the used oil until it begins to 'simmer' (in order to accelerate the separation of substances of different relative density). The steam is not in direct contact with the used oil and it cannot react with the used oil and break down any molecular bonds. | After the used oil has been heated and cooled, it is still dark brown or black, has the same viscosity, and contains the same chemicals, additives, friction modifiers and other ingredients as it had when it came out of the sumps of the vehicles it was derived from. It is suitable as a burner or furnace fuel, but is not suitable for use as fuel in an internal combustion engine. | Issues decided by the tribunal | The primary issue decided by the Tribunal was whether the used oil that had been subjected to the filtering and de-watering processes undertaken by the taxpayer was: • 'manufactured or produced' by the taxpayer for the purposes of subsection 5(1) of the Excise Tariff Act 1921 (the Tariff Act); and • a 'liquid hydrocarbon product derived through a recycling, manufacturing or other process' for the purposes of item 10(d) of the Schedule to the Tariff Act. | • 'manufactured or produced' by the taxpayer for the purposes of subsection 5(1) of the Excise Tariff Act 1921 (the Tariff Act); and • a 'liquid hydrocarbon product derived through a recycling, manufacturing or other process' for the purposes of item 10(d) of the Schedule to the Tariff Act. | If (as the Commissioner contended) the oil met both of these descriptions, it would be subject to excise duty. | The Tribunal also considered whether it could have regard to particular information which was not contained in the notice of private ruling, including information that the Commissioner had regard to pursuant to section 359-65 in Schedule 1 to the Taxation Administration Act 1953 (the TAA) in making his objection decision. | Manufactured or produced | The Tribunal, citing Sundberg J in Caltex , [2] stated that the question of whether goods have been 'manufactured' or 'produced' for the purposes of subsection 5(1) of the Tariff Act \"is to be answered according to the ordinary meaning of those words\". [3] | The Tribunal further stated that: ... the critical question is whether the [end product] is relevantly different from the used oil in terms of its physical characteristics or utility... [4] | In relation to differences in utility, the Tribunal said of a passage from 5 Star Foods [5] to which the Commissioner's submission referred, that it did: not understand this passage to suggest that improving the existing utility of goods so that they become saleable in itself amounts to a difference in their utility such that they could properly be said on that account to have been \"manufactured\". [6] | The Tribunal proceeded to state that: [t]he true question is whether the goods inherently have a different utility from that out of which they were made. [7] | The Tribunal concluded that the end product (which it referred to as the 'fuel oil' [8] ) was not manufactured or produced by the taxpayer, noting that it was: not relevantly different from the used oil in either its physical characteristics or in its utility. Although some water and contaminants have been removed, the fuel oil is essentially the same thing as it was before. The used oil is, as described in the scheme, \"quite suitable as fuel oil\". The fuel oil has not been \"brought into useable form\"; rather, it is merely better able to be used for the same purpose... [9] I do not consider that the fact that the fuel oil has had some water and some other contaminants removed constitutes a relevant difference between the fuel oil and the used oil in terms of their essential physical characteristics... [10] ... upon a comparison of the fuel oil and the used oil, in terms of \"ordinary everyday language\" ... one would not naturally refer to the former as having been manufactured from the latter [11] | Liquid hydrocarbon derived through a recycling, manufacturing or other process | The Tribunal noted that: ... resolution of the issue of whether the fuel oil satisfied Item 10(d) turned on whether it could properly be said to emerge from the applicant's processes as a new and different article, being the same factual question governing whether it could properly be said to have been \"manufactured\" or \"produced\" for the purpose of s 5(1) of the Tariff Act. [12] | The Tribunal found that the fuel oil could not properly be said to have been \"derived\" through the taxpayer's processes according to the ordinary meaning of that word. [13] | Whether additional information could be taken into account | In discussing its jurisdiction in the proceedings, the Tribunal noted that: ...the Tribunal cannot make findings of fact in this proceeding. The Tribunal can only consider the stated facts comprising the scheme the subject of the ruling. Furthermore, the Tribunal cannot \"redefine\" the scheme ... [T]he Tribunal is confined by the scheme as it has been described in the ruling and cannot depart from that description in any respect. [14] | The Tribunal found that it could not properly have regard to the ruling application, nor could it have regard to further information provided by the taxpayer prior to the ruling being made. On this point, the Tribunal stated that the: private ruling in issue is a self-contained document, in that it does not describe the scheme by reference to material contained in any other document. Accordingly, the Tribunal can only have regard to the scheme as described in the ruling itself [15] | The Tribunal said of subsection 359-65(1) in Schedule 1 to the TAA that that provision, when read in context: ... only permits consideration of material that is informative about the facts comprising the scheme, as it has been described in the ruling . Section 359-65 permits neither the Commissioner in making his objection decision, nor the Tribunal in reviewing that decision, to redefine the scheme. ... [T]he Tribunal may only consider additional information pursuant to s 359-65(1) to the extent that it bears upon the correctness of the ruling in issue. ... [T]he word \"materially\" in s 359-65(3) cannot properly be read as permitting additional information to be considered by the Commissioner or the Tribunal pursuant to s 359-65(1) so as to interfere with the description of the scheme in the ruling in any way [our emphasis]. [16] | Much of the additional information upon which the parties sought to rely related to customer specifications and external testing. The Tribunal stated that: [n]o mention is made in the scheme of specifications or external testing of the kind with which the additional material was concerned...[B]y way of contradistinction, that the facts stated in the objection decision include the statement that \"[y]our end products are tailored according to your customer's [sic] specifications and requirements. ...\" before making reference to the particular customer specifications [17] | The Tribunal found that it could not have regard to this and other information on the basis that the consideration of that material: would necessarily require that the Tribunal impermissibly \"travel beyond those facts as identified in the ruling\" [18]", "Issues_Decided": "The primary issue decided by the Tribunal was whether the used oil that had been subjected to the filtering and de-watering processes undertaken by the taxpayer was: • 'manufactured or produced' by the taxpayer for the purposes of subsection 5(1) of the Excise Tariff Act 1921 (the Tariff Act); and • a 'liquid hydrocarbon product derived through a recycling, manufacturing or other process' for the purposes of item 10(d) of the Schedule to the Tariff Act. • 'manufactured or produced' by the taxpayer for the purposes of subsection 5(1) of the Excise Tariff Act 1921 (the Tariff Act); and • a 'liquid hydrocarbon product derived through a recycling, manufacturing or other process' for the purposes of item 10(d) of the Schedule to the Tariff Act. If (as the Commissioner contended) the oil met both of these descriptions, it would be subject to excise duty. The Tribunal also considered whether it could have regard to particular information which was not contained in the notice of private ruling, including information that the Commissioner had regard to pursuant to section 359-65 in Schedule 1 to the Taxation Administration Act 1953 (the TAA) in making his objection decision. | Manufactured or produced: The Tribunal, citing Sundberg J in Caltex , [2] stated that the question of whether goods have been 'manufactured' or 'produced' for the purposes of subsection 5(1) of the Tariff Act \"is to be answered according to the ordinary meaning of those words\". [3] The Tribunal further stated that: ... the critical question is whether the [end product] is relevantly different from the used oil in terms of its physical characteristics or utility... [4] In relation to differences in utility, the Tribunal said of a passage from 5 Star Foods [5] to which the Commissioner's submission referred, that it did: not understand this passage to suggest that improving the existing utility of goods so that they become saleable in itself amounts to a difference in their utility such that they could properly be said on that account to have been \"manufactured\". [6] The Tribunal proceeded to state that: [t]he true question is whether the goods inherently have a different utility from that out of which they were made. [7] The Tribunal concluded that the end product (which it referred to as the 'fuel oil' [8] ) was not manufactured or produced by the taxpayer, noting that it was: not relevantly different from the used oil in either its physical characteristics or in its utility. Although some water and contaminants have been removed, the fuel oil is essentially the same thing as it was before. The used oil is, as described in the scheme, \"quite suitable as fuel oil\". The fuel oil has not been \"brought into useable form\"; rather, it is merely better able to be used for the same purpose... [9] I do not consider that the fact that the fuel oil has had some water and some other contaminants removed constitutes a relevant difference between the fuel oil and the used oil in terms of their essential physical characteristics... [10] ... upon a comparison of the fuel oil and the used oil, in terms of \"ordinary everyday language\" ... one would not naturally refer to the former as having been manufactured from the latter [11] | Liquid hydrocarbon derived through a recycling, manufacturing or other process: The Tribunal noted that: ... resolution of the issue of whether the fuel oil satisfied Item 10(d) turned on whether it could properly be said to emerge from the applicant's processes as a new and different article, being the same factual question governing whether it could properly be said to have been \"manufactured\" or \"produced\" for the purpose of s 5(1) of the Tariff Act. [12] The Tribunal found that the fuel oil could not properly be said to have been \"derived\" through the taxpayer's processes according to the ordinary meaning of that word. [13] | Whether additional information could be taken into account: In discussing its jurisdiction in the proceedings, the Tribunal noted that: ...the Tribunal cannot make findings of fact in this proceeding. The Tribunal can only consider the stated facts comprising the scheme the subject of the ruling. Furthermore, the Tribunal cannot \"redefine\" the scheme ... [T]he Tribunal is confined by the scheme as it has been described in the ruling and cannot depart from that description in any respect. [14] The Tribunal found that it could not properly have regard to the ruling application, nor could it have regard to further information provided by the taxpayer prior to the ruling being made. On this point, the Tribunal stated that the: private ruling in issue is a self-contained document, in that it does not describe the scheme by reference to material contained in any other document. Accordingly, the Tribunal can only have regard to the scheme as described in the ruling itself [15] The Tribunal said of subsection 359-65(1) in Schedule 1 to the TAA that that provision, when read in context: ... only permits consideration of material that is informative about the facts comprising the scheme, as it has been described in the ruling . Section 359-65 permits neither the Commissioner in making his objection decision, nor the Tribunal in reviewing that decision, to redefine the scheme. ... [T]he Tribunal may only consider additional information pursuant to s 359-65(1) to the extent that it bears upon the correctness of the ruling in issue. ... [T]he word \"materially\" in s 359-65(3) cannot properly be read as permitting additional information to be considered by the Commissioner or the Tribunal pursuant to s 359-65(1) so as to interfere with the description of the scheme in the ruling in any way [our emphasis]. [16] Much of the additional information upon which the parties sought to rely related to customer specifications and external testing. The Tribunal stated that: [n]o mention is made in the scheme of specifications or external testing of the kind with which the additional material was concerned...[B]y way of contradistinction, that the facts stated in the objection decision include the statement that \"[y]our end products are tailored according to your customer's [sic] specifications and requirements. ...\" before making reference to the particular customer specifications [17] The Tribunal found that it could not have regard to this and other information on the basis that the consideration of that material: would necessarily require that the Tribunal impermissibly \"travel beyond those facts as identified in the ruling\" [18]", "ATO_View_of_Decision": "Manufactured or produced | The Commissioner respectfully acknowledges the Tribunal's finding that the end product was not \"manufactured or produced\" within the ordinary meaning of those words. | The Commissioner considers that the implications of this finding are confined to factual scenarios that are materially the same as the taxpayer's. For a scenario to be regarded as such, it must be the case that: • an entity collects used oil which, at the time of collection, is suitable for use as burner fuel; • the entity subjects the used oil to filtering [19] and de-watering [20] processes only; and • these processes do not result in the end product attaining an inherently different utility to the used oil, but rather result in it being able to be better used for the same purpose or purposes that the used oil could be used for. | • an entity collects used oil which, at the time of collection, is suitable for use as burner fuel; • the entity subjects the used oil to filtering [19] and de-watering [20] processes only; and • these processes do not result in the end product attaining an inherently different utility to the used oil, but rather result in it being able to be better used for the same purpose or purposes that the used oil could be used for. | The Commissioner considers that the inherent characteristics of used oil and the inherent limitations of filtering and de-watering mean that the first and third of these points will be met in all cases in which an entity collects used oil and subjects it to filtering and de-watering processes only. [21] | For all such cases, the Commissioner considers the Tribunal's findings would lead to the following outcomes: • The end product would not be subject to excise duty, on the basis that it would not have been \"manufactured or produced\" • The entity would not be entitled to a benefit under the Product Stewardship (Oil) Act 2000 , on the basis that the end product would not have been \" produced from used oil\" as is required by subsection 9(1) of that Act (taking into account the definition of 'recycled oils' in section 6) • Any customer that acquires the end product from the entity for use in its enterprise would not be entitled to a fuel tax credit for its acquisition under the Fuel Tax Act 2006 , on the basis that the end product would not be \"taxable fuel\", as is required by section 41-5 of that Act. | • The end product would not be subject to excise duty, on the basis that it would not have been \"manufactured or produced\" • The entity would not be entitled to a benefit under the Product Stewardship (Oil) Act 2000 , on the basis that the end product would not have been \" produced from used oil\" as is required by subsection 9(1) of that Act (taking into account the definition of 'recycled oils' in section 6) • Any customer that acquires the end product from the entity for use in its enterprise would not be entitled to a fuel tax credit for its acquisition under the Fuel Tax Act 2006 , on the basis that the end product would not be \"taxable fuel\", as is required by section 41-5 of that Act. | The Commissioner does not consider that an oil recycler who subjects used oil to processes that are different than, or additional to, filtering and de-watering would be impacted by the decision. The application of different or additional processes could result in the end product attaining relevantly different physical characteristics or utility to the used oil. | Accordingly, the Commissioner proposes to maintain his existing views in relation to scenarios that are not materially the same as the taxpayer's. | De-mineralisation | The Commissioner acknowledges that, on one view, oil recyclers that subject used oil to a de-mineralisation [22] process (in addition to filtering and de-watering) may also be impacted by the Tribunal's decision. The additional process would not alter the fact that, in most if not all cases, the recycler would start with oil that is suitable for use as a burner fuel and end with a product that is \"merely better able to be used for the same purpose\". This being the case, under the Tribunal's reasoning, there would not be a \"relevant difference\" in utility between the used oil collected and the end product. | The Commissioner considers, however, that the additional step of de-mineralisation may result in the removal of impurities that are more intrinsic in nature than those that would be removed through filtering and de-watering alone. It is not clear from the Tribunal's reasoning whether the removal of these impurities would lead to a different answer to the question of whether or not the end product has \"relevantly different physical characteristics\" (and, from this, the question of whether or not \"manufacture or production\" has occurred). | For this reason, the Commissioner considers these recyclers are not impacted by the decision. | Liquid hydrocarbon derived through a recycling, manufacturing or other process | The Commissioner respectfully acknowledges the Tribunal's finding that the end product was not \"derived\" through the taxpayer's processes within the ordinary meaning of that word. Again, the Commissioner considers that the implications of this finding are confined to factual scenarios that are materially the same as the taxpayer's. In these scenarios, the end product would not be subject to excise duty. | Circumstances in which additional information may be taken into account | The Tribunal's reasoning appears to lead to the conclusion that, in making an objection decision, the Commissioner may only have regard to additional information (pursuant to subsection 359-65(1)) which: • is informative about the facts comprising the scheme, as it has been described in the ruling; • bears upon the correctness of the ruling; and • does not interfere with the description of the scheme in the ruling in any way | • is informative about the facts comprising the scheme, as it has been described in the ruling; • bears upon the correctness of the ruling; and • does not interfere with the description of the scheme in the ruling in any way | Additionally, in having regard to such information, on the view expressed in this case the Commissioner could not make \"findings of fact\". | Under this reasoning, the Commissioner would not be able to take into account information that is not relevant to the scheme, nor would he be able to take into account information that gives rise to a materially different scheme. | On one view, the remaining category of information (that is, information that is relevant to the scheme, and does not result in a materially different scheme) would generally satisfy the three requirements outlined above. | The interpretation of section 359-65 in Schedule 1 to the TAA and the question of whether or not the Commissioner (in reviewing a private ruling) or the Tribunal (in reviewing a decision on an objection against a private ruling) can make findings of fact have been considered in a number of Tribunal cases. | In Re John Hall and Commissioner of Taxation [2006] AATA 360, Senior Member Hunt stated that, under Division 359 in Schedule 1 to the TAA: the Commissioner has limited power to consider \"additional information\" when considering an objection, but still does not have a fact finding role. [23] | Deputy President Hack expressed a contrary view in Re A Taxpayer and Commissioner of Taxation [2007] AATA 1759, stating: Mr Marks of counsel, who appeared for the applicant, properly drew my attention to the decision of Senior Member Hunt in Re Hall and Federal Commissioner of Taxation where at [43] the Senior Member seemed to suggest that under the new regime in Division 359 the Commissioner (and thus, I infer, the Tribunal) \"still does not have a fact finding role\". I am, with respect, unable to agree with this view. It is, I think, expressed too broadly. If the additional information is such that the scheme is materially different to that originally considered, the Commissioner must request the applicant to make an application for another ruling and, in that circumstance, must necessarily decline to find additional facts. But short of that it seems to me that no purpose would be served by permitting the Commissioner to consider additional information if he were not permitted to find facts from that additional information. [24] | Citing the comments of Hack DP, Senior Member O'Loughlin, in Heinrich and Commissioner of Taxation [2011] AATA 16, noted: Incorporating additional facts that do not change the subject matter ruled upon in a material way can be included in the subject matter ruled upon on review: [25] | Taking into account the comments in each of the cases referred to above, the Commissioner proposes to administer the law on the basis that section 359-65 in Schedule 1 permits the Commissioner to consider additional information in making an objection decision, providing the information merely assists in understanding the scheme and does not give rise to a materially different scheme. The question of whether that involves the Commissioner, and possibly the Tribunal on review, making 'findings of fact', is an issue on which different views have been expressed by the Tribunal. [26] | The Commissioner notes Deputy President Alpins' acknowledgement that, even if the Tribunal had been able to have regard to the additional information in Cooper Bros , its decision on the primary issue would not have been different. [27] This, together with advice from counsel for the Commissioner that the Tribunal's decision did not disclose an error of law on which an appeal could be based, formed the basis for the Commissioner's decision not to appeal.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | The Tribunal's findings conflicted in some respects with original examples 9 and 10 in Excise Ruling ER 2012/1 regarding oil recycling (or at least it was not clear, on the facts provided in these examples, what distinguished them from the present case) and original examples 3 and 5 in Product Grant and Benefit Ruling PGBR 2012/1. The Commissioner withdrew these examples from the Rulings immediately after publication of this Decision Impact Statement. | On 1 October 2014, the Commissioner published an addendum to both ER 2012/1 and PGBR 2012/1 to clarify his view of the law following the Cooper Bros decision. | Refunds of overpaid excise duty | The Commissioner considers that taxpayers that paid excise duty on burner fuel in circumstances that are materially the same as the taxpayer's [28] would have paid duty \"through manifest error of fact or patent misconception of the law\" for the purposes of paragraph 50(1)(c) of the Excise Regulations 1925 (the Regulations). These taxpayers will be allowed a refund of the excise duty pursuant to section 78 of the Excise Act 1901 . | An application for a refund must be in writing; be signed by the entity applying for the refund (or their authorised representative); and state, as far as practicable, the nature and particulars of the claim. [29] The Commissioner may require a taxpayer applying for a refund to produce records or to give further information, or both. | An application for a refund of excise duty must be made within 14 days after the date on which the duty was paid. [30] The Regulations provide that, if it is \"equitable\" for this 14-day period to be extended, the application may instead be made within 12 months after the date on which the duty was paid. [31] | The Commissioner notes that an extension of the period for oil recyclers impacted by the Tribunal's decision may give rise to a windfall gain for these recyclers if, as could reasonably be expected, they have 'included' the excise duty in the price charged to customers. The Commissioner further notes that many of the oil recyclers' customers may have claimed fuel tax credits to offset much of the excise paid. | Although the Commissioner will consider each refund application on its merits, the Commissioner would generally expect to conclude that it would not be equitable to extend the refund period if the amount in question has been passed on to a customer. | Prior PSO benefits paid and fuel tax credits claimed | Taxpayers that paid excise duty on burner fuel in circumstances that are materially the same as the taxpayer's will not need to repay any PSO benefit that they were paid in accordance with the Commissioner's view as it was prior to 24 April 2013 (being the date of the partial withdrawal of PGBR 2012/1 to remove examples 3 and 5). | Similarly, any entity that acquired such burner fuel before 24 April 2013 (being the date of the partial withdrawal of ER 2012/1 to remove examples 9 and 10) will not need to repay any fuel tax credits that were taken into account in working out a net fuel amount for a tax period in accordance with the Commissioner's view as it was prior to the partial withdrawal. | Date of amendment Part Comment 1 October 2014 Relevant case law Inserted two new case laws ATO view of Decision - heading 'Manufactured or produced' Inserted new paragraph, including new footnote 21 ATO view of Decision - heading 'Circumstances in which additional information may be taken into account' Inserted new footnote 26 at paragraph beginning 'Taking into account the comments….' Administrative treatment - heading 'Implications for ATO precedential documents (Public Rulings & Determinations etc)' Updated to advise an addendum was published to both ER 2012/1 and PGBR 2012/1 on 1 October 2014 to introduce new examples on oil recycling Administrative treatment - heading 'Prior PSO benefits paid and fuel tax credits claimed' Inserted date '24 April 2013' Your comments Deleted | [1] This reference to 'fuel oil', which was contained in the private ruling and reproduced in the Tribunal's decision, is not a reference to 'fuel oil' as defined in the Excise Tariff Act 1921 . | [2] Caltex Australia Petroleum Pty Ltd v Federal Commissioner of Taxation [2008] FCA 1951; (2008) 173 FCR 359 | [3] At paragraph 92 | [4] At paragraph 87 | [5] Commonwealth v 5 Star Foods Pty Ltd [2002] VSC 70; (2002) 167 FLR 214 at 222 | [6] At paragraph 81 | [7] At paragraph 79 | [8] Note that the Tribunal's reference to 'fuel oil' is not a reference to 'fuel oil' as defined in the Tariff Act. | [9] At paragraph 82 | [10] At paragraph 83 | [11] At paragraph 84 | [12] At paragraph 96 | [13] At paragraph 97 | [14] At paragraph 8 | [15] At paragraph 21 | [16] At paragraphs 35, 36 and 38 | [17] At paragraph 42 | [18] At paragraph 44 | [19] The Commissioner considers that used oil has been 'filtered' if suspended impurities or solid contaminants have been removed (fully or partially) from the used oil. | [20] The Commissioner considers that used oil is 'de-watered' if it has been subjected to a process that removes (fully or partially) the water present in the used oil. | [21] The Commissioner considers that the inherent characteristics of used oil are such that, in all cases, it is correct to regard it as 'suitable for use as a burner fuel'. It is acknowledged that, in any given case, high amounts of water or other extrinsic impurities in the used oil at the time it is collected may make it questionable whether the oil, as it then stands, could be used as a burner fuel. However, taking into account the relative ease at which these extrinsic impurities could be removed, the Commissioner does not consider that their presence should lead to a different conclusion. The application of filtering and de-watering processes only to the used oil could, at most, result in the removal of water and other extrinsic impurities. Although this might result in the used oil being 'able to be better used' as a burner fuel, it would not result in the product attaining an inherently different utility to the used oil. | The application of filtering and de-watering processes only to the used oil could, at most, result in the removal of water and other extrinsic impurities. Although this might result in the used oil being 'able to be better used' as a burner fuel, it would not result in the product attaining an inherently different utility to the used oil. | [22] The Commissioner considers that used oil is 'de-mineralised' if it has been subjected to a process that removes (fully or partially) soluble and insoluble metal elements; and inorganic materials and minerals (such as salts and additives) in the used oil. Typically, de-mineralisation may involve the use of a chemical surface-active reagent known as a surfactant, although alternative methods may be used. De-mineralisation requires the removal of contaminants that cannot be filtered out. | [23] At paragraph 43 | [24] At paragraphs 12 and 13 | [25] At paragraph 14 | [26] We note that other AAT cases have considered this question in the wake of Cooper Bros . See, in particular, The Public Servant and Commissioner of Taxation [2014] AATA 247 in which Senior Member Lazanas (citing Cooper Bros and other cases) noted at [53] that, when the Tribunal reviews an objection decision regarding a private ruling, the Tribunal 'has no role whatsoever in fact finding'. See also the reasoning given by Deputy President Frost in Pillay and Commissioner of Taxation [2013] AATA 447 which Senior Member Lazanas referred to in The Public Servant to conclude, at [50], that 'neither the Commissioner nor the Tribunal can find facts when it comes to private rulings or reviewing objection decisions regarding private rulings, as appropriate'. | [27] At paragraph 45 | [28] See above under the heading \"ATO view of the decision Manufactured or produced\" for the Commissioner's view on when an entity's circumstances can be regarded as being materially the same as the taxpayer's. | [29] Subregulation 52(1) of the Regulations | [30] Subregulation 53(1) of the Regulations | [31] Paragraph 53(2)(b) of the Regulations", "Related_Documents": "ER 2012/1 | PGBR 2012/1 | ATO ID 2011/68 | ATO ID 2009/122 (the note to this ATO ID only) | ATO ID 2007/139 | ATO ID 2007/28 (the note to this ATO ID only) | [2013] AATA 99 | 5(1) | Sch Item 10(d) | 359-65 in Sch 1 | [2008] FCA 1951 | (2008) 173 FCR 359 | [2002] VSC 70 | [2011] AATA 16 | 2011 ATC 10-169 | [2007] AATA 1759 | (2007) 67 ATR 959 | 2006 ATC 2356 | 2013 ATC 10-324 | 2014 ATC 1-064", "Legislative_References": "Excise Tariff Act 1921 5(1) Sch Item 10(d) Taxation Administration Act 1953 359-65 in Sch 1", "Case_References": "Caltex Australia Petroleum Pty Ltd v Federal Commissioner of Taxation [2008] FCA 1951 (2008) 173 FCR 359 (2008) 74 ATR 676 Commonwealth v 5 Star Foods Pty Ltd [2002] VSC 70 (2002) 167 FLR 214 Heinrich and Commissioner of Taxation [2011] AATA 16 2011 ATC 10-169 (2011) 81 ATR 903 Re A Taxpayer and Commissioner of Taxation [2007] AATA 1759 (2007) 67 ATR 959 Re John Hall and Commissioner of Taxation [2006] AATA 360 (2006) 64 ATR 1001 2006 ATC 2356 Re Pillay and Commissioner of Taxation [2013] AATA 447 2013 ATC 10-324 Re The Public Servant and Commissioner of Taxation [2014] AATA 247 2014 ATC 1-064", "Subject_References": "Excise Oil recycling Manufactured or produced Liquid hydrocarbon derived through a recycling, manufacturing or other process Product Stewardship Oil (PSO) scheme Fuel tax credits Ruling 'scheme' AAT jurisdiction Whether AAT can have regard to material other than in a notice of private ruling", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/3815/00001", "Unmatched_Content": ""}
{"Case_Name": "Denlay v Commissioner of Taxation", "Venue_Reference_No": "QUD 114 of 2012; QUD 115 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "5 April 2013", "Date_Published": "5 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case in which the Commissioner's decisions to issue notices under section 260-5 of Schedule 1 to the Taxation Administration Act 1953 to garnishee amounts held in the taxpayers' superannuation funds were quashed.", "Overview_of_Facts": "Both taxpayers had substantial debts owing to the Commissioner arising from the issue of income tax assessments to include undeclared offshore income held in accounts of the Liechtenstein Bank as part of Project Wickenby. The taxpayers commenced Part IVC challenges to their assessments in the Federal Court. They also commenced s.39B proceedings challenging the making of the assessments, which were unsuccessful. | The Commissioner commenced parallel recovery proceedings, and obtained judgment in respect of the taxpayer's outstanding debts. However enforcement of the judgment was stayed by the Supreme Court of Queensland until the outcome of the Federal Court income tax appeals. The Commissioner challenged the stay, and was unsuccessful. The Court below made findings on the taxpayer's evidence, which were not disturbed on appeal. Relevantly, the taxpayer's evidence was they had limited funds to provide for daily living expenses and to prosecute their Federal Court appeals if they were to be made bankrupt in the future. Their evidence was that their only source of funding was rental receipts from a residential property and funds held in their superannuation accounts. | The Commissioner became aware of deposits into the self-managed superannuation fund, and their dissipation. The Commissioner had cause to believe that the taxpayers had access to moneys from offshore bank accounts. Accordingly, the Commissioner issued garnishee notices under section 260-5 of Schedule 1, of the Taxation Administration Act 1953 (TAA) requiring remittance to the Commissioner of the remaining amounts held in each taxpayer's superannuation account. The funds in the superannuation accounts were duly paid to the Commissioner and applied against the outstanding debts of the taxpayers. | In the interim, the stay had lapsed and the taxpayers sought an extension of the stay. The Commissioner opposed the extension but provided an undertaking that he would take no steps to bankrupt the taxpayers until resolution of their Part IVC taxation appeals. The taxpayers went into voluntary bankruptcy shortly before the conclusion of the hearing of their Part IVC appeals. | Upon request, each taxpayer was provided by the Commissioner with written reasons for the decisions to garnishee the superannuation account funds. The taxpayers then applied out of time for a judicial review of the decisions under the Administrative Decisions (Judicial Review) Act 1977 . | Issues decided by the Federal Court | 1. The Court decided that the decision-maker had failed to take into account the following relevant considerations when exercising the power under section 260-5 of the TAA: (i) the effect which the section 260-5 notices might have on Mr and Mrs Denlays' ability to further prosecute the taxation appeals; (ii) the 'provenance' of the stay orders granted in the Supreme Court of Queensland; (iii) the merits of the taxation appeals. | (i) the effect which the section 260-5 notices might have on Mr and Mrs Denlays' ability to further prosecute the taxation appeals; (ii) the 'provenance' of the stay orders granted in the Supreme Court of Queensland; (iii) the merits of the taxation appeals. | 2. The Court found that the decision to issue each of the section 260-5 notices was so unreasonable that no decision-maker, acting reasonably, could have made the same decision. | 3. The Court quashed the Commissioner's decisions to issue the section 260-5 notices and subsequently ordered that the monies obtained under the notices be refunded to the superannuation fund accounts.", "Issues_Decided": "1. The Court decided that the decision-maker had failed to take into account the following relevant considerations when exercising the power under section 260-5 of the TAA: (i) the effect which the section 260-5 notices might have on Mr and Mrs Denlays' ability to further prosecute the taxation appeals; (ii) the 'provenance' of the stay orders granted in the Supreme Court of Queensland; (iii) the merits of the taxation appeals. (i) the effect which the section 260-5 notices might have on Mr and Mrs Denlays' ability to further prosecute the taxation appeals; (ii) the 'provenance' of the stay orders granted in the Supreme Court of Queensland; (iii) the merits of the taxation appeals. 2. The Court found that the decision to issue each of the section 260-5 notices was so unreasonable that no decision-maker, acting reasonably, could have made the same decision. 3. The Court quashed the Commissioner's decisions to issue the section 260-5 notices and subsequently ordered that the monies obtained under the notices be refunded to the superannuation fund accounts.", "ATO_View_of_Decision": "The Commissioner's written reasons for decision for issuing the section 260-5 notices, referred to both the taxation appeals and to the Commissioner's policy with respect to garnishee notices but they did not specifically outline the decision maker's deliberations in this regard. | ATO officers will continue to apply the stated policy in PS LA 2011/18 at paragraph 112: Where a tax debtor is appealing to a tribunal or court against the assessments that raised the debt, the Commissioner will consider whether a garnishee would significantly prejudice the tax debtor's rights in pursuing those appeals. | ATO officers will also take into account the daily living expenses of taxpayers. | Section 260-5 confers a general discretion on the Commissioner to consider \" those things that the legislation requires to be taken into account and ignores any prohibited consideration, the grounds of failing to take into account a relevant consideration, or taking into account an irrelevant consideration , ...\" per Healy J in Elias No 1. See also Aronson & Dyer Judicial Review of Administrative Action 2nd Ed. 2000 at 225. | The discretion under section 260-5 is unconfined by the terms of the statute, and the decision-maker is not bound to take a particular matter into account unless an implication to that effect is to be found in the subject matter, scope and purpose of the statute: Peko-Wallsend (supra) at 40.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "Nil | 2013 ATC 20-382 | The Act | s 260-5 of Schedule 1 | s 14ZZM | s 14ZZR | 2008 ATC 20-045 | (1976) 76 ATC 4113 | 88 ATC 4484 | [1963] HCA 54 | (1986) 162 CLR 24 | [2011] FCA 1443 | 2002 ATC 4776 | 87 ATC 4078 | [2013] FCAFC 10", "Legislative_References": "Administrative Decisions (Judicial Review) Act 1977 The Act Taxation Administration Act 1953 s 260-5 of Schedule 1 s 14ZZM s 14ZZR", "Case_References": "Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 Australian Machinery & Investment Co Ltd v Deputy Commissioner of Taxation (1945) 8 ATD 133 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 237 CLR 473 69 ATR 357 2008 ATC 20-045 Deputy Commissioner of Taxation v Roma Industries Pty Ltd (1976) 6 ATR 54 (1976) 76 ATC 4113 Edelsten v Wilcox (1988) 83 ALR 99 19 ATR 1370 88 ATC 4484 Klein v Domus Pty Ltd (1963) 109 CLR 467 [1963] HCA 54 Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 Queensland Maintenance Services Pty Ltd v Federal Commissioner of Taxation (2011) 207 FCR 405 [2011] FCA 1443 Saitta Pty Ltd v Commissioner of Taxation (2002) 125 FCR 388 [2002] FCA 1105 2002 ATC 4776 50 ATR 565 Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 18 ATR 439 87 ATC 4078 Southgate Investment Funds Limited v Deputy Commissioner of Taxation [2013] FCAFC 10", "Subject_References": "Judicial review of decision to issue garnishee notice under section 260-5 Relevant considerations in issuing a garnishee notice", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD114of2012;QUD115of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Deputy Commissioner of Taxation v McGuire", "Venue_Reference_No": "2011/136834", "Venue": "Supreme Court", "Judgment_Date": "11 March 2013", "Date_Published": "10 May 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerns the application of s 60 of the Partnership Act 1892 (NSW) to taxation liabilities of a partnership imposed on limited partners.", "Overview_of_Facts": "The taxpayers were limited partners in a limited partnership. The partnership had an RBA deficit debt of $354,246.04, and this liability was imposed jointly and severally on the partners under s 444-30 of Schedule 1 to the Taxation Administration Act 1953 (TAA). The taxpayers contended that, under the terms of the partnership deed and the Partnership Act 1892 (State Act), they were not liable for the amount of the debt. | The deed stipulated that the taxpayers were limited partners with a liability limit of $5. Subsection 60(1) the State Act provides that the liability of a limited partner to contribute to the liabilities of the limited partnership is not to exceed the amount shown in the Register as the extent to which the limited partner is liable to contribute. The $5 limit appeared in the Register. | At issue was whether s 60(1) limited the tax liability arising under s 444-30 of the TAA, and whether there was inconsistency between the State Act and s 444-30 of TAA for the purposes of s 109 of the Constitution. | Issues decided by the court/Tribunal | The Court held that s 60(1) of the State Act did not apply to the liability in these proceedings. It found that s 60(1) applies to liabilities incurred by the general partner of the partnership as agent of the partnership. Section 444-30, on the other hand, imposes liabilities directly on the partners. Because of the Court's finding on s60(1), it did not deal with the inconsistency question.", "Issues_Decided": "The Court held that s 60(1) of the State Act did not apply to the liability in these proceedings. It found that s 60(1) applies to liabilities incurred by the general partner of the partnership as agent of the partnership. Section 444-30, on the other hand, imposes liabilities directly on the partners. Because of the Court's finding on s60(1), it did not deal with the inconsistency question.", "ATO_View_of_Decision": "The decision is consistent with the Commissioner's submissions to the Court.", "Administrative_Treatment": "None. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None.", "Related_Documents": "None | [2013] NSWSC 184 | 90 ATR 821 | 444-30 | 60(1)", "Legislative_References": "Taxation Administration Act 1953 444-30 Partnership Act 1892 60(1)", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/136834/00001", "Unmatched_Content": ""}
{"Case_Name": "Fitzroy Services Pty Limited v Commissioner of Taxation", "Venue_Reference_No": "NSD 172 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "20 May 2013", "Date_Published": "22 November 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outline's the ATO's response to a decision concerning the deductibility of 'Interest and bank fees' and 'Management fees'; as well as whether a loan(s) was a sham.", "Overview_of_Facts": "The following summary draws heavily and directly on the judgment of Edmonds J. | The dispute concerned assessments for the years ended 30 June 1999 to 2009 (except for 2004), and penalty amounts. The assessments arose as a result of the disallowance of deductions for 'Management fees' and 'Interest and Bank fees'. | In 1994, Allan and Douglas Heasman, who at all relevant times controlled the taxpayer and other entities involved in a business of providing auto-repair services as well as retailing shock absorbers and pneumatic air devices, instructed Mr Vanda Gould to establish a foreign superannuation fund, that they had been advised provided certain benefits over Australian-based funds. A fund was established in Samoa (the Fund) and Allan J Heasman (Sales) Pty Ltd (Heasman Sales) made two initial contributions of $250,000. This was the first of a stream of outbound and inbound remittances which gave rise to claims by companies associated with Allan and Douglas Heasman for deductions for interest and bank fees. | The funds initially contributed were made available to the Hua Wang Bank. In June 1994 Heasman Sales entered into a \"loan agreement\" with the Hua Wang Bank and Allan and Douglas Heasman entered into a deed with the Hua Wang Bank under which they guaranteed the obligations of Heasman Sales to the Hua Wang Bank. The funds made available to the Hua Wang Bank were then remitted to a bank account in Australia \"by way of loan\" from the Hua Wang Bank to Heasman Sales. | The affidavit of Allan Heasman provided that from 1994 annual payments of interest were made to the Hua Wang Bank in accordance with the loan agreement (it was said that \"I'm no longer sure which of our companies paid the interest in each specific year\"). Each interest payment was then borrowed back (and money remitted) from Hua Bank, and later interest payments were calculated on the basis of the enlarged principal debt. In 1999 Heasman Sales applied for an extension of the loan and executed a document that extended the loan facility and renewed the guarantees. | The affidavit went on to explain (judgment at [15]): \"32. After some years had passed the making of the annual interest payment to the Hua Wang Bank in order to secure a roll-over of the debt had become quite a notable event for our business. In order to meet the annual payment it was often necessary to pool the money from all our other entities so that sufficient funds were available for the interest instalment. ... 34. Where [Heasman Sales] distributed funds from the rollover of the Hua Wang Bank loan to other Heasman group entities, there was no regular interest charged on these funds. 35. I am aware that the financial statements for [Heasman Sales] for the years up until the end of the 2004 income year show amounts owing to this company from the other Heasman entities. There were never any formal loan agreements under which [Heasman Sales] provided funds to the other Heasman entities. I used to pay funds out of [Heasman Sales] to the other entities purely on the basis of the operational needs of those entities.\" | Towards the end of the 2004 year of income there was a change in the entity which paid \"interest\" to the Hua Wang Bank on the moneys \"borrowed\" by Heasman Sales from that bank since 1994. The change and why it came about are summarily described by Mr Allan Heasman in Ex 3 in the following way: 53. [I]n about May 2004 I asked Gould Ralph to organise for the obligations under the Hua Wang Bank loan to be transferred to Fitzroy Services. The main reason for this was that [Heasman Sales] was insolvent and would ultimately go into liquidation. ... 55. In 2005 Fitzroy Services executed a fixed and floating charge in favour of the Hua Wang Bank. ... 56. For the remainder of the period in dispute, which was up until the end of the 2009 income year, Fitzroy Services continued to pay interest to the Hua Wang Bank and/or a separate entity called Hua Wang Finance, in accordance with our obligations under the loan agreement and claimed deductions. These amounts were borrowed back and capitalised into the loan. 57. In July 2009 Fitzroy Services applied for and was granted an extension of its loan from the Bank. ... | As to management fees, it was contended by the taxpayer that \"at any given point\", there was a single entity in the Heasman \"group\" that held the \"group's\" business premises; a single entity that paid the salaries of the \"group\" management team; and the \"group's\" workshop staff were employed by a single entity: at [20]. | Issues decided by the court | 1. Are 'Interest and bank fees' deductible pursuant to section 8-1 or section 25-25 of the Income Tax Assessment Act 1997 (the 1997 Act)? | No (subject to Issue 3). Justice Edmonds said, at [46], that: \"... insofar as the interest and bank expenses the applicant incurred to the Hua Wang Bank in the relevant years of income were referable to any assumption of indebtedness by the applicant to the Hua Wang Bank equivalent to Heasman Sales' indebtedness to the Hua Wang Bank as at 30 June 2004, such interest and bank expenses were not allowable deductions under s 8-1, nor under s 25-25.\" | And, at [50], \"insofar as the interest and bank expenses the applicant incurred to the Hua Wang Bank in the relevant years of income were referable to loans made to it by the Hua Wang Bank after 30 June 2004, such interest and bank expenses were not allowable deductions under s 8-1, nor under s 25-25.\" | We observe that His Honour rejected the Commissioner's contention that the loan was a \"sham\". His Honour said, at [34], that: 'The loan or loans between the Hua Wang Bank and Heasman Sales, and subsequently the applicant, is not a sham; nor is it a nullity on some \"half-way house\" principle of not being a \"genuine transaction\" or being \"non-commercial\".' | 2. Are 'Management fees' deductible pursuant to section 8-1, section 25-25, or section 40-880 of the 1997 Act? | No (subject to Issue 3). His Honour said, at [24], that: \"On the evidence, the Court is not in a position to conclude that the outgoings incurred by the applicant in the relevant years of income and described as \"management fees\" ... were allowable deductions in those years under s 8-1 of the 1997 Act. While the alternative claims in reliance on s 25-25 or s 40-880 were not pressed orally, on the evidence, the Court is in no better position to adjudicate on those claims.\" | 3. Did the Commissioner have power to amend the assessment for the year ended 30 June 2005 pursuant to section 170 of the Income Tax Assessment Act 1936 (the 1936 Act)? | No. His Honour, after referring to the Commissioner's submissions and the Commissioner's opinion as to fraud and evasion, said, at [53]: \"In the face of my conclusion ... that the loan or loans between the Hua Wang Bank and Heasman Sales, and subsequently the applicant, is not a sham and in the face of the Commissioner's concession that the applicant made the payments to associated companies of the amounts it claimed and described as \"management fees\", the whole foundation of the Commissioner's opinion ... that there was fraud or evasion falls away.\" | 4. Did the Commissioner correctly impose penalties in relation to tax shortfalls (years ended 30 June 1999 and 2000) or administrative penalties (years ended 30 June 2001 to 2003 and 2005 to 2009)? And, whether the Commissioner was correct to not remit those penalties? | The shortfall penalties were allowed in part, reduced to 50% from 75%. | The penalty for the year ended 30 June 2005 was set aside in full.", "Issues_Decided": "1. Are 'Interest and bank fees' deductible pursuant to section 8-1 or section 25-25 of the Income Tax Assessment Act 1997 (the 1997 Act)?: No (subject to Issue 3). Justice Edmonds said, at [46], that: \"... insofar as the interest and bank expenses the applicant incurred to the Hua Wang Bank in the relevant years of income were referable to any assumption of indebtedness by the applicant to the Hua Wang Bank equivalent to Heasman Sales' indebtedness to the Hua Wang Bank as at 30 June 2004, such interest and bank expenses were not allowable deductions under s 8-1, nor under s 25-25.\" And, at [50], \"insofar as the interest and bank expenses the applicant incurred to the Hua Wang Bank in the relevant years of income were referable to loans made to it by the Hua Wang Bank after 30 June 2004, such interest and bank expenses were not allowable deductions under s 8-1, nor under s 25-25.\" We observe that His Honour rejected the Commissioner's contention that the loan was a \"sham\". His Honour said, at [34], that: 'The loan or loans between the Hua Wang Bank and Heasman Sales, and subsequently the applicant, is not a sham; nor is it a nullity on some \"half-way house\" principle of not being a \"genuine transaction\" or being \"non-commercial\".' | 2. Are 'Management fees' deductible pursuant to section 8-1, section 25-25, or section 40-880 of the 1997 Act?: No (subject to Issue 3). His Honour said, at [24], that: \"On the evidence, the Court is not in a position to conclude that the outgoings incurred by the applicant in the relevant years of income and described as \"management fees\" ... were allowable deductions in those years under s 8-1 of the 1997 Act. While the alternative claims in reliance on s 25-25 or s 40-880 were not pressed orally, on the evidence, the Court is in no better position to adjudicate on those claims.\" | 3. Did the Commissioner have power to amend the assessment for the year ended 30 June 2005 pursuant to section 170 of the Income Tax Assessment Act 1936 (the 1936 Act)?: No. His Honour, after referring to the Commissioner's submissions and the Commissioner's opinion as to fraud and evasion, said, at [53]: \"In the face of my conclusion ... that the loan or loans between the Hua Wang Bank and Heasman Sales, and subsequently the applicant, is not a sham and in the face of the Commissioner's concession that the applicant made the payments to associated companies of the amounts it claimed and described as \"management fees\", the whole foundation of the Commissioner's opinion ... that there was fraud or evasion falls away.\" | 4. Did the Commissioner correctly impose penalties in relation to tax shortfalls (years ended 30 June 1999 and 2000) or administrative penalties (years ended 30 June 2001 to 2003 and 2005 to 2009)? And, whether the Commissioner was correct to not remit those penalties?: The shortfall penalties were allowed in part, reduced to 50% from 75%. The penalty for the year ended 30 June 2005 was set aside in full.", "ATO_View_of_Decision": "The Commissioner considers the Court's application of the law to the facts to be uncontroversial and respectfully correct.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "N/A | 2013 ATC 20-394 | s 8-1 | s 25-25 | s 40-880 | s 170 | s 204 | s 8AAG | s 14ZZK | Sch 1 Div 284 | s 298-20 | s 280-100 | s 280-160 | [2010] FCA 1014 | 80 ATR 449 | 96 ATC 4550 | (1988) 18 FCR 449 | 2008 ATC 20-029 | [1978] 2 NZLR 136 | (1936) 54 CLR 332 | (1969) 120 CLR 365 | 79 ATC 4279 | 84 ATC 4580 | 94 ATC 4499 | (1997) 37 ATR 321 | 2012 ATC 20-325 | [1936] HCA 40 | (1936) 55 CLR 499", "Legislative_References": "Income Tax Assessment Act 1997 s 8-1 s 25-25 s 40-880 Income Tax Assessment Act 1936 s 170 s 222A-226ZB s 227 s 204 Taxation Administration Act 1953 s 8AAG s 14ZZK Sch 1 Div 284 s 298-20 s 280-100 s 280-160", "Case_References": "Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014 80 ATR 449 Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243 33 ATR 97 96 ATC 4550 Sharment Pty Ltd & Ors v Official Trustee in Bankruptcy [1988] FCA 179 (1988) 18 FCR 449 Raftland Pty Ltd v Commissioner of Taxation [2008] HCA 21 (2008) 238 CLR 516 68 ATR 170 2008 ATC 20-029 Re Securitibank Ltd (No 2) [1978] 2 NZLR 136 Price v Parsons [1936] HCA 5 (1936) 54 CLR 332 Boydell v James [1936] NSWStRp 53 (1936) 36 SR (NSW) 620 Olsson v Dyson [1969] HCA 3 (1969) 120 CLR 365 Federal Commissioner of Taxation v Total Holdings (Aust) Pty Ltd [1979] FCA 30 (1979) 43 FLR 217 9 ATR 885 79 ATC 4279 Federal Commissioner of Taxation v E A Marr and Sons (Sales) Limited [1984] FCA 213 (1984) 2 FCR 326 15 ATR 879 84 ATC 4580 Associated Minerals Consolidated Ltd v Federal Commissioner of Taxation (1994) 53 FCR 115 29 ATR 147 94 ATC 4499 R v Meares (1997) 37 ATR 321 Gashi v Commissioner of Taxation [2012] FCA 638 2012 ATC 20-325 House v R [1936] HCA 40 (1936) 55 CLR 499", "Subject_References": "Deductions Interest Management fees Sham Penalties Fraud and evasion", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD172of2012/00001", "Unmatched_Content": "This decision has no impact for the ATO including precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Floorplay Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2012/5118", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "6 September 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2013] AATA 637", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/5118/00001", "Unmatched_Content": "Floorplay Pty Ltd and Commissioner of Taxation [2013] AATA 637 (2013) 95 ATR 736 | The adverse aspects of the decision have no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Fowler v Commissioner of Taxation", "Venue_Reference_No": "VID 795 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "3 July 2013", "Date_Published": "27 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns the date on which a director of a public company acquired rights under an employee share scheme (ESS) within the meaning of Division 13A of the Income Tax Assessment Act 1936 (ITAA 1936).", "Overview_of_Facts": "The taxpayer was appointed a non-executive director of Nexus Energy Ltd (Nexus), a public company, on 11 April 2000, and continued in that position until 16 November 2007, when he was appointed non-executive chairman of the board of Nexus. | Nexus had an employee share option plan (ESOP) which it had established in November 2003. The ESOP was governed by rules. At a meeting of the Nexus board of directors on 14 September 2006, it was resolved that, as part of their remuneration, options would be issued to the directors on the same terms and conditions as the ESOP, and that shareholder approval would be obtained prior to issue. | On 29 September 2006, Nexus announced to the Australian Securities Exchange (ASX) that 4,770,000 options were to be issued to directors, subject to shareholder approval at the next Annual General Meeting (AGM). On 30 November 2006, the AGM approved the issue of options to the directors, including the issue of 742,500 options to the taxpayer. On 8 December 2006, in accordance with the ASX Listing rules, Nexus notified the ASX that the taxpayer had acquired 742,500 options on 30 November 2006 through his nominee, Tess Aust P/L. In its annual report for the 2007 income year, Nexus stated that it had granted options to the taxpayer on 30 November 2006. | The taxpayer did not include in his return for the 2007 income year any assessable income arising under Division 13A of the ITAA 1936 in relation to the acquisition of rights under an ESS. The Commissioner issued an amended assessment to the taxpayer, including in his assessable income an amount arising under Division 13A, based on the market value of rights to acquire shares that were acquired by the taxpayer on 30 November 2006. The taxpayer was also assessed as liable to pay an administrative penalty of 25% for a failure to take reasonable care. | Before the Federal Court at first instance [2012] FCA 1040, the taxpayer accepted that he had acquired rights under an ESS for the purposes of Division 13A during the 2007 income year. However, the taxpayer argued that he acquired the rights on 14 September 2006 (when their market value was less than their value on 30 November 2006). Kenny J found that the taxpayer acquired rights for the purposes of Division 13A on 30 November 2006. Her Honour also found that there was no cogent evidence that the taxpayer had taken reasonable care to consider the income tax consequences of acquiring the Division13A rights when lodging his tax return. | Issues decided by the court | The taxpayer argued that a contract was made between him and Nexus which could lead to an acquisition of shares, and that this contract gave rise to a right to acquire shares under Division 13A which was acquired by him on 14 September 2006 when the right was 'created' in him for the purposes of paragraph 139G(c) of the ITAA 1936. The taxpayer also argued that his primary argument was consistent with the interaction between Division 13A and the capital gains tax (CGT) provisions, the latter recognising that a right is acquired under the contract which gave rise to the right. | While the Court recognised the obiter dicta in an earlier Full Court decision in FC of T v McWilliam [2012] FCAFC 105, that an unconditional right to acquire options can be a right to acquire shares under Division 13A, the Court agreed with Kenny J that the taxpayer did not obtain an unconditional right to acquire shares on 14 September 2006. On 14 September 2006, the taxpayer acquired a right to require Nexus to put the issue of options to him to its shareholders for approval. Such a conditional right is not a right to acquire shares under Division 13A. The acquisition of a right to acquire shares was conditional on shareholder approval. On the giving of shareholder approval on 30 November 2006, the taxpayer acquired unconditional rights to acquire shares under Division 13A. Besanko J, at [87], [90]-[94], [102], and Gordon J, at [152]-[161]. | The Court did not find it necessary to determine the taxpayer's arguments based on the interaction between Division 13A and the CGT provisions, as any view about how the CGT provisions operate in this case cannot prevail over the clear view that the Court came to on the operation of Division 13A. Besanko J, at [122], and Gordon J, at [155]. | The Court also found, at [127]-[130] and [162], that there was no error in the reasoning of Kenny J that the taxpayer had not discharged the onus of showing that he was not liable for an administrative penalty for a failure to take reasonable care.", "Issues_Decided": "The taxpayer argued that a contract was made between him and Nexus which could lead to an acquisition of shares, and that this contract gave rise to a right to acquire shares under Division 13A which was acquired by him on 14 September 2006 when the right was 'created' in him for the purposes of paragraph 139G(c) of the ITAA 1936. The taxpayer also argued that his primary argument was consistent with the interaction between Division 13A and the capital gains tax (CGT) provisions, the latter recognising that a right is acquired under the contract which gave rise to the right. While the Court recognised the obiter dicta in an earlier Full Court decision in FC of T v McWilliam [2012] FCAFC 105, that an unconditional right to acquire options can be a right to acquire shares under Division 13A, the Court agreed with Kenny J that the taxpayer did not obtain an unconditional right to acquire shares on 14 September 2006. On 14 September 2006, the taxpayer acquired a right to require Nexus to put the issue of options to him to its shareholders for approval. Such a conditional right is not a right to acquire shares under Division 13A. The acquisition of a right to acquire shares was conditional on shareholder approval. On the giving of shareholder approval on 30 November 2006, the taxpayer acquired unconditional rights to acquire shares under Division 13A. Besanko J, at [87], [90]-[94], [102], and Gordon J, at [152]-[161]. The Court did not find it necessary to determine the taxpayer's arguments based on the interaction between Division 13A and the CGT provisions, as any view about how the CGT provisions operate in this case cannot prevail over the clear view that the Court came to on the operation of Division 13A. Besanko J, at [122], and Gordon J, at [155]. The Court also found, at [127]-[130] and [162], that there was no error in the reasoning of Kenny J that the taxpayer had not discharged the onus of showing that he was not liable for an administrative penalty for a failure to take reasonable care.", "ATO_View_of_Decision": "The taxpayer has not sought special leave to appeal to the High Court from the decision of the Full Court. | The ATO respectfully agrees with the earlier decision of the Full Court in McWilliam that an unconditional contractual right to acquire share options could be a right to acquire shares under Division 13A. However, the ATO notes the views of the Full Court in this case that the contractual right created in the taxpayer on 14 September 2006 was not an unconditional right to acquire shares. The Court found that the clear agreement between the taxpayer and Nexus was that the taxpayer would not acquire an unconditional right to acquire shares until shareholder approval for the issue of the share options was obtained on 30 November 2006. Once shareholder approval was obtained, the taxpayer could compel Nexus to issue the share options to him. | The ATO notes that whether a contractual right created before 1 July 2009 in relation to the acquisition of shares, amounted to the acquisition of an unconditional right to acquire shares under Division 13A, is likely to depend on the construction of the terms of the relevant contract and of any legislation that may have governed the formation and operation of the contract.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "None | [2013] FCAFC 69 | 2013 ATC 20-398 | s 9 | s 170 | s 176 | s 208 | s 209 | s 251A | s 26(e) | s 139 | s 15-2 | s 109-5 | s 109-10 | s 130-80 | s 130-85 | s 974-75 | s 974-130 | s 995-1 | Schedule 1 s 284-15 | Schedule 1 s 284-75 | Schedule 1 s 284-90 | The Act | [1961] AC 352 | [2012] HCA 17 | (1967) 116 CLR 344 | (1982) 149 CLR 337 | (1937) 57 CLR 127 | 74 ATC 4192 | (2004) 57 ATR 556 | 2000 ATC 4378 | (1989) 89 ATC 4616 | [2010] NSWSC 375 | (1974) 132 CLR 57 | (1964) 114 CLR 656 | (1994) 12 ACSR 658 | (1982) 149 CLR 537 | [1915] HCA 80 | (1915) 20 CLR 663 | 2010 ATC 20-162 | 2010 ATC 20-210 | (1990) 93 ALR 657", "Legislative_References": "Corporations Act 2001 s 9 s 170 s 176 s 208 s 209 s 251A Income Tax Assessment Act 1936 Division 13A s 26(e) s 26AAC s 139 s 139B s 139C s 139CC s 139CD s 139D s 139DD s 139DE s 139E s 139F s 139FC s 139FD s 139FE s 139FF s 139G s 139GE s 160U s 160ZYJB s 160ZYJC Income Tax Assessment Act 1936-1971 s 26 Income Tax Assessment Act 1997 s 15-2 s 109-5 s 109-10 s 130-80 s 130-85 s 974-75 s 974-130 s 995-1 Taxation Administration Act 1953 (Cth) Schedule 1 s 284-15 Schedule 1 s 284-75 Schedule 1 s 284-90 Taxation Laws Amendment Act (No 2) 1995 The Act", "Case_References": "Abbott v Philbin (1959) 39 TC 82 [1959] 1 WLR 667 [1961] AC 352 (1960) 39 ATC 221 ASIC v Hellicar [2012] HCA 17 (2012) 286 ALR 501 Brown v Heffer (1967) 116 CLR 344 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 C of T (Queensland) v Camphin (1937) 57 CLR 127 Donaldson v Federal Commissioner of Taxation [1974] 1 NSWLR 627 (1974) 4 ATR 530 74 ATC 4192 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55 (2004) 218 CLR 471 (2004) 57 ATR 556 Federal Commissioner of Taxation v McWilliam [2012] FCAFC 105 (2012) 204 FCR 478 Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35 (2000) 201 CLR 520 (2000) 44 ATR 370 2000 ATC 4378 Fraunschiel v Federal Commissioner of Taxation (1989) 20 ATR 955 (1989) 89 ATC 4616 Hill End Gold Ltd v First Tiffany Resource Corporation [2010] NSWSC 375 Laybutt v Amoco Australia Pty Limited [1974] HCA 49 (1974) 132 CLR 57 McWilliam v McWilliams Wines Pty Limited and Others (1964) 114 CLR 656 Mott and Another v Mt Edon Goldmines (Aust) Ltd and Others (1994) 12 ACSR 658 Perri v Coolangatta Investments Pty Ltd [1982] HCA 29 (1982) 149 CLR 537 Roach v Bickle [1915] HCA 80 (1915) 20 CLR 663 Tagget v Federal Commissioner of Taxation [2010] FCA 25 2010 ATC 20-162 (2010) 78 ATR 126 Tagget v Federal Commissioner of Taxation [2010] FCAFC 109 (2010) 188 FCR 128 2010 ATC 20-210 (2010) 80 ATR 399 Trade Practices Commission v Arnotts Ltd (1990) 93 ALR 657", "Subject_References": "Employee share scheme Rights to acquire shares Director of public company Administrative penalty Failure to take reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID795of2012/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements"}
{"Case_Name": "Fox and Commissioner of Taxation", "Venue_Reference_No": "2011/4866; 2012/2838", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "8 July 2013", "Date_Published": "16 October 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011-4866;2012-2838/00001", "Unmatched_Content": "Fox and Commissioner of Taxation [2013] AATA 471 (2013) 94 ATR 953 | The adverse aspects of the decision concern administrative penalties and have no wider ramifications. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Gashi v Commissioner of Taxation", "Venue_Reference_No": "VID 490 of 2012, VID 491 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "14 March 2013", "Date_Published": "13 September 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the taxpayers had discharged the onus of proving that default income tax assessments issued to them based on the asset betterment methodology were excessive.", "Overview_of_Facts": "Mr Gashi did not lodge income tax returns for the 2001, 2002 and 2006 income years, but lodged returns for the 2000, 2003, 2004 and 2005 years, declaring only modest amounts of taxable income. Mrs Gashi did not lodge returns for any of those years. An audit into the income tax affairs of both taxpayers revealed ownership of substantial real estate investments and other assets and significant transfers of funds by the taxpayers to associates overseas during those income years. Following the audit, the Commissioner issued assessments to the taxpayers in March 2010 under section 167 of the Income Tax Assessment Act 1936 (ITAA 1936), utilising the 'asset betterment' method of estimating the combined incomes of the taxpayers, and then dividing that income between them equally on the basis that they were in partnership. | In June 2010, Mrs Gashi lodged returns for the 2001 to 2006 income years, declaring amounts of taxable income well below those assessed to her in March 2010. Those returns caused amended assessments to be issued to her reflecting her declared income. Further amendments were issued in August 2010 that restored the amounts assessed on the original assessments. A similar process occurred when Mr Gashi lodged a return for the 2002 income year. | On appeal to the Federal Court, the taxpayers argued that the multiple assessments issued to Mrs Gashi, and to Mr Gashi for the 2002 income year, were invalid. They also challenged the Commissioner's reliance on the asset betterment approach as a basis for inferring the existence of partnership income. | Jessup J [2012] FCA 638 rejected the taxpayers' argument that the assessments were invalid, as there was only ever one assessment extant for each taxpayer for each year. His Honour found that Mr Gashi did not satisfy the burden of proving that the assessments issued to him were excessive, as he primarily sought to attack the Commissioner's asset betterment calculations, rather than positively establishing what was his actual table income for the relevant years. However, his Honour accepted both Mrs Gashi's evidence that she was not in partnership with her husband and her accountant's evidence of the amounts of her actual taxable income. His Honour also found that the Commissioner did not establish that Mrs Gashi had derived any income in excess of that established by her accountant. | The Full Federal Court (Bennett, Edmonds and Gordon JJ) dismissed Mr Gashi's appeal, and, in Mrs Gashi's case, allowed the Commissioner's appeal, from the decision of Jessup J. On 16 August 2013, French CJ and Gageler J refused special leave to the taxpayers to appeal to the High Court from the decision of the Full Court. Their Honours noted that no ground warranting a grant of special leave was disclosed in either case. | Issues decided by the court | The Full Court found that the Federal Court does not have jurisdiction in tax appeal proceedings under Part IVC of the Taxation Administration Act 1953 to determine if assessments are invalid, because of jurisdictional error of the type considered in FC of T v Futuris Corporation Ltd (208) 237 CLR 146, as the subject matter of such an appeal is a valid assessment (paragraphs 41-43). The Court then found that, in any event, each assessment or amendment validly imposed a fresh tax liability or adjusted an existing liability (paragraph 44). | The Court rejected arguments that Jessup J had found that the movement in value of Mr Gashi's assets was ordinary income and should have found that the movement was not ordinary income (paragraph 49). Those arguments misconceived the operation of section 167. Unlike section 166, where the Commissioner is required to make an assessment of the amount of taxable income (being assessable income less allowable deductions), section 167 empowers the Commissioner to make an assessment of the amount on which in his judgement income tax ought to be levied. This does not require the Commissioner to adopt a view of the facts which discloses a taxpayer's taxable income (paragraphs 53-56). | The Court agreed with Jessup J that Mr Gashi had not discharged the onus of proving that his assessments were excessive. It is insufficient for a taxpayer simply to show error on the Commissioner's part under section 167. A taxpayer must positively prove his actual taxable income, and must show that unexplained accumulated wealth was from non-income sources. This was what Mr Gashi did not show (paragraphs 62-67). | However, the Court disagreed with Jessup J that the evidence of Mrs Gashi's accountant was sufficient to discharge the onus of proving that her assessments were excessive. Neither Mrs Gashi, nor her accountant, identified her sources of income, nor provided an explanation of the sources for the unexplained increase in her assets, nor identified whether any such source was taxable (paragraphs 75-79).", "Issues_Decided": "The Full Court found that the Federal Court does not have jurisdiction in tax appeal proceedings under Part IVC of the Taxation Administration Act 1953 to determine if assessments are invalid, because of jurisdictional error of the type considered in FC of T v Futuris Corporation Ltd (208) 237 CLR 146, as the subject matter of such an appeal is a valid assessment (paragraphs 41-43). The Court then found that, in any event, each assessment or amendment validly imposed a fresh tax liability or adjusted an existing liability (paragraph 44). The Court rejected arguments that Jessup J had found that the movement in value of Mr Gashi's assets was ordinary income and should have found that the movement was not ordinary income (paragraph 49). Those arguments misconceived the operation of section 167. Unlike section 166, where the Commissioner is required to make an assessment of the amount of taxable income (being assessable income less allowable deductions), section 167 empowers the Commissioner to make an assessment of the amount on which in his judgement income tax ought to be levied. This does not require the Commissioner to adopt a view of the facts which discloses a taxpayer's taxable income (paragraphs 53-56). The Court agreed with Jessup J that Mr Gashi had not discharged the onus of proving that his assessments were excessive. It is insufficient for a taxpayer simply to show error on the Commissioner's part under section 167. A taxpayer must positively prove his actual taxable income, and must show that unexplained accumulated wealth was from non-income sources. This was what Mr Gashi did not show (paragraphs 62-67). However, the Court disagreed with Jessup J that the evidence of Mrs Gashi's accountant was sufficient to discharge the onus of proving that her assessments were excessive. Neither Mrs Gashi, nor her accountant, identified her sources of income, nor provided an explanation of the sources for the unexplained increase in her assets, nor identified whether any such source was taxable (paragraphs 75-79).", "ATO_View_of_Decision": "The ATO notes that the decision of the Full Court is consistent with the views of the Commissioner on the inability to challenge the validity of assessments in Part IVC tax appeals, on the operation of section 167 of the ITAA 1936, and on what is required by a taxpayer in a Part IVC tax appeal to discharge the onus of showing that an assessment issued under section 167 is excessive.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "None | Full Federal Court: | 2013 ATC 20-377 | High Court (special leave application refused on 16 August 2013): | s 6(1) | s 166 | s 167 | s 170(1) | s 170(1A) | s 175 | s 175A(1) | s 177 | s 4-15 | s 6-5(1) | Part IVC | s 14ZW | s 14ZY | s 14ZZ | s 14ZZO | Schedule 1 s 284-75(3) | Schedule 1 s 298-30 | 97 ATC 4040 | 95 ATC 4067 | 2008 ATC 20-039 | (1928) 42 CLR 39 | 97 ATC 4001 | 81 ATC 4280 | 75 ATC 4257 | (1952) 86 CLR 183 | 2008 ATC 20-037 | 92 ATC 4373 | 2011 ATC 20-288 | 96 ATC 4393 | (1936) 56 CLR 63", "Legislative_References": "Income Tax Assessment Act 1936 s 6(1) s 166 s 167 s 170(1) s 170(1A) s 175 s 175A(1) s 177 Income Tax Assessment Act 1997 s 4-15 s 6-5(1) Taxation Administration Act 1953 Part IVC s 14ZW s 14ZY s 14ZZ s 14ZZO Schedule 1 s 284-75(3) Schedule 1 s 298-30", "Case_References": "Darrell Lea Chocolate Shops Pty Ltd v FC of T (1996) 72 FCR 175 34 ATR 491 97 ATC 4040 DC of T v Richard Walter Pty Ltd [1995] HCA 23 (1995) 183 CLR 168 29 ATR 644 95 ATC 4067 FC of T v Futuris Corporation Ltd [2008] HCA 32 (2008) 237 CLR 146 69 ATR 41 2008 ATC 20-039 FC of T v Hoffnung & Co Ltd [1928] HCA 49 (1928) 42 CLR 39 FC of T v Stokes (1996) 72 FCR 160 34 ATR 478 97 ATC 4001 FJ Bloemen Pty Ltd v FC of T [1981] HCA 27 (1981) 147 CLR 360 11 ATR 914 81 ATC 4280 Gauci v FC of T [1975] HCA 54 (1975) 135 CLR 81 5 ATR 672 75 ATC 4257 George v FC of T [1952] HCA 21 (1952) 86 CLR 183 Kennedy v AAT [2008] FCAFC 124 (2008) 168 FCR 566 2008 ATC 20-037 73 ATR 276 Ma v FC of T (1992) 37 FCR 225 23 ATR 485 92 ATC 4373 Mount Pritchard & District Community Club Ltd v FC of T [2011] FCAFC 129 (2011) 196 FCR 549 2011 ATC 20-288 85 ATR 496 Stokes v FC of T (1996) 136 ALR 632 32 ATR 500 96 ATC 4393 Trautwein v FC of T (1936) 56 CLR 63 [1936] HCA 77", "Subject_References": "Default assessment Onus of proof - excessiveness Asset betterment Validity of assessments Part IVC appeal", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID490of2012;VID491of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Gleeson v Commissioner of Taxation", "Venue_Reference_No": "2013/0763", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 December 2013", "Date_Published": "26 November 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether an employee truck driver was entitled to claim deductions as 'work related expenses' for certain expenses including food and drink he consumed at roadhouses and service stations.", "Overview_of_Facts": "During the income year ending 30 June 2011, Mr Gleeson worked as an employee truck driver for three different companies, all of which subsequently went into liquidation. During the period, these employers paid Mr Gleeson an 'allowance' which was calculated on a cents per kilometre travelled rate. | Mr Gleeson claimed deductions for the cost of food and drink consumed by him at roadhouses and service stations along the interstate routes driven by him as a truck driver. He also claimed deductions for other expenses, such as for his mobile phone. | Mr Gleeson did not keep any receipts for his purchases of food and drink. He was relying on the relief from the substantiation provisions in the income tax law on the basis that he was in receipt of a travel allowance. The amounts he claimed for food and drink were based on the Commissioner's reasonable daily rates set out in the Taxation Ruling applicable to that year TR 2010/19. | At audit, the Commissioner determined that the allowance received by Mr Gleeson was not a 'travel allowance' that relieved him from substantiating his expenses and, as he had no documentation for those expenses, the Commissioner denied Mr Gleeson's deductions. The Commissioner was also not satisfied that Mr Gleeson's employers required him to sleep away from home for as many nights as Mr Gleeson claimed. | Issues decided by the AAT | The Tribunal found that as Mr Gleeson incurred the expenses in relation to food and drink while on trips away from home, it followed that he was entitled to claim a deduction for those expenses. | The Tribunal also concluded that Mr Gleeson received a travel allowance. It was noted that Mr Gleeson was paid for every kilometre that he drove 'because he was virtually always staying away from home'. The Tribunal said, however, that 'regardless of what the allowance was named or how it was calculated, one has to look at the purpose of the payment and the circumstances in which it was paid'. | In this respect, the Tribunal noted that the only evidence of what the allowance was paid for, and which was uncontested, were letters from the payroll manager of the three employers which stated the allowance was paid to Mr Gleeson 'solely for travel allowance'. The Tribunal also noted that the letters vouched for Mr Gleeson working and staying away from home for a significant period throughout the relevant year (about 11 out of 14 nights). | TheTribunal concluded that as it had found that the allowance was a 'travel allowance', Mr Gleeson was entitled to rely on the exception from the substantiation provisions in section 900-50 of the Income Tax Assessment Act 1997 (ITAA 1997) for the relevant year. | The Tribunal noted in the alternative that section 900-200 of the ITAA 1997 would apply in any event as Mr Gleeson had a reasonable expectation that he would not need to substantiate the expenses incurred. This included advice from his tax agent, Mr Gleeson's general understanding of the Commissioner's relevant taxation rulings, and that the payroll manager had told him he was paid 'travel allowances'. | The Tribunal accepted that Mr Gleeson's claim reflected what he was required to pay under the plan he had with his mobile phone carrier. It also accepted that his personal calls were very limited and saw 'no reason to apportion any of his claim for any personal use as it would have been miniscule'.", "Issues_Decided": "The Tribunal found that as Mr Gleeson incurred the expenses in relation to food and drink while on trips away from home, it followed that he was entitled to claim a deduction for those expenses. The Tribunal also concluded that Mr Gleeson received a travel allowance. It was noted that Mr Gleeson was paid for every kilometre that he drove 'because he was virtually always staying away from home'. The Tribunal said, however, that 'regardless of what the allowance was named or how it was calculated, one has to look at the purpose of the payment and the circumstances in which it was paid'. In this respect, the Tribunal noted that the only evidence of what the allowance was paid for, and which was uncontested, were letters from the payroll manager of the three employers which stated the allowance was paid to Mr Gleeson 'solely for travel allowance'. The Tribunal also noted that the letters vouched for Mr Gleeson working and staying away from home for a significant period throughout the relevant year (about 11 out of 14 nights). TheTribunal concluded that as it had found that the allowance was a 'travel allowance', Mr Gleeson was entitled to rely on the exception from the substantiation provisions in section 900-50 of the Income Tax Assessment Act 1997 (ITAA 1997) for the relevant year. The Tribunal noted in the alternative that section 900-200 of the ITAA 1997 would apply in any event as Mr Gleeson had a reasonable expectation that he would not need to substantiate the expenses incurred. This included advice from his tax agent, Mr Gleeson's general understanding of the Commissioner's relevant taxation rulings, and that the payroll manager had told him he was paid 'travel allowances'. The Tribunal accepted that Mr Gleeson's claim reflected what he was required to pay under the plan he had with his mobile phone carrier. It also accepted that his personal calls were very limited and saw 'no reason to apportion any of his claim for any personal use as it would have been miniscule'.", "ATO_View_of_Decision": "The decision turns on its facts and the Tribunal was entitled to make the findings of fact it did based on the evidence before it. The decision does not present any new principle of law or impact on any of the Commissioner's current published views.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etcetera) | The Commissioner considers that the decision is consistent with the views currently contained in his advice and guidance products dealing with work-related travel expenses and record keeping, including substantiation and the substantiation exception. | The decision supports the Commissioner's long standing view that: • To be deductible, there must be a necessary connection between the expense and the taxpayer's income earning activities. A deduction will be denied if the expense is for an item of a private or domestic nature. The Tribunal agreed that in the absence of a requirement to sleep away from home, a truck driver's expenditure on meals must necessarily be regarded as private in nature (paragraphs 46 to 50). • The allowance must have been received to cover the travel expense and the employee must have also incurred the relevant expense before a deduction will be allowed (paragraphs 46 to 59). • To fall within the exception from substantiation within section 900-50 of the ITAA 1997, the allowance paid must be a 'travel allowance' as defined in the tax law and as explained in TR 2004/6 (paragraphs 51 to 59). | • To be deductible, there must be a necessary connection between the expense and the taxpayer's income earning activities. A deduction will be denied if the expense is for an item of a private or domestic nature. The Tribunal agreed that in the absence of a requirement to sleep away from home, a truck driver's expenditure on meals must necessarily be regarded as private in nature (paragraphs 46 to 50). • The allowance must have been received to cover the travel expense and the employee must have also incurred the relevant expense before a deduction will be allowed (paragraphs 46 to 59). • To fall within the exception from substantiation within section 900-50 of the ITAA 1997, the allowance paid must be a 'travel allowance' as defined in the tax law and as explained in TR 2004/6 (paragraphs 51 to 59). | As noted in our Compliance Program, claims for work-related expenses continue to be an area of focus for our compliance activity. Incorrect claims we have seen range from basic errors, poor record keeping, incorrect advice, and in some instances, deliberately false claims. In relation to employee truck drivers, some areas we have identified where we consider particular care is needed include: | 1. Amounts claimed as travel expenses must have actually been incurred by the employee - compliance activity indicates that some individuals are claiming the Commissioner's reasonable allowance amounts without considering what expenses they actually incurred. | This decision is not authority for the view that individuals are entitled to claim the Commissioner's reasonable amount without considering what expenses were actually incurred. Senior Member Lazanas allowed Mr Gleeson's claims for his meals because she found that he spent 276 days away from his ordinary residence and because she accepted that he had incurred the amounts he claimed to have expended (paragraphs 44, 45 and 50). | Individuals should be mindful that they may be asked for information to support that an amount was expended even if they do receive a travel allowance, for example, where they stayed, and where and what they ate. | 2. The employee must be able to show how he or she calculated the amount claimed - individuals need to be able to show how they calculated the amount claimed. In this case, Mr Gleeson had not kept his log book sheets or other records and his employers had gone into liquidation making it difficult for him to reconstruct and verify the number of nights he spent away from home. From what records could be obtained from his employers, Mr Gleeson's tax agent attempted to reconstruct a worksheet showing the trips that Mr Gleeson would have undertaken in the year. The Tribunal noted the worksheet was incomplete and inaccurate and as a result, it concluded that the worksheet could not be relied on to count the trips that were said to have occurred. Instead, the Tribunal relied on Mr Gleeson's oral testimony and statements from the payroll manager as evidence of the number of nights Mr Gleeson spent away from home. | Care should be taken using secondary documents to calculate nights away from home. This is because while such documents may reflect the number of trips taken, distance travelled, or how often an allowance was paid, they may not show other relevant information such as the number of nights the person was required to spend away from home, or the expenses they incurred as a result. | Implications for Law Administration Practice Statements | N/A", "Related_Documents": "n/a | N/A | 2013 ATC 10-345 | TR 95/18 - Income tax: employee truck drivers-allowances, reimbursements and work-related deductions | TR 2004/6 - Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses | TD 2010/19 - Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2010-11 year? | 8-1 | 900-30 | 900-50 | 900-200 | 91 ATC 4396 | 2011 ATC 10-208 | 2001 ATC 2272", "Legislative_References": "Income Tax Assessment Act 1997 8-1 900-30 900-50 900-200", "Case_References": "Commissioner of Taxation v Cooper (1991) 29 FCR 177 (1991) 21 ATR 1616 91 ATC 4396 Re Fardell and Commissioner of Taxation (2011) 85 ATR 812 2011 ATC 10-208 [2011] AATA 725 Re McIntosh and Federal Commissioner of Taxation (2001) 47 ATR 1242 2001 ATC 2272 [2001] AATA 702 Roads and Traffic Authority of New South Wales v Commissioner of Taxation (1993) 43 FCR 223 (1993) 26 ATR 76 93 ATC 458", "Subject_References": "Taxation and Revenue income tax deductions employee truck driver work-related expenses relief from substantiation decision set aside and substituted", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/0763/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Greenhatch v Commissioner of Taxation of the Commonwealth of Australia", "Venue_Reference_No": "High Court: M65 of 2012; Full Federal Court: VID 843 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "", "Date_Published": "19 July 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to the taxpayer's unsuccessful application for leave to appeal to the High Court in respect of the tax character of the share of the net income of a trust included in the taxpayer's assessable income.", "Overview_of_Facts": "In the 2008 income year, the Elke Trust ('Trust') made a capital gain of $450,635, half of which was included in the income of the Trust (which totalled $600,260). The balance of the capital gain (the discount component) formed part of trust capital. | The taxpayer was presently entitled to 50% of the entire capital gain (both income and capital component). This entitlement therefore included an entitlement to $112,658.75 of the income of the Trust - an 18.7683% share. Accordingly, the taxpayer was assessed on an 18.7683% share of the tax net income of the Trust. | If the share of the net (taxable) income of the Trust assessed to the taxpayer was entirely attributable to a capital gain, less than 10% of the taxpayer's assessable income in the 2008 income year would have been from salary and wages and he would have been entitled to a deduction for a $98,000 personal contribution made to a complying superannuation fund. However, the Commissioner disallowed this deduction on the basis that only about18.77% of the capital gain was included in the share of the Trust's net (taxable) income assessed to the taxpayer and that therefore more than 10% of his assessable income was from salary and wages. | The taxpayer's objection to the income tax assessment for the 2008 income year was disallowed in full. | The Administrative Appeals Tribunal (2011) ATC 10-191 allowed the taxpayer's objection and set aside the Commissioner's objection decision. | The Full Federal Court unanimously allowed the Commissioner's subsequent appeal and set aside the Tribunal's decision. | The taxpayer applied for special leave to the High Court, which was refused with costs on the basis that there were insufficient reasons to doubt the correctness of the Full Court's decision and that the matter raised no question of public importance. | Issues decided by the court | The substantive issue in this case concerned whether the taxpayer satisfied the 'maximum earnings as employee' condition in section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) (the '10% test') such that he was entitled to claim a deduction of $98,000 under section 290-150 of the ITAA 1997 for a personal contribution made to his self managed superannuation fund during the 2008 income year. | However, whether this condition was met turned on how much of the taxpayer's share of the net income of the Trust for the 2008 income year assessed to him under section 97 of the Income Tax Assessment Act 1936 (ITAA 1936) was attributable to the trust's capital gain within the meaning of section 115-215 of the ITAA 1997 (as it then applied). In particular, whether the condition was met turned on whether the part so attributable was to be calculated by reference to: • the character of the amount of income to which the taxpayer had been made presently entitled per the trustee resolution for trust purposes - the taxpayer's view; or • the percentage (18.7683%) used to determine the taxpayer's share of the net income included in his assessable income under section 97 of the ITAA 1936 (i.e. the share of the distributable income of the trust to which the taxpayer was presently entitled expressed as a percentage of the total distributable income) - the Commissioner's view. | • the character of the amount of income to which the taxpayer had been made presently entitled per the trustee resolution for trust purposes - the taxpayer's view; or • the percentage (18.7683%) used to determine the taxpayer's share of the net income included in his assessable income under section 97 of the ITAA 1936 (i.e. the share of the distributable income of the trust to which the taxpayer was presently entitled expressed as a percentage of the total distributable income) - the Commissioner's view. | That is, while the case ultimately concerned the tax recognition of a contribution to a superannuation fund, whether a deduction for the contribution was allowable raised squarely the question of the effect for tax purposes of the streaming pursuant to the deed of amounts through a trust by reference to character (specifically, the streaming of capital gains). | Having regard to the fact that the only income of the Trust to which the taxpayer had been made presently entitled by the trustee consisted solely of half of that part of the Trust's capital gain included in Trust income, the Tribunal held that the whole of the share of the net income of the Trust on which the taxpayer was assessed was attributable to the trust capital gain. The Tribunal concluded that the 10% test was passed and the taxpayer was therefore entitled to a deduction for his superannuation contribution. | The Full Court set aside the decision of the Tribunal. The core of the Full Court's reasoning appears in paragraph 36 of the joint judgment. In that paragraph, the Court observed that once the proportionate approach to share in section 97 of the ITAA 1936 is applied to determine the amount of the net income of the trust assessed to a beneficiary (being the approach to 'share' authoritatively settled by the High Court in Bamford ) it is difficult to use other than a proportional approach to determine the part of that share attributable to a capital gain of the trust for the purposes of Subdivision 115-C of the ITAA 1997. The Court observed: There is no warrant in the deeming provisions of s 115-215(e) or in their language for going behind the proportionate share. Consistently with the approach of Sundberg J in Zeta Force ... once the trust law distribution gave the share, it should not be used to determine, in a causative sense, the components of the s 97(1 )( a) assessable income .", "Issues_Decided": "The substantive issue in this case concerned whether the taxpayer satisfied the 'maximum earnings as employee' condition in section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) (the '10% test') such that he was entitled to claim a deduction of $98,000 under section 290-150 of the ITAA 1997 for a personal contribution made to his self managed superannuation fund during the 2008 income year. However, whether this condition was met turned on how much of the taxpayer's share of the net income of the Trust for the 2008 income year assessed to him under section 97 of the Income Tax Assessment Act 1936 (ITAA 1936) was attributable to the trust's capital gain within the meaning of section 115-215 of the ITAA 1997 (as it then applied). In particular, whether the condition was met turned on whether the part so attributable was to be calculated by reference to: • the character of the amount of income to which the taxpayer had been made presently entitled per the trustee resolution for trust purposes - the taxpayer's view; or • the percentage (18.7683%) used to determine the taxpayer's share of the net income included in his assessable income under section 97 of the ITAA 1936 (i.e. the share of the distributable income of the trust to which the taxpayer was presently entitled expressed as a percentage of the total distributable income) - the Commissioner's view. • the character of the amount of income to which the taxpayer had been made presently entitled per the trustee resolution for trust purposes - the taxpayer's view; or • the percentage (18.7683%) used to determine the taxpayer's share of the net income included in his assessable income under section 97 of the ITAA 1936 (i.e. the share of the distributable income of the trust to which the taxpayer was presently entitled expressed as a percentage of the total distributable income) - the Commissioner's view. That is, while the case ultimately concerned the tax recognition of a contribution to a superannuation fund, whether a deduction for the contribution was allowable raised squarely the question of the effect for tax purposes of the streaming pursuant to the deed of amounts through a trust by reference to character (specifically, the streaming of capital gains). Having regard to the fact that the only income of the Trust to which the taxpayer had been made presently entitled by the trustee consisted solely of half of that part of the Trust's capital gain included in Trust income, the Tribunal held that the whole of the share of the net income of the Trust on which the taxpayer was assessed was attributable to the trust capital gain. The Tribunal concluded that the 10% test was passed and the taxpayer was therefore entitled to a deduction for his superannuation contribution. The Full Court set aside the decision of the Tribunal. The core of the Full Court's reasoning appears in paragraph 36 of the joint judgment. In that paragraph, the Court observed that once the proportionate approach to share in section 97 of the ITAA 1936 is applied to determine the amount of the net income of the trust assessed to a beneficiary (being the approach to 'share' authoritatively settled by the High Court in Bamford ) it is difficult to use other than a proportional approach to determine the part of that share attributable to a capital gain of the trust for the purposes of Subdivision 115-C of the ITAA 1997. The Court observed: There is no warrant in the deeming provisions of s 115-215(e) or in their language for going behind the proportionate share. Consistently with the approach of Sundberg J in Zeta Force ... once the trust law distribution gave the share, it should not be used to determine, in a causative sense, the components of the s 97(1 )( a) assessable income .", "ATO_View_of_Decision": "As was identified in the Decision Impact Statement published by the Commissioner on 2 June 2010, in relation to the decision of the High Court in Commissioner of Taxation v Bamford , among the issues that remained uncertain post- Bamford included the question of how statutory flow-through provisions interacted with the general trust taxing provisions in Division 6 of Part III of the ITAA 1936, given that a beneficiary's liability to be assessed on the tax net income of the trust under Division 6 may not correspond with the beneficiary's actual entitlement to income of the trust. | Greenhatch answers that question in relation to one of the parts of the Tax Acts providing for a statutory flow-through of character mechanism, namely Subdivision 115-C of the ITAA 1997 (concerning capital gains made by a trust) as it applied in relation to the 2008 income year. | Subdivision 115-C of the ITAA 1997 was significantly amended in 2011 to facilitate the tax effective streaming of capital gains made by trusts. The amendments made major changes to the basic structure and operation of the Subdivision. As such, the conclusion reached by the Full Federal Court as to the proper construction of Subdivision 115-C of the ITAA 1997 is of significance only in respect of the correct operation of the Subdivision prior to the 2011 amendments taking effect. | More generally however, the Commissioner views the approach of the Full Federal Court as consistent with the proposition that absent any specific rules elsewhere in the Tax Acts, the proportionate share of the net income of a trust that is included in the assessable income of a beneficiary under section 97 of the ITAA 1936 has no character beyond that inherent in the share of the net income as being a proportionate share of all of the net income. In particular, absent specific statutory rules that lead to a different result (such as can now be found in Subdivision 115-C of the ITAA 1997), the character for trust law purposes of the income to which the beneficiary was made presently entitled does not inform the character of the share of the net income assessed to the beneficiary under section 97 of the ITAA 1936 for tax law purposes. Put differently, streaming of amounts for trust law purposes by reference to the character of those amounts will only be effective for tax law purposes where that result is facilitated by specific statutory rules. | In addition to capital gains forming part of the income of a trust, questions as to the tax effectiveness of streaming of amounts for trust law purposes by reference to character arise from time to time in other contexts, for example, in relation to: - franked dividend income - foreign sourced income streamed to non-residents - income streamed to non-residents that is subject to non-resident withholding, and - foreign source income on which foreign tax has been paid. | - franked dividend income - foreign sourced income streamed to non-residents - income streamed to non-residents that is subject to non-resident withholding, and - foreign source income on which foreign tax has been paid. | As with Subdivision 115-C of the ITAA 1997, Subdivision 207-B of the ITAA 1997 (concerning franked distributions and trusts) was likewise significantly amended in 2011 with the express intent of facilitating the tax effective streaming of franked distributions through trusts. | The Commissioner is intending to provide guidance in the form of public rulings as to his views on the tax effectiveness of streaming of relevant income to non-residents (specifically foreign income, and dividend, interest and royalty income attracting the rules in Division 11A of Part III of the ITAA 1936 and Subdivision 12-F of Schedule 1 to the Taxation Administration Act 1953 ), and the streaming of income on which foreign tax has been paid. | The Commissioner invites views as to other areas of the tax law on which guidance might usefully be given including the relative priority of the need for guidance with respect to those other areas.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "Not Applicable | High Court: | Federal Court: | 2012 ATC 20-322 | s 95 | s 97 | s 6-10 | s 102-5 | s 115-100 | s 115-200 | s 115-215 | s 207-5 | s 207-35 | s 290-150 | s 290-155 | s 290-160 | s 290-165 | s 290-170 | 2010 ATC 20-170 | 98 ATC 4681 | [1998] HCA 28 | (1998) 194 CLR 355 | ATO Interpretative Decision ATO ID 2009/112", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) s 95 s 97 Income Tax Assessment Act 1997 (Cth) s 6-10 s 102-5 s 115-100 s 115-200 s 115-215 s 207-5 s 207-35 s 290-150 s 290-155 s 290-160 s 290-165 s 290-170", "Case_References": "Federal Commissioner of Taxation v Bamford [2010] HCA 10 (2010) 240 CLR 481 75 ATR 1 2010 ATC 20-170 Zeta Force Pty Ltd v Federal Commissioner of Taxation (1998) 84 FCR 70 39 ATR 277 98 ATC 4681 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28 (1998) 194 CLR 355", "Subject_References": "Income tax Personal superannuation contributions Personal superannuation contributions - deductions rebates & offsets Trust income Present entitlement Trust beneficiaries Trust distributions Trusts", "Other_References": "ATO Interpretative Decision ATO ID 2009/112", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M65of2012;VID843of2011/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision including any precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Guissouma and Commissioner of Taxation", "Venue_Reference_No": "2012/4814", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "9 December 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/4814/00001", "Unmatched_Content": "Guissouma and Commissioner of Taxation [2013] AATA 875 (2013) 96 ATR 242 | The adverse aspects of the decision have no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Gutteridge and Commissioner of Taxation", "Venue_Reference_No": "2012/2724 and 2725", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "24 December 2013", "Date_Published": "19 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a sole director and shareholder of a trustee company controlled the trust, so that another entity was a connected entity of the trust for the purposes of the maximum net asset value test.", "Overview_of_Facts": "The taxpayers, Mr and Mrs Gutteridge, were beneficiaries of a discretionary trust which carried on a business of sourcing and fitting out properties for conducting childcare businesses. The Trust made capital gains from the sale of its business assets. The taxpayers, as beneficiaries of the Trust, were subsequently taxed on those capital gains without the benefit of the CGT small business concessions contained in Division 152 of the Income Tax Assessment Act 1997 (\"ITAA 1997\"). | The Commissioner denied the concessions on the basis that the Trust did not satisfy the maximum net asset value (\"MNAV\") test in section 152-15 of the ITAA 1997. In applying that test, he had formed the view that the trust was controlled by the sole director and shareholder of the Trustee company (the taxpayers' daughter). On that basis, another entity that the daughter controlled was said to be 'connected with' the Trust, and its assets taken into account in applying the MNAV test. | The taxpayers argued that the Trust was not controlled by their daughter, and that the other entity was therefore not connected with the Trust. Despite the fact that the taxpayers' daughter was the sole shareholder and director of the Trustee company, the taxpayers argued that the Trust was controlled solely by Mr Gutteridge. | Issues decided by the AAT | The primary issue was whether the taxpayers' daughter controlled the Trust. The control test is set out in subsection 328-125(3) of the ITAA 1997 and is determined (in this instance) by whether the Trustee 'could reasonably be expected to act' in accordance with the directions or wishes of the daughter. | The AAT considered the control test has parallels with the definition of 'director' in the Corporations Act 2001. More specifically, there is a reasonable expectation that a person will act in a certain way if the person is 'accustomed to act' in that way. | The AAT held that the test was not simply who held the formal office of director of the Trustee company, nor what the Trust deed stated, but rather called for an examination of the actual circumstances of a case. Based on the evidence before it, the AAT then held that although the daughter was the director and public face of the business carried on by the Trust, the Trustee was not accustomed to act in accordance with her wishes. The AAT considered that Mr Gutteridge alone controlled the Trustee and was, in effect, a shadow or de facto director of the Trustee company.", "Issues_Decided": "The primary issue was whether the taxpayers' daughter controlled the Trust. The control test is set out in subsection 328-125(3) of the ITAA 1997 and is determined (in this instance) by whether the Trustee 'could reasonably be expected to act' in accordance with the directions or wishes of the daughter. The AAT considered the control test has parallels with the definition of 'director' in the Corporations Act 2001. More specifically, there is a reasonable expectation that a person will act in a certain way if the person is 'accustomed to act' in that way. The AAT held that the test was not simply who held the formal office of director of the Trustee company, nor what the Trust deed stated, but rather called for an examination of the actual circumstances of a case. Based on the evidence before it, the AAT then held that although the daughter was the director and public face of the business carried on by the Trust, the Trustee was not accustomed to act in accordance with her wishes. The AAT considered that Mr Gutteridge alone controlled the Trustee and was, in effect, a shadow or de facto director of the Trustee company.", "ATO_View_of_Decision": "The Commissioner accepts that the decision was open to the AAT in view of the findings of fact made by the Tribunal. | However, while the circumstances in this case allow for a finding that a person could reasonably be expected to act in a certain way because they were 'accustomed to act' in that way, the Commissioner does not accept that the 'reasonable expectation' test in subsection 328-125(3) of the ITAA 1997 can be substituted with an 'accustomed to act' test in all cases. It depends, as the AAT said at paragraph 21, on an examination of all the circumstances of a case. For example, if there is no history at all of a trustee having acted on the directions of another, there may nonetheless be an expectation (reasonably founded) that they would act on the directions of a particular person, were such directions to be given.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil", "Related_Documents": "Nil | 2013 ATC 10-347 | Division 152 | Subdivision 152-A | section 328-125 | subsection 328-125(3) | subsection 328-125(4) | section 9 | [2011] NSWCA 109 | ATO ID 2008/139", "Legislative_References": "Income Tax Assessment Act 1997 Division 152 Subdivision 152-A section 328-125 subsection 328-125(3) subsection 328-125(4) Corporations Act 2001 section 9", "Case_References": "Buzzle Operations Pty Ltd (In Liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109", "Subject_References": "Capital gains tax CGT small business relief Basic conditions for relief Maximum net asset value test Connected entity", "Other_References": "ATO ID 2008/139", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012-2724and2725/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Hua Wang Bank Berhad v Commissioner of Taxation", "Venue_Reference_No": "NSD 1383 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "13 March 2013", "Date_Published": "24 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to the taxpayer's appeal to the Full Federal Court from a refusal to grant relief from a notice to produce where compliance with the notice may involve the commission of an offence under the law of a foreign nation.", "Overview_of_Facts": "The taxpayer appealed from the decision of the Federal Court (Perram J), refusing to grant relief from a notice to produce in circumstances where compliance with the notice may involve the commission of a crime under the laws of Samoa. The taxpayer is incorporated in Samoa. The Commissioner served the notice to produce on the taxpayer seeking documents held in the place of incorporation. The request was central to the issue in dispute in the Part IVC appeal, being the question of control of the taxpayer. | The Independent State of Samoa sought to intervene or be heard as amicus curiae in the taxpayer's application for leave to appeal and, if leave were granted, in the appeal. | The Full Court dismissed the taxpayer's appeal. The Full Court found that none of the taxpayer's grounds of appeal had substance and that the primary judge paid due regard to the principle of comity which requires that a cautionary approach be adopted in circumstances where there is enforcement in Australia of laws which infringe the legislative policies of other countries. | The Full Court also refused the application made by the Independent State of Samoa to intervene or be heard as amicus curiae. | Issues decided by the court | The taxpayer's grounds of appeal were that: (1) the Court misconceived the nature of the discretion, which is a discretion that should only be exercised in circumstances that are 'exceptional'; (2) the Court erred in principle by holding that Samoa had no 'compelling sovereign interest' in the enforcement of its laws; (3) the Court took into account an irrelevant consideration, being the absence of evidence that the relevant Samoan criminal law is enforced; and (4) the Court failed to take account of numerous mandatory considerations. | (1) the Court misconceived the nature of the discretion, which is a discretion that should only be exercised in circumstances that are 'exceptional'; (2) the Court erred in principle by holding that Samoa had no 'compelling sovereign interest' in the enforcement of its laws; (3) the Court took into account an irrelevant consideration, being the absence of evidence that the relevant Samoan criminal law is enforced; and (4) the Court failed to take account of numerous mandatory considerations. | The most significant ground of appeal was the first ground in which the taxpayer submitted the primary judge ought to have applied the 'exceptional circumstances' test. The Full Court held that the principle of 'exceptional circumstances' (assuming there is such a principle in terms) was not engaged on the facts of the present case. The Full Court held that the question was no more than whether the primary judge paid due regard to the important principle of comity which requires a cautionary approach to be adopted when it is sought to enforce Australian laws in circumstances which infringe the legislative policies of other countries. | The Full Court found that the cases relied upon by the taxpayer involved the requirement for production by a foreigner or a person who disputed the jurisdiction of the court in respect of conduct outside the jurisdiction and, therefore, were not analogous to the present case. By contrast, in the present case the taxpayer had invoked the court's jurisdiction and the foundational conduct to which the proceedings related were within the jurisdiction. | The Full Court held that the primary judge did apply the principled approach of caution and, therefore, did pay due regard to the principle of comity. The Full Court also held that the remaining three grounds of appeal had no substance. Accordingly, the Full Court concluded that the primary judge's decision was reasonably open and not attended by any error of principle. | The Full Court was not persuaded that the intervention of the Independent State of Samoa would be useful or materially different from the taxpayer's contribution nor was the Full Court persuaded that there was any want of legal representation by the parties. For these reasons, the application for leave to intervene and the amicus application were not granted.", "Issues_Decided": "The taxpayer's grounds of appeal were that: (1) the Court misconceived the nature of the discretion, which is a discretion that should only be exercised in circumstances that are 'exceptional'; (2) the Court erred in principle by holding that Samoa had no 'compelling sovereign interest' in the enforcement of its laws; (3) the Court took into account an irrelevant consideration, being the absence of evidence that the relevant Samoan criminal law is enforced; and (4) the Court failed to take account of numerous mandatory considerations. (1) the Court misconceived the nature of the discretion, which is a discretion that should only be exercised in circumstances that are 'exceptional'; (2) the Court erred in principle by holding that Samoa had no 'compelling sovereign interest' in the enforcement of its laws; (3) the Court took into account an irrelevant consideration, being the absence of evidence that the relevant Samoan criminal law is enforced; and (4) the Court failed to take account of numerous mandatory considerations. The most significant ground of appeal was the first ground in which the taxpayer submitted the primary judge ought to have applied the 'exceptional circumstances' test. The Full Court held that the principle of 'exceptional circumstances' (assuming there is such a principle in terms) was not engaged on the facts of the present case. The Full Court held that the question was no more than whether the primary judge paid due regard to the important principle of comity which requires a cautionary approach to be adopted when it is sought to enforce Australian laws in circumstances which infringe the legislative policies of other countries. The Full Court found that the cases relied upon by the taxpayer involved the requirement for production by a foreigner or a person who disputed the jurisdiction of the court in respect of conduct outside the jurisdiction and, therefore, were not analogous to the present case. By contrast, in the present case the taxpayer had invoked the court's jurisdiction and the foundational conduct to which the proceedings related were within the jurisdiction. The Full Court held that the primary judge did apply the principled approach of caution and, therefore, did pay due regard to the principle of comity. The Full Court also held that the remaining three grounds of appeal had no substance. Accordingly, the Full Court concluded that the primary judge's decision was reasonably open and not attended by any error of principle. The Full Court was not persuaded that the intervention of the Independent State of Samoa would be useful or materially different from the taxpayer's contribution nor was the Full Court persuaded that there was any want of legal representation by the parties. For these reasons, the application for leave to intervene and the amicus application were not granted.", "ATO_View_of_Decision": "The ATO's respectful view of the decision is that the Full Court has correctly determined that there was no error of principle in the exercise of discretion by the primary judge in refusing to set aside or vary the notice to produce. | In addition, the ATO's respectful view is that the Full Court correctly refused the application made by the Independent State of Samoa to intervene or be heard as amicus curiae in this particular case.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not Applicable", "Related_Documents": "None | [2013] FCAFC 28 | Pt IVC | r 1.34 | r 9.12 | r 30.28 | r 36.32 | s 11 | s 26 | s 38 | s 39 | (1990) 23 NSWLR 545 | (1996) 69 FCR 531 | [1999] FCA 791 | 95 ATC 4820 | [2007] FCAFC 43 | [2002] VSC 64 | (1936) 55 CLR 499 | (1986) 161 CLR 513 | (1998) 193 CLR 72 | [2011] HCA 54 | [2006] FCAFC 178 | [2004] FCA 391 | [2011] FCA 1152 | (2011) 198 FCR 1 | [2009] FCAFC 89", "Legislative_References": "Taxation Administration Act 1953 (Cth) Pt IVC Federal Court Rules 2011 r 1.34 r 9.12 r 30.28 r 36.32 International Banking Act 2005 (Samoa) s 11 s 26 s 38 s 39", "Case_References": "Arhill Pty Ltd v General Terminal Company Pty Ltd (1990) 23 NSWLR 545 Australian Securities Commissioner v Bank Leumi Le-Israel (1996) 69 FCR 531 Bank of Valletta v National Crime Authority (1999) 164 ALR 45 [1999] FCA 791 Commissioner of Taxation v De Vonk [1995] FCA 994 61 FCR 564 31 ATR 481 95 ATC 4820 Federal Treasury Enterprise (FKP) Sojuzplodoimport v Spirits International NV [2007] FCAFC 43 (2007) 157 FCR 558 Gao v Zhu [2002] VSC 64 House v The King (1936) 55 CLR 499 Mackinnon v Donaldson, Lufkin and Jenrette Securities Corporation [1986] Ch 482 Norbis v Norbis (1986) 161 CLR 513 Oshlack v Richmond River Council (1998) 193 CLR 72 Roadshow Films Pty Ltd v iiNet Ltd [2011] HCA 54 (2011) 284 ALR 222 Sharman Networks Ltd v Universal Music Australia Pty Ltd [2006] FCAFC 178 155 FCR 291 Societe Eram Shipping Co Ltd v Compagnie Internationale de Navigation [2004] 1 AC 260 Stemcor (Australasia) Pty Ltd v Oceanware Line SA [2004] FCA 391 Suzlon Energy Ltd v Bongad [2011] FCA 1152 (2011) 198 FCR 1 Waller v Freehills [2009] FCAFC 89 177 FCR 507", "Subject_References": "Application for relief from notice to produce Compliance with notice to produce Commission of an offence under the law of a foreign nation Discretion to refuse relief from notice to produce Application to intervene or be heard as amicus curiae", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1383of2012/00001", "Unmatched_Content": "This decision has no impact for the ATO including precedential documents and Law Administration Practice Statements"}
{"Case_Name": "Kelly v Commissioner of Taxation", "Venue_Reference_No": "QUD 361 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "8 August 2013", "Date_Published": "28 July 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether certain interests in a partnership had been effectively and validly assigned to certain trustees; and whether a superannuation contribution for the directors of a corporate trustee was an allowable deduction.", "Overview_of_Facts": "The taxpayer was one of seven partners in the Boulton Cleary & Kern Partnership ('the Partnership'), a purported trustee of the Boulton Cleary & Kern Partnership Trust ('the Partnership Trust'), and the sole trustee of the Sean Kelly BCK Holdings Trust ('the Holdings Trust'). | The Commissioner assessed the taxpayer on the basis that he was entitled to 1/7th of the Partnership's income. On objection and subsequent appeal to the Federal Court, the taxpayer argued that part of the income had been assigned to the Partnership Trust and the Holdings Trust as a result of the following transactions: • In 1999 a retiring partner, Mr McFadzean, assigned his 20% interest in the Partnership to the trustees of the Partnership Trust pursuant to a retirement deed ('the 1999 transaction'); • On 29 June 2005 the partners assigned a collective 30% interest in the Partnership to the Partnership Trust ('the 2005 transaction'); and • On 29 June 2006: • the trustees of the Partnership Trust assigned a 4.734% interest in the Partnership to the Holdings Trust; and • the taxpayer assigned a further 3.12% interest in the Partnership to the Holdings Trust. ('the 2006 transactions') | • In 1999 a retiring partner, Mr McFadzean, assigned his 20% interest in the Partnership to the trustees of the Partnership Trust pursuant to a retirement deed ('the 1999 transaction'); • On 29 June 2005 the partners assigned a collective 30% interest in the Partnership to the Partnership Trust ('the 2005 transaction'); and • On 29 June 2006: • the trustees of the Partnership Trust assigned a 4.734% interest in the Partnership to the Holdings Trust; and • the taxpayer assigned a further 3.12% interest in the Partnership to the Holdings Trust. | • the trustees of the Partnership Trust assigned a 4.734% interest in the Partnership to the Holdings Trust; and • the taxpayer assigned a further 3.12% interest in the Partnership to the Holdings Trust. | ('the 2006 transactions') | Before the Federal Court the taxpayer also argued, in the alternative, that he had declared a trust over a portion of his interest in the Partnership in favour of the Partnership Trust pursuant to 2 deeds entered into in October 2008 ('the 2008 transactions'). | During the Federal Court hearing a further issue was raised concerning a deduction for superannuation contributions of $100,000 claimed by the trustee of the Kelly Family Trust ('the Family Trust') under section 290-60 of the Income Tax Assessment Act 1997 ('ITAA 1997'). | The Federal Court ([2012] FCA 423; 2012 ATC 20-319) did not accept that the 1999 transaction conferred a 20% interest in the Partnership upon the Partnership Trust; but did accept that the parties had engaged in transactions which ultimately led to partnership interests totaling 7.857% being assigned to the Holdings Trust. | In a separate judgment ([2012] FCA 689; 2012 ATC 20-329), the Federal Court found that a superannuation deduction was not available under section 290 60 of the ITAA 1997, as the taxpayer was not an 'employee' for the purposes of the expanded definition in section 12 of the Superannuation Guarantee (Administration) Act 1992 ('SGAA'). | The taxpayer appealed to the Full Federal Court in relation to the 1999 transaction and the superannuation deduction. The Commissioner cross-appealed in relation to the 2005 transaction, which, it was argued, formed the basis of the 2006 transactions [43-44]. | Issues Decided by the Court | The Full Federal Court dismissed both appeals, upholding the findings of the Federal Court. | Effectiveness of purported assignments | The 1999 transaction | The Full Federal Court dismissed the taxpayer's appeal in relation to the assignment of the McFadzean partnership interest to the Partnership Trust in 1999. | Importantly, the Full Court found that while Mr McFadzean could assign his partnership interest to the Partnership Trust he could not give the Trust any greater right than the right which was incidental to his interest as a partner. Mr McFadzean only had, and could only assign, an interest in those partnership profits which were attributable to the period before his retirement. | Accordingly, the Full Court held that the primary judge did not err in finding that the retirement deed did not confer upon the Partnership Trust a 20% interest in the partnership which was subsequently formed by the remaining partners [35-37]. | The 2005 transaction | The Full Court dismissed the cross-appeal in relation to the 2005 transaction. The Court considered that there was sufficient objective evidence to support the initial findings of the Federal Court. This evidence, when viewed as a whole, supported a finding that the partners intended to, and did, effect a transfer of a total 30% interest in the Partnership to the Partnership Trust [61]. | The 2008 transactions | The Full Court found that, even if the taxpayer did not require leave to advance his alternative argument in relation to the 2008 transactions, that ground was not supported by the evidence and should be dismissed [84-87]. | The superannuation deduction | The Full Federal Court dismissed the taxpayer's appeal in relation to the superannuation issue. | The Full Court held that the taxpayer and his wife were not 'employees' of the company for the purposes of section 290 60 of the ITAA 1997, as they did not fall within the expanded definition of that term in subsection 12(2) of the SGAA. As directors of the corporate trustee of the Family Trust, the taxpayer and his wife had no entitlement to remuneration unless a resolution was passed in a general meeting to that effect. Without such a resolution, the taxpayer and his wife were not 'entitled to payment', subsection 12(2) did not apply and the trustee was not entitled to a deduction under section 290 60 of the ITAA 1997. [122-123]", "Issues_Decided": "The Full Federal Court dismissed both appeals, upholding the findings of the Federal Court. | Effectiveness of purported assignments: The 1999 transaction The Full Federal Court dismissed the taxpayer's appeal in relation to the assignment of the McFadzean partnership interest to the Partnership Trust in 1999. Importantly, the Full Court found that while Mr McFadzean could assign his partnership interest to the Partnership Trust he could not give the Trust any greater right than the right which was incidental to his interest as a partner. Mr McFadzean only had, and could only assign, an interest in those partnership profits which were attributable to the period before his retirement. Accordingly, the Full Court held that the primary judge did not err in finding that the retirement deed did not confer upon the Partnership Trust a 20% interest in the partnership which was subsequently formed by the remaining partners [35-37]. The 2005 transaction The Full Court dismissed the cross-appeal in relation to the 2005 transaction. The Court considered that there was sufficient objective evidence to support the initial findings of the Federal Court. This evidence, when viewed as a whole, supported a finding that the partners intended to, and did, effect a transfer of a total 30% interest in the Partnership to the Partnership Trust [61]. The 2008 transactions The Full Court found that, even if the taxpayer did not require leave to advance his alternative argument in relation to the 2008 transactions, that ground was not supported by the evidence and should be dismissed [84-87]. | The superannuation deduction: The Full Federal Court dismissed the taxpayer's appeal in relation to the superannuation issue. The Full Court held that the taxpayer and his wife were not 'employees' of the company for the purposes of section 290 60 of the ITAA 1997, as they did not fall within the expanded definition of that term in subsection 12(2) of the SGAA. As directors of the corporate trustee of the Family Trust, the taxpayer and his wife had no entitlement to remuneration unless a resolution was passed in a general meeting to that effect. Without such a resolution, the taxpayer and his wife were not 'entitled to payment', subsection 12(2) did not apply and the trustee was not entitled to a deduction under section 290 60 of the ITAA 1997. [122-123]", "ATO_View_of_Decision": "Assignment of interests in the Partnership | The decision of the Full Federal Court was based on findings of fact made by the Federal Court. The ATO respectfully accepts the Full Federal Court's view that it was open to the Federal Court to find that the taxpayer had assigned a portion of his partnership interest in the 2005 income year. | The superannuation deduction | The ATO notes that the Full Federal Court's decision is consistent with the Commissioner's view in paragraph 243 of Taxation Ruling TR 2010/1 that a superannuation contribution for the director of a corporate trustee can only be deducted from the income of the trust if the director is a common law employee of the trust engaged in producing the assessable income of the trust or its business.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for impacted Law Administration Practice Statements | None", "Related_Documents": "None | 2013 ATC 20-408 | 290-60 | 290-65 | 290-70 | 12(2) | 80 ATC 4076 | 2012 ATC 20-319 | 2012 ATC 20-329", "Legislative_References": "Income Tax Assessment Act 1997 290-60 290-65 290-70 Superannuation Guarantee (Administration) Act 1992 12(2)", "Case_References": "Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 80 ATC 4076 (1980) 10 ATR 608 Kelly v Federal Commissioner of Taxation [2012] FCA 423 2012 ATC 20-319 Kelly v Federal Commissioner of Taxation (No 2) [2012] FCA 689 2012 ATC 20-329", "Subject_References": "Partnership income Partnership interests Everett assignments Superannuation deductions", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD361of2012/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Macquarie Bank Limited v Commissioner of Taxation", "Venue_Reference_No": "1921 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "24 October 2013", "Date_Published": "16 December 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the primary judge erred in holding that the applicants had no reasonable prospect of obtaining a declaration that the Commissioner had not made a decision in accordance with Law Administration Practice Statement PS LA 2011/27.", "Overview_of_Facts": "The dispute had its origin in an ATO audit into the tax affairs of the applicants for the 2006, 2007 and 2008 income years. | An issue that arose in the audit was the operation of certain provisions in the Income Tax Assessment Act 1936 for the allocation of expenses for the applicants' Offshore Banking Unit (OBU). In early 2013, the Commissioner notified the applicants that the audit had concluded and advised of his intention to amend the applicants' assessments for each of the audit years, in accordance with his view of how the law operates to allocate OBU expenses. | The applicants contended that the Commissioner's view of the law was contrary to his earlier statements, conduct and position. On that basis, the applicants asked the Commissioner to apply his Law Administration Practice Statement PS LA 2011/27 ('the Practice Statement') and determine its tax liability for the years under audit in accordance with his earlier statements, conduct and position. | The ATO considered this request and concluded that the Practice Statement did not apply in the circumstances of this case. This conclusion, together with supporting reasons, was conveyed to the applicants' representative by letter. | The applicants then filed an originating application in the Federal Court of Australia to review the \"decision\" of the Commissioner to refuse to apply his view on the allocation of OBU expenses solely on a prospective basis. The applicants sought review under section 5 of the Administrative Decisions (Judicial Review) Act 1977 and section 39B of the Judiciary Act 1903 . The applicants sought relief in the form of an order from the Court for the \"decision\" to be quashed and the Commissioner to be compelled to determine whether to apply the ATO view of the law solely on a prospective basis. Alternatively, the applicants sought a declaration that the \"decision\" was not made in accordance with the Practice Statement and an injunction preventing the Commissioner from relying upon the \"decision\" as having been made in conformity with the Practice Statement. | The Federal Court summarily dismissed the application on the basis that the applicants had no reasonable prospect of obtaining the relief they sought. | The applicants applied for leave to appeal to the Full Federal Court, but only on the question of whether the primary judge erred in holding that the applicant had no reasonable prospect of obtaining a declaration that the Commissioner had not made a decision in accordance with the Practice Statement. | Issues decided by the court | The Full Court concluded at [6] that the primary judge was correct in dismissing the application summarily on the grounds that in \"light of the limited scope of operation\" of the Practice Statement, the final relief sought by the applicants \"either does not lie or has no utility\". | The Full Court went on to observe that the applicants' case must fail because the applicants had no basis upon which they could seek to enforce adherence to the Practice Statement. That is, the primary judge was correct to conclude that the Practice Statement did not, and could not, bind the Commissioner when seeking to raise an assessment or a re-assessment: [10]. | The power of general administration given to the Commissioner by provisions such as section 8 of the ITAA 1936 does not permit the Commissioner to dispense with the operation of the law. The Full Court found that the general power of administration is not \"a discretion to modify, or which modifies, the liability to tax imposed by the statute\". Having formed the view that the statute imposes a liability contrary to some view he may have held previously, the Commissioner has a duty to apply the law as he understands it to be: [11]. | The Full Court also said this at paragraph [12]: The learned primary judge held that the practice statement had not purported to bind the Commissioner because references in the practice statement to taking action or compliance action were to be read as referring to circumstances where there are resource allocation decisions to be made: [71]. Whether or not that construction of the practice statement is correct, what is clear from the terms of the practice statement is that the Commissioner was conscious of his obligation to comply with the law (see practice statement at [20]) and that he could not use \"the powers of general administration to accept non-compliance with the law (see practice statement at [21] and, in particular, to footnote [14]). ... Whatever the consequence of an alleged failure by the Commissioner to follow an earlier statement or position, it is not to bind him in law to act contrary to the provisions of the statute. To the extent that a reading of the practice statement suggests otherwise it should be withdrawn and rewritten.", "Issues_Decided": "The Full Court concluded at [6] that the primary judge was correct in dismissing the application summarily on the grounds that in \"light of the limited scope of operation\" of the Practice Statement, the final relief sought by the applicants \"either does not lie or has no utility\". The Full Court went on to observe that the applicants' case must fail because the applicants had no basis upon which they could seek to enforce adherence to the Practice Statement. That is, the primary judge was correct to conclude that the Practice Statement did not, and could not, bind the Commissioner when seeking to raise an assessment or a re-assessment: [10]. The power of general administration given to the Commissioner by provisions such as section 8 of the ITAA 1936 does not permit the Commissioner to dispense with the operation of the law. The Full Court found that the general power of administration is not \"a discretion to modify, or which modifies, the liability to tax imposed by the statute\". Having formed the view that the statute imposes a liability contrary to some view he may have held previously, the Commissioner has a duty to apply the law as he understands it to be: [11]. The Full Court also said this at paragraph [12]: The learned primary judge held that the practice statement had not purported to bind the Commissioner because references in the practice statement to taking action or compliance action were to be read as referring to circumstances where there are resource allocation decisions to be made: [71]. Whether or not that construction of the practice statement is correct, what is clear from the terms of the practice statement is that the Commissioner was conscious of his obligation to comply with the law (see practice statement at [20]) and that he could not use \"the powers of general administration to accept non-compliance with the law (see practice statement at [21] and, in particular, to footnote [14]). ... Whatever the consequence of an alleged failure by the Commissioner to follow an earlier statement or position, it is not to bind him in law to act contrary to the provisions of the statute. To the extent that a reading of the practice statement suggests otherwise it should be withdrawn and rewritten.", "ATO_View_of_Decision": "The Full Court's decision confirms our understanding that when the Commissioner has formed the view that the tax law imposes a liability on a particular taxpayer, the Commissioner has a duty to assess the taxpayer in accordance with that view. This typically occurs, for example, when an audit is completed. | As the Full Court's decision notes, we were conscious when drafting the Practice Statement of this obligation. We confirm that the Practice Statement applies only to resource allocation decisions, including resource allocation decisions made during the conduct of an audit. | However, in light of the Full Court's comments that a reading of the Practice Statement could suggest otherwise, we will review the wording of the Practice Statement with a view to identifying any changes that should be made to clarify its intended operation. Any such changes are not expected to alter the practical operation of the Practice Statement. | In the meantime, the Practice Statement continues to apply as an instruction to ATO staff about resource allocation decisions, with the intended practical effect of not disturbing assessments for years where the factors outlined in the Practice Statement are present. The ATO will seek to ensure that ATO officers carry out the research required by the Practice Statement at the earliest practical time.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "PS LA 2011/27 | [2013] FCAFC 119 | s 8 | s 170", "Legislative_References": "ITAA 1936 s 8 s 170", "Case_References": "", "Subject_References": "Income tax assessment amended assessment", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/1921of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements. | Implications on Law Administration Practice Statements: On 4 December 2014, the ATO published a revision of Law Administration Practice Statement PS LA 2011/27. Among other changes, the revision has clarified that an assessment of a taxpayer's liability must be done according to the law and not on any other basis, regardless of any U-turn considerations (in new proposed paragraph 34). | Updated to advise a revision of PS LA 2011/27 was published on 4 December 2014. | Updated to advise that a draft revision of PS LA 2011/27 has issued for comment. | Updated to advise PS LA 2011/27 has been amended"}
{"Case_Name": "Mathoura Property Pty Ltd as Trustee for the Mathoura Property Trust and Commissioner of Taxation", "Venue_Reference_No": "2012/3606", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 December 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2013 ATC 10-346", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/3606/00001", "Unmatched_Content": "Mathoura Property Pty Ltd as Trustee for the Mathoura Property Trust and Commissioner of Taxation [2013] AATA 922 2013 ATC 10-346 (2013) 97 ATR 1059 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Mayhew and Commissioner of Taxation", "Venue_Reference_No": "2012/0490", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "13 March 2013", "Date_Published": "9 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2013 ATC 10-300", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/0490/00001", "Unmatched_Content": "Mayhew and Commissioner of Taxation [2013] AATA 130 2013 ATC 10-300 (2013) 92 ATR 907 | The adverse aspects of the decision have no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Mulherin v Commissioner of Taxation", "Venue_Reference_No": "NSD 1384 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "23 October 2013", "Date_Published": "28 June 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The taxpayer was an Australian citizen who qualified as a medical professional in Australia, completed his post-graduate study in the United Kingdom and practised medicine in Hong Kong. He then returned to Australia where he set up a series of off-shore trusts and entities through a Liechtenstein Foundation managed and controlled by the taxpayer who was the sole income and economic beneficiary of the Foundation. Records obtained by the Commissioner of the Foundation, trusts and entities and their respective bank statements evidenced considerable undisclosed income and assets. The Commissioner issued assessments for the years 1999-2007 inclusive. The taxpayer's objections were disallowed in substance, although errors in quantum allowed. The taxpayer appealed from his unfavourable AAT decision denying he was presently entitled to income of the Foundation, which the taxpayer conceded was an Australian resident trust estate under subsection 95(2) of Income Tax Assessment Act 1936 (ITAA 1936).", "Overview_of_Facts": "The taxpayer sought to bring his appeal under rule 33.15 of the Federal Court Rules on a purported question of law he had not raised in the notice of appeal. The taxpayer alleged he was not presently entitled to the income of the Foundation and that subsection 95(2) of the ITAA 1936 was not engaged. The taxpayer also appeal on the basis that if he was presently entitled, he had discharged his onus of proof and established the assessments were excessive. The taxpayer also appealed against the decision to provide his evidence by video-link or on commission on the basis it was a denial of procedural fairness, and against the AAT finding that he was an Australian resident for taxation purposes for the 2007 income year. | Issues decided by the court | Appeals from the AAT to the Federal Court are confined by the operation of Federal Court Rule 33.15 to a new question of law, and a mixed question of fact and law, or a question of fact will not ground the jurisdiction: Birdseye v Australian Securities and Investments Commission (2003) 76 ALD 321 applied. | As assertion of an error of law by the AAT is not to state a question of law to attract the appellate jurisdiction: Australian Telecommunications Corporation v Lambrogou (1990) 12 AAR 515 applied. | Questions of law must be engaged by the AAT in the reasons and decision, to ground the error of law: TNT Skypak International (Aust) Pty Ltd v FCT [1988] FCA 198. | The taxpayer's amended notice of appeal did not engage the jurisdiction of the Court in relation to the appeal question that the AAT erred in finding he was presently entitled under subsection 95(2) of the ITAA 1936. This was a finding of fact and law. Ground of appeal dismissed on the basis the ground was incompetent. | The AAT has not erred in finding the taxpayer failed to discharge his onus of proof, and had correctly applied subsection 167 of the ITAA 1936; Commissioner of Taxation v Dalco (1990) 168 CLR 614. The AAT decision to refuse the taxpayer to provide evidence by video-link was not a denial of procedural fairness and the finding that the taxpayer was an Australian resident for taxation purposes for the 2007 income year was a finding of fact and the appeal ground did not attract the jurisdiction of the Federal Court.", "Issues_Decided": "Appeals from the AAT to the Federal Court are confined by the operation of Federal Court Rule 33.15 to a new question of law, and a mixed question of fact and law, or a question of fact will not ground the jurisdiction: Birdseye v Australian Securities and Investments Commission (2003) 76 ALD 321 applied. As assertion of an error of law by the AAT is not to state a question of law to attract the appellate jurisdiction: Australian Telecommunications Corporation v Lambrogou (1990) 12 AAR 515 applied. Questions of law must be engaged by the AAT in the reasons and decision, to ground the error of law: TNT Skypak International (Aust) Pty Ltd v FCT [1988] FCA 198. The taxpayer's amended notice of appeal did not engage the jurisdiction of the Court in relation to the appeal question that the AAT erred in finding he was presently entitled under subsection 95(2) of the ITAA 1936. This was a finding of fact and law. Ground of appeal dismissed on the basis the ground was incompetent. The AAT has not erred in finding the taxpayer failed to discharge his onus of proof, and had correctly applied subsection 167 of the ITAA 1936; Commissioner of Taxation v Dalco (1990) 168 CLR 614. The AAT decision to refuse the taxpayer to provide evidence by video-link was not a denial of procedural fairness and the finding that the taxpayer was an Australian resident for taxation purposes for the 2007 income year was a finding of fact and the appeal ground did not attract the jurisdiction of the Federal Court.", "ATO_View_of_Decision": "The Commissioner considers the Court's application of the law to be consistent with current law and respectfully correct.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil", "Related_Documents": "Nil | 2013 ATC 20-423 | ITAA 1936 95(2) | ITAA 1936 167 | Rule 33.15 of Federal Court Rules | 88 ATC 4279 | 90 ATC 4088", "Legislative_References": "ITAA 1936 95(2) ITAA 1936 167 Rule 33.15 of Federal Court Rules", "Case_References": "Birdseye v Australian Securities and Investments Commission [2003] FCAFC 232 (2003) 38 AAR 55 (2003) 76 ALD 321 Australian Telecommunications Corporation v Lambrogou (1990) 12 AAR 515 TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation [1988] FCA 198 (1988) 19 ATR 1067 88 ATC 4279 Commissioner of Taxation v Dalco [1990] HCA 3 (1990) 168 CLR 614 (1990) 20 ATR 1370 90 ATC 4088", "Subject_References": "Appeal from AAT to Full Federal Court Present entitlement Residency", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1384of2012/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents or Law Administration Practice Statements"}
{"Case_Name": "Murray and Commissioner of Taxation", "Venue_Reference_No": "2013/2150", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "1 November 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2013 ATC 10-338", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013/2150/00001", "Unmatched_Content": "Murray and Commissioner of Taxation [2013] AATA 780 2013 ATC 10-338 (2013) 96 ATR 953 | 2013/2150 2013/2151 2013/2152 | The adverse aspects of the decision have no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Naidoo v Commissioner of Taxation", "Venue_Reference_No": "2012/0101, 0111", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 June 2013", "Date_Published": "5 September 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the taxpayer was carrying on an enterprise and entitled to input tax credits, and makes comments about the Commissioner's approach in raising assessments.", "Overview_of_Facts": "The taxpayer registered for GST as a partnership on 1 November 2000. Its partners were Mr R Naidoo and Mrs E Naidoo. The partnership owned and operated hotels and motels, including the Alpha Hotel in Alpha, Queensland until selling those assets in early 2006. | On 31 January 2006, Kesons Pty Ltd (\"Kesons\") purchased an interest in the Alpha Hotel. Mr and Mrs Naidoo were appointed directors of Kesons on 1 June 2007 and 29 June 2009 respectively. In 2007 Mr and Mrs Naidoo acquired 100% of the shares in Kesons. | The taxpayer asserted that after the Naidoo Partnership sold the hotels in January 2006, it provided management and support services for the hospitality industry and occasionally pest control services. The key client of the Naidoo Partnership during the relevant period was Kesons. | In evidence before the Tribunal, Mr Naidoo explained that he worked as an employee of Kesons managing the hotel, and in this capacity he worked in the mornings from 7 am to 11 am and again in the evenings from 5 pm to about 10 or 11 pm. In the hours between about 11 am and 5 pm, he worked as a partner in the Naidoo Partnership providing the contracted services (including electrical, plumbing, carpentry, maintenance and pest control) to Kesons. | The Commissioner found that the partnership was not carrying on an enterprise and cancelled its GST registration. In making assessments for each quarterly tax period beginning 1 April 2007 and ending 31 March 2011, the Commissioner disallowed the input tax credits claimed by the taxpayer in each tax period, but required the taxpayer to pay amounts on account of GST that the taxpayer had collected. This resulted in assessments of positive net amounts despite the taxpayer not being entitled to be registered for GST. | The Commissioner also determined that the behaviour of the partnership involved recklessness and imposed penalties of 50% of the shortfall amounts. | Issues decided by the court | Was the Naidoo partnership carrying on an enterprise? | The Tribunal found that the Naidoo Partnership was not carrying on an enterprise for the purposes of the GST Act in the relevant period as the activities engaged in by Mr Naidoo were not done by him in his capacity as a partner of the Naidoo Partnership or otherwise on behalf of the Partnership. The Tribunal found that Mr Naidoo provided these services in his capacity as a director and employee of Kesons. The Tribunal also found that the Naidoo Partnership did not undertake an activity or series of activities in the form of a business, in the relevant period. | Was the Commissioner correct in cancelling the GST registration of the Naidoo partnership? | The Tribunal found that, as the Naidoo Partnership was not carrying on an enterprise in the relevant period, the Commissioner was correct in cancelling its GST registration | Was the Naidoo partnership entitled to claim input tax credits? | The Tribunal determined that, as the Naidoo Partnership was not carrying on an enterprise at any stage during the relevant period, it did not have a creditable purpose in making the acquisitions and, therefore, did not make creditable acquisitions in the relevant period. Accordingly, the Tribunal held that the Naidoo Partnership was not entitled to claim input tax credits. | Was the Commissioner correct in assessing the net amount for each relevant tax period by reference to section 105-65? | The Commissioner argued that section 105-65 of Schedule 1 to the TAA is a necessary step in finally determining a taxpayer's liability in respect of GST and that it is, therefore, properly to be taken into account in an assessment of the taxpayer's net amount for each of the relevant tax periods. It is on that basis that the Commissioner assessed the Naidoo Partnership to positive net amounts for each of the relevant tax periods. | The Tribunal found that the GST Act expressly provides for the working out of the net amount, a defined term, in a precise manner using clear and unambiguous language in subsection 17-5(1) of the GST Act. There are adjustments and special rules which affect the net amount, including those set out in subsection 17-5(2) and those listed in section 17-99, as well as in other Acts, such as the A New Tax System (Wine Equalisation Tax) Act 1999, but their implications for the calculation of the net amount are expressly indicated. | The Tribunal further found (at paragraph 92) that \"The net amount in subsection 17-5(1) is worked out using the formula \"GST - input tax credits\" where, relevantly, GST is in turn defined as \"the sum of all of the GST for which you are liable on the *taxable supplies that are attributable to the tax period\". It does not factor into the net amount calculation, amounts of overpaid GST (that is, GST not on taxable supplies)\". | The Tribunal concluded that, contrary to the Commissioner's approach, section 105-65 of Schedule 1 to the TAA is not a provision which allows the Commissioner to alter the net amount calculated under subsection 17-5(1) of the GST Act. The Tribunal found that section 105-65 cannot be taken into account in the determination of the net amount for a tax period, preferring the view that section 105-65 operates after the net amount for a tax period is calculated under the GST Act. | The Tribunal further noted that, if an entity does not carry on an enterprise, then it cannot make \"taxable supplies\" nor \"creditable acquisitions\" even though it may still be registered for GST and have tax periods applying to it. Its GST liability must be zero and its ITC entitlement must also be zero. Accordingly, the Tribunal concluded that the net amount of the Naidoo Partnership for each of the tax periods from 1 April 2007 to 31 March 2011 was zero. | Jurisdiction | Having concluded that section 105-65 does not alter the determination of a taxpayer's net amount under the GST Act, and noting that section 105-65 does not contain any express provision allowing a taxpayer to object, the Tribunal found that it does not have jurisdiction to review the Commissioner's decision under section 105-65. | The Tribunal noted that the taxpayer's review rights are limited to judicial review in proceedings brought in the Federal Court under section 39B of the Judiciary Act 1903 or the Administrative Decisions (Judicial Review) Act 1977. | Overpaid GST - are the conditions set out in subsection 105-65(1) satisfied? | The Tribunal did not accept the Commissioner's argument that the Naidoo Partnership \"overpaid\" GST in all of the relevant tax periods. The Tribunal took the view that the Naidoo Partnership could not have overpaid GST in circumstances where the GST liability was entirely offset by a claim for input tax credits that was also incorrectly reported. In those periods, where the GST liability was entirely offset and the partnership reported a negative net amount, the taxpayer did not receive a lesser amount of input tax credits than it would otherwise have been entitled to (as it was not entitled to any input tax credits), nor did it overpay GST in respect of any supply. | The Tribunal decided that the partnership only overpaid GST in three tax periods in which it reported positive net amounts, and then only to the extent that it actually paid more GST than it was liable to pay or received a lesser amount of input tax credits than it was otherwise entitled to receive. As the partnership was not entitled to any input tax credits and only paid $7, $407 and $100 in GST in June 2009, September 2010 and March 2011 respectively, these were the only amounts 'overpaid' for the purposes of section 105-65. The Tribunal noted that, if it had jurisdiction, it would have decided to refuse to refund only those positive net amounts, totalling $514. | The Tribunal however did note that its findings in this regard were not based on a conclusion that section 105-65 applies only to positive net amounts. The Tribunal accepted the Commissioner's view that section 105-65 can apply to overpaid GST on individual supplies and, therefore, can apply in circumstances where a taxpayer reports a negative net amount for a tax period. | However, the Tribunal found that an amount of GST must have been \"overpaid\" in order for section 105-65 to apply. In that respect, the present case was to be distinguished from a case where a taxpayer has a negative net amount that involved the correct reporting of input tax credits but incorrect GST liability. In that case, the taxpayer would have overpaid GST because the refunds it received based on the correct input tax credits would have been less than the taxpayer would have otherwise been entitled to receive. However, a reduction in the input tax credits to which a taxpayer was never entitled (such as in the present case because it was not carrying on an enterprise in the relevant period) is not sufficient to constitute an overpayment. | Penalties | The Tribunal noted that the Commissioner formed the view that the Naidoo Partnership was liable to pay penalties at the rate of 50% on the basis that there had been recklessness as to the operation of the tax laws. Having regard to the facts of the case, the Tribunal was not satisfied that the taxpayer had discharged the onus of showing that the penalties imposed at that rate were excessive. Further, the Tribunal was not satisfied that the penalties imposed should be remitted to any extent. | However, the Tribunal ruled that the provisions of the TAA require the 50% penalties to be calculated in respect of the shortfall amount and, in this case, the shortfall is comprised of the amounts that were overpaid by the Commissioner to the Naidoo Partnership as GST refunds for the relevant tax periods. It followed that the total penalties were $8,438 (50% of $16,876) not $17,686.50 (50% of $35,373), as the Commissioner assessed.", "Issues_Decided": "Was the Naidoo partnership carrying on an enterprise?: The Tribunal found that the Naidoo Partnership was not carrying on an enterprise for the purposes of the GST Act in the relevant period as the activities engaged in by Mr Naidoo were not done by him in his capacity as a partner of the Naidoo Partnership or otherwise on behalf of the Partnership. The Tribunal found that Mr Naidoo provided these services in his capacity as a director and employee of Kesons. The Tribunal also found that the Naidoo Partnership did not undertake an activity or series of activities in the form of a business, in the relevant period. | Was the Commissioner correct in cancelling the GST registration of the Naidoo partnership?: The Tribunal found that, as the Naidoo Partnership was not carrying on an enterprise in the relevant period, the Commissioner was correct in cancelling its GST registration | Was the Naidoo partnership entitled to claim input tax credits?: The Tribunal determined that, as the Naidoo Partnership was not carrying on an enterprise at any stage during the relevant period, it did not have a creditable purpose in making the acquisitions and, therefore, did not make creditable acquisitions in the relevant period. Accordingly, the Tribunal held that the Naidoo Partnership was not entitled to claim input tax credits. | Was the Commissioner correct in assessing the net amount for each relevant tax period by reference to section 105-65?: The Commissioner argued that section 105-65 of Schedule 1 to the TAA is a necessary step in finally determining a taxpayer's liability in respect of GST and that it is, therefore, properly to be taken into account in an assessment of the taxpayer's net amount for each of the relevant tax periods. It is on that basis that the Commissioner assessed the Naidoo Partnership to positive net amounts for each of the relevant tax periods. The Tribunal found that the GST Act expressly provides for the working out of the net amount, a defined term, in a precise manner using clear and unambiguous language in subsection 17-5(1) of the GST Act. There are adjustments and special rules which affect the net amount, including those set out in subsection 17-5(2) and those listed in section 17-99, as well as in other Acts, such as the A New Tax System (Wine Equalisation Tax) Act 1999, but their implications for the calculation of the net amount are expressly indicated. The Tribunal further found (at paragraph 92) that \"The net amount in subsection 17-5(1) is worked out using the formula \"GST - input tax credits\" where, relevantly, GST is in turn defined as \"the sum of all of the GST for which you are liable on the *taxable supplies that are attributable to the tax period\". It does not factor into the net amount calculation, amounts of overpaid GST (that is, GST not on taxable supplies)\". The Tribunal concluded that, contrary to the Commissioner's approach, section 105-65 of Schedule 1 to the TAA is not a provision which allows the Commissioner to alter the net amount calculated under subsection 17-5(1) of the GST Act. The Tribunal found that section 105-65 cannot be taken into account in the determination of the net amount for a tax period, preferring the view that section 105-65 operates after the net amount for a tax period is calculated under the GST Act. The Tribunal further noted that, if an entity does not carry on an enterprise, then it cannot make \"taxable supplies\" nor \"creditable acquisitions\" even though it may still be registered for GST and have tax periods applying to it. Its GST liability must be zero and its ITC entitlement must also be zero. Accordingly, the Tribunal concluded that the net amount of the Naidoo Partnership for each of the tax periods from 1 April 2007 to 31 March 2011 was zero. | Jurisdiction: Having concluded that section 105-65 does not alter the determination of a taxpayer's net amount under the GST Act, and noting that section 105-65 does not contain any express provision allowing a taxpayer to object, the Tribunal found that it does not have jurisdiction to review the Commissioner's decision under section 105-65. The Tribunal noted that the taxpayer's review rights are limited to judicial review in proceedings brought in the Federal Court under section 39B of the Judiciary Act 1903 or the Administrative Decisions (Judicial Review) Act 1977. | Overpaid GST - are the conditions set out in subsection 105-65(1) satisfied?: The Tribunal did not accept the Commissioner's argument that the Naidoo Partnership \"overpaid\" GST in all of the relevant tax periods. The Tribunal took the view that the Naidoo Partnership could not have overpaid GST in circumstances where the GST liability was entirely offset by a claim for input tax credits that was also incorrectly reported. In those periods, where the GST liability was entirely offset and the partnership reported a negative net amount, the taxpayer did not receive a lesser amount of input tax credits than it would otherwise have been entitled to (as it was not entitled to any input tax credits), nor did it overpay GST in respect of any supply. The Tribunal decided that the partnership only overpaid GST in three tax periods in which it reported positive net amounts, and then only to the extent that it actually paid more GST than it was liable to pay or received a lesser amount of input tax credits than it was otherwise entitled to receive. As the partnership was not entitled to any input tax credits and only paid $7, $407 and $100 in GST in June 2009, September 2010 and March 2011 respectively, these were the only amounts 'overpaid' for the purposes of section 105-65. The Tribunal noted that, if it had jurisdiction, it would have decided to refuse to refund only those positive net amounts, totalling $514. The Tribunal however did note that its findings in this regard were not based on a conclusion that section 105-65 applies only to positive net amounts. The Tribunal accepted the Commissioner's view that section 105-65 can apply to overpaid GST on individual supplies and, therefore, can apply in circumstances where a taxpayer reports a negative net amount for a tax period. However, the Tribunal found that an amount of GST must have been \"overpaid\" in order for section 105-65 to apply. In that respect, the present case was to be distinguished from a case where a taxpayer has a negative net amount that involved the correct reporting of input tax credits but incorrect GST liability. In that case, the taxpayer would have overpaid GST because the refunds it received based on the correct input tax credits would have been less than the taxpayer would have otherwise been entitled to receive. However, a reduction in the input tax credits to which a taxpayer was never entitled (such as in the present case because it was not carrying on an enterprise in the relevant period) is not sufficient to constitute an overpayment. | Penalties: The Tribunal noted that the Commissioner formed the view that the Naidoo Partnership was liable to pay penalties at the rate of 50% on the basis that there had been recklessness as to the operation of the tax laws. Having regard to the facts of the case, the Tribunal was not satisfied that the taxpayer had discharged the onus of showing that the penalties imposed at that rate were excessive. Further, the Tribunal was not satisfied that the penalties imposed should be remitted to any extent. However, the Tribunal ruled that the provisions of the TAA require the 50% penalties to be calculated in respect of the shortfall amount and, in this case, the shortfall is comprised of the amounts that were overpaid by the Commissioner to the Naidoo Partnership as GST refunds for the relevant tax periods. It followed that the total penalties were $8,438 (50% of $16,876) not $17,686.50 (50% of $35,373), as the Commissioner assessed.", "ATO_View_of_Decision": "Other than in respect of the s 105-65 issue, the decision was consistent with the Commissioner's submissions. | The Commissioner has not appealed the Tribunal's decision that it does not have jurisdiction in respect of s 105-65. The Commissioner will adopt the Tribunal's view on this issue. | The effect of the decision is that section 105-65 does not alter the determination of a taxpayer's net amount under the GST Act, and the Tribunal does not have jurisdiction to review the Commissioner's decision under section 105-65. Where the taxpayer seeks a refund of overpaid GST but the Commissioner refuses to exercise his discretion under section 105-65 to pay a refund, taxpayers will not be able to seek review of this decision before the Tribunal. The taxpayer's review rights are limited to judicial review. | The Commissioner also accepts that section 105-65 does not apply to the extent that an additional amount of GST is included in the net amount reported by a taxpayer [1] , but the net amount itself is not overpaid [2] . For example, where the additional GST is offset in the net amount calculation by overclaimed input tax credits or other errors. In cases where a taxpayer is found not to have been carrying on an enterprise (so that its correct net amount for a tax period is zero), section 105-65 may apply to restrict a refund of any overpaid amount of GST, but only to the extent that the taxpayer has actually overpaid a positive net amount in a tax period. | Proposed legislative amendments | On 26 June 2013, a Bill was introduced into the House of Representatives, which if enacted would have repealed section 105-65 and replaced it with a new Division in the GST Act dealing with refunds of overpaid amounts of GST. | However, the Bill has now lapsed.", "Administrative_Treatment": "Section 105-65 decisions and review rights | Where a taxpayer is found to have overpaid GST in circumstances where section 105-65 applies, the taxpayer's assessment of net amount for the relevant tax period will be amended to reflect the correct net amount for the tax period. However, unless the Commissioner exercises his discretion to pay a refund under section 105-65, an adjustment will be made to the taxpayer's account to reflect the amount that is not being refunded because of the operation of section 105-65. | Where the Commissioner makes a decision refusing to exercise his discretion under section 105-65 to pay a refund, he will advise taxpayers of the decision and that they have a right to seek judicial review. | Taxpayers that have overpaid GST in circumstances where section 105-65 applies cannot self-assess the exercise of the discretion and would need to make a request, in writing , to the Commissioner seeking the exercise of that discretion. The request can be lodged via the GSTmail@ato.gov.au mailbox. If you have an Indirect Tax Client Relationship Manager, you may wish to let them know that you have lodged that request. | Where taxpayers self assess on a presumption that the Commissioner will exercise the discretion in their favour and the ATO processes the refund without regard to section 105-65, the Commissioner may recover the refund as an \"administrative overpayment\" pursuant to section 8AAZN of the TAA. | Notwithstanding that a decision by the Commissioner to exercise or refuse to exercise the discretion under section 105-65 cannot be reviewed in Part IVC proceedings concerning an assessment, the Commissioner will on request conduct an informal review of decisions involving the exercise of the Commissioner's discretion under section 105-65. However, taxpayers should be mindful of any time limits for commencing judicial review proceedings in respect of the Commissioner's original decision. | Application of section 105-65 to \"no enterprise\" cases | For those cases where a taxpayer is found to have not been carrying on an enterprise, the Commissioner will (subject to time limits) amend the assessment of their net amount for each tax period to zero. He will recover any refund of a negative net amount and, where appropriate, impose a shortfall penalty based on the amount of the refund. For those tax periods where the taxpayer returned a positive net amount, section 105-65 may apply to restrict a refund to the extent that the taxpayer has actually overpaid a positive net amount for a tax period. | Amounts erroneously claimed by the Commissioner in reliance of s 105-65 | The Commissioner's previous view about the application of section 105-65 may have resulted in the Commissioner having recovered an excess amount in certain cases where he determined that the taxpayer was not carrying on an enterprise. There are cases where the taxpayer incorrectly returned GST as payable and incorrectly claimed input tax credits: • In cases where the taxpayer reported a negative net amount, the Commissioner may have subsequently assessed the taxpayer for a positive net amount on the basis that the input tax credits should be disallowed but the GST should not be refunded because of section 105-65. However, on the basis of the decision in this case, the Commissioner would only be entitled to recover the overpaid refund, as the taxpayer's net amount for the tax period should be zero. • In cases where the taxpayer reported a positive net amount, the Commissioner may have assessed the taxpayer to a greater positive net amount, by denying input tax credits claimed, but not offsetting these credits by GST overpaid. However, on the basis of the decision in this case, the Commissioner should not have used section 105-65 to recover an additional amount. Rather, section 105-65 should only have restricted any refund to which the taxpayer may otherwise have been entitled. | • In cases where the taxpayer reported a negative net amount, the Commissioner may have subsequently assessed the taxpayer for a positive net amount on the basis that the input tax credits should be disallowed but the GST should not be refunded because of section 105-65. However, on the basis of the decision in this case, the Commissioner would only be entitled to recover the overpaid refund, as the taxpayer's net amount for the tax period should be zero. • In cases where the taxpayer reported a positive net amount, the Commissioner may have assessed the taxpayer to a greater positive net amount, by denying input tax credits claimed, but not offsetting these credits by GST overpaid. However, on the basis of the decision in this case, the Commissioner should not have used section 105-65 to recover an additional amount. Rather, section 105-65 should only have restricted any refund to which the taxpayer may otherwise have been entitled. | Taxpayers who think that they overpaid amounts to the Commissioner because of these sorts of circumstances may seek a refund of amounts incorrectly recovered by the Commissioner. The request for a refund can be lodged via the GSTmail@ato.gov.au mailbox. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | Following the decision of the Administrative Appeals Tribunal, the Commissioner has revised the views expressed in MT 2010/1 to reflect the Tribunal's conclusion that section 105-65 is not taken into account in determining a taxpayer's net amount and the circumstances where section 105-65 may apply to restrict a refund of an overpaid amount of GST. | Revised MT 2010/1 was published on 26 February 2014.", "Related_Documents": "MT 2010/1 | 2013 ATC 10-323 | s 7-1 | s 7-5 | s 7-10 | s 7-15 | s 9-5(b) | s 9-20 | s 11-5 | s 11-15 | s 17-5 | s 17-99 | s 23-5 | s 25-5 | s 25-55 | s 25-60 | s 8AAZLF | s 8AAZN | s 14ZZ | s 14ZZK | The Act | 2001 ATC 4111 | 2011 ATC 20-248 | 2011 ATC 20-292 | 2008 ATC 20-078 | 2003 ATC 4665 | 2011 ATC 20-268 | (1956) 98 CLR 263 | 2010 ATC 10-148 | 2011 ATC 10-177 | 2010 ATC 10-119 | 2011 ATC 10-213 | 2011 ATC 10-212 | 2013 ATC 1-052 | 2011 ATC 10-180", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 s 7-1 s 7-5 s 7-10 s 7-15 s 9-5(b) s 9-20 s 11-5 s 11-15 s 17-5 s 17-15 s 17-99 s 23-5 s 25-5 s 25-55 s 25-60 Taxation Administration Act 1953 s 8AAZLF s 8AAZN s 14ZZ s 14ZZK s 105-5 of Schedule 1 s 105-40 of Schedule 1 s 105-65 of Schedule 1 Administrative Appeals Tribunal Act 1975 s 25 Judiciary Act 1903 s 39B Administrative Decisions (Judicial Review) Act 1977 The Act", "Case_References": "BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164 2001 ATC 4111 (2001) 46 ATR 347 Commissioner of Taxation v Administrative Appeals Tribunal (2011) 191 FCR 400 [2011] FCAFC 37 2011 ATC 20-248 (2011) 82 ATR 663 Commissioner of Taxation v Multiflex Pty Ltd (2011) 197 FCR 580 [2011] FCAFC 142 2011 ATC 20-292 (2011) 82 ATR 153 Deputy Commissioner of Taxation v PM Developments Pty Ltd (2008) 173 FCR 247 [2008] FCA 1886 (2008) 70 ATR 741 2008 ATC 20-078 Hart v Federal Commissioner of Taxation (2003) 131 FCR 203 [2003] FCAFC 105 2003 ATC 4665 (2003) 53 ATR 371 International All Sports Ltd & Anor v Commissioner of Taxation [2011] FCA 824 (2011) 81 ATR 607 2011 ATC 20-268 McAndrew v Federal Commissioner of Taxation [1956] HCA 62 (1956) 98 CLR 263 Re Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 620 (2010) 76 ATR 390 2010 ATC 10-148 Re Cyonara Snowfox Pty Ltd and Commissioner of Taxation [2011] AATA 124 2011 ATC 10-177 (2011) 80 ATR 225 Re Luxottica Retail Australia Pty Ltd and Commissioner of Taxation [2010] AATA 22 (2010) 75 ATR 169 2010 ATC 10-119 Re MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd and Commissioner of Taxation [2011] AATA 769 2011 ATC 10-213 (2011) 84 ATR 334 Re National Jet Systems Pty Ltd and Commissioner of Taxation [2011] AATA 766 (2011) 82 ATR 740 2011 ATC 10-212 Re The Private Tutor and Commissioner of Taxation [2013] AATA 136 2013 ATC 1-052 Re Wynnum Holdings No 1 Pty Ltd and Commissioner of Taxation [2011] AATA 296 2011 ATC 10-180 (2011) 83 ATR 444", "Subject_References": "GST Enterprise Registration Input tax credits Net amounts", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012-0101-0111/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision including precedential documents and Law Administration Practice Statements | Updated to advise of a revision to MT 2010/1. | Footnotes: [1] In circumstances that would otherwise fall within the ambit of section 105-65(1)(a) and section 105-65(1)(b) | [2] Or the net amount that the Commissioner is required to refund to the taxpayer is not reduced"}
{"Case_Name": "Parliamentary Trustee of the Parliamentary Contributory Superannuation Fund v Commissioner of Taxation", "Venue_Reference_No": "VID 541 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "14 November 2013", "Date_Published": "4 February 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the superannuation contributions tax was constitutionally valid in its application to the trustee of a superannuation fund whose members are, or were, members of state parliament.", "Overview_of_Facts": "The taxpayer was the trustee of a defined benefits superannuation fund, whose members are or were members of the Victorian Parliament. | During the relevant period, the taxpayer reported and was assessed in relation to surchargeable contributions for its members. | The taxpayer lodged an objection against those assessments, submitting that the Commonwealth legislation [ Superannuation Contributions Tax Imposition Act 1997 and Superannuation Contributions Tax (Assessment and Collection) Act 1997 (collectively referred to a the \"Surcharge Acts\")] was invalid because it impaired, in a significant manner, the capacity of the State of Victoria to exercise its powers with respect to the remuneration of the members of its Parliament contrary to the requirements articulated by the High Court in Clarke v Federal Commissioner of Taxation (2009) 240 CLR 272 and Austin v The Commonwealth (2003) 215 CLR 185. | The Commissioner disallowed the objection. | At first instance, in Parliamentary Trustee of the Parliamentary Contributory Superannuation Fund v Federal Commissioner of Taxation (2012) 203 FCR 146; [2012] FCA 740, the Federal Court (Jessup J) dismissed the taxpayer's appeal. | Subsequently, the taxpayer appealed to the Full Court. | Issues decided by the court | The Full Court, in unanimously dismissing the taxpayer's appeal, determined that: • The Surcharge Acts were valid in their application to the taxpayer. • The Surcharge Acts imposed a tax of general application. There was nothing discriminatory in the surcharge legislation and nothing which restricts or burdens the state in the exercise of its constitutional powers. | • The Surcharge Acts were valid in their application to the taxpayer. • The Surcharge Acts imposed a tax of general application. There was nothing discriminatory in the surcharge legislation and nothing which restricts or burdens the state in the exercise of its constitutional powers.", "Issues_Decided": "The Full Court, in unanimously dismissing the taxpayer's appeal, determined that: • The Surcharge Acts were valid in their application to the taxpayer. • The Surcharge Acts imposed a tax of general application. There was nothing discriminatory in the surcharge legislation and nothing which restricts or burdens the state in the exercise of its constitutional powers. • The Surcharge Acts were valid in their application to the taxpayer. • The Surcharge Acts imposed a tax of general application. There was nothing discriminatory in the surcharge legislation and nothing which restricts or burdens the state in the exercise of its constitutional powers.", "ATO_View_of_Decision": "The decision accords with the ATO view.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not applicable", "Related_Documents": "Not applicable | [2013] FCAFC 127 | The Act | 2003 ATC 4042 | [2009] HCA 33 | (1947) 74 CLR 31 | [1971] HCA 16 | 2 ATR 249 | (1971) 122 CLR 353", "Legislative_References": "Australian Constitution Superannuation Contributions Tax Imposition Act 1997 (Cth) The Act Superannuation Contributions Tax (Assessment and Collection) Act 1997 (Cth) The Act", "Case_References": "Parliamentary Trustee of the Parliamentary Contributory Superannuation Fund v Commissioner of Taxation (2012) 203 FCR 146 Austin v The Commonwealth [2003] HCA 3 2003 ATC 4042 51 ATR 654 (2003) 215 CLR 185 Clarke v Federal Commissioner of Taxation [2009] HCA 33 72 ATR 868 (2009) 240 CLR 272 Melbourne Corporation v The Commonwealth [1947] HCA 26 (1947) 74 CLR 31 The State of Victoria v The Commonwealth [1971] HCA 16 2 ATR 249 (1971) 122 CLR 353", "Subject_References": "constitutional law superannuation contributions surcharge superannuation contributions tax commonwealth taxation powers superannuation provider - defined benefits", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID541of2012/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Penrowse Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2012/2571; 2012/2572", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "11 January 2013", "Date_Published": "9 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2013 ATC 10-292", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/2571;2012/2572/00001", "Unmatched_Content": "Penrowse Pty Ltd and Commissioner of Taxation [2013] AATA 10 2013 ATC 10-292 (2013) 87 ATR 703 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Picton Finance Limited and Commissioner of Taxation", "Venue_Reference_No": "2011/2379-2380", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "5 March 2013", "Date_Published": "24 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to a decision concerning the tax treatment of the profit on the sale of shares in an Australian publicly listed company which were bought and sold on behalf of a company incorporated in Vanuatu.", "Overview_of_Facts": "The Applicant was a company incorporated in Vanuatu. Its only activity was to invest in an Australian resident company. | Between September 2004 and October 2007, the Applicant acquired a substantial number of shares in the Australian resident company in three off market transactions. From about May to October 2007, the Applicant sold most of those shares in another three off market transactions. | Between August 2007 and April 2008, the Applicant bought and sold more shares in the Australian resident company on the Australian Stock Exchange. The transactions were carried out by an Australian stockbroker. | The Commissioner issued default assessments under section 167 of the Income Tax Assessment Act (ITAA 1936) to the Applicant for the 2007 and 2008 income tax years and imposed penalties. The Applicant was assessed on the profit from the sale of the shares, on the basis that it was Australian sourced income derived in the course of a share trading business, or otherwise for the purpose of profit making. | The Applicant objected to the Commissioner's assessments. The Commissioner disallowed the Applicant's objection to the 2007 income year but partly allowed the objection to the 2008 income year. The Applicant applied to the AAT for a review of the objection decision. | Issues decided by the court | The Tribunal set aside the decision under review in relation to the 2007 tax year and remitted to the Commissioner for redetermination in accordance with the Tribunal's reasons. The decision under review in relation to the 2008 tax year was affirmed. | The Tribunal found that the profit was assessable income of the Applicant for both income years on the basis that the profit on the sale of the shares was derived as part of a profit-making undertaking or scheme. However, on the basis of information made available at and after the hearing, the Tribunal found that the incorrect value was used for the cost of the shares for the 2007 year. This affected the amount of profit to which the Applicant was assessable. | The Tribunal concluded that the penalties had been correctly imposed. The Tribunal also found that there were no grounds for remitting the penalty - but noted that the penalty would be reduced upon the amendment of the 2007 assessment to take account of the AAT decision.", "Issues_Decided": "The Tribunal set aside the decision under review in relation to the 2007 tax year and remitted to the Commissioner for redetermination in accordance with the Tribunal's reasons. The decision under review in relation to the 2008 tax year was affirmed. The Tribunal found that the profit was assessable income of the Applicant for both income years on the basis that the profit on the sale of the shares was derived as part of a profit-making undertaking or scheme. However, on the basis of information made available at and after the hearing, the Tribunal found that the incorrect value was used for the cost of the shares for the 2007 year. This affected the amount of profit to which the Applicant was assessable. The Tribunal concluded that the penalties had been correctly imposed. The Tribunal also found that there were no grounds for remitting the penalty - but noted that the penalty would be reduced upon the amendment of the 2007 assessment to take account of the AAT decision.", "ATO_View_of_Decision": "The decision of the Tribunal was based solely on the facts in this particular case. It should not create a precedent for cases in the future.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not applicable", "Related_Documents": "Not applicable | 2013 ATC 10-298 | s 6 | s 167 | s 70-10 | s 70-30 | s 70-45 | s 14ZZK | s 284-75 | s 284-90 | s 284-220 | s 298-20 | The Act | (1946) 180 CLR 9 | (2008) 69 ATR 567 | [2008] FCA 48 | 77 ATC 4096 | [1900] AC 588 | (1929) 42 CLR 332 | 72 ATC 4076 | 90 ATC 4088 | (1927) 39 CLR 468 | 78 ATC 4104 | (1943) 68 CLR 525 | 2012 ATC 20-325 | 75 ATC 4257 | (1952) 86 CLR 183 | [1908] AC 46 | 79 ATC 4133 | 79 ATC 4111 | (1918) 25 CLR 183 | (1957) 98 CLR 93 | (1938) 59 CLR 194 | 88 ATC 4886", "Legislative_References": "Income Tax Assessment Act 1936 s 6 s 167 Income Tax Assessment Act 1997 s 70-10 s 70-30 s 70-45 Taxation Administration Act 1953 s 14ZZK s 284-75 s 284-90 s 284-220 s 298-20 Tax Laws Amendment (2010 Measures No. 1) Act 2010 The Act", "Case_References": "Australian Machinery and Investment Company Limited v Deputy Commissioner of Taxation (1946) 180 CLR 9 BAE Systems Australia (NSW) Pty Ltd v Federal Commissioner of Taxation (2008) 69 ATR 567 [2008] FCA 48 Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 (1977) 7 ATR 251 77 ATC 4096 Commissioner of Taxation v Kirk [1900] AC 588 Commissioner of Taxation (WA) v D & W Murray Limited (1929) 42 CLR 332 Esquire Nominees Ltd v Federal Commissioner of Taxation [1973] HCA 67 129 CLR 177 3 ATR 105 72 ATC 4076 Federal Commissioner of Taxation v Dalco [1990] HCA 3 168 CLR 614 90 ALR 341 20 ATR 1370 90 ATC 4088 Federal Commissioner of Taxation v Lewis Berger & Sons (Australia) Limited (1927) 39 CLR 468 Federal Commissioner of Taxation v St Hubert's Island (in liquidation) (1978) 138 CLR 210 78 ATC 4104 8 ATR 452 Federal Commissioner of Taxation v United Aircraft Corporation (1943) 68 CLR 525 Gashi v Commissioner of Taxation 2012 ATC 20-325 [2012] FCA 638 Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 5 ATR 672 75 ATC 4257 George v Federal Commissioner of Taxation (1952) 86 CLR 183 Lovell & Christmas Limited v Commissioner of Taxes [1908] AC 46 Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217 9 ATR 638 79 ATC 4133 McCormack v Federal Commissioner of Taxation (1978-1979) 143 CLR 284 [1979] HCA 18 9 ATR 610 79 ATC 4111 Mount Morgan Gold Mining Company Ltd v Commissioner of Income Tax (Queensland) (1922-1923) 33 CLR 76 Nathan v Federal Commissioner of Taxation (1918) 25 CLR 183 Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd (1957) 98 CLR 93 Tariff Reinsurances Limited v Commissioner of Taxes (Vic.) (1938) 59 CLR 194 Thorpe Nominees Pty Ltd v Federal Commissioner of Taxation (1988) 19 ATR 1834 88 ATC 4886", "Subject_References": "Income tax Income Foreign income Shares Acquisition of shares Disposal of shares Securities as trading stock Trading stock valuation Income tax penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011-2379-2380/00001", "Unmatched_Content": "This decision has no impact for the ATO including precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Professional Admin Service Centres Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 449 o f2010", "Venue": "Federal Court of Australia", "Judgment_Date": "1 November 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2013 ATC 20-424", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD449of2010/00001", "Unmatched_Content": "Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123 2013 ATC 20-424 (2013) 94 ATR 445 | The adverse aspects of the decision have no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Rawson Finances Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 1067 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "5 March 2013", "Date_Published": "22 July 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to a decision of the Full Federal Court, about whether the AAT erred in law in deciding that the taxpayer sufficiently discharged its onus of proof to establish that the relevant transactions were pursuant to a loan arrangement.", "Overview_of_Facts": "During the 1997 and 1998 income years, the taxpayer received a total of $4.75 million from Mercantile Discount Bank of Israeli (Bank). | From 1997 until 2008, the taxpayer made sporadic payments to the Bank and claimed interest deductions. The documentation in support of the purported loans was limited. There were no loan documents, no security, no guarantee, and no consistent stream of payment amounts. The payments that were made were inconsistent with the alleged rate of interest. | The taxpayer's evidence consisted of some correspondence between the Bank and the taxpayer during the course of the purported loan. The taxpayer had several witnesses, two of which, a former employee of the Bank and an expert as to Israeli banking law, were unavailable for cross-examination. | The Tribunal found that the funds received by the taxpayer from the Bank were loans and that the payments made were allowable deductions. | The Commissioner appealed to the Federal Court on the basis that the factual findings and inferences made by the Tribunal were not open to it; and that the Commissioner had been denied procedural fairness before the Tribunal, for example by the admission into evidence of statements of witnesses who were unavailable for cross-examination by the Commissioner. The Commissioner also relied on the ground that the Tribunal had erroneously reversed the taxpayer's onus of proof under subparagraph 14ZZK (b)(i) of the TAA 1953. | In the Federal Court, Edmonds J reversed the Tribunal's decision, allowing the Commissioner's appeal. His Honour's decision was based on a finding that the Tribunal had erred in law in applying subparagraph 14ZZK (b)(i) and that there were fundamental deficiencies in the taxpayer's evidence such that the Tribunal's finding was not open on the evidence. | The taxpayer then appealed to the Full Federal Court. | Issues decided by the court | The taxpayer's grounds of appeal were that: • there were fundamental deficiencies in the taxpayer's evidence and the taxpayer had not discharged its onus of proof, in essence because the finding that there was a loan was not open on the facts. • the Tribunal erred in law in applying subparagraph 14ZZK (b)(i) of the TAA 1953, with the effect that the onus provisions had been reversed. | • there were fundamental deficiencies in the taxpayer's evidence and the taxpayer had not discharged its onus of proof, in essence because the finding that there was a loan was not open on the facts. • the Tribunal erred in law in applying subparagraph 14ZZK (b)(i) of the TAA 1953, with the effect that the onus provisions had been reversed. | The Commissioner filed a Notice of Contention that the Commissioner was denied procedural fairness; characteristics of the alleged loan were ignored; the finding that the loan was genuine was so unreasonable that no reasonable decision-maker would have made it; material facts in relation to the interest payments were ignored; the process of reasoning was so illogical and irrational that it was an error of law. | Jagot J, with whom Nicholas J agreed, and Jessup J allowed the taxpayer's appeal. The plurality agreed there was no procedural fairness.", "Issues_Decided": "The taxpayer's grounds of appeal were that: • there were fundamental deficiencies in the taxpayer's evidence and the taxpayer had not discharged its onus of proof, in essence because the finding that there was a loan was not open on the facts. • the Tribunal erred in law in applying subparagraph 14ZZK (b)(i) of the TAA 1953, with the effect that the onus provisions had been reversed. • there were fundamental deficiencies in the taxpayer's evidence and the taxpayer had not discharged its onus of proof, in essence because the finding that there was a loan was not open on the facts. • the Tribunal erred in law in applying subparagraph 14ZZK (b)(i) of the TAA 1953, with the effect that the onus provisions had been reversed. The Commissioner filed a Notice of Contention that the Commissioner was denied procedural fairness; characteristics of the alleged loan were ignored; the finding that the loan was genuine was so unreasonable that no reasonable decision-maker would have made it; material facts in relation to the interest payments were ignored; the process of reasoning was so illogical and irrational that it was an error of law. Jagot J, with whom Nicholas J agreed, and Jessup J allowed the taxpayer's appeal. The plurality agreed there was no procedural fairness.", "ATO_View_of_Decision": "There are no significant implications from the decision on other cases as the decision turned on its particular facts in relation to the characteristics of the loan.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not applicable.", "Related_Documents": "Not applicable | 2013 ATC 20-374 | s 14ZZK | [2011] AATA 932 | 170 CLR 321 | 77 ATC 4096 | [1972] HCA 59 | 128 CLR 305 | [2000] NSWCA 29 | 2007 ATC 2218 | 193 FCR 260 | [2011] FCAFC 76 | 122 ALD 49 | [2011] ALMD 5260", "Legislative_References": "Taxation Administration Act 1953 (Cth) s 14ZZK Administrative Appeals Tribunal Act 1975 (Cth) s 33 s 44", "Case_References": "Areffco v Commissioner of Taxation [2011] AATA 932 56 AAR 263 125 ALD 340 Australian Broadcasting Tribunal v Bond [1990] HCA 33 170 CLR 321 64 ALJR 462 21 ALD 1 94 ALR 11 Bailey v Commissioner of Taxation [1997] HCA 11 136 CLR 214 51 ALJR 429 7 ATR 251 13 ALR 41 77 ATC 4096 Parramatta City Council v Pestell [1972] HCA 59 128 CLR 305 46 ALJR 662 27 LGRA 72 [1972-73] ALR 811 Seltsam Pty Ltd v McGuiness [2000] NSWCA 29 49 NSWLR 262 [2000] Aust Torts Reports 63,565 (81-547) 19 NSWCCR 385 Re Sharkey v Commissioner of Taxation [2007] AATA 1435 66 ATR 878 95 ALD 509 2007 ATC 2218 [2008] ALMD 441 Tisdall v Webber 193 FCR 260 [2011] FCAFC 76 122 ALD 49 [2011] ALMD 5260", "Subject_References": "Offshore loans Burden of proof Error of law Procedural fairness", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1067of2012/00001", "Unmatched_Content": "This decision has no impact for the ATO including precedential documents and Law Administration Practice Statements and is the application of settled principles to the facts of this case."}
{"Case_Name": "Retirement Village Operator and Commissioner of Taxation", "Venue_Reference_No": "2012/5734-5737", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "13 December 2013", "Date_Published": "28 November 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's approach to this decision, which concerns whether certain payments made by the retirement village operator to outgoing residents are deductible to the retirement village operator under section 8-1 of the Income Tax Assessment Act 1997 .", "Overview_of_Facts": "The taxpayer owns a number of retirement villages. This matter concerned payments made to outgoing residents (or their legal personal representative) of one retirement village. | Under the terms of the resident licence agreement entered into with the resident, upon cessation of the residency, the taxpayer was required to make a payment to the resident (or their legal personal representative) that represented a share of any increase in the entry price payable by a new resident (that is, the difference between the entry price paid by the outgoing resident and the entry price payable by the new resident). | The taxpayer argued that these payments were deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) because they were incurred in gaining or producing assessable income or were necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income and they were amounts that were not capital or of a capital nature. Alternatively, the taxpayer argued that the payments were deductible under subsection 25-110(1) or section 40-880 of the ITAA 1997. Alternatively, the taxpayer argued that the payments were included in the cost base of a CGT asset. | The Commissioner argued that these payments were not deductible under section 8-1 of the ITAA 1997 because they were not incurred in gaining or producing assessable income or were not necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income or they were amounts that were capital or of a capital nature. The Commissioner also argued that the payments were not deductible under subsection 25-110(1) or section 40-880 of the ITAA 1997 and the cost base issue was not a matter for deliberation until the retirement village had been sold. | Issues Decided Tribunal | Deductibility of the payments under section 8-1 of the ITAA 1997 | The Tribunal found that the payments were an ordinary part of the carrying on of the taxpayer's retirement village business and thus necessarily incurred in carrying on that business. It is enough that the payments are necessarily incurred in the carrying on of the business without having to tie any particular payment to any particular receipt. Further, the Tribunal also found that the payments were to enable the taxpayer to carry on a business of the provision of retirement village accommodation. | Consequently, the Tribunal found that the payments were necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income and came within paragraph 8-1(1)(b) of the ITAA 1997. | In relation to the issue as to whether the payments were a loss or outgoing of capital or of a capital nature, the Tribunal found that the payments were made as part of a single package of contractual rights made to residents, forming part of the taxpayer's obligations as the retirement village operator. As such, the Tribunal found the payments to be part and parcel of the process designed to generate income for the taxpayer. The Tribunal also found that the payments were recurring expenses in the sense that they are part of the constant demand that is placed upon the taxpayer in relation to its retirement village business and should be appropriately viewed as being ordinarily on revenue account. | Consequently, the Tribunal found that the payments were not a loss or outgoing of capital or of a capital nature and did not come within paragraph 8-1(2)(a) of the ITAA 1997. | Therefore, the Tribunal found that the payments were deductible to the taxpayer under section 8-1 of the ITAA 1997. | Consideration of the other issues | As the Tribunal found that the payments were deductible under section 8-1 of the ITAA 1997, it was unnecessary for the Tribunal to consider the other grounds for deductibility of the payments and the cost base issue.", "Issues_Decided": "Deductibility of the payments under section 8-1 of the ITAA 1997: The Tribunal found that the payments were an ordinary part of the carrying on of the taxpayer's retirement village business and thus necessarily incurred in carrying on that business. It is enough that the payments are necessarily incurred in the carrying on of the business without having to tie any particular payment to any particular receipt. Further, the Tribunal also found that the payments were to enable the taxpayer to carry on a business of the provision of retirement village accommodation. Consequently, the Tribunal found that the payments were necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income and came within paragraph 8-1(1)(b) of the ITAA 1997. In relation to the issue as to whether the payments were a loss or outgoing of capital or of a capital nature, the Tribunal found that the payments were made as part of a single package of contractual rights made to residents, forming part of the taxpayer's obligations as the retirement village operator. As such, the Tribunal found the payments to be part and parcel of the process designed to generate income for the taxpayer. The Tribunal also found that the payments were recurring expenses in the sense that they are part of the constant demand that is placed upon the taxpayer in relation to its retirement village business and should be appropriately viewed as being ordinarily on revenue account. Consequently, the Tribunal found that the payments were not a loss or outgoing of capital or of a capital nature and did not come within paragraph 8-1(2)(a) of the ITAA 1997. Therefore, the Tribunal found that the payments were deductible to the taxpayer under section 8-1 of the ITAA 1997. | Consideration of the other issues: As the Tribunal found that the payments were deductible under section 8-1 of the ITAA 1997, it was unnecessary for the Tribunal to consider the other grounds for deductibility of the payments and the cost base issue.", "ATO_View_of_Decision": "The Tribunal concluded that such payments were properly characterised as an ordinary part of carrying on the business and were not capital or of a capital nature and therefore deductible under section 8-1 of the ITAA 1997. This is contrary to the ATO view currently expressed in paragraph 50 of TR 2002/14 that these payments are capital in nature and are therefore not deductible. | Accordingly, the ATO has issued an addendum to replace the view that was expressed in paragraph 50 of TR 2002/14 with a new paragraph to reflect the Tribunal's decision.", "Administrative_Treatment": "Implications for impacted ATO precedential documents (Public Rulings and Determinations) | The ATO has issued an addendum to replace the view that was expressed in paragraph 50 of TR 2002/14 with a new paragraph to confirm that, where a retirement village operator makes a payment to an outgoing resident (or to their legal personal representative) that represents a share of any increase in the entry price payable by a new resident (that is, the difference between the initial entry price paid by the outgoing resident and the entry price payable by the new resident), such payments are deductible under section 8-1 of the ITAA 1997. | As a result of this new paragraph, taxpayers may request the Commissioner to amend an assessment subject to section 170 of the Income Tax Assessment Act 1936. Any such amendment request can be made through: • the Business Portal • a Registered tax agent or, • by post to Australian Taxation Office PO Box 3004 PENRITH NSW 2740 | • the Business Portal • a Registered tax agent or, • by post to Australian Taxation Office PO Box 3004 PENRITH NSW 2740 | [1] ATS Pacific Pty Ltd v Commissioner of Taxation [2013] FCA 341, at paragraphs 123 and 149. | [2] Paragraph 38 (Edmonds J) | [3] Paragraph 43 (Edmonds J) | [4] Paragraph 29 (Edmonds J) | [5] Paragraph 29 (Edmonds J) | [6] Paragraph 39 (Edmonds J) | [7] Paragraph 40 (Edmonds J) | [8] Paragraph 37 (Edmonds J) | [9] Paragraph 72 (Pagone J) | [10] Paragraph 32 (Edmonds J) | [11] Paragraphs 50 to 52 (Edmonds J), and noting that subsection 38-190(1) does not apply to supplies of goods or real property. | [12] Paragraph 53, 54, 57 and 58 (Edmonds J) | [13] Paragraph 56 (Edmonds J), noting that in the present case the supply from ATS is not the same as the supply provided to the NR tourist (which it must be in order for subsection 38-190(3) to apply). | [14] Paragraph 61 (Edmonds J) | [15] The court, at paragraph 64, cited Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 in noting that the question of 'whether there is one or two supplies and if there are two, ... whether one is ancillary or incidental to the other... has to be approached from a practical and business point of view'. | [16] Paragraph 64 (Edmonds J) | [17] The court referred in particular to the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998, at 12; and to the 'non-resident tour operator amendments' made to the GST Act in 2005 and the description of the intention of these amendments contained in a journal article authored by Professor Rebecca Millar ( GST on Package Tours to Australia , (2014) Int VAT Mon 16). | [18] Paragraph 65 (Edmonds J), in which the court also noted that 'under the primary judge's conclusion on the fundamental issue on the cross-appeals, a cost element (ATS' mark-up) of the NR Tourists' consumption of the Products was excluded from the tax base'. | [19] Published on 6 September 2013 (and which can be accessed at: http://law.ato.gov.au/atolaw/view.htm?DocID=LIT/ICD/NSD1730of2010-NSD235of2011/00001 . | [20] This is unless there is a specific provision in the GST Act which makes the supply GST-free or input taxed (the supply of a right to, or promise of, accommodation in certain serviced apartments may, for example, be input taxed by virtue of subsection 9-30(2) and section 40-35). | [21] In the case of the Australian Provider's dealing with the NR tourist, this would be the 'provision' of the relevant Product. | [22] The Commissioner's views on agency in a GST context are set out in Goods and Service Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law . | [23] Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts . | [24] Goods and services tax: the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999. | [25] Goods and services tax: Supplies. | [26] Goods and services tax: Is a supply of rights to accommodation a supply of real property for the purposes of the A New Tax System (Goods and Services Tax) Act 1999/", "Related_Documents": "Taxation Ruling TR 2002/14 Income tax: taxation of retirement village operators | 2013 ATC 1-061 | [1] | [2] | [3] | [4] | [5] | [6] | [7] | [8] | [9] | [10] | [11] | [12] | [13] | [14] | [15] | [16] | [17] | [18] | [19] | http://law.ato.gov.au/atolaw/view.htm?DocID=LIT/ICD/NSD1730of2010-NSD235of2011/00001 | [20] | [21] | [22] | [23] | [24] | [25] | [26] | section 8-1 | subsection 25-110(1) | section 40-880 | section 110-25 | 2006 ATC 4404 | 2008 ATC 20-064 | (1946) 72 CLR 634 | (1990) 90 ATC 4413 | 2009 ATC 20-109 | (1938) 61 CLR 337 | 74 ATC 4169 | 2011 ATC 1-031 | (1949) 78 CLR 47 | (1949) 8 ATD 431 | (1938) 59 CLR 729", "Legislative_References": "Income Tax Assessment Act 1997 section 8-1 subsection 25-110(1) section 40-880 section 110-25", "Case_References": "Federal Commissioner of Taxation v Citylink Melbourne Ltd (2006) 228 CLR 1 (2006) 62 ATR 648 2006 ATC 4404 Federal Commissioner of Taxation v Day (2008) 236 CLR 163 2008 ATC 20-064 (2008) 70 ATR 14 Hallstroms Pty Ltd v Federal Commissioner of Taxation [1946] HCA 34 (1946) 72 CLR 634 (1946) 8 ATD 190 (1946) 3 AITR 436 G.P. International Pipecoaters Pty Ltd v Federal Commissioner of Taxation [1990] HCA 25 (1990) 170 CLR 124 (1990) 90 ATC 4413 (1990) 21 ATR 1 Spriggs v Federal Commissioner of Taxation [2009] HCA 22 (2009) 239 CLR 1 2009 ATC 20-109 (2009) 72 ATR 148 Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337 (1938) 1 AITR 353 (1938) 5 ATD 23 RACV Insurance Pty Ltd v Federal Commissioner of Taxation (1974) 4 ATR 610 74 ATC 4169 The Retirement Village Company v Commissioner of Taxation [2011] AATA 298 2011 ATC 1-031 (2011) 83 ATR 757 Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47 (1949) 8 ATD 431 (1949) 4 AITR 236 Western Gold Mines NL v Commissioner of Taxation (WA) (1938) 59 CLR 729 (1938) 4 ATD 453", "Subject_References": "Income tax Deductions Losses or outgoings Carrying on a business Purpose of gaining or producing assessable income Capital or of a capital nature Retirement villages", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/*2013*AATA887/00001", "Unmatched_Content": ""}
{"Case_Name": "Rod Mathiesen Truck Hire Pty Ltd as trustee for the Mathiesen Family Trust and Commissioner of Taxation", "Venue_Reference_No": "2013/0341 and 2013/0342", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "15 July 2013", "Date_Published": "9 September 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns a loan/vendor financing agreement, and whether the vendor of land received all of the consideration at settlement for the purposes of the attribution rules in s 29-5 of the GST Act .", "Overview_of_Facts": "By a contract for sale dated 14 March 2008, the taxpayer agreed to sell property to the Purchaser for $3,177,650 plus GST. The Purchaser, prior to settlement, notified the Taxpayer that it was unable to pay the whole amount of the purchase price at settlement. | On settlement on 16 May 2008, the taxpayer received from the Purchaser $2,017,885 by way of cheques and entered into a Settlement Balance Facility Agreement ('SBFA') with the purchaser for the balance of $1,498,682.69. The taxpayer secured payment of the balance owing by the Purchaser with a mortgage over the Property. | On settlement, the Property was transferred in favour of the Purchaser capable of immediate registration. The transfer instrument recorded the consideration of $3,495,403.50. | The taxpayer issued a tax invoice to the Purchaser for $3,495,288.50, including $317,753.50 in GST with a description of the supply as \"sale of vacant land...\". | The taxpayer did not receive any amount of the balance owing or accrued interest from the Purchaser by 30 June 2008 as required under the SBFA. On 23 February 2009, the taxpayer and the Purchaser entered into a Deed of Variation. | The parties agreed under the Deed of Variation that in place of the Purchaser paying the balance of $1,498,682.69 and interest, the Purchaser would pay the taxpayer $500,000 within 21 days and transfer to the taxpayer three developed lots. | On 23 February 2009 the Purchaser paid to the taxpayer $500,000 by cheque. | The taxpayer was notified by letter dated 12 May 2011 that Westpac was exercising its power of sale as mortgagee in possession over the property. The taxpayer was notified by letter dated 18 May 2012 that there would be insufficient funds available from the sale of the Property to distribute any amount to the taxpayer. The taxpayer did not receive any developed lots from the Purchaser per the Deed of Variation. | The taxpayer accounted for GST on a cash basis. | Issues decided by the court | - Character of the Settlement Balance Facility Agreement | The Tribunal determined that having regard to the objective intention of the parties derived from the document itself the Settlement Balance Facility Agreement provided for a loan from the taxpayer to the purchaser where the obligation to advance the loan monies was set-off at settlement against the Purchaser's obligation to pay for the property. | - Whether the contract for sale was a sale on credit? | The Tribunal found at [23] that there is a clear distinction between a sale on credit and the dealings between the taxpayer and the Purchaser. The contract for sale did not provide for any form of credit and it was not varied to do so. | - Whether the \"loan\" from the taxpayer to the Purchaser was ancillary and incidental to the Purchaser's obligation to pay the purchase price under the contract for sale and whether the extension of credit merely facilitated the proper performance of the contract for supply of the Property? | At [26], Deputy President Molloy stated that he did not accept that the loan, or creation of the loan debt, between the taxpayer and the Purchaser was incidental or ancillary to the supply of the Property under the contract for sale. The contract of sale and the loan were distinct transactions. | - Whether all of the consideration in relation to the sale of the Property was received by the taxpayer at the time of settlement on 16 May 2008? | The Tribunal concluded at [28] that for the purposes of the GST Act, all of the consideration in relation to the sale of the Property was received by the taxpayer at the time of settlement on 16 May 2008. Consideration consisted of the cheques totalling $2,017,885 provided by the Purchaser to the taxpayer at settlement plus $1,477,520 provided for under the Settlement Balance Facility.", "Issues_Decided": "- Character of the Settlement Balance Facility Agreement The Tribunal determined that having regard to the objective intention of the parties derived from the document itself the Settlement Balance Facility Agreement provided for a loan from the taxpayer to the purchaser where the obligation to advance the loan monies was set-off at settlement against the Purchaser's obligation to pay for the property. - Whether the contract for sale was a sale on credit? The Tribunal found at [23] that there is a clear distinction between a sale on credit and the dealings between the taxpayer and the Purchaser. The contract for sale did not provide for any form of credit and it was not varied to do so. - Whether the \"loan\" from the taxpayer to the Purchaser was ancillary and incidental to the Purchaser's obligation to pay the purchase price under the contract for sale and whether the extension of credit merely facilitated the proper performance of the contract for supply of the Property? At [26], Deputy President Molloy stated that he did not accept that the loan, or creation of the loan debt, between the taxpayer and the Purchaser was incidental or ancillary to the supply of the Property under the contract for sale. The contract of sale and the loan were distinct transactions. - Whether all of the consideration in relation to the sale of the Property was received by the taxpayer at the time of settlement on 16 May 2008? The Tribunal concluded at [28] that for the purposes of the GST Act, all of the consideration in relation to the sale of the Property was received by the taxpayer at the time of settlement on 16 May 2008. Consideration consisted of the cheques totalling $2,017,885 provided by the Purchaser to the taxpayer at settlement plus $1,477,520 provided for under the Settlement Balance Facility.", "ATO_View_of_Decision": "The findings made by the Tribunal are consistent with principles set out in GSTRs 2001/8, 2003/12 and GSTD 2004/4, and are consistent with the submissions that the Commissioner made to the Tribunal, in this case, that: - for a taxpayer that accounts on a cash basis, attribution of GST or an input tax credit is determined by the meaning of 'consideration' and whether 'consideration' was received or provided and not by reference to the ordinary meaning of 'cash'; - in a vendor financing arrangement, consideration is received by a supplier on set-off of the loan against amounts owing to the supplier by the purchaser; - the postponement of payment of a debt does not constitute a loan where the recipient remains obliged to pay for the supply under the original supply contract; and - where there is a contract for sale of land and a vendor financing agreement, the financing agreement is not ancillary or incidental to the contract for the sale of land. | - for a taxpayer that accounts on a cash basis, attribution of GST or an input tax credit is determined by the meaning of 'consideration' and whether 'consideration' was received or provided and not by reference to the ordinary meaning of 'cash'; - in a vendor financing arrangement, consideration is received by a supplier on set-off of the loan against amounts owing to the supplier by the purchaser; - the postponement of payment of a debt does not constitute a loan where the recipient remains obliged to pay for the supply under the original supply contract; and - where there is a contract for sale of land and a vendor financing agreement, the financing agreement is not ancillary or incidental to the contract for the sale of land.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "None | 2013 ATC 10-327 | GSTR 2001/8 | GSTR 2003/12 | GSTD 2004/4 | s 9-15 | s 29-5(2)", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 s 9-15 s 29-5(2)", "Case_References": "", "Subject_References": "Goods and Services Tax Sale of property Consideration Vendor finance agreement", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013-0341;2013-0342/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Sanctuary Lakes Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 520 of 2012 and VID 521 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "24 May 2013", "Date_Published": "11 June 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the taxpayer was entitled to various deductions and whether related penalties were properly imposed and remitted.", "Overview_of_Facts": "The taxpayer was involved in the development of the Sanctuary Lakes Resort, a residential development located in Point Cook, Victoria. Various related entities, including the taxpayer, were responsible for different functions of the development, and, in doing so, entered into a number of agreements. In its tax return for the 2003 income year, the taxpayer claimed deductions for losses and outgoings said to have been incurred under the various agreements. | After an ATO audit into the taxpayer's involvement in the development, the Commissioner issued an amended assessment to the taxpayer, disallowing a number of the deductions claimed. The Commissioner also assessed the taxpayer to a 25% administrative penalty on alternative bases - in relation to 3 issues, on the basis that the taxpayer or its agent failed to take reasonable care in filing its 2003 return; and, in relation to 2 issues, on the basis that the taxpayer did not have a reasonably arguable position (RAP). | On review, the AAT (DP Forgie) agreed with the Commissioner that the taxpayer was not entitled to any of the deductions in dispute: [2012] AATA 404. The AAT also decided that the various tax shortfalls resulted from a failure by the taxpayer or its agent to take reasonable care. However, the AAT decided to fully remit the penalty payable in relation to one of the issues in dispute, on the basis that the taxpayer had a RAP on the issue. | Both parties appealed to the Federal Court from the decision of the AAT. In his appeal, the Commissioner argued that the basis of the AAT's decision to remit penalty payable was inconsistent with the decision of the Court in FC of T v Traviati (2012) 205 FCR 136. The Full Federal Court dismissed both appeals. On 8 November 2013, Crennan and Bell JJ refused special leave to the taxpayer to appeal to the High Court from the decision of the Full Court. The Commissioner did not seek special leave to appeal to the High Court. | Issues decided by the court | The Full Federal Court dismissed the taxpayer's appeal. The Court found that both claimed losses were of capital or of a capital nature, and agreed with the AAT that the claimed outgoing was not incurred by the taxpayer in the 2003 income year (paragraphs 111-130). In relation to the penalty issues, the Court (agreeing with Traviati ) rejected the taxpayer's argument that it necessarily follows that the taxpayer and its agent must have taken reasonable care if it had a RAP (paragraph 150). As having a RAP and taking reasonable care are independent statutory standards, there is no reason to suppose that the application of the reasonable care test must include a consideration of whether a taxpayer has a RAP (paragraph 151). | The Court also dismissed the Commissioner's appeal. In disagreeing with the view expressed in Traviati , the Court held that the AAT did not take into account an irrelevant consideration, in exercising its discretion to remit penalty under section 298-20 of Schedule 1 to the Taxation Administration Act 1953 (TAA), in considering the fact that the taxpayer had a RAP on the deduction issue in dispute (paragraph 225). By majority (Edmonds and Griffiths JJ, Greenwood J dissenting), the Court also found that the AAT did not apply the wrong test under section 298-20. The AAT acknowledged that there needed to be circumstances that could mitigate the taxpayer's failure to take reasonable care, and appreciated that the particular circumstances of the taxpayer were relevant to its decision (paragraphs 273-5). | Griffiths J noted that section 298-20 is unconfined in its terms, and that the scheme of Divisions 284 and 298 does not preclude a consideration of the fact of a RAP from the exercise of the discretion in that section (paragraphs 227 and 240). While the power under section 298-20 requires consideration of the particular circumstances of a taxpayer, the fact that the taxpayer in this case had a RAP on the construction of contractual provisions to which it was a party is a matter which necessarily relates to its particular circumstances (paragraph 251). | His Honour also noted that the decision in Traviati erred in reading the earlier Full Court decision in Dixon v FC of T (2008) 167 FCR 287 as requiring a decision maker under section 298-20 to determine whether it is harsh in the particular circumstances of a taxpayer to impose the penalty. The correct question under section 298-20 is not expressed in terms of 'harshness', but rather as to whether the decision maker is satisfied, having regard to a taxpayer's particular circumstances, that it is appropriate to remit a penalty (paragraphs 247-9).", "Issues_Decided": "The Full Federal Court dismissed the taxpayer's appeal. The Court found that both claimed losses were of capital or of a capital nature, and agreed with the AAT that the claimed outgoing was not incurred by the taxpayer in the 2003 income year (paragraphs 111-130). In relation to the penalty issues, the Court (agreeing with Traviati ) rejected the taxpayer's argument that it necessarily follows that the taxpayer and its agent must have taken reasonable care if it had a RAP (paragraph 150). As having a RAP and taking reasonable care are independent statutory standards, there is no reason to suppose that the application of the reasonable care test must include a consideration of whether a taxpayer has a RAP (paragraph 151). The Court also dismissed the Commissioner's appeal. In disagreeing with the view expressed in Traviati , the Court held that the AAT did not take into account an irrelevant consideration, in exercising its discretion to remit penalty under section 298-20 of Schedule 1 to the Taxation Administration Act 1953 (TAA), in considering the fact that the taxpayer had a RAP on the deduction issue in dispute (paragraph 225). By majority (Edmonds and Griffiths JJ, Greenwood J dissenting), the Court also found that the AAT did not apply the wrong test under section 298-20. The AAT acknowledged that there needed to be circumstances that could mitigate the taxpayer's failure to take reasonable care, and appreciated that the particular circumstances of the taxpayer were relevant to its decision (paragraphs 273-5). Griffiths J noted that section 298-20 is unconfined in its terms, and that the scheme of Divisions 284 and 298 does not preclude a consideration of the fact of a RAP from the exercise of the discretion in that section (paragraphs 227 and 240). While the power under section 298-20 requires consideration of the particular circumstances of a taxpayer, the fact that the taxpayer in this case had a RAP on the construction of contractual provisions to which it was a party is a matter which necessarily relates to its particular circumstances (paragraph 251). His Honour also noted that the decision in Traviati erred in reading the earlier Full Court decision in Dixon v FC of T (2008) 167 FCR 287 as requiring a decision maker under section 298-20 to determine whether it is harsh in the particular circumstances of a taxpayer to impose the penalty. The correct question under section 298-20 is not expressed in terms of 'harshness', but rather as to whether the decision maker is satisfied, having regard to a taxpayer's particular circumstances, that it is appropriate to remit a penalty (paragraphs 247-9).", "ATO_View_of_Decision": "The ATO notes that, while it is unusual for a taxpayer to have a RAP under the income tax law, but to be found not to have taken reasonable care in making statements to the Commissioner, the Full Court has recognised that having a RAP and taking reasonable care are independent statutory standards for the imposition of administrative penalties. Importantly, the Court has rejected the proposition that it necessarily follows that a taxpayer and the taxpayer's agent must have taken reasonable care in making statement if the taxpayer had a RAP under the law. | The ATO accepts the Full Court's decision that, in deciding under section 298-20 whether to remit a penalty imposed for failing to take reasonable care, a decision maker may take into consideration a finding that the taxpayer has a RAP under the income tax law. In other words, nothing in the legislation makes such a consideration necessarily irrelevant to the question. | However, the Full Court did not state, and its reasoning does not imply, that the existence of a RAP is a matter that a decision maker is necessarily bound to take into account in exercising the discretion under section 298-20 (see also FC of T v Burness (2009) 77 ATR 61, at [54]). | Accordingly, the weight (if any) to be given to the existence of a RAP is for decision makers to determine from case to case having regard to all of the particular facts and circumstances of the case. | The ATO also accepts that the correct question under section 298-20 is not expressed in terms of 'harshness', but rather in terms of whether the decision maker is satisfied, having regard to a taxpayer's particular circumstances, that it is appropriate to remit a penalty. The Full Court recognised that the earlier comments in Dixon about the question of the 'harshness' of the penalty simply reflected the approach that had been taken by the AAT in that case based on the circumstances that had been considered.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None.", "Related_Documents": "None | PS LA 2011/30 | 2013 ATC 20-395 | Miscellaneous Taxation Ruling MT 2008/1 | Miscellaneous Taxation Ruling MT 2008/2 | PS LA 2012/4 | PS LA 2012/5 | s 8-1 | Schedule 1 s 298-20 | s 173 | 2007 ATC 5071 | 2007 ATC 4748 | 93 ATC 5170 | 2008 ATC 20-015 | 2002 ATC 4579 | 2012 ATC 20-321 | 2009 ATC 20-135 | 2009 ATC 20-099 | 2012 ATC 20-351 | 84 ATC 4580 | (1986) 162 CLR 24 | (2001) 206 CLR 323 | [2001] HCA 30 | 2012 ATC 20-354 | 2012 ATC 20-318 | 2003 ATC 5076", "Legislative_References": "Income Tax Assessment Act 1936 s 223(1) s 227(3) Income Tax Assessment Act 1997 s 8-1 Taxation Administration Act 1953 Schedule 1 s 298-20 Planning and Environment Act 1987 (Vic) s 173", "Case_References": "BHP Billiton Direct Reduced Iron Pty Ltd v DFC of T [2007] FCA 1528 2007 ATC 5071 67 ATR 578 C of T v Dixon [2007] FCA 1079 2007 ATC 4748 67 ATR 87 C of T v Woolcombers (WA) Pty Ltd (1993) 47 FCR 561 27 ATR 302 93 ATC 5170 Craig v SA [1995] HCA 58 (1995) 184 CLR 163 Dixon v FC of T [2008] FCAFC 54 (2008) 167 FCR 287 2008 ATC 20-015 69 ATR 627 Elias v C of T [2002] FCA 845 (2002) 123 FCR 499 2002 ATC 4579 50 ATR 253 FC of T v Traviati (2012) 205 FCR 136 [2012] FCA 546 2012 ATC 20-321 FC of T v Burness [2009] FCA 1021 (2009) 77 ATR 61 2009 ATC 20-135 77 ATR 61 FC of T v Malouf (2009) 174 FCR 581 [2009] FCAFC 44 2009 ATC 20-099 75 ATR 335 Fowler v C of T [2012] FCA 1040 2012 ATC 20-351 Malouf v FC of T [2008] FCA 497 (2008) 68 ATR 470 84 ATC 4580 Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40 (1986) 162 CLR 24 Minister for Immigration v Yusuf (2001) 206 CLR 323 [2001] HCA 30 Pratt Holdings Ltd v FC of T [2012] FCA 1075 2012 ATC 20-354 Sent v FC of T [2012] FCA 382 2012 ATC 20-318 85 ATR 1 Walstern Pty Ltd v FC of T (2003) 138 FCR 1 [2003] FCA 1428 54 ATR 423 2003 ATC 5076", "Subject_References": "Deductions Reasonable care Reasonably arguable position Remission of administrative penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID520of2012andVID521of2012/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision including any precedential documents and Law Administration Practice Statements. | Implications on Law Administration Practice Statements: Following the decision of the Full Federal Court in this matter, the ATO has amended paragraph 17 of PS LA 2011/30 to replace the word 'harsh' with 'unjust'. This ensures consistency on the question to be determined under section 298-20. | Replaced the word 'harsh' with 'unjust' in paragraph 17 of PS LA 2011/30."}
{"Case_Name": "SCCASP Holdings Pty Ltd as trustee for the H & R Super Fund v Commissioner of Taxation", "Venue_Reference_No": "QUD 567 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "10 May 2013", "Date_Published": "30 April 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2013 ATC 20-390 | TR 2006/7. | Allen & Anor v Federal Commissioner of Taxation", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD567of2012/00001", "Unmatched_Content": "SCCASP Holdings Pty Ltd as trustee for the H & R Super Fund v Commissioner of Taxation [2013] FCAFC 45 2013 ATC 20-390 (2013) 211 FCR 332 (2013) 95 ATR 274 | The decision was wholly favourable and consistent with the Commissioner's views in TR 2006/7. See also the Decision Impact Statement in Allen & Anor v Federal Commissioner of Taxation [2011] FCAFC 118. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Schlottmann and Commissioner of Taxation", "Venue_Reference_No": "2012/3877", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "22 October 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2013] AATA 750", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/3877/00001", "Unmatched_Content": "Schlottmann and Commissioner of Taxation [2013] AATA 750 (2013) 96 ATR 946 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Sea Shepherd Australia Ltd v Commissioner of Taxation", "Venue_Reference_No": "High Court of Australia special leave application M87 of 2013.", "Venue": "Federal Court of Australia", "Judgment_Date": "3 July 2013", "Date_Published": "10 December 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether Sea Shepherd Australia Limited is entitled to endorsement as a Deductible Gift Recipient under item 4.1.6 of section 30-45 of the Income Tax Assessment Act 1997 .", "Overview_of_Facts": "Sea Shepherd Australia Limited (\"Sea Shepherd\") conducts compaigns to protect marine wildlife from being harmed or killed by humans. The compaigns seek to protect whales by intercepting whaling fleets and obstructing whalers. | The parties agreed that if the Court held that Sea Shepherd was entitled to be registered as a deductible gift recipient (\"DGR\"), it would be registered from 29 November 2010, being the date Sea Shepherd launched its first vessel. | It was common ground that Sea Shepherd was a 'chartiable institution' for the purposes of item 4.1.6 in section 30-45 of the Income Tax Assessment Act 1997 (\"ITAA 1997\"). | The Administrative Appeals Tribunal (\"Tribunal\") found that Sea Shepherd did not provide 'short-term direct care' to animals. Further, the Tribunal found that Sea Shepherd did not provide care to 'animals without owners' as whales are not animals that would ordinarily be expected to have owners from whom they have subsequently become separated. | Sea Shepherd appealed the Tribunal decision to the Full Court of the Federal Court. The Full Court dismissed Sea Shepherd's appeal on 3 July 2013. | Sea Shepherd applied for special leave to appeal to the High Court. The High Court refused leave on 8 November 2013 on the basis that there were not sufficient prospects of success to warrant a grant of special leave to appeal | Issues decided by the court | The issues raised by the appeal were: 1. Whether Sea Shepherd raised a valid question of law in its amended notice of appeal for the purposes of section 44 of the Administrative Appeals Tribunal Act 1975 (\"AAT Act 1975\")? 2. Whether Sea Shepherd's principal activities satisified paragraph (a) of item 4.1.6 of the table in sub-section 30-45{(1) of the ITAA 1997 (entitling it to endorsement as a DGR from 29 November 2011)? | 1. Whether Sea Shepherd raised a valid question of law in its amended notice of appeal for the purposes of section 44 of the Administrative Appeals Tribunal Act 1975 (\"AAT Act 1975\")? 2. Whether Sea Shepherd's principal activities satisified paragraph (a) of item 4.1.6 of the table in sub-section 30-45{(1) of the ITAA 1997 (entitling it to endorsement as a DGR from 29 November 2011)? | In respect of the first issue, the Court found that Sea Shepherd's amended notice of appeal raised a question of law to found its appeal. The question raised uncertainty as to the meaning of a statutory word or expression which was to be resolved by construction of the word in its context. | In respect of the second issue, the Court found that the Tribunal did not err in finding that Sea Shepherd did not, as its principal activity, provide 'short-term direct care' to animals. Preventing the killing of whales by intercepting others from harming whales was held not to be the provision of short-term direct care. | The majority in the Full Court found that Sea Shepherd did not provide 'care' to animals. The question of whether it provided 'direct care' did not therefore arise. Further, the majority did not consider it necessary to consider the meaning of 'animals ... without owners'. | The Full Court did not accept Sea Shepherd's submission that item 4.1.6 should be construed liberally because the provision was 'remedial' or 'beneficial' in nature. | In dissent, Justice Dodds-Streeton held that 'care' was not limited to the provision of food, shelter and medical care and that Sea Shepherd's actvities constituted care. Further, the care was short-term and sufficiently direct. Her Honour also found that wild animals such as whales which never had or may not ordinarily be expected to have owners, constitute 'animals ...without owners'", "Issues_Decided": "The issues raised by the appeal were: 1. Whether Sea Shepherd raised a valid question of law in its amended notice of appeal for the purposes of section 44 of the Administrative Appeals Tribunal Act 1975 (\"AAT Act 1975\")? 2. Whether Sea Shepherd's principal activities satisified paragraph (a) of item 4.1.6 of the table in sub-section 30-45{(1) of the ITAA 1997 (entitling it to endorsement as a DGR from 29 November 2011)? 1. Whether Sea Shepherd raised a valid question of law in its amended notice of appeal for the purposes of section 44 of the Administrative Appeals Tribunal Act 1975 (\"AAT Act 1975\")? 2. Whether Sea Shepherd's principal activities satisified paragraph (a) of item 4.1.6 of the table in sub-section 30-45{(1) of the ITAA 1997 (entitling it to endorsement as a DGR from 29 November 2011)? In respect of the first issue, the Court found that Sea Shepherd's amended notice of appeal raised a question of law to found its appeal. The question raised uncertainty as to the meaning of a statutory word or expression which was to be resolved by construction of the word in its context. In respect of the second issue, the Court found that the Tribunal did not err in finding that Sea Shepherd did not, as its principal activity, provide 'short-term direct care' to animals. Preventing the killing of whales by intercepting others from harming whales was held not to be the provision of short-term direct care. The majority in the Full Court found that Sea Shepherd did not provide 'care' to animals. The question of whether it provided 'direct care' did not therefore arise. Further, the majority did not consider it necessary to consider the meaning of 'animals ... without owners'. The Full Court did not accept Sea Shepherd's submission that item 4.1.6 should be construed liberally because the provision was 'remedial' or 'beneficial' in nature. In dissent, Justice Dodds-Streeton held that 'care' was not limited to the provision of food, shelter and medical care and that Sea Shepherd's actvities constituted care. Further, the care was short-term and sufficiently direct. Her Honour also found that wild animals such as whales which never had or may not ordinarily be expected to have owners, constitute 'animals ...without owners'", "ATO_View_of_Decision": "The Commissioner respectfully accepts the Full Court's finding that Sea Shepherd raised a question of law to found its appeal under section 44 of the AAT Act 1975. | The Court's construction of the phrase 'short-term direct care' is consistent with the Commissioner's submissions. 'Short-term direct care' requires provision of physical assistance, such as food, shelter or veterinary care to animals which require care of that nature. Accordingly, the Commissioner respectfully agrees with the Court's finding that Sea Shepherd's principal activity of protecting whales from harm does not constitute care of animals. Whether a charitable institutions principal activity constitutes 'short-term direct care' is a question of fact in the circumstances of each institution. | Although the Court found it unnecessary to consider whether whales were 'animals...without owners' for the purposes of item 4.1.6, the Commissioner considers that the Tribunal was correct in finding that wild animals that would not ordinarily be expected to have an owner would not come within that phrase. The Commissioner considers that the construction of the phrase, \"animals ... without owners\" should take account of the statutory context. The first two categories of animals referred to in paragraph (a) of Item 4.1.6 are animals that have suffered some misfortune because of something that has happened (being lost or mistreated), rather than something that may happen. In that context, \"animals without owners\" should be interpreted as referring to animals that are in need of care because of the misfortune of being without an owner. | The Commissioner respectfully accepts the Court's conclusion that there is no choice to be made between some \"generous\" construction of item 4.1.6 and a more confined meaning, because when construed according to orthodox principles of statutory construction, Item 4.1.6 could not be given the meaning which Sea Shepherd sought to give it.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not applicable", "Related_Documents": "Not Applicable | 2013 ATC 20-397 | Item 4.1.6(a) of the table in sub-section 30-45(1) | Section 30-15 | Section 30-120 | Section 30-125 | r 12.01(1) | Section 426-30 | Section 426-5 | The Act | 96 ATC 5240 | (1997) 72 FCR 467 | 80 ATC 4386 | (1995) 59 FCR 6 | 2009 ATC 20-103 | [2006] HCA 25 | [1996] 1 AC 543 | (1924) 35 CLR 449 | (1911) 12 CLR 504 | 91 ATC 4342 | 82 ATC 4407 | [1998] HCA 28 | (1998) 194 CLR 355 | [1999] HCA 53 | (1999) 201 CLR 351 | (1984) 165 CLR 622 | 2009 ATC 20-134", "Legislative_References": "Income Tax Assessment Act 1997 Item 4.1.6(a) of the table in sub-section 30-45(1) Section 30-15 Section 30-120 Section 30-125 Administrative Appeals Tribunal Act 1975 Section 44 Federal Court Rules 2011 (Cth) r 12.01(1) Taxation Administration Act 1953 Section 426-30 Section 426-5 Tax Laws Amendment (2006 Measures No. 3) Act 2006 The Act", "Case_References": "Aid/Watch Incorporated v Federal Commissioner of Taxation [2010] HCA 42 (2010) 241 CLR 539 77 ATR 195 Collector of Customs v Agfa-Gevaert Limited [1996] HCA 36 (1996) 186 CLR 389 35 ATR 249 96 ATC 5240 Baxter Healthcare Pty Limited v Comptroller-General of Customs (1997) 72 FCR 467 Hope v Bathurst City Council [1980] HCA 16 (1980) 144 CLR 1 12 ATR 231 80 ATC 4386 Sharp Corporation of Australia Pty Ltd v Collector of Customs (1995) 59 FCR 6 St George Bank Ltd v Federal Commissioner of Taxation (2009) 176 FCR 424 2009 ATC 20-103 73 ATR 148 XYZ v Commonwealth [2006] HCA 25 (2006) 227 CLR 532 R v Brown [1996] 1 AC 543 Metropolitan Gas Co v Federated Gas Employees' Industrial Union (1924) 35 CLR 449 Lorimer v Smail (1911) 12 CLR 504 R v Carter Ex parte Kisch [1934] HCA 50 (1934) 52 CLR 221 Biga Nominees Pty Ltd v Commissioner of Taxation (1991) 104 FLR 74 21 ATR 1459 91 ATC 4342 R v Campbell (2008) 73 NSWLR 272 General Accident Fire & Life Assurance Corporation Ltd v Commissioner of Pay-roll Tax [1982] 2 NSWLR 52 13 ATR 372 82 ATC 4407 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28 (1998) 194 CLR 355 Cabell v Markham, Allen Property Custodian 148 F2d 737 (2d Cir 1945) Yanner v Eaton [1999] HCA 53 (1999) 201 CLR 351 Master Retailers' Association of New South Wales v Shop Assistants Union of New South Wales (1905) 2 CLR 94 Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (Northern Territory) [2009] HCA 41 (2009) 239 CLR 27 73 ATR 256 2009 ATC 20-134", "Subject_References": "Deductible Gift Recipients", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID630of2012/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements"}
{"Case_Name": "SJ Buller Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2012/1570", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "30 August 2013", "Date_Published": "16 October 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case concerning whether the taxpayer was entitled to the producer rebate under Division 19 of the WET Act, including determining whether the taxpayer was an associated producer of another producer under section 19-20.", "Overview_of_Facts": "The taxpayer, SJ Buller Pty Ltd (SJ Buller) and RL Buller Wine Pty Ltd (RL Buller) were both wine producers for the purposes of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act). SJ Buller was incorporated on 8 January 2010, and the sole director and shareholder is Mrs Buller. Mrs Buller has also worked in management roles for RL Buller since 1975. In summary, SJ Buller's business activities involved: • sourcing grapes from grape growers who had traditionally supplied RL Buller; • using the services of an RL Buller chief wine maker for a range of tasks; • engaging RL Buller to process the grapes into wine; • selling the wine produced to RL Buller; and • purchasing grapes from growers who were unaware whether grapes were being purchased by either SJ Buller or RL Buller. | • sourcing grapes from grape growers who had traditionally supplied RL Buller; • using the services of an RL Buller chief wine maker for a range of tasks; • engaging RL Buller to process the grapes into wine; • selling the wine produced to RL Buller; and • purchasing grapes from growers who were unaware whether grapes were being purchased by either SJ Buller or RL Buller. | Further relevant aspects of SJ Buller's business operations included: • Mrs Buller controlled the bank account of SJ Buller and was also one of the signatories for RL Buller's bank accounts; • SJ Buller did not have a website or advertise externally. Nor did it own any vineyards or plant and equipment or facilities to process grapes to wine or to store grapes and/or wine. It did not have any employees; • SJ Buller was solely reliant on RL Buller to purchase the wine in order to pay growers for the purchase of grapes, and to pay RL Buller for the processing of the grapes; • RL Buller arranged for the transport of the grapes to RL Buller's processing facilities; • the processing of the grapes was carried out by RL Buller in accordance with RL Buller's specifications, including the varieties of wine; • RL Buller decided the charges levied on SJ Buller for the processing, storage and management of the wine • all of the wine produced for SJ Buller was sold to RL Buller during the 2010 financial year; and • there was no apparent negotiation of the price to be paid and the prices to be paid produced a loss. | • Mrs Buller controlled the bank account of SJ Buller and was also one of the signatories for RL Buller's bank accounts; • SJ Buller did not have a website or advertise externally. Nor did it own any vineyards or plant and equipment or facilities to process grapes to wine or to store grapes and/or wine. It did not have any employees; • SJ Buller was solely reliant on RL Buller to purchase the wine in order to pay growers for the purchase of grapes, and to pay RL Buller for the processing of the grapes; • RL Buller arranged for the transport of the grapes to RL Buller's processing facilities; • the processing of the grapes was carried out by RL Buller in accordance with RL Buller's specifications, including the varieties of wine; • RL Buller decided the charges levied on SJ Buller for the processing, storage and management of the wine • all of the wine produced for SJ Buller was sold to RL Buller during the 2010 financial year; and • there was no apparent negotiation of the price to be paid and the prices to be paid produced a loss. | The inter-company arrangements between RL Buller and SJ Buller lacked some of the features apparent between truly independent parties, for example: • RL Buller invoiced for processing grapes in excess of the volume that had passed over the weighbridge; • SJ Buller was obliged to insure its good but did not; • SJ Buller was charged storage fees, which under the arrangements it was not obliged to pay; • SJ Buller was entitled to charge RL Buller interest but it did not; • RL Buller processed almost double of the weight of grapes that SJ Buller had contracted for; • schedules of estimates were required and not provided; and • the arrangements between SJ Buller and RL Buller were terminated at the instigation of RL Buller at a time where RL Buller had cash flow problems with creditors. | • RL Buller invoiced for processing grapes in excess of the volume that had passed over the weighbridge; • SJ Buller was obliged to insure its good but did not; • SJ Buller was charged storage fees, which under the arrangements it was not obliged to pay; • SJ Buller was entitled to charge RL Buller interest but it did not; • RL Buller processed almost double of the weight of grapes that SJ Buller had contracted for; • schedules of estimates were required and not provided; and • the arrangements between SJ Buller and RL Buller were terminated at the instigation of RL Buller at a time where RL Buller had cash flow problems with creditors. | During the 2010 financial year, SJ Buller and RL Buller each claimed the maximum producer rebate available under the WET Act. The Commissioner determined that SJ Buller was an associated producer of RL Buller during the 2010 financial year and was therefore not entitled to the producer rebate. This was because the sum of the producer rebates claimed by SJ Buller and RL Buller as a group exceeded $500,000 - which was the maximum amount to which they were entitled as a group for the financial year. The Commissioner also imposed a 25% administrative penalty in the March 2010 and June 2010 quarterly tax periods. | Issues decided by the court | The Tribunal rejected the contention of SJ Buller that the two businesses, SJ Buller and RL Buller, were separately owned and separate ownership presumes independence [15]. The Tribunal stated that in determining whether an entity is an associated producer under section 19-20 of the WET Act, it is necessary to undertake a critical assessment of the way in which the producer is managed. This is an enquiry into the activities and decision making of the producer, not an enquiry into ownership [30]. | The Tribunal identified the critical question to be answered in determining whether SJ Buller was an associated producer of RL Buller as: were RL Buller's wishes followed in relation to important features of SJ Buller's business because they made good business sense for SJ Buller, or because they were RL Buller's wishes? [33]. Having regard to the facts of this case, the Tribunal concluded that SJ Buller adopted RL Buller's wishes or directions primarily because they were RL Buller's wishes or directions [34 - 39]. SJ Buller was therefore considered to be an associated producer of RL Buller under paragraph19-20(1)(b). | The Tribunal noted that a potentially important element of the associated producer definition is the concept of 'financial affairs' [8]. In contrast to the Commissioner's contention that 'financial affairs' include business affairs, and SJ Buller's contention that they are limited to matters of finance [9], the Tribunal suggested that \" In a setting where the focus is wine production, the concept ought be construed as meaning business and financial affairs in relation to wine production activities .\" [11] However it was not necessary in this case to determine where the proper threshold may be, because the present focus of attention was SJ Buller's and R L Buller's wine producing activities [12]. | With respect to the penalty issue, the Tribunal held that SJ Buller had not discharged its onus of showing that both it and its tax agent took reasonable care in preparing the BAS for the relevant quarterly tax periods, and affirmed the 25% penalty imposed by the Commissioner [44]. In considering whether there were grounds to remit the penalty in full or in part, the AAT concluded that SJ Buller had not identified any basis to do so, to any extent [47].", "Issues_Decided": "The Tribunal rejected the contention of SJ Buller that the two businesses, SJ Buller and RL Buller, were separately owned and separate ownership presumes independence [15]. The Tribunal stated that in determining whether an entity is an associated producer under section 19-20 of the WET Act, it is necessary to undertake a critical assessment of the way in which the producer is managed. This is an enquiry into the activities and decision making of the producer, not an enquiry into ownership [30]. The Tribunal identified the critical question to be answered in determining whether SJ Buller was an associated producer of RL Buller as: were RL Buller's wishes followed in relation to important features of SJ Buller's business because they made good business sense for SJ Buller, or because they were RL Buller's wishes? [33]. Having regard to the facts of this case, the Tribunal concluded that SJ Buller adopted RL Buller's wishes or directions primarily because they were RL Buller's wishes or directions [34 - 39]. SJ Buller was therefore considered to be an associated producer of RL Buller under paragraph19-20(1)(b). The Tribunal noted that a potentially important element of the associated producer definition is the concept of 'financial affairs' [8]. In contrast to the Commissioner's contention that 'financial affairs' include business affairs, and SJ Buller's contention that they are limited to matters of finance [9], the Tribunal suggested that \" In a setting where the focus is wine production, the concept ought be construed as meaning business and financial affairs in relation to wine production activities .\" [11] However it was not necessary in this case to determine where the proper threshold may be, because the present focus of attention was SJ Buller's and R L Buller's wine producing activities [12]. With respect to the penalty issue, the Tribunal held that SJ Buller had not discharged its onus of showing that both it and its tax agent took reasonable care in preparing the BAS for the relevant quarterly tax periods, and affirmed the 25% penalty imposed by the Commissioner [44]. In considering whether there were grounds to remit the penalty in full or in part, the AAT concluded that SJ Buller had not identified any basis to do so, to any extent [47].", "ATO_View_of_Decision": "The ATO notes that the Tribunal's decision is consistent with the Commissioner's views that determining whether a producer is an associated producer requires enquiries into the activities and decision making of that entity. | The Tribunal's decision also affirms that established corporate law principles about whether or not a person is accustomed to act in a particular way are relevant in the context of determining whether a producer might reasonably be expected to act in accordance with the directions, instructions or wishes of another producer [14].", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "N/A | [2013] AATA 617 | 2013 ATC 10-334 | s 17-5 | s 19-5 | s 19-15 | s 19-20 | s 328-125 | s 284-75 of Schedule 1 | s 298-20 of Schedule 1 | s 9 | [2008] FCA 1399 | (2011) 81 NSWLR 47 | 95 ATC 4240 | 2013 ATC 20-395 | (1995) 62 FCR 504", "Legislative_References": "A New Tax System (Wine Equalisation Tax) Act 1999 s 17-5 s 19-5 s 19-15 s 19-20 Income Tax Assessment Act 1997 s 328-125 Taxation Administration Act 1953 s 284-75 of Schedule 1 s 298-20 of Schedule 1 Corporations Act 2001 s 9", "Case_References": "Australian Securities and Investments Commission v Murdaca [2008] FCA 1399 Buzzle Operations Pty Ltd (In Liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47 Granby Pty Ltd v Federal Commissioner of Taxation (1995) 129 ALR 503 30 ATR 400 95 ATC 4240 Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50 2013 ATC 20-395 Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504", "Subject_References": "Wine equalisation tax Wine tax credits Producer rebates Entitlement to producer rebate Associated producers Penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012-1570/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements"}
{"Case_Name": "Snugfit Australia Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "AAT 2013/0711", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "13 November 2013", "Date_Published": "31 July 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerns whether the applicant's product, the \"SnoreBeGone\" sleep positioning system is GST-free under subsection 38-45(1) of the A New System (Goods and Services Tax) Act 1999 (GST Act).", "Overview_of_Facts": "The Commissioner made a private binding ruling that the supply of the applicant's product, the \"SnoreBeGone\" Sleep Positioning System (\"SnoreBeGone\") is subject to GST. | The Commissioner disallowed the applicant's objection to the private ruling and the applicant applied to the AAT to review the decision. | As described as part of the scheme in the private ruling, \"SnoreBeGone\" is designed to position the body to reduce the incidence of snoring. \"SnoreBeGone\" is designed for people with sleep deprivation and snoring, which in turn helps to control sleep apnoea. | The product is made of foam with a fabric cover and comprises a number of components including: • Detachable and ajdustable headrest; • Shoulder and arm recess channel; • Incline and weight support; • Extension cushion (slide minimiser) • Arm support extensions. | • Detachable and ajdustable headrest; • Shoulder and arm recess channel; • Incline and weight support; • Extension cushion (slide minimiser) • Arm support extensions. | The marketing material for the \"SnoreBeGone\" provides that it is designed to be placed on and used in conjunction with a mattress. | Issues decided by the court | The Administrative Appeals Tribunal (Tribunal) found that the supply of the applicant's product is a GST-free supply of a medical aid or appliance under subsection 38-45(1) of the GST Act. | There was no dispute between the parties that the product is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability; thus satisfying the requirements specified in paragraph 38-45(1)(b) of the GST Act. Therefore, the sole issue remaining for determination by the Tribunal was whether the supply of \"SnoreBeGone\" is covered by any of the following items listed in Schedule 3 to the GST Act: • Item 64: bed restraints; • Item 67: backrests, leg rests and footboards for bed use; • Item 82: night-time positioning equipment modifications; or • Item 87: cushions specifically designed for people with disabilities. | • Item 64: bed restraints; • Item 67: backrests, leg rests and footboards for bed use; • Item 82: night-time positioning equipment modifications; or • Item 87: cushions specifically designed for people with disabilities. | The Tribunal decided that the product was covered by Item 82 in the table in Schedule 3 to the GST Act, 'night-time positioning equipment modifications' (at [14]). | In reaching the conclusion that \"SnoreBeGone\" is covered by Item 82 of Schedule 3 to the GST Act, the Tribunal referred to the Federal Court's decision about the classification of goods under sales tax legislation in Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85. The Tribunal considered that the principle set out in that case is equally applicable in the context of section 38-45 of the GST Act and thus 'the task is to determine the essential character of the goods, what essentially the goods are, not some characteristic the goods might have' (at [10]). | Contrary to the Commissioner's submission, the Tribunal considered that \"SnoreBeGone\" modifies night-time positioning equipment. | Having regard to the ordinary meaning of the words 'night time positioning' equipment, the Tribunal concluded that a mattress is 'night time positioning equipment' as it provides a surface which holds a person in a horizontal position for the purpose of sleeping at night. Having reached this conclusion, the Tribunal determined that the 'essential purpose of the \"SnoreBeGone\" product is to modify that horizontal surface by changing its shape so that the person's torso is held in an inclined position and the head is elevated from the mattress' (at[15]), and that 'the product is designed to be used in conjunction with a mattress and thereby to modify it' (at [16]). | Although not necessary to do so, the Tribunal also determined that the product is not covered by the other Items in Schedule 3 to the GST Act - Item 64: bed restraints, Item 67: backrests, leg rests and footboards for bed use, and Item 87: cushions specifically designed for people with disabilities (at [20] to [28]).", "Issues_Decided": "The Administrative Appeals Tribunal (Tribunal) found that the supply of the applicant's product is a GST-free supply of a medical aid or appliance under subsection 38-45(1) of the GST Act. There was no dispute between the parties that the product is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability; thus satisfying the requirements specified in paragraph 38-45(1)(b) of the GST Act. Therefore, the sole issue remaining for determination by the Tribunal was whether the supply of \"SnoreBeGone\" is covered by any of the following items listed in Schedule 3 to the GST Act: • Item 64: bed restraints; • Item 67: backrests, leg rests and footboards for bed use; • Item 82: night-time positioning equipment modifications; or • Item 87: cushions specifically designed for people with disabilities. • Item 64: bed restraints; • Item 67: backrests, leg rests and footboards for bed use; • Item 82: night-time positioning equipment modifications; or • Item 87: cushions specifically designed for people with disabilities. The Tribunal decided that the product was covered by Item 82 in the table in Schedule 3 to the GST Act, 'night-time positioning equipment modifications' (at [14]). In reaching the conclusion that \"SnoreBeGone\" is covered by Item 82 of Schedule 3 to the GST Act, the Tribunal referred to the Federal Court's decision about the classification of goods under sales tax legislation in Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85. The Tribunal considered that the principle set out in that case is equally applicable in the context of section 38-45 of the GST Act and thus 'the task is to determine the essential character of the goods, what essentially the goods are, not some characteristic the goods might have' (at [10]). Contrary to the Commissioner's submission, the Tribunal considered that \"SnoreBeGone\" modifies night-time positioning equipment. Having regard to the ordinary meaning of the words 'night time positioning' equipment, the Tribunal concluded that a mattress is 'night time positioning equipment' as it provides a surface which holds a person in a horizontal position for the purpose of sleeping at night. Having reached this conclusion, the Tribunal determined that the 'essential purpose of the \"SnoreBeGone\" product is to modify that horizontal surface by changing its shape so that the person's torso is held in an inclined position and the head is elevated from the mattress' (at[15]), and that 'the product is designed to be used in conjunction with a mattress and thereby to modify it' (at [16]). Although not necessary to do so, the Tribunal also determined that the product is not covered by the other Items in Schedule 3 to the GST Act - Item 64: bed restraints, Item 67: backrests, leg rests and footboards for bed use, and Item 87: cushions specifically designed for people with disabilities (at [20] to [28]).", "ATO_View_of_Decision": "Item 82 of Schedule 3 of the GST Act | The ATO accepts that, having regard to the ordinary meaning of the words 'night time positioning equipment', it was open to the Tribunal in considering the application of Item 82 to the applicant's product, to conclude that 'night-time positioning equipment' includes a mattress, and that, having regard to the essential character of the product, \"SnoreBeGone\" modifies 'night time positioning equipment', i.e. a mattress. | The ATO considers that the issue of whether a product is covered by Item 82 because it modifies a mattress or similar sleeping surface is a question of fact that is to be determined by considering the essential character and features of the specific product in question. We note that, in order to be GST-free under section 38-45 of the GST Act, the relevant product must also be specifically designed for people with an illness or disability, and not widely used by people without an illness or disability. [1] | Meaning of modifications | The Tribunal did not make any broader observations regarding the meaning of the term 'modification' and the ATO considers that the Tribunal's decision that \"SnoreBeGone\" modifies a mattress turned solely upon the facts of the case and the description of the product forming part of the scheme set out in the private binding ruling made by the Commissioner. The ATO considers that the decision does not have any broader impact on the meaning of the term 'modification' in other contexts. | Application of decision to other products | Taxpayers who may be uncertain about the GST treatment of their particular product in light of the Tribunal's decision can apply for a private ruling. An application for a private ruling can be sent to: Australian Taxation Office PO Box 3524 ALBURY NSW 2640 | or faxed to 1300 139 031", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Following the decision of the Administrative Appeals Tribunal, the ATO has withdrawn ATO Interpretative Decision 2002/525.The ATO's current position on the GST treatment of contoured pillows is now contained in ATO ID 2014/21.", "Related_Documents": "ATO Interpretative Decision 2002/525 - GST and contoured pillows. | 2013 ATC 10-339 | s 38-45 | s 182-10(2) | s 182-15 | Schedule 3 | [2011] AATA 16 | 2011 ATC 10-169 | 88 ATC 4916", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 s 38-45 s 182-10(2) s 182-15 Schedule 3", "Case_References": "Heinrich and Commissioner of Taxation [2011] AATA 16 2011 ATC 10-169 81 ATR 903 Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85 19 ATR 1896 88 ATC 4916", "Subject_References": "Goods and services tax GST free GST health Section 38-45 - medical aids & appliances", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/AAT2013-0711/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements. | Updated to advise ATO ID 2002/525 has been withdrawn and replaced by ATO ID 2014/21. | Footnotes: [1] Paragraph 38-45(1)(b) of the GST Act."}
{"Case_Name": "Southgate Investment Funds Ltd & Ors v Deputy Commissioner of Taxation", "Venue_Reference_No": "NSD 826 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "12 February 2013", "Date_Published": "9 April 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to the taxpayer's appeal from the refusal by Perram J to grant a stay of execution of a summary judgment in circumstances where the taxpayer had parrallel Part IVC proceedings on foot.", "Overview_of_Facts": "The taxpayer appealed from the decision of Perram J, refusing a stay of enforcement of a charging summons made in favour of the Deputy Commissioner of Taxation in furtherance of ss.14ZZM & 14ZZR of Schedule 1 of the Taxation Administration Act 1953 . His Honour relied upon Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 as authority that in the exercise of his discretion to grant a stay, he was prevented from considering the merits of a Part IVC application as a relevant factor. | The Commissioner issued assessments against five taxpayers and then obtained freezing orders against their Australian assets, being listed shares on the ASX. The Commissioner obtained summary judgment in respect of the tax debts and filed charging summonses to sell the shares the subject of the freezing orders. At the outset of the appeal, four of the five taxpayers no longer pressed their appeals, leaving the remaining appellant, Derrin Brothers Properties Limited. | The appeal was heard before the Full Court on 21 November 2012. | Issues decided by the court | The Full Court accepted the Commissioner's submissions that the merits of a Part IVC proceeding are a relevant consideration in the exercise of the discretion to grant a stay; and, that a Court should not attempt to determine the merits of a Part IVC proceedings unless it has sufficient material to do so and it could not speculate on the outcome of a Part IVC appeal. | The Full Court at [75] accepted that the test for granting a stay requires something more than merely an \"arguable\" Part IVC case; that the trial judge has an obligation to consider all of the material before him to determine if there existed sufficient material to assess the merits of the Part IVC proceedings [76], and that the weight attached to the merits will vary in each case [77].", "Issues_Decided": "The Full Court accepted the Commissioner's submissions that the merits of a Part IVC proceeding are a relevant consideration in the exercise of the discretion to grant a stay; and, that a Court should not attempt to determine the merits of a Part IVC proceedings unless it has sufficient material to do so and it could not speculate on the outcome of a Part IVC appeal. The Full Court at [75] accepted that the test for granting a stay requires something more than merely an \"arguable\" Part IVC case; that the trial judge has an obligation to consider all of the material before him to determine if there existed sufficient material to assess the merits of the Part IVC proceedings [76], and that the weight attached to the merits will vary in each case [77].", "ATO_View_of_Decision": "The ATO's view of the decision is that the Full Court has identified the relevant principles for an exercise of discretion to grant a stay. These principles confirm the scheme of the taxation laws includes assessment and recovery of tax debts. | The Full Court distinguished Broadbeach in context [68], and has not restricted the analysis of Broadbeach in any way. | The ATO view accepts there may be discrepencies between when there is a \"merely arguable case\" in respect of Part IVC proceedings and what will amount to \"speculation\" on the outcome of the proceedings. | The Full Court acknowledged at [77(i)(ii)] that if a person was able to demonstrate that the execution of a judgment would lead to a stultification of that person's ability to exercise Part IVC rights, that might be a further factor relevant to the exercise of the discretion. In effect, the Full Court in making this statement has reinforced the statements of principle espoused by the Queensland Court of Appeal in Deputy Commissioner of Taxation v Denlay (2010) 80 ATR 109. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A | Implications for Law Administration Practice Statements | Practice Statement Law Administration PS LA 2011/4 - Recovering disputed debts", "Administrative_Treatment": "", "Related_Documents": "PS LA 2011/4 | [2013] FCAFC 10 | 14ZZM | 14ZZR | Part IVC | 83 ATC 4532 | 89 ATC 4512 | 89 ATC 4725 | [2012] FCA 363 | 127 ALD 64 | 2008 ATC 20-045 | [2010] FCA 1297 | 81 ATR 237 | 82 ATC 4571 | 2004 ATC 4779 | 72 ATC 4076 | 87 ATC 4078 | [2006] VSCA 191 | 64 ATR 316", "Legislative_References": "Taxation Administration Act 1953 14ZZM 14ZZR Part IVC Federal Court of Australia Act 1976 31A", "Case_References": "Australian Machinery and Investment Co Pty Ltd v Deputy Commissioner of Taxation (No. 2) (1945) 20 ALJR 326 47 WALR 9 8 ATD 133 3 AITR 236 Clyne v Deputy Commissioner of Taxation (NSW) (1983) 48 ALR 545 14 ATR 563 83 ATC 4532 Cywinski v Deputy Commissioner of Taxation [1990] VicRp 17 [1990] VR 193 20 ATR 672 89 ATC 4512 Deputy Federal Commissioner of Taxation v Akers 89 ATC 4725 Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Limited [2012] FCA 363 127 ALD 64 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 237 CLR 473 69 ATR 357 2008 ATC 20-045 Deputy Commissioner of Taxation v Chemical Trustee Ltd [2010] FCA 1297 81 ATR 237 Deputy Commissioner of Taxation v Denlay [2010] QCA 217 80 ATR 109 Deputy Commissioner of Taxation (NSW) v Mackey (1982) 45 ALR 284 13 ATR 547 82 ATC 4571 Deputy Commissioner of Taxation v Warrick (No. 2) [2004] FCA 918 56 ATR 371 2004 ATC 4779 Esquire Nominees Ltd v Federal Commissioner of Taxation [1973] HCA 67 129 CLR 177 3 ATR 105 72 ATC 4076 Snow v Deputy Commissioner of Taxation (1987) 14 FCR 119 18 ATR 439 87 ATC 4078 Trade World Enterprises Pty Ltd v Deputy Commissioner of Taxation [2006] VSCA 191 64 ATR 316", "Subject_References": "Application to stay execution Part IVC appeal pending Merits review Effect of Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd Discretion to stay execution of judgment debt", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD826of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Stewart and Commissioner of Taxation", "Venue_Reference_No": "2012/1439", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 November 2013", "Date_Published": "23 January 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned the amount assessable to the taxpayer in the 2007 income year when he exercised 60,000 share options issued to him by his employer in the 2004 income year", "Overview_of_Facts": "The taxpayer acquired 60,000 share options from his employer, Toll Holdings Ltd (Toll), in October 2004 under Toll's Senior Executive Option Plan (SEOP) for no consideration. Subject to meeting certain performance conditions during the 2005 to 2007 income years, each option could be exercised between 9 September 2007 and 9 September 2009 to acquire a share in Toll for $10.95. As the options were qualifying rights under Division 13A of Part III of the Income Tax Assessment Act 1936 (ITAA 36), and as the taxpayer did not elect under section 139E to be taxed in the 2005 income year on any discount given to him on the options when acquired, he would be taxed on the discount in the year in which the 'cessation time' of the options occurred under section 139CB. | After the taxpayer acquired the options, Toll decided to implement a Scheme of Arrangement in 2007 to demerge part of its business to a new group, the Asciano Group. Under the Scheme, each Toll shareholder was entitled to dividend and capital reduction rights, which would be applied to acquire Asciano stapled securities. Because the Scheme would be implemented in 2007 before the SEOP options could be exercised, Toll waived the performance conditions and brought forward the exercise 'window' for the options to between 1 and 13 June 2007. Options exercised within that time enabled the holders to participate in the Scheme, i.e., to obtain Toll shares cum entitlements to Asciano stapled securities. The taxpayer exercised his options on 12 June 2007 to acquire 60,000 Toll shares, and then acquired 60,000 Asciano stapled securities on 15 June 2007 when the dividends and capital reduction amounts were applied. | As the 'cessation time' for the taxpayer's options was when they were exercised, the taxpayer was required to include in his assessable income for the 2007 year the value of the discount on the options, as calculated under subsection 139CC(4), i.e., the market value of 'the share' acquired as a result of the exercise of each option less the exercise price. The taxpayer did not include any amount in his 2007 income tax return in relation to the options. Just before the Scheme was implemented, Toll shares were trading at $23.77. Just after implementation, they traded at between $13 and $14, and the Asciano stapled securities traded at between $10 and $11. | The Commissioner assessed the taxpayer to the market value of both the Toll shares and the Asciano stapled securities acquired by him, less the exercise price of the options. The taxpayer accepted before the AAT that his taxable income for the 2007 year should include the market value of the Toll shares ex entitlement less the option exercise price. However, he argued that the value of the Asciano stapled securities should not be included in his assessable income for that year. | Issues decided by the court | The AAT agreed with the taxpayer that the value of the Asciano stapled securities was not assessable to the taxpayer in the 2007 year under Division 13A or under either section 6-5 or section 15-2 of the Income Tax Assessment Act 1997 (ITAA 97). | The AAT found that, while the taxpayer acquired the Toll shares 'as a result of the exercise of' the share options, for the purposes of subsection 139CC(4), he did not so acquire the Asciano stapled securities. The acquisition of the stapled securities was explainable by events (the application of the dividends and capital reduction amounts) other than the exercise of the options. Once the Toll shares were acquired, the taxpayer's entitlements under the share options were satisfied. The AAT then rejected the Commissioner's argument that the value of the Toll shares acquired was their value cum entitlement under section 139FB. The shares were not of a different class to the Toll shares trading ex-entitlement, and should be valued as any such shares would be under section 139FA. | The AAT also rejected the Commissioner's argument that the value of either the rights to the Asciano shares acquired on 12 June 2007, or the Asciano shares acquired on 15 June 2007, should be assessed to the taxpayer under Division 13A or under either of sections 6-5 or 15-2 of the ITAA 97, being the value of that which has been acquired directly or indirectly as a consequence of the taxpayer's employment with Toll. The true contributing cause of the acquisition of the Asciano rights or shares was not the taxpayer's employment with Toll - the employment provided merely a historical connection with the acquisition. | Finally, the AAT found that the taxpayer had not discharged the onus of showing that his tax agent took reasonable care in failing to include the discount assessable under Division 13A in his 2007 income tax return, and that it was not appropriate in the circumstances to remit the administrative penalty.", "Issues_Decided": "The AAT agreed with the taxpayer that the value of the Asciano stapled securities was not assessable to the taxpayer in the 2007 year under Division 13A or under either section 6-5 or section 15-2 of the Income Tax Assessment Act 1997 (ITAA 97). The AAT found that, while the taxpayer acquired the Toll shares 'as a result of the exercise of' the share options, for the purposes of subsection 139CC(4), he did not so acquire the Asciano stapled securities. The acquisition of the stapled securities was explainable by events (the application of the dividends and capital reduction amounts) other than the exercise of the options. Once the Toll shares were acquired, the taxpayer's entitlements under the share options were satisfied. The AAT then rejected the Commissioner's argument that the value of the Toll shares acquired was their value cum entitlement under section 139FB. The shares were not of a different class to the Toll shares trading ex-entitlement, and should be valued as any such shares would be under section 139FA. The AAT also rejected the Commissioner's argument that the value of either the rights to the Asciano shares acquired on 12 June 2007, or the Asciano shares acquired on 15 June 2007, should be assessed to the taxpayer under Division 13A or under either of sections 6-5 or 15-2 of the ITAA 97, being the value of that which has been acquired directly or indirectly as a consequence of the taxpayer's employment with Toll. The true contributing cause of the acquisition of the Asciano rights or shares was not the taxpayer's employment with Toll - the employment provided merely a historical connection with the acquisition. Finally, the AAT found that the taxpayer had not discharged the onus of showing that his tax agent took reasonable care in failing to include the discount assessable under Division 13A in his 2007 income tax return, and that it was not appropriate in the circumstances to remit the administrative penalty.", "ATO_View_of_Decision": "The ATO accepts that, on the facts as found, it was open for the AAT to find that the value of the Asciano stapled securities was not assessable to the taxpayer in the 2007 year.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "None | 2013 ATC 10-340 | s 26(e) | s 169ZYJB | s 169ZYJE | s 6-5 | s 15-2 | Schedule 1 | s 284-75 | s 298-20 | [2013] HCA 15 | (1988) 13 ACLR 90 | (1988) 6 ACLC 389 | 2012 ATC 20-359 | (1952) 86 CLR 540 | 2012 ATC 20-339 | 2013 ATC 20-395", "Legislative_References": "Income Tax Assessment Act 1936 s 26(e) Division 13A s 139B s 139CC s 139FA s 139FB s 169ZYJB s 169ZYJE Income Tax Assessment Act 1997 s 6-5 s 15-2 s 130-83 Taxation Administration Act 1953 Schedule 1 s 284-75 s 298-20", "Case_References": "Beck v Weinstock [2013] HCA 15 Clements Marshall Consolidated Ltd v ENT Ltd [1988] Tas R (NC) N1 (1988) 13 ACLR 90 (1988) 6 ACLC 389 FC of T v Crown Insurance Services Ltd (2012) 207 FCR 247 2012 ATC 20-359 FC of T v Dixon (1952) 86 CLR 540 FC of T v McWilliam (2012) 204 FCR 478 2012 ATC 20-339 Re Fowlers Vacola Manufacturing Co Ltd [1966] VR 97 Sanctuary Lakes Pty Ltd v FC of T [2013] FCAFC 50 2013 ATC 20-395 Smith v FC of T (1987) 164 CLR 513 19 ATR 274", "Subject_References": "Employee share scheme Employment benefit Market value Share options Administrative penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012-1439/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Swanbat Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2013/2025", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "13 December 2013", "Date_Published": "15 April 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the taxpayer was entitled to a refund of a net amount, and it makes comments about the Commissioner's approach in raising assessments.", "Overview_of_Facts": "Swanbat Pty Ltd (the taxpayer) paid GST on supplies that it made to an overseas entity on a quarterly basis. | On 28 July 2008, the taxpayer lodged a GST return for the quarterly period ending 30 June 2008, reporting GST of $32,098 in respect of its supply of services to a non-resident company. | On 24 August 2012, the taxpayer sought a ruling that the supplies were GST-free. On 19 October 2012, the Commissioner issued a private ruling that the supplies in question were GST-free. | On 28 October 2012, the taxpayer lodged a revised GST return for the June 2008 quarter and on 2 November 2012 the Commissioner refunded an amount equivalent to the excess GST that the taxpayer had paid. | On 7 November 2012, the Commissioner wrote to the taxpayer, advising that it was not entitled to the refund because of the operation of section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA). Section 105-55 [1] applied because the taxpayer had failed to notify the Commissioner of its entitlement to the refund within 4 years after the end of the relevant tax period. | On 13 November 2012, the Commissioner issued an assessment of the net amount for the June 2008 quarter, including the refund amount as GST on sales for which the taxpayer is liable. | The taxpayer objected to the assessment and the Commissioner disallowed the objection. The taxpayer applied to the Tribunal for review of the Commissioner's objection decision. | Issues Decided by the Tribunal | The Tribunal decided that the taxpayer's entitlement to a refund of the net amount it paid in the June 2008 quarter was curtailed by section 105-55 when the four-year limit was reached without notification of entitlement being provided. | However, the Tribunal considered that after the Commissioner had provided to the taxpayer the refund to which it was not entitled, it was erroneous for the Commissioner to assess the taxpayer for 'GST on sales' corresponding to the refunded amount. Such an assessment was contrary to the private ruling the Commissioner had issued. The assessment was therefore excessive. | Section 8AAZN of the TAA allows the Commissioner to recover administrative overpayments paid by mistake. The Tribunal acknowledged that section 8AAZN was not squarely before it, but noted that the payment of a refund to the taxpayer contrary to section 105-55 may well be a mistake and within the meaning of an 'administrative overpayment' as defined in that section.", "Issues_Decided": "The Tribunal decided that the taxpayer's entitlement to a refund of the net amount it paid in the June 2008 quarter was curtailed by section 105-55 when the four-year limit was reached without notification of entitlement being provided. However, the Tribunal considered that after the Commissioner had provided to the taxpayer the refund to which it was not entitled, it was erroneous for the Commissioner to assess the taxpayer for 'GST on sales' corresponding to the refunded amount. Such an assessment was contrary to the private ruling the Commissioner had issued. The assessment was therefore excessive. Section 8AAZN of the TAA allows the Commissioner to recover administrative overpayments paid by mistake. The Tribunal acknowledged that section 8AAZN was not squarely before it, but noted that the payment of a refund to the taxpayer contrary to section 105-55 may well be a mistake and within the meaning of an 'administrative overpayment' as defined in that section.", "ATO_View_of_Decision": "Consistent with the Tribunal's decision, the Commissioner accepts that in cases where he mistakenly refunds an amount to a taxpayer outside of the 4 year period specified in section 105-55, he should seek to recover the incorrectly paid refund as an administrative overpayment under section 8AAZN of the TAA. | Also consistent with the Tribunal's decision, it is accepted that in the particular circumstances where a refund is incorrectly paid outside the 4 year period in section 105-55, it is not appropriate for the Commissioner to seek to recover the incorrectly paid refund by making an assessment of the taxpayer's net amount that includes GST on sales that are not taxable. | In other contexts, the Tribunal has proceeded on the basis that section 105-55 has substantive effect and that its application is amenable to review by the Tribunal in considering whether an assessment is excessive (see Australian Leisure Marine Pty Ltd and Federal Commissioner of Taxation [2] , Clontarf Developments Pty Ltd and Federal Commissioner of Taxation [3] , Tom and Federal Commissioner of Taxation [4] , and Dandenong Motors Unit Trust and Federal Commissioner of Taxation [5] ). Outside of the circumstances addressed in the preceding paragraph, the Commissioner will maintain the view that in the absence of a notice referred to in subsection 105-55(1), the taxpayer's net amount cannot be altered by reducing the amount of GST payable or by increasing entitlements to input tax credits for the relevant tax period outside of the four year period specified in section 105-55.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil", "Related_Documents": "2013 ATC 10-344 | s 7-1 | s 7-5 | s 7-10 | s 7-15 | s 9-5 | s 17-5 | s 33-3 | s 33-5 | s 35-10 | s 195-1 | s 2 | s 3AA(1A) | s 8AAZA | s 8AAZLF | s 8AAZN | s 14ZZK | Schedule 1 | s 155-5 | s 155-50 | s 250-10 | s 255-1 | s 350-10 | s 359-25 | s 16 of Schedule 2 | 2008 ATC 20-045 | [2008] SADC 103 | [2010] QSC 196 | 79 ATR 137 | 2011 ATC 20-292 | 2013 ATC 20-377 | 2013 ATC 20-425 | 2008 ATC 20-037 | 2010 ATC 10-148 | 2010 ATC 10-168 | 2012 ATC 10-288 | 2011 ATC 10-212 | 2013 ATC 1-052 | 2009 ATC 20-143 | 2013 ATC 10-294", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 s 7-1 s 7-5 s 7-10 s 7-15 s 9-5 s 17-5 s 17-15 s 33-3 s 33-5 s 35-10 s 195-1 Taxation Administration Act 1953 s 2 s 3AA(1A) s 8AAZA s 8AAZLF s 8AAZN s 14ZZK Taxation Administration Act 1953 Schedule 1 s 105-5 s 105-15 s 105-25 s 105-50 s 105-55 s 105-65 s 155-5 s 155-50 s 166-15 s 250-10 s 255-1 s 350-10 s 359-25 Tax Laws Amendment (2008 Measures No. 3) Act 2008 s 16 of Schedule 2", "Case_References": "Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 [2008] HCA 41 2008 ATC 20-045 69 ATR 357 Deputy Commissioner of Taxation v DeAngelis [2008] SADC 103 Deputy Commissioner of Taxation and Price [2010] QSC 196 79 ATR 137 Federal Commissioner of Taxation v Multiflex Pty Ltd (2011) 197 FCR 580 [2011] FCAFC 142 2011 ATC 20-292 82 ATR 153 Gashi v Commissioner of Taxation (2013) 209 FCR 301 [2013] FCAFC 30 2013 ATC 20-377 (2013) 296 ALR 497 IOOF Holdings Limited v Commissioner of Taxation [2013] FCA 1189 2013 ATC 20-425 Kennedy v Administrative Appeals Tribunal (2008) 168 FCR 566 [2008] FCAFC 124 2008 ATC 20-037 73 ATR 276 Re Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 620 2010 ATC 10-148 76 ATR 390 Re Clontarf Development Pty Ltd and Commissioner of Taxation [2010] AATA 1065 2010 ATC 10-168 79 ATR 540 Re Dandenong Motors Unit Trust and Commissioner of Taxation [2012] AATA 920 2012 ATC 10-288 Re National Jet Systems Pty Ltd and Commissioner of Taxation [2011] AATA 766 2011 ATC 10-212 (2011) 82 ATR 740 Re The Private Tutor and Commission of Taxation [2013] AATA 136 2013 ATC 1-052 Russell v Commissioner of Taxation [2009] FCA 1224 2009 ATC 20-143 74 ATR 466 Re Tom and Commissioner of Taxation [2013] AATA 28 2013 ATC 10-294 87 ATR 360", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2013-2025/00001", "Unmatched_Content": "Impacted Advice: This decision has no impact for ATO precedential documents and Law Administration Practice Statements. | Footnotes: [1] All further legislative references are to Schedule 1 of the TAA unless otherwise indicated"}
{"Case_Name": "The Private Tutor and Commissioner of Taxation", "Venue_Reference_No": "2012/0114", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "14 March 2013", "Date_Published": "9 May 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the taxpayer was carrying on an enterprise and entitled to input tax credits for expenses, and it makes comments about the Commissioner's approach in raising assessments.", "Overview_of_Facts": "The taxpayer contended he was carrying on an enterprise of tutoring, computer repair, website design and resale of mobile phones during the period 1 April 2007 and 30 March 2011, and that he was entitled to input tax credits (ITCs) for various business expenses. The taxpayer conducted his tutoring activities primarily in two ways: (a) through tutoring agencies, and (b) by private means. Tutoring agencies generally found and passed on students to be tutored by the taxpayer. | The taxpayer agreed there were limitations to his tutoring activities, including seasonal variances, his employment situation (he was otherwise generally employed full time) and the fact that his tutoring activities were a \"side line\". The taxpayer provided only scant evidence to support his computer-based activities, and his mobile phone activities were carried on during just one year. | The taxpayer claimed ITCs for a number of expenses including private health insurance, mortgage and loan repayments, food, beverages, confectionery, magazines, clothing, cosmetics, cinema visits, gifts, mobile phone and motor vehicle expenses (fuel, maintenance, repairs, car modifications and insurance). The ITCs claimed by the taxpayer exceeded the GST payable by a significant amount. | The Commissioner found that the taxpayer was not carrying on an enterprise and accordingly cancelled his GST registration. Assessments were made disallowing the ITCs, but requiring the taxpayer pay to the Commissioner amounts on account of GST that the taxpayer had collected. This resulted in assessments of positive net amounts despite the taxpayer not being entitled to be registered for GST. | Issues decided by the tribunal | 1. The Tribunal found the taxpayer was carrying on an enterprise under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), and was entitled to be registered for GST. The Tribunal considered that the Commissioner had placed too much weight on the small scale of activities involved. The Commissioner also failed to consider the true financial position of the activities free from the inflated claims for ITCs in assessing profitability. | 2. The Tribunal found that the taxpayer's approach to claiming ITCs had been undisciplined and largely unprincipled. It disallowed the claim for ITCs in full for three main reasons: (a) relevant supplies to the taxpayer were not subject to GST; (b) there was no reliable evidence that certain ITCs were partly creditable; and (c) there was no reliable evidence of the creditable extent of certain ITCs. | 3. The Tribunal also criticised the Commissioner for attempting to \"claw back\" GST amounts declared by the taxpayer (on what the taxpayer thought were taxable supplies) by raising assessments of positive net amounts while maintaining that the taxpayer is not entitled to be registered for GST. The Tribunal said that, if a taxpayer is not entitled to be registered for GST, the net amount in each case must be nil. In these circumstances, in the view of the Tribunal, section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) does not allow the Commissioner to assess taxpayers for positive net amounts in an attempt to \"claw back\" GST amounts declared by the taxpayer in their GST returns.", "Issues_Decided": "1. The Tribunal found the taxpayer was carrying on an enterprise under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), and was entitled to be registered for GST. The Tribunal considered that the Commissioner had placed too much weight on the small scale of activities involved. The Commissioner also failed to consider the true financial position of the activities free from the inflated claims for ITCs in assessing profitability. 2. The Tribunal found that the taxpayer's approach to claiming ITCs had been undisciplined and largely unprincipled. It disallowed the claim for ITCs in full for three main reasons: (a) relevant supplies to the taxpayer were not subject to GST; (b) there was no reliable evidence that certain ITCs were partly creditable; and (c) there was no reliable evidence of the creditable extent of certain ITCs. 3. The Tribunal also criticised the Commissioner for attempting to \"claw back\" GST amounts declared by the taxpayer (on what the taxpayer thought were taxable supplies) by raising assessments of positive net amounts while maintaining that the taxpayer is not entitled to be registered for GST. The Tribunal said that, if a taxpayer is not entitled to be registered for GST, the net amount in each case must be nil. In these circumstances, in the view of the Tribunal, section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) does not allow the Commissioner to assess taxpayers for positive net amounts in an attempt to \"claw back\" GST amounts declared by the taxpayer in their GST returns.", "ATO_View_of_Decision": "On the enterprise issue, the Tribunal reached a different conclusion when applying the law to the facts. Whether the activities amounted to carrying on an enterprise turned on the particular facts of the case. The Commissioner accepts that the decision of the Tribunal on \"enterprise\" was open on the facts of the case. [1] | However, in relation to comments regarding the Commissioner's approach to section 105-65 and, in particular, that assessments in these circumstances may or will contain 'obvious (and, arguably, deliberate) errors' , the Commissioner respectfully maintains his views on section 105-65 as set out in MT 2010/1. These views formed the basis of the approach to raising assessments in the present case. The Commissioner considers that section 105-65 is predicated on an examination of individual transactions, rather than on overall net amounts for particular tax periods. | The Commissioner also notes that Tribunal comments about section 105-65 were not necessary to the resolution of any of the issues in dispute in this case. [2] While those comments raise questions of law, no appeal could be mounted in relation to them given that the decision of the Tribunal would remain unchanged even if the Commissioner was later to prevail. There is another case before the Tribunal, however, where a similar issue is raised directly in submissions and where the decision has been reserved. For the present, the Commissioner will maintain and continue to apply the view in MT 2010/1. However, he will review the position generally when the Tribunal hands down its decision in the other matter. | Proposed legislative amendments | On 26 February 2013, draft legislation was released, which if enacted would have the effect of repealing current section 105-65 and replacing it with a new Division in the GST Act dealing with refunds of overpaid amounts of GST. The proposed legislation would apply whenever an assessed net amount for a tax period takes into account an amount of GST exceeding that which is payable. It would apply for tax periods starting on or after 17 August 2012. The new law would operate to deem so much of the extra GST as has been passed on to another entity to be GST payable on a taxable supply, until the other entity is reimbursed. If the proposed legislation is passed, it would likely remove any uncertainty over the correct approach to cases like this one, insofar as they involve tax periods starting on or after 17 August 2012.", "Administrative_Treatment": "The Commissioner will continue to apply views expressed in MT 2010/1 regarding the application of section 105-65. The position will be further reviewed when the Tribunal hands down its decision in another case where a similar issue is raised. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil | [1] The Commissioner's views on 'enterprise' are contained in MT 2006/1. | [2] If the Tribunal had found that the taxpayer was not carrying on an enterprise, as the Commissioner had argued, it presumably would have allowed the objection in part. This would have had the effect of reducing the correct net amount for each tax period to zero - see paragraph 20 of the Tribunal's reasons.", "Related_Documents": "MT 2006/1 | MT 2010/1 | None | 2013 ATC 1-052 | 9-5(b) | 9-20 | 11-5 | 11-15 | 17-5 | 25-55 | The Act | 2011 ATC 20-292 | 72 ATC 4094", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-5(b) 9-20 11-5 11-15 17-5 17-15 25-55 Taxation Administration Act 1953 105-65 105-5 Indirect Tax Laws Amendment (Assessment) Act 2012 The Act", "Case_References": "Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 2011 ATC 20-292 (2011) 82 ATR 153 Thomas v FCT (1972) 3 ATR 165 72 ATC 4094", "Subject_References": "GST Enterprise Registration Input tax credits Net amounts", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/0114/00001", "Unmatched_Content": ""}
{"Case_Name": "Trustee for the Grewal Property Trust and Commissioner of Taxation", "Venue_Reference_No": "2012/2831", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "8 November 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/2831/00001", "Unmatched_Content": "Trustee for the Grewal Property Trust and Commissioner of Taxation [2013] AATA 788 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Ultra Thoroughbred Racing Pty Ltd v Commissioner of Taxation & Anor", "Venue_Reference_No": "VID 1125 of 2013", "Venue": "Federal Court of Australia", "Judgment_Date": "3 December 2013", "Date_Published": "27 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether certain race winnings were required to be paid to the Commissioner pursuant to a s260-5 notice where the taxpayer was registered as owner but did not own the racehorse.", "Overview_of_Facts": "A taxpayer had a tax debt in excess of $11 million. A race horse registered (as to a 50% share) in the taxpayer's name had been awarded prize money. The Commissioner issued a s260-5 notice (commonly referred to as a garnishee notice) to Racing Victoria Ltd, requiring Racing Victoria to pay to the Commissioner the prize winnings otherwise payable to the taxpayer on the basis that the winnings were a debt due to the taxpayer and not the Applicant. | The Applicant, however, claimed that the race horse and the relevant prize money belonged to it, and not to the taxpayer. A contract between the taxpayer and the Applicant provided that all revenue from the race horse belonged to the Applicant. | The Applicant sought declarations (a) that it was the legal and beneficial owner of the prize money, and (b) that Racing Victoria was not required to pay any funds to the Commissioner pursuant to the garnishee notice. | Issues decided by the court | The Court determined that the contract between the taxpayer and the Applicant created a direct entitlement in the Applicant to the prize winnings. The rules of Racing Victoria did not operate to alter that entitlement. | The purpose of s 260-5 (of Schedule 1 of the Taxation Administration Act 1953) is to permit the Commissioner to require payment of money which belongs to the taxpayer and is held by a third party to be paid to the Commissioner. | The Court was satisfied that the Applicant had an equitable interest in the prize money and that because the taxpayer was not beneficially entitled to the money that the winnings did not belong to the taxpayer. As such the Commissioner was not able to recover the money by using the garnishee notice.", "Issues_Decided": "The Court determined that the contract between the taxpayer and the Applicant created a direct entitlement in the Applicant to the prize winnings. The rules of Racing Victoria did not operate to alter that entitlement. The purpose of s 260-5 (of Schedule 1 of the Taxation Administration Act 1953) is to permit the Commissioner to require payment of money which belongs to the taxpayer and is held by a third party to be paid to the Commissioner. The Court was satisfied that the Applicant had an equitable interest in the prize money and that because the taxpayer was not beneficially entitled to the money that the winnings did not belong to the taxpayer. As such the Commissioner was not able to recover the money by using the garnishee notice.", "ATO_View_of_Decision": "The Commissioner considers that this decision turns on its own particular facts. | The decision does not have broader implications for the Commissioner's use of garnishee notices.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil", "Related_Documents": "None | 2013 ATC 20-428 | Schedule 1 s 260-5 | (1937) 58 CLR 1 | 96 ATC 4588 | PS LA 2011/18", "Legislative_References": "Taxation Administration Act 1953 Schedule 1 s 260-5", "Case_References": "Palette Shoes Pty Ltd (in liq) v Krohn (1937) 58 CLR 1 Zuks v Jackson McDonald (1996) 132 FLR 317 33 ATR 40 96 ATC 4588", "Subject_References": "Recovery of Tax s 260-5 Notice beneficial ownership of funds", "Other_References": "PS LA 2011/18", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1125of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements. | Implications on Law Administration Practice Statements: Nil. PS LA 2011/18 sets out guidelines for the use of the Commissioner's power to issue a garnishee notice. This decision does not affect those guidelines."}
{"Case_Name": "Unit Trend Services Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "QUD 789 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "5 April 2013", "Date_Published": "26 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to the Federal Court's interlocutory decision to stay a Full Federal Court judgment, pending the outcome of the Commissioner's special leave application to the High Court. The taxpayer was seeking payment of monies that it contends it is owed.", "Overview_of_Facts": "On 5 October 2012, the Full Federal Court made orders following its decision in Unit Trend Services Pty Ltd v Commissioner of Taxation [2012] FCAFC 112. Amongst other things, the Full Federal Court ordered that the decision of the Administrative Appeals Tribunal (AAT) in Taxpayer v Commissioner of Taxation [2010] AATA 497, to the extent that it related to GST and shortfall penalties assessed for specified supplies made by the taxpayer prior to 17 March 2005, be set aside and remitted to the Commissioner with a direction to allow the objections of the taxpayer. | On 2 November 2012 the Commissioner filed an application for special leave to appeal from the above mentioned order of the Full Federal Court. | On 14 December 2012, a panel of judges of the High Court, constituted by French CJ and Gageler J, heard the Commissioner's application for special leave and decided that the application should be referred to a Full Court of the High Court, constituted by five judges. | On 21 December 2012 the taxpayer made an application in the Federal Court under section 39B of the Judiciary Act 1903 for a writ of mandamus compelling the Commissioner to pay monies that the taxpayer alleges it is owed by the Commissioner. The taxpayer contended that it is owed those monies as a result of the order of the Full Federal Court which at the time was the subject of the Commissioner's application for special leave. | On 14 March 2013, argument in the Commissioner's special leave application was heard by a Full Court of the High Court constituted by five judges (French CJ, Crennan, Kiefel, Gageler, Keane JJ). The High Court reserved its decision. | The High Court's decision relating to the Commissioner's application for special leave was handed down 1 May 2013. The High Court granted special leave and unanimously allowed the Commissioner's appeal against the decision of the majority of the Full Federal Court. | Issues decided by the court | The decision follows an interlocutory hearing, in the proceedings brought in the Federal Court by the taxpayer under section 39B of the Judiciary Act 1903 , of the Commissioner's application for a stay of some of the Full Federal Court's orders in Unit Trend Services Pty Ltd v Commissioner of Taxation [2012] FCAFC 112 (' Unit Trend' ). | The issues in dispute were whether: • upon a proper interpretation of section 14ZZL of the Taxation Administration Act 1953 , the Full Federal Court's orders are not final; meaning that the Commissioner would not be required to implement the Full Court's orders until the outcome of his application for special leave or any resulting appeal is known? • if section 14ZZL of the Taxation Administration Act 1953 ('TAA') does not excuse the Commissioner from having to implement the Full Court's orders until the outcome of his special leave application or any appeal is known, would it be appropriate that a stay of the Full Federal Court's orders be granted? | • upon a proper interpretation of section 14ZZL of the Taxation Administration Act 1953 , the Full Federal Court's orders are not final; meaning that the Commissioner would not be required to implement the Full Court's orders until the outcome of his application for special leave or any resulting appeal is known? • if section 14ZZL of the Taxation Administration Act 1953 ('TAA') does not excuse the Commissioner from having to implement the Full Court's orders until the outcome of his special leave application or any appeal is known, would it be appropriate that a stay of the Full Federal Court's orders be granted? | Logan J [at 31] decided that it was not appropriate to determine the issue about the interpretation and application of section 14ZZL of the TAA in the context of the Commissioner's application for a discretionary stay by the Court. His Honour considered that the proper interpretation and application of section 14ZZL of the TAA ought to be considered at the later time when the taxpayer's application for a writ of mandamus under section 39B of the Judiciary Act 1903 is heard and determined. | Having regard to the fact that the Commissioner's application for special leave was referred to five justices of the High Court; the effect of the interest on overpayments legislation in terms of any monies that may ultimately be payable to the taxpayer; and the relative lack of prejudice to the taxpayer, Logan J decided [at 44] that a stay should be granted. His Honour [at 45] decided that the stay ought to run until the outcome of the Commissioner's application for special leave or any resulting appeal is determined. | In the course of stating his reasons for deciding to grant a stay to the Commissioner, Logan J commented on some of the actions of the Commissioner. | At [23] and [24], his Honour refers to correspondence exchanged between the Commissioner and the taxpayer, following the publication of the Full Federal Court's reasons for decision in Unit Trend . In particular, his Honour refers to correspondence issued by the Commissioner that stated section 14ZZQ of the TAA as the basis upon which the Commissioner considered he was not, at that stage, obliged to give effect to the Full Court's orders. | His Honour characterises this mistaken reference in that correspondence to section 14ZZQ as \"the Commissioner, then being of the view that, notwithstanding what the High Court said in [ Glennan v Commissioner of Taxation (2003) 77 ALJR 1195 at [5]], the law was not as stated in that case.\" | At [25], whilst acknowledging that in the ordinary course of events the Federal Court is the appropriate forum to seek a stay of the operation of a judgement of the Full Court, pending the outcome of an application for special leave, his Honour states that the course which this case took was \"hardly an ordinary case\". On this basis, his Honour, at [24] and [38], is critical of the Commissioner for not having raised the issue of a stay with the five judges of the High Court seized with the Commissioner's special leave application.", "Issues_Decided": "The decision follows an interlocutory hearing, in the proceedings brought in the Federal Court by the taxpayer under section 39B of the Judiciary Act 1903 , of the Commissioner's application for a stay of some of the Full Federal Court's orders in Unit Trend Services Pty Ltd v Commissioner of Taxation [2012] FCAFC 112 (' Unit Trend' ). The issues in dispute were whether: • upon a proper interpretation of section 14ZZL of the Taxation Administration Act 1953 , the Full Federal Court's orders are not final; meaning that the Commissioner would not be required to implement the Full Court's orders until the outcome of his application for special leave or any resulting appeal is known? • if section 14ZZL of the Taxation Administration Act 1953 ('TAA') does not excuse the Commissioner from having to implement the Full Court's orders until the outcome of his special leave application or any appeal is known, would it be appropriate that a stay of the Full Federal Court's orders be granted? • upon a proper interpretation of section 14ZZL of the Taxation Administration Act 1953 , the Full Federal Court's orders are not final; meaning that the Commissioner would not be required to implement the Full Court's orders until the outcome of his application for special leave or any resulting appeal is known? • if section 14ZZL of the Taxation Administration Act 1953 ('TAA') does not excuse the Commissioner from having to implement the Full Court's orders until the outcome of his special leave application or any appeal is known, would it be appropriate that a stay of the Full Federal Court's orders be granted? Logan J [at 31] decided that it was not appropriate to determine the issue about the interpretation and application of section 14ZZL of the TAA in the context of the Commissioner's application for a discretionary stay by the Court. His Honour considered that the proper interpretation and application of section 14ZZL of the TAA ought to be considered at the later time when the taxpayer's application for a writ of mandamus under section 39B of the Judiciary Act 1903 is heard and determined. Having regard to the fact that the Commissioner's application for special leave was referred to five justices of the High Court; the effect of the interest on overpayments legislation in terms of any monies that may ultimately be payable to the taxpayer; and the relative lack of prejudice to the taxpayer, Logan J decided [at 44] that a stay should be granted. His Honour [at 45] decided that the stay ought to run until the outcome of the Commissioner's application for special leave or any resulting appeal is determined. In the course of stating his reasons for deciding to grant a stay to the Commissioner, Logan J commented on some of the actions of the Commissioner. At [23] and [24], his Honour refers to correspondence exchanged between the Commissioner and the taxpayer, following the publication of the Full Federal Court's reasons for decision in Unit Trend . In particular, his Honour refers to correspondence issued by the Commissioner that stated section 14ZZQ of the TAA as the basis upon which the Commissioner considered he was not, at that stage, obliged to give effect to the Full Court's orders. His Honour characterises this mistaken reference in that correspondence to section 14ZZQ as \"the Commissioner, then being of the view that, notwithstanding what the High Court said in [ Glennan v Commissioner of Taxation (2003) 77 ALJR 1195 at [5]], the law was not as stated in that case.\" At [25], whilst acknowledging that in the ordinary course of events the Federal Court is the appropriate forum to seek a stay of the operation of a judgement of the Full Court, pending the outcome of an application for special leave, his Honour states that the course which this case took was \"hardly an ordinary case\". On this basis, his Honour, at [24] and [38], is critical of the Commissioner for not having raised the issue of a stay with the five judges of the High Court seized with the Commissioner's special leave application.", "ATO_View_of_Decision": "Application of section 14ZZL and 14ZZQ of the Taxation Administration Act 1953 | The Commissioner respectfully agrees that the High Court's statement in Glennan v Federal Commissioner of Taxation (2003) 77 ALJR 1195; [2003] HCA 31 (' Glennan' ) at [5] means that section 14ZZQ has no application or operation with respect to matters, such as Unit Trend , that commence in the AAT and proceed on appeal to the Federal Court. | The correspondence issued by the Commissioner following the publication of the Full Federal Court's reasons for decision in Unit Trend regrettably contained a mistaken reference to section 14ZZQ instead of section 14ZZL. The Commissioner's submissions to the Court referred to section 14ZZL of the TAA (not section 14ZZQ). It is by virtue of section 14ZZL that the Commissioner submitted that the Full Court's orders were not final, and that he was not compelled to give effect to the Full Federal Court's orders pending the outcome of his application for special leave and any appeal. The Commissioner does not contend that the law in relation to section 14ZZQ is other than as stated by the High Court in Glennan . | The Commissioner's submission was that, read in the context of section 14ZZQ and the legislative history, the reference in section 14ZZL to when a decision of the Tribunal 'becomes final' should not include a case where an application for special leave is pending in the High Court. It seemed improbable, the Commissioner submitted, that Parliament intended that the Commissioner would not be required to give effect to a decision where there is a special leave application pending if the matter commenced as an appeal to the Federal Court but would be required to do so in the same circumstances if the matter commenced in the Tribunal. The comments of the High Court in Glennan's case have no bearing on this issue. | Applying for a stay of orders of the Full Federal Court in the Federal Court | In seeking to invoke the Federal Court's jurisdiction to grant a stay, rather than the High Court, the Commissioner noted the decision of the High Court in Jennings Construction Limited v Burgundy Royale Investments Pty Ltd (No 1 ) (1986) 161 CLR 681 (' Jennings Construction'). In that case, Brennan J stated at [6]: \"When an application for special leave to appeal is made to this Court, a jurisdiction to stay may be exercised by the Court below and it is to that Court - the Court in which the matter is pending and which is familiar with the matter - that an application to stay should first be made. In this case the Court of Appeal, not wishing to pre-empt the view that may be expressed in this Court, tailored its order accordingly. In future, there should be no inhibition on the Court in which the matter is pending framing a stay order, if a stay be appropriate, to avoid the necessity for application to this Court.\" | The above statement by Brennan J in Jennings Construction was referred to and reaffirmed by the High Court in Smith Kline & French Laboratories (Australia) Ltd v Secretary to the Department of Community Services and Health [1991] HCA 13 (at [20]) and De Lewinski v Director-General of Community Services (NSW) [1996] HCA 9 (at [8]). | At the 8 February 2013 directions hearing before Logan J, the Commissioner foreshadowed that, as a fallback position, he intended to apply to the Federal Court for a stay of the Full Federal Court's orders in case his reliance upon section 14ZZL of the TAA was determined to be incorrect. His Honour ordered that the Commissioner file and serve any application for a stay on or before 1 March 2013. | The Commissioner proceeded, as foreshadowed and consistent with his Honour's order, to file the application for a stay in the Federal Court.", "Administrative_Treatment": "As a result of the High Court's decision handed down on 1 May 2013, the Federal Court did not have a further opportunity in this case to rule upon whether section 14ZZL has the same practical effect for proceedings commenced in the Tribunal as section 14ZZQ has for direct appeals to the Federal Court, when a special leave application is pending. | As no ruling was made in this case about the application of section 14ZZL, when similar circumstances arise in a future case, the Commissioner will again seek a stay of the Full Federal Court's orders but will also seek independent advice from senior counsel about whether to seek a declaration from the Court about the application of section 14ZZL. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "N/A | [2013] FCA 333 | s 14ZZL | s 14ZZQ | r 41.03 | 2003 ATC 4619 | 2010 ATC 1-022 | 2012 ATC 20-342", "Legislative_References": "Taxation Administration Act 1953 (Cth) s 14ZZL s 14ZZQ Judiciary Act 1903 (Cth) s 39B Federal Court of Australia Act 1976 (Cth) s 25 Federal Court Rules 2011 (Cth) r 41.03", "Case_References": "Glennan v Commissioner of Taxation (2003) 77 ALJR [2003] HCA 31 53 ATR 101 2003 ATC 4619 Jennings Construction Limited v Burgundy Royale Investments Pty Ltd (No 1) (1986) 161 CLR 681 [1986] HCA 84 Taxpayer v Commissioner of Taxation [2010] AATA 497 2010 ATC 1-022 76 ATR 917 Unit Trend Services Pty Ltd v Commissioner of Taxation [2012] FCAFC 112 2012 ATC 20-342", "Subject_References": "Application for stay Federal Court Rules Full Federal Court judgement Application for special leave", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD789of2012/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "VGGL and Commissioner of Taxation", "Venue_Reference_No": "2012/0694", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "5 December 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/0694/00001", "Unmatched_Content": "VGGL and Commissioner of Taxation [2013] AATA 867 2013 ATC 1-059 (2013) 97 ATR 1014 | The adverse aspects of the decision concern administrative penalties and have no wider ramifications. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Vision Intelligence Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2012/1759", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "30 July 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2013 ATC 10-330", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/1759/00001", "Unmatched_Content": "Vision Intelligence Pty Ltd and Commissioner of Taxation [2013] AATA 527 2013 ATC 10-330 (2013) 95 ATR 424 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "VN Railway Pty Ltd & Anor v Commissioner of Taxation", "Venue_Reference_No": "VID 289/2013 (Full Federal Court); VID 317/2012 (Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "27 March 2013", "Date_Published": "10 December 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerns the meaning of \"employee\" and \"eligible employee\" (s82AAA and 82AAC of the Act), and whether a contribution was made to a complying superannuation fund (s82AAC(1)).", "Overview_of_Facts": "Vrondis Nominees Pty Ltd ('Vrondis') was the trustee of a trading trust which operated a supermarket. The Commissioner conducted an audit of the business for the period 1 July 1992 to 30 June 2003 and raised assessments for each of the income years between 1993 and 2003. The assessments related to items of undeclared income and the disallowance of certain deductions. The Commissioner imposed penalties at 75% of the shortfall for understatement of taxable income in the financial years between 1993 and 2000. | The taxpayer lodged objections against all of the assessments and these were disallowed by the Commissioner. In a decision dated 23 March 2012, the Administrative Appeals Tribunal ('Tribunal') affirmed the Commissioner's objection decisions. | After the Tribunal handed down its decision, VN Railway Pty Ltd replaced Vrondis as trustee. The taxpayer appealed certain aspects of the Tribunal's decision to the Federal Court. | The first aspect of the appeal related to the disallowance of deductions claimed by the taxpayer in the 2001-2003 financial years for superannuation payments claimed to have been made on behalf of certain family members who were said to be employees. The Tribunal had found that these persons were not employees for the purposes of section 82AAC of the Income Tax Assessment Act 1936 ('the Act'). In reaching this view, the Tribunal applied the common law understanding of the term \"employee\". | The second issue concerned the requirements for a \"contribution\" to be \"made\" to a superannuation fund, and whether it was sufficient for the purposes of section 82AAC of the Act that an entitlement was granted even if no payment was actually made in the particular financial year. | The third issue related to the imposition of penalty and whether it was open to the Tribunal to determine that the appellants had intentionally disregarded the law where the director was allegedly not cross-examined with respect to his beliefs about Vrondis' tax obligations. | Issues decided by the court | 1. Whether the persons for whom contributions were made to a superannuation fund were \"eligible employees\" within the meaning of paragraph 82AAC(1)(a) of the Act | The Court held that the Tribunal was correct in finding no deductions were allowable because the family members who were said to be employees were not employees for the purposes of section 82AAC of the Act. | The Court referred to the legislative history of sections 82AAA and 82AAC and stated at [13] that: \"The legislative amendments which saw the introduction of ss82AAA and 82AAC of the Act were, in part, directed at preventing deductions being claimed in respect of persons such as family members who might have been employees of other persons who had no proprietary interest in the business of the claimant. This objective could not have been achieved if the broad interpretation of the word \"employment\", contended for by Vrondis, were to be adopted.\" | The Court also referred to the statutory context of the provisions, noting that an employee is defined to mean one who is employed by a taxpayer and/or is producing assessable income for the taxpayer or is engaged in the taxpayer's business, which is strongly suggestive of a technical use of the words \"employee\" and \"employment.\" at [14] and [15]. | At [16], the Court noted that the adoption of the common law understanding of \"employee\" sits comfortably with the definition of \"eligible employee.\" The Court also held that although the Tribunal had regard to a \"presumption that any work done in the ....business by [the beneficiary] was done for family reasons, and that there is authority to the effect that such presumptions are unhelpful and no longer represent a correct analysis, the Tribunal had nevertheless correctly applied the common law meaning of \"employee\" and \"employment\" at [19] and [20]. | 2. Whether the Tribunal was correct in finding that the \"contribution\" had to be \"made\" to a complying superannuation fund as per s 82AAC(1) of the Act for the then director of Vrondis. | The Court held that in order to attract a deduction the taxpayer must make a contribution, and that the deduction is not allowable even if some form of entitlement exists unless the payment is actually made. The Court held that the contribution must be paid into a complying superannuation fund as required by section 82AAC(1)(b) at [25]. The Court found that the taxpayer did not make a superannuation payment on behalf of the then director in the 2002-2003 financial year, despite the taxpayer entity recording a book entry which indicated a contribution to the director's superannuation fund as a liability at [26] and [27]. The Tribunal was therefore correct in finding that no deduction was allowable. | 3. Whether penalties for intentional disregard at 75% per s226J of the Act were properly imposed. In this regard, the taxpayer argued that the Tribunal had failed to ensure that the rule in Browne v Dunn (1893) 6 r 67 was complied with and that the taxpayer had satisfied the onus; that the Tribunal had denied Vrondis procedural fairness; and/or that this aspect of the Tribunal's determination was unreasonable. | The Court dismissed the taxpayer's argument that applying the rule in Browne v Dunn (1893) 6 R 67 required that, in the absence of cross-examination, the Tribunal was bound to find that Vrondis had satsified the onus. The Court upheld the Tribunal's finding that the Director and the beneficiaries would have been aware that the trust had understated its income in its tax returns. In doing so, the Court considered a number of matters including that the Applicants were put on notice of the allegation of intentional disregard of a taxation law by the finding of evasion, the objection decisions, and the Respondent's amended statement of facts and contentions filed prior to the hearing before the Tribunal. Further, the director's state of mind was repeatedly challenged during cross-examination before the Tribunal in respect of the accuracy of the tax returns and the deliberate provision of false information to the Respondent. | The Court held [at 62] that, in the circumstances, the Tribunal was entitled to conclude that Vrondis had intentionally disregarded its obligations to provide true and correct information in its filed tax returns. | Furthermore, the Court held [at 66] that Vrondis was not denied procedural fairness and that the rule in Browne v Dunn was complied with. In particular, the decision of Jessup J in Howard v Commissioner of Taxation (No 2 ) [2011] FCA 1421 was distinguished on the basis of previous disclosure of relevant material. The Court also found that the Tribunal's decision was open to it and not manifestly unreasonable (the Court however noted that there is strong authority for the proposition that Wednesbury unreasonableness is only available as a ground of challenge to discretionary decisions.) | The taxpayer lodged an appeal to the Full Federal Court against the decision of Tracey J but discontinued the appeal prior to hearing.", "Issues_Decided": "1. Whether the persons for whom contributions were made to a superannuation fund were \"eligible employees\" within the meaning of paragraph 82AAC(1)(a) of the Act: The Court held that the Tribunal was correct in finding no deductions were allowable because the family members who were said to be employees were not employees for the purposes of section 82AAC of the Act. The Court referred to the legislative history of sections 82AAA and 82AAC and stated at [13] that: \"The legislative amendments which saw the introduction of ss82AAA and 82AAC of the Act were, in part, directed at preventing deductions being claimed in respect of persons such as family members who might have been employees of other persons who had no proprietary interest in the business of the claimant. This objective could not have been achieved if the broad interpretation of the word \"employment\", contended for by Vrondis, were to be adopted.\" The Court also referred to the statutory context of the provisions, noting that an employee is defined to mean one who is employed by a taxpayer and/or is producing assessable income for the taxpayer or is engaged in the taxpayer's business, which is strongly suggestive of a technical use of the words \"employee\" and \"employment.\" at [14] and [15]. At [16], the Court noted that the adoption of the common law understanding of \"employee\" sits comfortably with the definition of \"eligible employee.\" The Court also held that although the Tribunal had regard to a \"presumption that any work done in the ....business by [the beneficiary] was done for family reasons, and that there is authority to the effect that such presumptions are unhelpful and no longer represent a correct analysis, the Tribunal had nevertheless correctly applied the common law meaning of \"employee\" and \"employment\" at [19] and [20]. | 2. Whether the Tribunal was correct in finding that the \"contribution\" had to be \"made\" to a complying superannuation fund as per s 82AAC(1) of the Act for the then director of Vrondis.: The Court held that in order to attract a deduction the taxpayer must make a contribution, and that the deduction is not allowable even if some form of entitlement exists unless the payment is actually made. The Court held that the contribution must be paid into a complying superannuation fund as required by section 82AAC(1)(b) at [25]. The Court found that the taxpayer did not make a superannuation payment on behalf of the then director in the 2002-2003 financial year, despite the taxpayer entity recording a book entry which indicated a contribution to the director's superannuation fund as a liability at [26] and [27]. The Tribunal was therefore correct in finding that no deduction was allowable. | 3. Whether penalties for intentional disregard at 75% per s226J of the Act were properly imposed. In this regard, the taxpayer argued that the Tribunal had failed to ensure that the rule in Browne v Dunn (1893) 6 r 67 was complied with and that the taxpayer had satisfied the onus; that the Tribunal had denied Vrondis procedural fairness; and/or that this aspect of the Tribunal's determination was unreasonable.: The Court dismissed the taxpayer's argument that applying the rule in Browne v Dunn (1893) 6 R 67 required that, in the absence of cross-examination, the Tribunal was bound to find that Vrondis had satsified the onus. The Court upheld the Tribunal's finding that the Director and the beneficiaries would have been aware that the trust had understated its income in its tax returns. In doing so, the Court considered a number of matters including that the Applicants were put on notice of the allegation of intentional disregard of a taxation law by the finding of evasion, the objection decisions, and the Respondent's amended statement of facts and contentions filed prior to the hearing before the Tribunal. Further, the director's state of mind was repeatedly challenged during cross-examination before the Tribunal in respect of the accuracy of the tax returns and the deliberate provision of false information to the Respondent. The Court held [at 62] that, in the circumstances, the Tribunal was entitled to conclude that Vrondis had intentionally disregarded its obligations to provide true and correct information in its filed tax returns. Furthermore, the Court held [at 66] that Vrondis was not denied procedural fairness and that the rule in Browne v Dunn was complied with. In particular, the decision of Jessup J in Howard v Commissioner of Taxation (No 2 ) [2011] FCA 1421 was distinguished on the basis of previous disclosure of relevant material. The Court also found that the Tribunal's decision was open to it and not manifestly unreasonable (the Court however noted that there is strong authority for the proposition that Wednesbury unreasonableness is only available as a ground of challenge to discretionary decisions.) The taxpayer lodged an appeal to the Full Federal Court against the decision of Tracey J but discontinued the appeal prior to hearing.", "ATO_View_of_Decision": "The Commissioner considers that the Court's decision confirms that the term \"employee\" in sections 82AAA and 82AAC of the the Act, is used in the common law sense of a person who is a party to a contract of service. | Sections 82AAA and 82AAC of the the Act were repealed with effect from the 2007-2008 year of income and later years. The decision of the Federal Court in this matter therefore has limited ongoing application. It is also considered that the legislative scheme set out in Division 290 of the Income Tax Assessment Act 1997 , which applies from the 2007-08 income year onwards, has removed any doubt which may have existed over the conditions for deducting an employer contribution and the definition of who is an \"employee\" for that purpose.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "Nil | 2013 ATC 20-381 | section 44 | 82AAA | 82AAC | 82AAR | 226J | section 14ZZK | 83 ATC 4015 | 87 ATC 4775 | 2012 ATC 1-044 | 2011 ATC 20-298 | (1985) 159 CLR 550 | [2003] FCA 356 | (1990) 95 ALR 427 | 90 ATC 4401", "Legislative_References": "Administrative Appeals Tribunal Act 1975 section 44 Income Tax Assessment Act 1936 82AAA 82AAC 82AAR 226J Taxation Administration Act 1953 section 14ZZK", "Case_References": "Allied Pastoral Holdings Pty Ltd v Federal Commissioner of Taxation (1983) 70 FLR 447 13 ATR 825 83 ATC 4015 Attorney General (NSW) v Quin (1990) 170 CLR 1 [1990] HCA 21 Browne v Dunn (1893) 6 R 67 Commissioner of Taxation v P Iori & Sons Pty Ltd (1987) 15 FCR 363 19 ATR 201 87 ATC 4775 Confidential v Commissioner of Taxation [2012] AATA 178 2012 ATC 1-044 Ermogenous v Greek Orthodox (2002) 209 CLR 95 [2002] HCA 8 Ex parte Applicant S 20/2002 [2003] HCA 30 (2003) 198 ALR 59 Harris v Commissioner of Taxation (2002) 125 FCR 46 Howard v Commissioner of Taxation (No 2) [2011] FCA 1421 2011 ATC 20-298 86 ATR 753 Kioa v West (1985) 159 CLR 550 Minister for Immigration and Multicultural Affairs v Eshetu [1999] HCA 21 (1999) 197 CLR 611 MWJ v The Queen (2006) 222 ALR 436 Nozzi Pty Ltd v Federal Commissioner of Taxation [2003] FCA 356 (2003) 52 ATR 521 Lend Lease Corporation Ltd v Federal Commissioner of Taxation (1990) 95 ALR 427 21 ATR 402 90 ATC 4401 LVR (WA) Pty Ltd v Administrative Appeals Tribunal [2011] FCA 1146 Reid v Kerr (1974) 9 SASR 367 Tadrous v Tadrous [2010] NSWSC 1388 White Industries (QLD) Pty Ltd v Flower & Hart [1998] FCA 806 (1998) 156 ALR 169", "Subject_References": "Allowable deduction Eligible employee Employee Superannuation contribution Makes a contribution Penalty Intentional disregard Onus of proof", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID289-2013;VID317-2012/00001", "Unmatched_Content": "This decision has no impact for the ATO including precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Walters and Commissioner of Taxation", "Venue_Reference_No": "2012/4900", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 March 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2013] AATA 151", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/4900/00001", "Unmatched_Content": "Walters and Commissioner of Taxation [2013] AATA 151 (2013) 93 ATR 349 | No DIS was required as the Commissioner initially appealed this decision but his appeal was resolved on the basis of declarations made by the Federal Court at the request of the parties on 17 October 2013. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Weeks v Commissioner of Taxation", "Venue_Reference_No": "High Court of Australia: B12 of 2013; Full Federal Court of Australia: QUD 210 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "", "Date_Published": "31 July 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a termination payment is a genuine redundancy payment and, if not, whether there is inconsistency between that outcome and the taxpayer as an employee being excess to requirements.", "Overview_of_Facts": "The taxpayer is a former employee of the Australian Taxation Office who was employed as an ongoing Executive Level 2 APS employee prior to the termination of her employment. | The Public Service Act 1999 (Cth) (Public Service Act) provides: 29(3) For an ongoing APS employee, the following are the only grounds for termination: (a) the employee is excess to the requirements of the Agency; | (a) the employee is excess to the requirements of the Agency; | In October 2009, the taxpayer requested that she be considered for a voluntary termination pursuant to Clause 97 of the ATO (Executive Level 2) Agreement 2009 (\"EL2 Agreement\"). | Clause 97 of the ATO (Executive Level 2) Agency Agreement 2009 (Agency Agreement) provides: 97.1 An EL2 employee whose services can no longer be effectively used in their current job because of changes in technology or work methods or changes in the nature, extent or organisation of the ATO will be given support in considering career alternatives or will be able to leave the ATO with dignity and respect for the contribution they have made in the past. 97.2 These procedures are only to be used where an individual EL2 employee's job is still required and the EL2 employee will be replaced subsequent to action under this clause. Where the actual job is no longer required, the arrangements under clause 98 must be used. | The taxpayer then made an application for a private ruling and the Commissioner issued a private ruling that the payment received on termination was not tax free as a genuine redundancy payment. | The taxpayer lodged an objection against the private ruling and later requested the objection to the ruling be treated as an objection to the assessment as her assessment had since issued. | The Commissioner made an objection decision disallowing the objection. | The taxpayer appealed to the Administrative Appeals Tribunal and it held that the payment was not a genuine redundancy payment. | The taxpayer appealed to the Federal Court and Justice Reeves handed down a decision on 4 April 2012 dismissing the appeal with costs. | The taxpayer then appealed to the Full Federal Court. On 25 January 2013, the Full Federal Court handed down a favourable decision and unanimously dismissed the taxpayer's appeal with costs. | On 22 February 2013, the taxpayer filed a special leave application which was dismissed on 26 June 2013. | Issues decided by the court | The Full Court unanimously dismissed the taxpayer's appeal with costs for the following reasons: 1. The payment made to the taxpayer in relation to the termination of her employment was not a tax free \"genuine redundancy payment\" for the purposes of subsection 83-175(1) of the Income Tax Assessment Act 1997 (\"ITAA 1997\"). 2. There is no inconsistency between the taxpayer as an employee being excess to requirements under paragraph 29(3)(a) of the Public Service Act 1999 and her position not being genuinely redundant under section 83-175 of the ITAA 1997. | 1. The payment made to the taxpayer in relation to the termination of her employment was not a tax free \"genuine redundancy payment\" for the purposes of subsection 83-175(1) of the Income Tax Assessment Act 1997 (\"ITAA 1997\"). 2. There is no inconsistency between the taxpayer as an employee being excess to requirements under paragraph 29(3)(a) of the Public Service Act 1999 and her position not being genuinely redundant under section 83-175 of the ITAA 1997.", "Issues_Decided": "The Full Court unanimously dismissed the taxpayer's appeal with costs for the following reasons: 1. The payment made to the taxpayer in relation to the termination of her employment was not a tax free \"genuine redundancy payment\" for the purposes of subsection 83-175(1) of the Income Tax Assessment Act 1997 (\"ITAA 1997\"). 2. There is no inconsistency between the taxpayer as an employee being excess to requirements under paragraph 29(3)(a) of the Public Service Act 1999 and her position not being genuinely redundant under section 83-175 of the ITAA 1997. 1. The payment made to the taxpayer in relation to the termination of her employment was not a tax free \"genuine redundancy payment\" for the purposes of subsection 83-175(1) of the Income Tax Assessment Act 1997 (\"ITAA 1997\"). 2. There is no inconsistency between the taxpayer as an employee being excess to requirements under paragraph 29(3)(a) of the Public Service Act 1999 and her position not being genuinely redundant under section 83-175 of the ITAA 1997.", "ATO_View_of_Decision": "The Full Court's decision is consistent with the ATO view.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not applicable", "Related_Documents": "Not Applicable | High Court | [2013] HCASL 100 | Full Federal Court | 2013 ATC 20-366 | s 83 | s 175(1) | (2004) 2004 ATC 4555", "Legislative_References": "Income Tax Assessment Act 1997 s 83 s 175(1) Public Service Act 1999 s 29(3)(a) Evidence Act 1995 s 153", "Case_References": "Dibb v Commissioner of Taxation [2004] FCAFC 126 (2004) 136 FCR 388 (2004) 55 ATR 786 (2004) 2004 ATC 4555 Waterford v Commonwealth (1987) 163 CLR 54 Zegarac v Dellios [2007] FCAFC 58", "Subject_References": "genuine redundancy payment employment termination payment ('ETP')", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/B12of2013;QUD210of2012/00001", "Unmatched_Content": "This decision has no impact for the ATO including precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Wegner v Deputy Commissioner of Taxation; Reardon v Deputy Commissioner of Taxation", "Venue_Reference_No": "HCA B17 and B18 of 2013; QCA No 3597 and 3598 of 2012", "Venue": "Miscellaneous - Australian", "Judgment_Date": "", "Date_Published": "31 July 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case concerning whether Director Penalty Notices (DPNs) issued under former s 222AOE of the Income Tax Assessment Act 1936 were required to be re-issued under s 269-25 of Sch 1 to the Taxation Administration Act 1953.", "Overview_of_Facts": "On 27 April 2010, the ATO issued a Director Penalty Notice (DPN) to each of the taxpayers in respect of unpaid pay as you go withholding (PAYGW) for the company of which they were directors. Each DPN was drafted in conformance with the decision in DCT v Meredith (2007) 245 ALR 150, which is authority for the proposition that a DPN is served at the time it is posted and the date for compliance runs from that date. In this case, the taxpayers alleged they did not receive the DPNs. | On 1 July 2010, as a result of the Tax Laws Amendment (Transfer of Provisions) Act 2010 , section 222AOE of the ITAA 1936 was repealed and Division 269 was enacted as part of Schedule 1 to the TAA 1953. Transitional provisions provided that the new Division 269 applied in respect of directors' penalties payable under the former provisions in the ITAA 1936 as though they were payable under Division 269, excluding section 269-20 which provides for the raising of the penalty (in order to avoid a double penalty). [1] | The taxpayers argued unsuccessfully on appeal, and at their application for special leave, that the transitional provisions had the effect of revoking the Commissioner's power to recover the penalty that arose after the expiration of the 14 day period for compliance under former section 222AOE on 11 May 2010, as from 1 July 2010 when the new provisions became effective. | Issues decided by the court | The Queensland Court of Appeal held that the original DPNs enabled the Commissioner to recover the penalty because his accrued right was preserved by former section 8(c) of the Acts Interpretation Act 1901 (Cth) (now in section 7 of that Act) (per McMurdo J and McMeekin J). [2] Alternatively, Schedule 7 to the Tax Laws Amendment (2011 Measures No 7 ) Act (Cth) (which retrospectively validated the DPNs sent to the taxpayers after the NSW Court of Appeal decision in Soong v DCT (2011) 278 ALR 538 overturned their earlier decision in Meredith , with the effect that all DPNs issued with the wording used in the present case became invalid) operated as a retrospective repeal or modification of the transitional provisions and avoid any inconsistency, such that a new notice under Division 269 was not required (per Holmes J). [3]", "Issues_Decided": "The Queensland Court of Appeal held that the original DPNs enabled the Commissioner to recover the penalty because his accrued right was preserved by former section 8(c) of the Acts Interpretation Act 1901 (Cth) (now in section 7 of that Act) (per McMurdo J and McMeekin J). [2] Alternatively, Schedule 7 to the Tax Laws Amendment (2011 Measures No 7 ) Act (Cth) (which retrospectively validated the DPNs sent to the taxpayers after the NSW Court of Appeal decision in Soong v DCT (2011) 278 ALR 538 overturned their earlier decision in Meredith , with the effect that all DPNs issued with the wording used in the present case became invalid) operated as a retrospective repeal or modification of the transitional provisions and avoid any inconsistency, such that a new notice under Division 269 was not required (per Holmes J). [3]", "ATO_View_of_Decision": "The decision of the Court of Appeal, which the High Court determined was not attended with sufficient doubt to warrant granting the taxpayers Special Leave to Appeal, is consistent with the Commissioner's view and current procedures.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not applicable", "Related_Documents": "Not applicable | High Court | Queensland Court of Appeal | [2013] QCA 46 | Section 269-25 of Schedule 1 | Former Division 9 | Schedule 1 section 10 | Part 3, Division 5 | Schedule 7 | 2000 ATC 4141 | 2007 ATC 5353 | 2011 ATC 20-245 | [2012] NSWDC 135", "Legislative_References": "Taxation Administration Act 1953 (Cth) Section 269-25 of Schedule 1 Income Tax Assessment Act 1936 (Cth) Former Division 9 Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) Schedule 1 section 10 Part 3, Division 5 Tax Laws Amendment (2011 Measures No 7) Act 2011 (Cth) Schedule 7", "Case_References": "Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 [2000] HCA 10 43 ATR 757 2000 ATC 4141 Deputy Commissioner of Taxation v Meredith [2007] NSWCA 354 (2007) 245 ALR 150 2007 ATC 5353 69 ATR 876 Soong v Deputy Commissioner of Taxation [2011] NSWCA 26 (2011) 278 ALR 538 2011 ATC 20-245 82 ATR 455 Deputy Commissioner of Taxation v Zammitt [2012] NSWDC 135", "Subject_References": "Validity of Director Penalty Notices Interaction between the former section 222AOE Income Tax Assessment Act 1936 (ITAA 1936) and section 269-25 of Schedule 1 of the Taxation Administration Act 1953 (Schedule 1, TAA53))", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/HCAB17andB18of2013/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements | 1. Is the Commissioner entitled to commence or continue recovery proceedings on unpaid director penalty liabilities in circumstances where a DPN issued before 1 July 2010 under [now repealed] section 222AOE of the ITAA 1936 without having to issue a further notice under section 269-25 of Schedule 1 of the TAA 1953? | It was held that in cases where the taxpayer has already received a DPN under section 222AOE of the ITAA 1936, the Commissioner remains entitled to recover the director penalty and is not required to issue a further DPN under section 269-25 of Schedule 1 of the TAA 1953. | 2. Whether Schedule 7 of the Tax Laws Amendment (2011 Measures No 7) Act 2011 (\"the Soong Amendments\") operate to validate a notice issued under former section 222AOE of the ITAA 1936 which, but for the Soong amendments, may have otherwise been invalid? | It was held that the Soong Amendments were effective to validate a notice issued under former section 222AOE which was rendered invalid as a result of the decision of the NSW Court of Appeal in Soong v DCT (2011) 278 ALR 538."}
{"Case_Name": "Wray-McCann and Commissioner of Taxation", "Venue_Reference_No": "2008/3747-3755", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "4 April 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2013 ATC 10-307", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/3747-3755/00001", "Unmatched_Content": "Wray-McCann and Commissioner of Taxation [2013] AATA 196 2013 ATC 10-307 (2013) 93 ATR 907 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Yazbek v Commissioner of Taxation", "Venue_Reference_No": "NSD 1471 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "31 January 2013", "Date_Published": "7 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether an individual was a 'beneficiary of a trust estate' during the 2005 income year and, if so, whether the Commissioner had a 4 year period to issue an amended assessment under s 170 ITAA 1936.", "Overview_of_Facts": "The taxpayer (an individual) was an object of a family discretionary trust during the 2005 income year. The taxpayer was not entitled to any of the income or capital of the trust and did not receive any distribution of income or capital from the trust during the relevant year. | The taxpayer objected to an amended assessment issued by the Commissioner which increased the taxpayer's liability by including an additional amount in his assessable income. The increase in assessable income was unconnected with the family discretionary trust. The Commissioner disallowed that objection and the taxpayer sought a review of that decision by the Administrative Appeals Tribunal (AAT). | The issue of whether the Commissioner was out of time to amend the taxpayer's assessment (because it had been made more than two years after the day on which the original assessment had been made) was heard by the AAT as a preliminary question. | Generally, the Commissioner may issue an amended assessment to an individual for an income year within two years after the day the original assessment was issued: item 1 of the table in subsection 170(1) of the Income Tax Assessment Act 1936 (ITAA 1936). However, the Commissioner has four years within which to issue an amended assessment 'if the individual is a beneficiary of a trust estate at any time in that year...' - provided the trust is not a small business entity for the relevant year (which it wasn't) and the trustee is not in their trustee capacity a full self-assessment taxpayer for that year (which they weren't): item 1(d) of the table in subsection 170(1). | The AAT determined that the Commissioner had power and was within time to issue the amended assessment. The taxpayer appealed that decision in the Federal Court. | Issues decided by the court | 1. Did the Court have jurisdiction to hear the application for review? | The Court held that it had jurisdiction to hear the application for review pursuant to paragraph 5(1)(f) of the Administrative Decisions (Judicial Review) Act 1977 . | 2. Was the taxpayer a 'beneficiary of a trust estate' within the meaning of item 1(d) of the table in subsection 170(1) of the ITAA 1936? | The Court held that the common usage of the term 'beneficiary' includes any person for whose benefit the trust is to be administered and who is entitled to enforce the trustee's obligation to administer the trust according to its terms. It therefore includes the potential object of a discretionary trust. This accords with the decision of Lindgren J in Kafataris v Deputy Commissioner of Taxation (2008) 172 FCR 242 which was followed by Stone J in Colonial First State Investments Ltd v Commissioner of Taxation (2011) 192 FCR 298. | The Court then looked at whether a different conclusion was warranted in respect of item 1 of the table in subsection 170(1) given its statutory context. The Court held that no different conclusion was warranted and that the issue was determined by reference to the common meaning of 'beneficiary'. Further, there was nothing in paragraph 1(d) of item 1 that qualified what was meant by 'beneficiary' in that context. The Court rejected the taxpayer's argument that the four year period provided for by paragraph 1(d) of item 1 only applied where the subject matter of the amendment was linked to the taxpayer's status as a beneficiary of a trust estate. | The taxpayer in part contended that mischievous taxpayers could conceivably include all Australian residents or specific public figures as beneficiaries to deny them the benefit of the two year amendment rule. | However, in conclusion, her Honour stated at [43] that: I do not accept that there is an absurdity said to flow from the Tribunal's construction that would mean that the ordinary meaning should be displaced. It is not an absurd construction that Parliament intended to increase the time limit for amending an assessment of a \"beneficiary\" in the ordinary sense of the word where the \"risk\" to the taxpayer is that the taxpayer will be called on to pay amounts that are lawfully due ... ' | Therefore, the Court concluded that the AAT's decision that the Commissioner was within time to issue the amended assessment was correct.", "Issues_Decided": "1. Did the Court have jurisdiction to hear the application for review?: The Court held that it had jurisdiction to hear the application for review pursuant to paragraph 5(1)(f) of the Administrative Decisions (Judicial Review) Act 1977 . | 2. Was the taxpayer a 'beneficiary of a trust estate' within the meaning of item 1(d) of the table in subsection 170(1) of the ITAA 1936?: The Court held that the common usage of the term 'beneficiary' includes any person for whose benefit the trust is to be administered and who is entitled to enforce the trustee's obligation to administer the trust according to its terms. It therefore includes the potential object of a discretionary trust. This accords with the decision of Lindgren J in Kafataris v Deputy Commissioner of Taxation (2008) 172 FCR 242 which was followed by Stone J in Colonial First State Investments Ltd v Commissioner of Taxation (2011) 192 FCR 298. The Court then looked at whether a different conclusion was warranted in respect of item 1 of the table in subsection 170(1) given its statutory context. The Court held that no different conclusion was warranted and that the issue was determined by reference to the common meaning of 'beneficiary'. Further, there was nothing in paragraph 1(d) of item 1 that qualified what was meant by 'beneficiary' in that context. The Court rejected the taxpayer's argument that the four year period provided for by paragraph 1(d) of item 1 only applied where the subject matter of the amendment was linked to the taxpayer's status as a beneficiary of a trust estate. The taxpayer in part contended that mischievous taxpayers could conceivably include all Australian residents or specific public figures as beneficiaries to deny them the benefit of the two year amendment rule. However, in conclusion, her Honour stated at [43] that: I do not accept that there is an absurdity said to flow from the Tribunal's construction that would mean that the ordinary meaning should be displaced. It is not an absurd construction that Parliament intended to increase the time limit for amending an assessment of a \"beneficiary\" in the ordinary sense of the word where the \"risk\" to the taxpayer is that the taxpayer will be called on to pay amounts that are lawfully due ... ' Therefore, the Court concluded that the AAT's decision that the Commissioner was within time to issue the amended assessment was correct.", "ATO_View_of_Decision": "The decision accords with the ATO's view of the operation of subsection 170(1) of the ITAA 1936. | Consistently with the decision in Kafataris v Commissioner of Taxation , it confirms that the term 'beneficiary' means any person (or entity) for whose benefit a trust is to be administered and who is entitled to enforce the trustee's obligation to administer the trust according to its terms. | As such, a four year period of review applies to a taxpayer who is a beneficiary of a trust, except where the trust is a small business entity in the relevant year of income (or where the trustee of the trust, in that capacity, is a full self-assessment taxpayer). This is the case even if the amendment is made for a reason unrelated to the trust. | Where it is available, a four year period of review will apply equally to both ATO and taxpayer initiated amendments.", "Administrative_Treatment": "The decision is expected to have limited practical consequences. The Commissioner does not intend to change his current compliance approaches, which for individual taxpayers, involves seeking to complete compliance action and amend assessments (if relevant) in most instances within two years. | However, in more complex cases involving an individual who is a beneficiary of a trust for which a four year period of review applies, compliance action for that individual may generally take place over that period. Such cases may arise, for example: • in audits of high wealth individuals and family groups (whether or not the individual received a distribution from the trust in that income year), particularly where there is a close familial relationship between the beneficiary and the trust, the beneficiary is actively involved in the administration of the trust and / or the beneficiary is able to influence the distribution of income or capital from the trust; or • where there is an adjustment to the taxable income of the individual emanating from compliance action in respect of the trust; or • in other circumstances involving complexity, including complex audits relating to claims for work-related expenses which cannot be concluded within two years. | • in audits of high wealth individuals and family groups (whether or not the individual received a distribution from the trust in that income year), particularly where there is a close familial relationship between the beneficiary and the trust, the beneficiary is actively involved in the administration of the trust and / or the beneficiary is able to influence the distribution of income or capital from the trust; or • where there is an adjustment to the taxable income of the individual emanating from compliance action in respect of the trust; or • in other circumstances involving complexity, including complex audits relating to claims for work-related expenses which cannot be concluded within two years. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil", "Related_Documents": "Nil | 2013 ATC 20-371 | Section 170(1) | Section 5 | 2008 ATC 20-048 | [1968] AC 553 | 2011 ATC 20-235 | 2005 ATC 4136 | 2000 ATC 4079", "Legislative_References": "Income Tax Assessment Act 1936 Section 170(1) Administrative Decisions (Judicial Review) Act 1977 Section 5", "Case_References": "Kafataris v Deputy Commissioner of Taxation (2008) 172 FCR 242 2008 ATC 20-048 73 ATR 531 Gartside v Inland Revenue Commissioners [1967] UKHL 6 [1968] AC 553 Colonial First State Investments Ltd v Commissioner of Taxation (2011) 192 FCR 298 [2011] FCA 16 2011 ATC 20-235 81 ATR 772 Commissioner of Taxation v Ramsden [2005] FCAFC 39 (2005) 58 ATR 485 2005 ATC 4136 Commissioner of Taxation v Ryan (2000) 201 CLR 109 [2000] HCA 4 43 ATR 694 2000 ATC 4079", "Subject_References": "Beneficiary of a Trust Amended assessment Section 170 ITAA 1936", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1471of2012/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Young & Anor v Commissioner of Taxation", "Venue_Reference_No": "John Young: 2011/3256-3264; John Lyon: 2011/3187-3195", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 May 2013", "Date_Published": "28 October 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the Surcharge Acts are constitutionally invalid in their application to two taxpayers who held senior positions in the Crown Solicitor's Office in Western Australia.", "Overview_of_Facts": "Both taxpayers held senior positions in the WA Crown Solicitors Office, and were members of Constitutionally Protected Superannuation Funds ('CPSFs'). During the relevant income years, both taxpayers were the Deputy Crown Solicitor (or acted in that capacity). | The CPSFs reported surchargeable contributions and the taxpayers were issued with Superannuation Contributions Surcharge ('SCS') assessments. Following the High Court decision in Clarke v Commissioner of Taxation [2009] HCA 33, the taxpayers lodged objections against the SCS assessments on the basis that they each held positions at the 'higher levels of government' during the relevant income years. | Issues decided by the court | Issue: | The issue determined by the Tribunal was whether the taxpayers were at the \"higher levels of government\" so that the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 ('Surcharge Acts') were constitutionally invalid in their application to those taxpayers. | Decision: | The Tribunal set aside the objection decisions for periods in which the taxpayers were the Deputy Crown Solicitor (or acting in that capacity), noting that they were at the higher levels of the WA Government. Following Clarke , legislation imposing the surcharge did not validly apply to them during those periods. | In deciding that the Surcharge Acts did not apply to the taxpayers in their role as Deputy Crown Solicitors, the Tribunal concluded that a number of factors specific to this role at the relevant time weighed in favour of a conclusion that the Surcharge Acts transgressed the implied constitutional limitation insofar as they applied to the taxpayers. | Deputy President Jarvis particularly emphasised that the taxpayers not only occupied higher positions in the structure of the Crown Solicitor's Office and were part of a small core group of the most senior advisers, but were not answerable to the Crown Solicitor, provided advice direct to Ministers, government officers and agencies, and were subject to salary fixing arrangements applying to chief executive officers of government departments.", "Issues_Decided": "Issue:: The issue determined by the Tribunal was whether the taxpayers were at the \"higher levels of government\" so that the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 ('Surcharge Acts') were constitutionally invalid in their application to those taxpayers. | Decision:: The Tribunal set aside the objection decisions for periods in which the taxpayers were the Deputy Crown Solicitor (or acting in that capacity), noting that they were at the higher levels of the WA Government. Following Clarke , legislation imposing the surcharge did not validly apply to them during those periods. In deciding that the Surcharge Acts did not apply to the taxpayers in their role as Deputy Crown Solicitors, the Tribunal concluded that a number of factors specific to this role at the relevant time weighed in favour of a conclusion that the Surcharge Acts transgressed the implied constitutional limitation insofar as they applied to the taxpayers. Deputy President Jarvis particularly emphasised that the taxpayers not only occupied higher positions in the structure of the Crown Solicitor's Office and were part of a small core group of the most senior advisers, but were not answerable to the Crown Solicitor, provided advice direct to Ministers, government officers and agencies, and were subject to salary fixing arrangements applying to chief executive officers of government departments.", "ATO_View_of_Decision": "The partially adverse decision of the Tribunal does not impact on the Commissioner's current view that only a relatively restricted range of officials are to be considered to be at the 'higher levels of government' for these purposes. Each of these cases involved the application of established principle to particular facts and circumstances.", "Administrative_Treatment": "", "Related_Documents": "N/A | Decision Impact Statements: | Clarke v Commissioner of Taxation | [2013] AATA 347 | The Act | (1920) 28 CLR 129 | 2003 ATC 4042 | [2009] HCA 33 | 92 ATC 4079 | (1947) 74 CLR 31 | (1959) 107 CLR 208 | [2012] AATA 451 | (2007) 233 CLR 307 | (1971) 122 CLR 353 | 2 ATR 249 | [2013] AATA 348", "Legislative_References": "Constitution Constitution Act 1934 (SA) Public Sector Management Act 1994 (WA) Salaries and Allowances Act 1975 (WA) Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 (Cth) The Act Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 (Cth) The Act Supreme Court Act 1935 (WA)", "Case_References": "Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129 Austin v Commonwealth [2003] HCA 3 215 CLR 185 2003 ATC 4042 51 ATR 654 Clarke v Commissioner of Taxation [2009] HCA 33 240 CLR 272 72 ATR 868 Deputy Commissioner of Taxation v State Bank of NSW (1992) 105 ALR 161 23 ATR 1 92 ATC 4079 Melbourne Corporation v Commonwealth (1947) 74 CLR 31 R v Commonwealth Conciliation and Arbitration Commission; Ex parte Association of Professional Engineers (1959) 107 CLR 208 Re Australian Education Union; Ex parte the State of Victoria (1995) 184 CLR 188 Re Walsh and Commissioner of Taxation [2012] AATA 451 Thomas v Mowbray (2007) 233 CLR 307 Victoria v Commonwealth (1971) 122 CLR 353 2 ATR 249 Re Somerville and Commissioner of Taxation [2013] AATA 348", "Subject_References": "constitutional law superannuation contributions surcharge superannuation contributions tax", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/3256-3264;2011/3187-3195/00001", "Unmatched_Content": "This decision has no impact on ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Zarev and Commissioner of Taxation", "Venue_Reference_No": "2012/0341-0345", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "30 October 2013", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2013] AATA 777", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/0341-0345/00001", "Unmatched_Content": "Zarev and Commissioner of Taxation [2013] AATA 777 (2013) 94 ATR 981 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "ZZGN and Commissioner of Taxation", "Venue_Reference_No": "2010/4354", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "5 April 2013", "Date_Published": "28 October 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case on whether various expenditure was 'exploration expenditure' within the meaning of paragraph 37(1)(a) of the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA)", "Overview_of_Facts": "ZZGN (the taxpayer) made a taxable profit in the year ended 30 June 2005 in respect of its participation in a petroleum joint venture within the area of a production licence. This was a petroleum project under the PRRTAA [the Pear Project]. | Company A was a participant in a petroleum joint venture in respect of the area of an exploration permit [the Apple Joint Venture] in the years ended 30 June 2002 to 30 June 2005. Company A incurred expenditure, but did not derive a taxable profit, from its participation in the Apple Joint Venture in these years. | ZZGN and Company A were wholly owned subsidiaries of Company B and were 'group companies' in relation to each other, in terms of sections 2B [1] and 45B, in the year ended 30 June 2005. | For the year ended 30 June 2005, Company A transferred an amount of its unused transferable exploration expenditure to ZZGN under section 45B. The unused transferable exploration expenditure was incurred by Company A in the years ended 30 June 2002 to 30 June 2005 and related to the Apple Joint Venture. | As Company A was a 'loss company' in terms of section 45B it was required by that section to transfer to a group company (which was not a loss company - ZZGN in this case) as much of its unused transferable exploration expenditure as could be transferred in terms of the PRRTAA. Unused transferable exploration expenditure is determined having regard to what is exploration expenditure in terms of section 37. | Later, ZZGN requested that the Commissioner amend its assessment for the year ended 30 June 2005 to reflect a further transfer of unused transferable exploration expenditure from Company A to the Pear Project under section 45B. The additional expenditure was said to have been incurred by Company A in connection with the Apple Joint Venture in the year ended 30 June 2005. | The result of this amendment request and the determination of a subsequent objection was that the Commissioner accepted that only part of the expenditure was able to be transferred under section 45B. He concluded that the balance of the expenditure was not transferrable as it was not incurred by Company A in or in connection with exploration for petroleum for the purposes of paragraph 37(1)(a). | ZZGN applied to the Administrative Appeals Tribunal (Tribunal) for a review of the objection decision. | The expenditure in dispute before the Tribunal was referable to Company A's participation in the Apple Joint Venture and was in three broad categories: 1. Amounts charged to Company A under the Apple Joint Venture agreement by Company C (the Operator) of the Apple Joint Venture (Company C Billed Expenditure). 2. Amounts incurred by Company A itself in relation to the Apple Joint Venture (Company A Direct Expenditure). 3. Amounts charged to Company A by the taxpayer in relation to the Apple Joint Venture (Allocated Expenditure). | 1. Amounts charged to Company A under the Apple Joint Venture agreement by Company C (the Operator) of the Apple Joint Venture (Company C Billed Expenditure). 2. Amounts incurred by Company A itself in relation to the Apple Joint Venture (Company A Direct Expenditure). 3. Amounts charged to Company A by the taxpayer in relation to the Apple Joint Venture (Allocated Expenditure). | The Commissioner accepted at the hearing that if any of the disputed expenditure was found by the Tribunal to be exploration expenditure, it was transferable under section 45B. | Issues Decided by the Tribunal | The central issue to be determined by the Tribunal was what amount (if any) of the disputed expenditure was exploration expenditure in terms of subsection 37(1) [18]. | In addressing this issue the Tribunal considered the following questions [19 & 20]: 1. What is meant by the phrase, in paragraph 37(1)(a), 'payments liable to be made by the person ... in carrying on or providing operations and facilities involved in or in connection with exploration for petroleum in the eligible exploration or recovery area in relation to the project', and 2. For the disputed Company A Direct Expenditure and Allocated Expenditure, does section 41 apply to deem payments made by Company A to group companies to be a liability incurred by it for the purpose of claiming a deduction, and 3. Does any of the disputed expenditure constitute exploration expenditure for the purposes of paragraph 37(1)(a)? | 1. What is meant by the phrase, in paragraph 37(1)(a), 'payments liable to be made by the person ... in carrying on or providing operations and facilities involved in or in connection with exploration for petroleum in the eligible exploration or recovery area in relation to the project', and 2. For the disputed Company A Direct Expenditure and Allocated Expenditure, does section 41 apply to deem payments made by Company A to group companies to be a liability incurred by it for the purpose of claiming a deduction, and 3. Does any of the disputed expenditure constitute exploration expenditure for the purposes of paragraph 37(1)(a)? | Question 1 | The Tribunal looked at the construction of section 37, including the meaning of 'exploration' and operations and facilities 'involved in or in connection with' exploration for petroleum in paragraph 37(1)(a). Section 37 was to be considered and interpreted in 'light of the rich legislative history of the section and the statute, to ascertain its purpose' [378]. | Meaning of 'exploration' in paragraph 37(1)(a) | The Tribunal considered that the word 'exploration' in its context in the PRRTAA must be read according to its ordinary everyday meaning [312, 314]. 'Exploration' is not to be read 'as a term of art or as having a particular technical meaning' in the context of the PRRTAA [313]. | The Tribunal found, as a matter of fact, that in the context of subsection 37(1), the ordinary meaning of 'exploration' contemplates the use of any range of survey techniques to identify prospective oil or gas fields [322]. A number of survey techniques are listed by the Tribunal by way of examples. Any scientific or technical analysis necessarily associated with evaluating the survey results would come within the ordinary meaning of 'exploration' (for example, technical analytical work to evaluate the scale of discoveries [317]). The drilling of appraisal wells to provide a more accurate indication of the potential size and quality of the oil or gas reserves are also included in 'exploration'. | The Tribunal also said that the ordinary meaning of 'exploration' does not include 'feasibility studies of the field for future development and production' [322]. | Meaning of operations and facilities 'in connection with' exploration for petroleum | The deductibility of much of the disputed Company C Billed Expenditure depended on the meaning of 'in connection with' exploration [323]. | The Tribunal noted that the phrase 'in connection with' is of potentially wide import and those words were intended to expand the activities for which a deduction could be claimed beyond that which is directly 'involved in' exploration [384]. | The Tribunal said the relevant 'connection' is a 'matter of judgment requiring a consideration of the subject matter, legislative history and facts of a case' [378]. However, the words 'in connection with' in subsection 37(1) cannot be given such a wide scope that it would allow the provision to apply to all project expenditure incurred up to the time of a final and irrevocable decision to proceed to production as it would run counter to the text, context and purpose of the PRRTAA [389]. | The Tribunal concluded that the phrase 'in connection with' in the context of paragraph 37(1)(a) requires that there be 'shown to be a reasonably direct relationship between the 'operations' for which expenditure has been incurred and 'exploration'' [390]. Remote and indirect connections are not sufficient. | Question 2 | For the purpose of this question, the Tribunal described the purpose and effect of section 41 [413] and referred to the views expressed by the majority of the Full Court of the Federal Court (Keane CJ and Edmonds J) in Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (2012) 200 FCR 100 (Esso) on the operation of section 41 [414]. | When applying these views the Tribunal noted that the facts it was considering were materially different to those before the Full Federal Court in Esso. For example, most of the service agreements relating to the services in this case were not of the same nature as those in Esso, and invoices were issued in this case. | The Tribunal observed that the Full Court in Esso was 'not seeking to exclude [from potential deductibility] normal commercial arrangements where properly invoiced accounts distinguishing expenditure between projects could be provided' [450]. | It seems that the Tribunal accepted that all of the disputed Company A Direct Expenditure and Allocated Expenditure satisfied section 41, and the Tribunal went on to consider if the work done relating to this expenditure was relevantly 'connected with' exploration for the purposes of subsection 37(1) [453, 471 & 472]. | Question 3 | The Tribunal applied its views outlined at Question 1 to the facts relating to the disputed expenditure and concluded that some of the expenditure was 'in connection with' exploration for petroleum in terms of subsection 37(1) and as a result deductible to the taxpayer as 'transferable exploration expenditure' for section 45B purposes [405, 408, 411, 453].", "Issues_Decided": "The central issue to be determined by the Tribunal was what amount (if any) of the disputed expenditure was exploration expenditure in terms of subsection 37(1) [18]. In addressing this issue the Tribunal considered the following questions [19 & 20]: 1. What is meant by the phrase, in paragraph 37(1)(a), 'payments liable to be made by the person ... in carrying on or providing operations and facilities involved in or in connection with exploration for petroleum in the eligible exploration or recovery area in relation to the project', and 2. For the disputed Company A Direct Expenditure and Allocated Expenditure, does section 41 apply to deem payments made by Company A to group companies to be a liability incurred by it for the purpose of claiming a deduction, and 3. Does any of the disputed expenditure constitute exploration expenditure for the purposes of paragraph 37(1)(a)? 1. What is meant by the phrase, in paragraph 37(1)(a), 'payments liable to be made by the person ... in carrying on or providing operations and facilities involved in or in connection with exploration for petroleum in the eligible exploration or recovery area in relation to the project', and 2. For the disputed Company A Direct Expenditure and Allocated Expenditure, does section 41 apply to deem payments made by Company A to group companies to be a liability incurred by it for the purpose of claiming a deduction, and 3. Does any of the disputed expenditure constitute exploration expenditure for the purposes of paragraph 37(1)(a)? | Question 1: The Tribunal looked at the construction of section 37, including the meaning of 'exploration' and operations and facilities 'involved in or in connection with' exploration for petroleum in paragraph 37(1)(a). Section 37 was to be considered and interpreted in 'light of the rich legislative history of the section and the statute, to ascertain its purpose' [378]. | Meaning of 'exploration' in paragraph 37(1)(a): The Tribunal considered that the word 'exploration' in its context in the PRRTAA must be read according to its ordinary everyday meaning [312, 314]. 'Exploration' is not to be read 'as a term of art or as having a particular technical meaning' in the context of the PRRTAA [313]. The Tribunal found, as a matter of fact, that in the context of subsection 37(1), the ordinary meaning of 'exploration' contemplates the use of any range of survey techniques to identify prospective oil or gas fields [322]. A number of survey techniques are listed by the Tribunal by way of examples. Any scientific or technical analysis necessarily associated with evaluating the survey results would come within the ordinary meaning of 'exploration' (for example, technical analytical work to evaluate the scale of discoveries [317]). The drilling of appraisal wells to provide a more accurate indication of the potential size and quality of the oil or gas reserves are also included in 'exploration'. The Tribunal also said that the ordinary meaning of 'exploration' does not include 'feasibility studies of the field for future development and production' [322]. | Meaning of operations and facilities 'in connection with' exploration for petroleum: The deductibility of much of the disputed Company C Billed Expenditure depended on the meaning of 'in connection with' exploration [323]. The Tribunal noted that the phrase 'in connection with' is of potentially wide import and those words were intended to expand the activities for which a deduction could be claimed beyond that which is directly 'involved in' exploration [384]. The Tribunal said the relevant 'connection' is a 'matter of judgment requiring a consideration of the subject matter, legislative history and facts of a case' [378]. However, the words 'in connection with' in subsection 37(1) cannot be given such a wide scope that it would allow the provision to apply to all project expenditure incurred up to the time of a final and irrevocable decision to proceed to production as it would run counter to the text, context and purpose of the PRRTAA [389]. The Tribunal concluded that the phrase 'in connection with' in the context of paragraph 37(1)(a) requires that there be 'shown to be a reasonably direct relationship between the 'operations' for which expenditure has been incurred and 'exploration'' [390]. Remote and indirect connections are not sufficient. | Question 2: For the purpose of this question, the Tribunal described the purpose and effect of section 41 [413] and referred to the views expressed by the majority of the Full Court of the Federal Court (Keane CJ and Edmonds J) in Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation (2012) 200 FCR 100 (Esso) on the operation of section 41 [414]. When applying these views the Tribunal noted that the facts it was considering were materially different to those before the Full Federal Court in Esso. For example, most of the service agreements relating to the services in this case were not of the same nature as those in Esso, and invoices were issued in this case. The Tribunal observed that the Full Court in Esso was 'not seeking to exclude [from potential deductibility] normal commercial arrangements where properly invoiced accounts distinguishing expenditure between projects could be provided' [450]. It seems that the Tribunal accepted that all of the disputed Company A Direct Expenditure and Allocated Expenditure satisfied section 41, and the Tribunal went on to consider if the work done relating to this expenditure was relevantly 'connected with' exploration for the purposes of subsection 37(1) [453, 471 & 472]. | Question 3: The Tribunal applied its views outlined at Question 1 to the facts relating to the disputed expenditure and concluded that some of the expenditure was 'in connection with' exploration for petroleum in terms of subsection 37(1) and as a result deductible to the taxpayer as 'transferable exploration expenditure' for section 45B purposes [405, 408, 411, 453].", "ATO_View_of_Decision": "Meaning of 'exploration' and 'in connection with exploration for petroleum' | The Commissioner has incorporated the views of the Tribunal on the ordinary meaning of 'exploration' and the term 'in connection with exploration for petroleum' in paragraph 37(1)(a) into Taxation Ruling TR 2014/9 Petroleum resource rent tax: what does 'involved in or in connection with exploration for petroleum' mean? which issued on 17 December 2014. | Other matters | After the Tribunal handed down its decision, there were substantial amendments to sections 37 and 41 by Tax Laws Amendment (2013 Measures No. 2) Act 2013 (the June 2013 changes). | The Tribunal's views as to the ordinary meaning of 'exploration' and the term 'in connection with exploration for petroleum' in paragraph 37(1)(a) were not affected by these amendments as this part of the provision was not altered by the June 2013 changes. | However, other aspects of sections 37 and 41 were affected by the June 2013 changes. For example, the terms 'payments liable to be made' in section 37 [2] and 'incurred a liability to make a payment' in section 41 are no longer relevant [3] . The terms that replaced them are 'payments to the extent that they are made' and 'made a payment wholly or partly'. | As a result, the Commissioner considers that the views expressed by the Tribunal in relation to 'payments liable to be made' and 'incurred a liability to make a payment' are no longer relevant when considering provisions that have been changed from that wording to 'payments to the extent that they are made' and 'made a payment wholly or partly'. | There is one aspect of the Tribunal's reasons on which the Commissioner would like to comment specifically. This relates to 'cash calls' under the terms of the Joint Operating Agreement (JOA) for the Apple Joint Venture. The Tribunal noted that [381]: • the Commissioner accepted that Company C operated as agent for the Joint Venturers (including Company A) under the JOA • Company C contracted liabilities on behalf of or as Agent for the Joint Venturers under the JOA funding obligations • the Commissioner accepted, in relation to the Company C Billed Expenditure, that under the JOA the obligation of Company A to pay 'cash advances' under each Authority for Expenditure created a relevant liability for subsection 37(1) purposes. | • the Commissioner accepted that Company C operated as agent for the Joint Venturers (including Company A) under the JOA • Company C contracted liabilities on behalf of or as Agent for the Joint Venturers under the JOA funding obligations • the Commissioner accepted, in relation to the Company C Billed Expenditure, that under the JOA the obligation of Company A to pay 'cash advances' under each Authority for Expenditure created a relevant liability for subsection 37(1) purposes. | The Commissioner notes that the last of the above dot points suggests that he accepted that the relevant liability for subsection 37(1) purposes was established by the obligation to pay 'cash advances' in relation to the Company C Billed Expenditure. | The Commissioner has carefully reviewed his submissions and the representations he made to the Tribunal and, with respect, does not believe that he accepted that the relevant section 37(1) liability was, on the facts of this case, established by the obligation to pay cash advances. | The Commissioner has been of the view for some time that where the joint venture arrangements mean that the operator is an agent of the joint venturers in carrying out relevant project activities, then the joint venturer's liability (for a share) arises when the overall liability arises for the operator, and not when a cash call is made or paid. Cash advance or call mechanisms are not relevant where an agency exists. | As a result, the Commissioner would not accept that in an agency situation a payment that discharges an obligation to pay a cash advance is relevant for subsection 37(1) purposes (or other purposes including for sections 38 and 39).", "Administrative_Treatment": "The Commissioner has issued TR 2014/9 in relation to the meaning of exploration for PRRT purposes. The Ruling is consistent with the views of the Tribunal in its decision. The Ruling applies to expenditure incurred from 21 August 2013 (the date of issue of the Draft Taxation Ruling TR 2013/D4 Petroleum resource rent tax: what does 'involved in or in connection with exploration for petroleum' mean?). | Prior to the issue of TR 2013/D4, the Commissioner had an approach, contrary to the views contained in that Draft Taxation Ruling (and TR 2014/9), of accepting that a wider range of feasibility expenditure fell within the meaning of exploration expenditure in section 37 of the PRRTAA. | The Commissioner will communicate to Industry and affected taxpayers how he will apply compliance resources in relation to expenditure incurred on or before 21 August 2013. | Generally, he will not seek to disturb claims for expenditure incurred on or before 21 August 2013 where taxpayers have self-assessed, or will self-assess on a basis consistent with the approach contained in the letter to be provided to affected taxpayers and reproduced below. | Finalisation of Taxation Ruling TR 2014/9 - Petroleum resource rent tax: what does 'involved in or in connection with exploration for petroleum' mean? | On 17 December 2014 the ATO finalised Taxation Ruling TR 2014/9 Petroleum resource rent tax: what does 'involved in or in connection with exploration for petroleum' mean?. | The ruling applies to expenditure incurred from the date of the issue of Draft Taxation Ruling TR 2013/D4, which was 21 August 2013. | You will find the link to TR 2014/9 on www.law.ato.gov.au/index.htm . | The view in the ruling is supported by a decision of the Administrative Appeals Tribunal in ZZGN and Commissioner of Taxation [2013] AATA 351. | Exploration expenditure incurred on or before 21 August 2013 | The ATO acknowledges that prior to the issue of TR 2013/D4, the Commissioner had an | approach, contrary to the views contained in TR 2014/9 (and TR 2013/D4), of accepting that a wider range of feasibility expenditure fell within the meaning of exploration expenditure in section 37 of the PRRTAA. | In relation to expenditure incurred on or before 21 August 2013, the ATO will not seek to disturb claims for expenditure (whether the claim is made in either prior or future years)where taxpayers have self-assessed or will self-assess on the basis that exploration for petroleum includes: • Expenditure falling within the ordinary meaning of 'exploration for petroleum' which is limited to the discovery and identification of the existence, extent and nature of petroleum. This includes searching in order to discover the resource, as well as the process of ascertaining the size of the discovery and appraising its physical characteristics. Appraisal of the physical extent and nature of a find may be a considerable exercise and can involve recovery of some of the resource in the course of exploration - for example, drilling an appraisal well. • Expenditure on operations and facilities 'in connection with' exploration; 'In connection with' ensures the inclusion of expenditure on all operations and facilities which exhibit a reasonably direct relationship (that is, other than one that is remote or indirect) with exploration for petroleum (for example, with the activities of searching for, and identifying, petroleum). • Expenditure which is directed at making a full assessment or evaluation of the commercial or economic viability of an entire project to develop a petroleum pool, including how best to develop the pool as part of that assessment or evaluation. This would include a range of feasibility studies (both technical and economic/commercial), and relevant environmental or heritage studies. • It would also include expenditure on engineering and design work that is required in order to specify the project to a point where cost and project schedule can be estimated with sufficient definition for project shareholders to assess the economic or commercial feasibility of the project. This is in contrast to detailed engineering and design which is directed to development or construction of the project itself. | • Expenditure falling within the ordinary meaning of 'exploration for petroleum' which is limited to the discovery and identification of the existence, extent and nature of petroleum. This includes searching in order to discover the resource, as well as the process of ascertaining the size of the discovery and appraising its physical characteristics. Appraisal of the physical extent and nature of a find may be a considerable exercise and can involve recovery of some of the resource in the course of exploration - for example, drilling an appraisal well. • Expenditure on operations and facilities 'in connection with' exploration; 'In connection with' ensures the inclusion of expenditure on all operations and facilities which exhibit a reasonably direct relationship (that is, other than one that is remote or indirect) with exploration for petroleum (for example, with the activities of searching for, and identifying, petroleum). • Expenditure which is directed at making a full assessment or evaluation of the commercial or economic viability of an entire project to develop a petroleum pool, including how best to develop the pool as part of that assessment or evaluation. This would include a range of feasibility studies (both technical and economic/commercial), and relevant environmental or heritage studies. • It would also include expenditure on engineering and design work that is required in order to specify the project to a point where cost and project schedule can be estimated with sufficient definition for project shareholders to assess the economic or commercial feasibility of the project. This is in contrast to detailed engineering and design which is directed to development or construction of the project itself. | The ATO observes that there is no 'bright line' test to the effect that all expenditure incurred before a final decision to develop or mine (often the Final Investment Decision (FID)) is treated as exploration, and there is also no principle that exploration expenditure cannot be incurred after that point. | While, in general, expenditure incurred up to FID will qualify as exploration for petroleum, certain types of development and other expenditure that may be incurred will not be included, such as the following: • Early development or early execution costs that anticipate a decision to proceed with the project and which may become regret costs if the project does not ultimately proceed. Early development activities go beyond ascertaining economic or commercial feasibility. Such activities could include detailed development engineering and design work (as opposed to engineering and design work for feasibility) execution planning, preliminary site works, or mobilizing supply bases. • The cost of certain project assets that have long-lead times (long-lead assets) which are ordered while commercial feasibility is still being assessed but in anticipation of a decision to proceed. These costs may become regret costs if the project does not proceed. | • Early development or early execution costs that anticipate a decision to proceed with the project and which may become regret costs if the project does not ultimately proceed. Early development activities go beyond ascertaining economic or commercial feasibility. Such activities could include detailed development engineering and design work (as opposed to engineering and design work for feasibility) execution planning, preliminary site works, or mobilizing supply bases. • The cost of certain project assets that have long-lead times (long-lead assets) which are ordered while commercial feasibility is still being assessed but in anticipation of a decision to proceed. These costs may become regret costs if the project does not proceed. | For taxpayers with assessments for the PRRT tax years ending 30 June 2011, 30 June 2012 and 30 June 2013, we will give you until 2 March 2015 to review your affairs and consider the need to make any amendments to your assessments. For entities who will not have PRRT assessments until future years, the ATO expects you to review your affairs in line with this letter prior to filing your first PRRT return that includes a claim for expenditures covered by this letter. | Risk reviews and audits | Taxpayers whose PRRT affairs are currently being examined will be given the same opportunity to review their affairs and consider the need for any self-assessments. | Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | On 28 October 2015, the Commissioner withdrew TR 98/23 and replaced it with Taxation Ruling TR 2015/D4 to clarify his view on deductions for mining and petroleum exploration expenditure. While it is anticipated that the views in the replacement ruling will provide a more favourable outcome to taxpayers, a process has been put in place to address situations where taxpayers have applied TR 98/23 in full to arrangements, before its withdrawal, and believe the outcome is more favourable than would otherwise be the case applying the views in the final Ruling. | Implications for impacted Law Administration Practice Statements | None. | Date of amendment Part Comment 28 Oct 2015 Administrative treatment Updated to reflect that TR 98/23 is withdrawn and is replaced by TR 2015/D4. Comments Deleted Relevant ATO precedential documents Updated for currency | [1] All legislative references are to the PRRTAA unless indicated otherwise. | [2] The June 2013 changes also changed 'payments liable to be made' in sections 38 and 39 to 'payments to the extent that they are made'. | [3] Other than for the timing of when payments are made; for example subsection 37(3) and subsection 41(3).", "Related_Documents": "Taxation Ruling TR 98/23 | [2013] AATA 351 | Taxation Ruling TR 2014/9 | Draft Taxation Ruling TR 2015/D4 | Taxation Ruling TR 98/23 (withdrawn on 28 October 2015 - replaced by TR 2015/D4) | s 164 | The Act | Division 10 | s 40-730(4) of Division 40 | s 2 | s 2B | s 4 | s 5 | s 19(1) | s 19(4) | s 21 | s 22 | s 23 | s 33 | s 34 | s 34A | s 35 | s 35A | s 37(1) | s 38(a) | s 38(b) | s 41 | s 44 | s 45A | s 45B | s 14ZZK | Schedule 5 | 94 ATC 4844 | [1953] HCA 70 | (1953) 89 CLR 653 | (1990) 23 FCR 144 | (1992) 110 ALR 239 | (1985) 7 FCR 271 | (1993) 43 FCR 280 | 86 ATC 4859 | (1997) 97 ATC 4371 | 98 ATC 4768 | [2012] FCAFC 5 | (1969) 120 CLR 240 | 69 ATC 4028 | 90 ATC 4088 | 2012 ATC 20-322 | (1987) 15 FCR 487 | (1987) 77 ALR 103 | 2005 ATC 4571 | (1980) 44 FLR 41 | 2012 ATC 20-341 | (1954) 92 CLR 483 | (1956) 94 CLR 509 | (1998) 194 CLR 355 | [1998] HCA 28 | (1987) 11 ALD 413 | (unreported, Supreme Court, FC, WA, Malcolm GJ, Kennedy and Pidgeon JJ, No 1652 of 1996, 26 February 1997) | (2007) 34 WAR 289 | (1989) 20 ALD 369 | 89 ATC 4606 | [2005] HCA 58 | (2005) 221 ALR 448 | 2010 ATC 20-214 | (1942) 180 CLR 1 | 2012 ATC 20-357 | [2006] FCA 1303 | (2006) 64 ATR 379 | [2007] FCA 1961", "Legislative_References": "Customs Act 1901 (Cth) s 164 Environment Protection and Biodiversity Conservation Act 1999 (Cth) The Act Excise Act 1901 (Cth) s 78A Excise Tariff Act 1921 (Cth) The Act Heritage Conservation Act 1991 (NT) The Act Income Tax Assessment Act 1936 (Cth) s 83 s 122 s 123AA s 124AH Division 10 Division 10AA Income Tax Assessment Act 1946 (Cth) The Act Income Tax Assessment Act 1997 (Cth) s 330-20 of Division 330 s 40-730(4) of Division 40 Northern Territory Environmental Assessment Act 1982 (NT) The Act Petroleum (Submerged Lands) Act 1967 (Cth) s 5 s 19 s 28 s 33 s 39A s 40 Petroleum (Submerged Lands) Royalty Act 1967 (Cth) The Act Petroleum Resource Rent Tax Assessment Act 1987 (Cth) as at 1 April 2002 s 2 s 2B s 4 s 5 s 19(1) s 19(4) s 21 s 22 s 23 s 33 s 34 s 34A s 35 s 35A s 37(1) s 38(a) s 38(b) s 41 s 44 s 45A s 45B Petroleum Resource Rent Tax Assessment Bill 1986 (Cth) The Act Petroleum Resource Rent Tax Assessment Bill 1987 (Cth) The Act Petroleum Resource Rent Legislation Amendment Act 1991 (Cth) The Act Taxation Administration Act 1953 (Cth) s 14ZZK Taxation Laws Amendment Act (No 3) 2003 (Cth) Schedule 5 Tax Laws Amendment (2013 Measures No. 2) Act 2013 The Act", "Case_References": "Federal Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd [1994] HCA 58 94 ATC 4844 (1994) 29 ATR 11 (1994) 181 CLR 466 Berry v Federal Commissioner of Taxation [1953] HCA 70 (1953) 89 CLR 653 (1953) 10 ATD 262 (1953) 5 AITR 591 Burswood Management Limited v Attorney-General (Cth) and Another (1990) 23 FCR 144 Claremont Petroleum NL v Cummings (1992) 110 ALR 239 Collector of Customs v Cliffs Robe River Iron Associates (1985) 7 FCR 271 Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 [1993] FCA 322 Commissioner of Taxation v Ampol Exploration Ltd (1986) 13 FCR 545 (1986) 18 ATR 102 86 ATC 4859 Customs and Excise Commissioners v Top Ten Promotions Ltd [1969] 1 WLR 1163 Esso Australia Resources Ltd v Federal Commissioner of Taxation (1997) 144 ALR 458 (1997) 36 ATR 65 (1997) 97 ATC 4371 Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 84 FCR 541 (1998) 39 ATR 394 98 ATC 4768 Esso Australia Resources Pty Ltd v Federal Commissioner of Taxation [2012] FCAFC 5 (2012) 200 FCR 100 (2012) 87 ATR 124 Federal Commissioner of Taxation v Broken Hill Pty Co Ltd (1969) 120 CLR 240 (1969) 1 ATR 40 69 ATC 4028 Federal Commissioner of Taxation v Dalco [1990] HCA 3 (1990) 168 CLR 614 90 ATC 4088 (1990) 20 ATR 1370 Federal Commissioner of Taxation v Greenhatch [2012] FCAFC 84 (2012) 203 FCR 134 2012 ATC 20-322 (2012) 88 ATR 560 Hatfield v Health Insurance Commission (1987) 15 FCR 487 (1987) 77 ALR 103 HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 [2005] FCAFC 126 2005 ATC 4571 (2005) 60 ATR 106 Minister for Immigration and Ethnic Affairs v Pochi [1980] FCA 85 (1980) 4 ALD 139 (1980) 44 FLR 41 Mitsui & Co (Australia) Ltd v Commissioner of Taxation [2012] FCAFC 109 2012 ATC 20-341 (2012) 205 FCR 523 (2012) 90 ATR 171 Mount Isa Mines Limited v Federal Commissioner of Taxation (1954) 92 CLR 483 (1954) 10 ATD 423 Nanaimo Community Hotel Ltd v British Columbia [1944] 4 DLR 638 NSW Associated Blue-Metal Quarries Ltd v Commissioner of Taxation (Cth) (1956) 94 CLR 509 (1956) 11 ATD 50 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28 Re BHP Petroleum Pty Ltd and Collector of Customs (1987) 11 ALD 413 Re Heaney SM Ex Parte Flint v Nexus Minerals NL (unreported, Supreme Court, FC, WA, Malcolm GJ, Kennedy and Pidgeon JJ, No 1652 of 1996, 26 February 1997) Re His Honour Warden Calder SM Ex parte Lee (2007) 34 WAR 289 Re Kirby and Collector of Customs (1989) 20 ALD 369 Robe River Mining Co Pty Ltd v Commissioner of Taxation (1989) 21 FCR 1 (1989) 20 ATR 768 89 ATC 4606 Stevens v Kabushiki Kaisha Sony Computer Entertainment [2005] HCA 58 (2005) 224 CLR 193 (2005) 221 ALR 448 Transfield ER Futures Ltd v The Ship 'Giovanna Iulianao' [2012] FCA 548 Travelex Ltd v Federal Commissioner of Taxation (2010) 241 CLR 510 [2010] HCA 33 (2010) 76 ATR 329 2010 ATC 20-214 Tweddle v Federal Commissioner of Taxation (1942) 180 CLR 1 [1942] HCA 40 (19442) 2 AITR 360 (1942) 7 ATD 186 Visy Packaging Holdings Pty Ltd and Others v Federal Commissioner of Taxation [2012] FCA 1195 2012 ATC 20-357 Woodside Energy Ltd v Federal Commissioner of Taxation (No 1) [2006] FCA 1303 (2006) 155 FCR 357 (2006) 64 ATR 379 Woodside Energy Ltd v Federal Commissioner of Taxation (No 2) [2007] FCA 1961 (2007) 69 ATR 465", "Subject_References": "Deductible expenditure Excluded expenditure Exploration expenditure Feasibility or environmental study General project expenditure 'operations and facilities involved in or in connection with exploration for petroleum' Transferable exploration expenditure Transfer of unused exploration expenditure between group companies Payments liable to be made Petroleum Resource Rent Tax Procuring the carrying on of operations by others", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010-4354/00001", "Unmatched_Content": ""}
{"Case_Name": "Applicant and Commissioner of Taxation", "Venue_Reference_No": "2008/5347 & 2008/5348", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "16 January 2012", "Date_Published": "16 March 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerned whether the taxpayer's personal services entity incurred any outgoings in the 2004 and 2005 income years on software licence fees under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).", "Overview_of_Facts": "Following a personal services income audit, an issue arose about whether the taxpayer was entitled to deductions for software licence fees in the 2004 and 2005 income years against his personal services income. | However, the Commissioner accepted before the Tribunal that deductions were allowable against the taxpayer's personal services income for the relevant years if the taxpayer could establish that the licence fees were incurred by his personal services entity (KRI). | At issue was whether the taxpayer could discharge the burden of proof that KRI had acquired software under a licence agreement with Mr Michael Kirkpatrick, a South African national, and had either paid, or come under a presently existing legal liability to pay, licence fees for the software in the relevant years. | Issues decided by the tribunal | The Tribunal held that KRI incurred software licence fees in each of 2004 and 2005 income years. There was a presently existing liability to pay the fees in those years, and the Tribunal was also satisfied that the fees were paid in those years. | Notwithstanding a number of evidentiary difficulties, the Tribunal was satisfied that the taxpayer and KRI acquired the relevant software, and that there was a software licence agreement signed by KRI and Mr Kirkpatrick which stated that KRI was liable for software licence fees in the claimed amounts for the relevant income years. | The taxpayer gave evidence that, when he was a resident of South Africa, he accumulated foreign currency traveller's cheques on frequent overseas travel, even though in excess of amounts permitted under South Africa's strict exchange controls. The Tribunal was satisfied on the balance of probabilities that the taxpayer had accumulated traveller's cheques in sufficient quantity to pay Mr Kirkpatrick the relevant amounts of the licence fees, and that the taxpayer's sister-in-law in South Africa had paid those amounts in the relevant income years.", "Issues_Decided": "The Tribunal held that KRI incurred software licence fees in each of 2004 and 2005 income years. There was a presently existing liability to pay the fees in those years, and the Tribunal was also satisfied that the fees were paid in those years. Notwithstanding a number of evidentiary difficulties, the Tribunal was satisfied that the taxpayer and KRI acquired the relevant software, and that there was a software licence agreement signed by KRI and Mr Kirkpatrick which stated that KRI was liable for software licence fees in the claimed amounts for the relevant income years. The taxpayer gave evidence that, when he was a resident of South Africa, he accumulated foreign currency traveller's cheques on frequent overseas travel, even though in excess of amounts permitted under South Africa's strict exchange controls. The Tribunal was satisfied on the balance of probabilities that the taxpayer had accumulated traveller's cheques in sufficient quantity to pay Mr Kirkpatrick the relevant amounts of the licence fees, and that the taxpayer's sister-in-law in South Africa had paid those amounts in the relevant income years.", "ATO_View_of_Decision": "The ATO accepts that it was reasonably open to the Tribunal on the evidence before it to find that the taxpayer had satisfied the burden of proving that KRI had a presently existing liability to pay the licence fees, and that the fees had been paid to Mr Kirkpatrick, in the 2004 and 2005 income years.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "None | 2012 ATC 1-041 | 37(2) | 1 | 2(4) | 2(5) | 8-1 | 14ZZK | (1938) 60 CLR 336 | [1938] HCA 34 | 93 ATC 4341 | (1988) 88 ATC 4771 | 90 ATC 4088 | (1953) 88 CLR 492 | (2009) 76 NSWLR 603 | [2009] NSWCA 407 | (1959) 101 CLR 298 | [1959] HCA 8 | 79 ATC 4111 | 79 ATC 4133 | (1938) 61 CLR 179 | 81 ATC 4031 | (1988) 88 ATC 4349 | 75 ATC 4221 | (2011) 122 ALD 49 | [2011] FCAFC 76 | (1936) 56 CLR 63 | (1999) 99 ATC 5313", "Legislative_References": "Administrative Appeals Tribunal Act 1975 (Cth) 37(2) Exchange Control Regulations 1961 (South Africa) Regulations 1 2(4) 2(5) Income Tax Assessment Act 1997 8-1 Income Tax Assessment Act 1936 51(1) Taxation Administration Act 1953 14ZZK", "Case_References": "Briginshaw v Briginshaw (1938) 60 CLR 336 [1938] HCA 34 Coles Myer Finance Limited v FC of T (1993) 176 CLR 640 [1993] HCA 29 25 ATR 95 93 ATC 4341 Danmark Pty Ltd v FC of T (1944) 7 ATD 333 Evans v FC of T (1988) 88 ATC 4771 19 ATR 1784 FC of T v Dalco (1990) 168 CLR 614 [1990] HCA 3 20 ATR 1370 90 ATC 4088 FC of T v James Flood Pty Ltd (1953) 88 CLR 492 Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 [2009] NSWCA 407 Jones v Dunkel (1959) 101 CLR 298 [1959] HCA 8 MacCormack v FC of T (1979) 143 CLR 284 [1979] HCA 18 79 ATC 4111 9 ATR 610 Macmine Pty Ltd v FC of T (1979) 24 ALR 217 9 ATR 638 79 ATC 4133 New Zealand Flax Investments Limited v FC of T (1938) 61 CLR 179 Nilsen Development Laboratories Pty Ltd v FC of T (1981) 144 CLR 616 11 ATR 505 81 ATC 4031 Saunders v FC of T (1988) 88 ATC 4349 19 ATR 1289 Steinberg v FC of T (1975) 134 CLR 640 75 ATC 4221 5 ATR 565 Tisdall v Webber (2011) 122 ALD 49 [2011] FCAFC 76 Trautwein v FC of T (1936) 56 CLR 63 [1936] HCA 77 Watson v FC of T (1999) 99 ATC 5313 [1999] FCA 1796 43 ATR 549", "Subject_References": "Outgoing incurred Software licence fees Personal services income deductions Burden of proof", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/5347/00001", "Unmatched_Content": ""}
{"Case_Name": "Applicant and Commissioner of Taxation", "Venue_Reference_No": "2011/2025", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 March 2012", "Date_Published": "5 September 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerned whether certain outgoings claimed by the taxpayer to be deductible rental expenses were in fact incurred in the course of deriving rental income.", "Overview_of_Facts": "During the relevant period, the taxpayer owned several rental properties in regional New South Wales. | For the 2007 income year, the taxpayer lodged an income tax return claiming a deduction of $6,670 for expenses in respect of maintaining the properties. | Sometime later, the taxpayer requested that her 2007 income tax assessment be amended to increase the claim by $5,208. | The Commissioner disallowed the additional claim on the basis that he was not satisfied that there was a nexus between the expenses claimed by the taxpayer to have been incurred and the income producing activity; namely the renting out of the properties. He also disallowed the original deduction of $6,670. | In concluding that there was no nexus between the expenses and the income producing activity, the Commissioner relied on the fact that in the 2007 income year the taxpayer did not earn any rental income. Further, the Commissioner was not satisfied that the property was available for rent in the 2007 year, or that the additional rental expenses claimed as deductions had been sufficiently substantiated. | Issues decided by the court or tribunal | Whether the property was available for rent in the 2007 financial year ; | The Tribunal found that the property was available for rent in the 2007 financial year. | If the property was available for rent , whether the taxpayer incurred and was entitled to a deduction for rental expenses totalling $ 11 , 878.47 or a similar figure ? | The taxpayer was only able to substantiate before the Tribunal that the following expenses were incurred: $100 for lawn mowing; $245 for insurance and $102 for advertising. Accordingly, the Tribunal found that the taxpayer could only claim these amounts as deductions.", "Issues_Decided": "Whether the property was available for rent in the 2007 financial year ; The Tribunal found that the property was available for rent in the 2007 financial year. If the property was available for rent , whether the taxpayer incurred and was entitled to a deduction for rental expenses totalling $ 11 , 878.47 or a similar figure ? The taxpayer was only able to substantiate before the Tribunal that the following expenses were incurred: $100 for lawn mowing; $245 for insurance and $102 for advertising. Accordingly, the Tribunal found that the taxpayer could only claim these amounts as deductions.", "ATO_View_of_Decision": "The case was decided on its facts and will not have any impact on any existing or future litigation proceedings.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "None | 2012 ATC 1-043 | 8-1 | (1984) 84 ATC 773 | 91 ATC 4950 | (1987) 87 ATC 2037 | [1949] HCA 15 | 78 CLR 47", "Legislative_References": "Income Tax Assessment Act 199 8-1", "Case_References": "Case R118 (1984) 84 ATC 773 27 CTBR (NS) 1318 Fletcher v Federal Commissioner of Taxation [1991] HCA 42 173 CLR 1 22 ATR 613 91 ATC 4950 Re Inglis and Federal Commissioner of Taxation (1987) 87 ATC 2037 Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15 78 CLR 47", "Subject_References": "Assessment of income Rental property deduction", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/2025/00001", "Unmatched_Content": ""}
{"Case_Name": "Applicant and Commissioner of Taxation", "Venue_Reference_No": "2011/3714, 2011/4808", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 June 2012", "Date_Published": "30 October 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office response to these matters which concerned whether an entitlement to input tax credits arose for second-hand aircraft acquired before 1 July 2000.", "Overview_of_Facts": "(a) The two taxpayers were members of GST groups. The second taxpayer was also the representative member of its GST group. By letter dated 10 December 2010, the taxpayers requested that the Tax Office clarify the correct tax period in which to claim input tax credits for second-hand aircraft acquired before 1 July 2000. (b) The correspondence was treated as a request for a private binding ruling on entitlement to the input tax credits. (c) An unfavourable notice of private binding ruling issued to the first taxpayer on 29 March 2011 and to the second taxpayer on 23 May 2011. The rulings were based on the scheme described in each notice. (d) Those schemes included as facts that: • the Tax Office was advised by the taxpayer, that in the course of carrying on an enterprise of leasing and selling aircraft, the first applicant, and J company, a member of the second taxpayer's GST group, acquired the relevant second-hand aircraft with the intention to lease and sell; • the first taxpayer and J company acquired the aircraft between 1988 and 1992 by way of sale and entry into hire-purchase agreements; • the option to obtain title in the aircraft acquired under the hire-purchase agreements was exercised after 1 July 2000. No GST was accounted for upon the transfer of title on the basis that the supply and acquisition of the aircraft occurred before 1 July 2000; • the first taxpayer leased the aircraft to numerous lessees throughout the seventeen year period between their acquisition and sale in 2009 to an entity outside the first taxpayer's GST group; • J company also leased the aircraft before selling them in 2009 to B company, another member of the second taxpayer's GST group. B company sold the aircraft to an entity outside the GST group; and • the aircraft were in Australia when sold. The purchasers accounted for GST on the sale under Division 83 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). (e) The taxpayers objected against the rulings. The second taxpayer previously received another unfavourable ruling on its entitlement to input tax credits that was not objected to. The objections were disallowed. Review by the Tribunal was sought. | (a) The two taxpayers were members of GST groups. The second taxpayer was also the representative member of its GST group. By letter dated 10 December 2010, the taxpayers requested that the Tax Office clarify the correct tax period in which to claim input tax credits for second-hand aircraft acquired before 1 July 2000. (b) The correspondence was treated as a request for a private binding ruling on entitlement to the input tax credits. (c) An unfavourable notice of private binding ruling issued to the first taxpayer on 29 March 2011 and to the second taxpayer on 23 May 2011. The rulings were based on the scheme described in each notice. (d) Those schemes included as facts that: • the Tax Office was advised by the taxpayer, that in the course of carrying on an enterprise of leasing and selling aircraft, the first applicant, and J company, a member of the second taxpayer's GST group, acquired the relevant second-hand aircraft with the intention to lease and sell; • the first taxpayer and J company acquired the aircraft between 1988 and 1992 by way of sale and entry into hire-purchase agreements; • the option to obtain title in the aircraft acquired under the hire-purchase agreements was exercised after 1 July 2000. No GST was accounted for upon the transfer of title on the basis that the supply and acquisition of the aircraft occurred before 1 July 2000; • the first taxpayer leased the aircraft to numerous lessees throughout the seventeen year period between their acquisition and sale in 2009 to an entity outside the first taxpayer's GST group; • J company also leased the aircraft before selling them in 2009 to B company, another member of the second taxpayer's GST group. B company sold the aircraft to an entity outside the GST group; and • the aircraft were in Australia when sold. The purchasers accounted for GST on the sale under Division 83 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). (e) The taxpayers objected against the rulings. The second taxpayer previously received another unfavourable ruling on its entitlement to input tax credits that was not objected to. The objections were disallowed. Review by the Tribunal was sought. | • the Tax Office was advised by the taxpayer, that in the course of carrying on an enterprise of leasing and selling aircraft, the first applicant, and J company, a member of the second taxpayer's GST group, acquired the relevant second-hand aircraft with the intention to lease and sell; • the first taxpayer and J company acquired the aircraft between 1988 and 1992 by way of sale and entry into hire-purchase agreements; • the option to obtain title in the aircraft acquired under the hire-purchase agreements was exercised after 1 July 2000. No GST was accounted for upon the transfer of title on the basis that the supply and acquisition of the aircraft occurred before 1 July 2000; • the first taxpayer leased the aircraft to numerous lessees throughout the seventeen year period between their acquisition and sale in 2009 to an entity outside the first taxpayer's GST group; • J company also leased the aircraft before selling them in 2009 to B company, another member of the second taxpayer's GST group. B company sold the aircraft to an entity outside the GST group; and • the aircraft were in Australia when sold. The purchasers accounted for GST on the sale under Division 83 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Issues decided by the tribunal | The Tribunal had to determine the following issues: 1. the precise description of the scheme referred to in the rulings; 2. whether in accordance with subsection 66-5(1) of the GST Act the first taxpayer and J company acquired the aircraft for the purposes of sale or exchange (but not manufacture) in the ordinary course of business; 3. whether in accordance with paragraph 18(1)(a) of the A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Transition Act) the first taxpayer and J company held the aircraft on 1 July 2000 for the purposes of sale or exchange (but not manufacture) in the ordinary course of business; 4. whether under paragraph 18(1)(b) of the GST Transition Act, the first taxpayer and J company had held the aircraft prior to 1 July 2000 for any other purpose; and 5. whether, in the event J company satisfied section 18 of the GST Transition Act and subsection 66-5(1) of the GST Act, its sale of aircraft to B company was a supply of goods that was not a taxable supply for the purposes of paragraph 66-5(2)(e) of the GST Act. | 1. the precise description of the scheme referred to in the rulings; 2. whether in accordance with subsection 66-5(1) of the GST Act the first taxpayer and J company acquired the aircraft for the purposes of sale or exchange (but not manufacture) in the ordinary course of business; 3. whether in accordance with paragraph 18(1)(a) of the A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Transition Act) the first taxpayer and J company held the aircraft on 1 July 2000 for the purposes of sale or exchange (but not manufacture) in the ordinary course of business; 4. whether under paragraph 18(1)(b) of the GST Transition Act, the first taxpayer and J company had held the aircraft prior to 1 July 2000 for any other purpose; and 5. whether, in the event J company satisfied section 18 of the GST Transition Act and subsection 66-5(1) of the GST Act, its sale of aircraft to B company was a supply of goods that was not a taxable supply for the purposes of paragraph 66-5(2)(e) of the GST Act. | The Tribunal found for the Commissioner as follows: 1. A conclusion about whether the aircraft were acquired and held for a purpose of sale in the ordinary course of business could not be fixed by an assertion made by the taxpayers in the private ruling application: [2012] AATA 407 at [29]. The conclusion must be based on the facts of the scheme that was the subject of the ruling: [2012] AATA 407 at [29] and [71]. 2. Whilst the decision in LeasePlan Australia Limited v Commissioner of Taxation [2009] FCA 1309 that neither a sole nor a dominant purpose test applied to subsection 66-5(1) of the GST Act was binding, the facts of that case were significantly different from those ruled on: [2012] AATA 407 at [49] and [54]. 3. Based on the facts ruled on, the aircraft were not sold in the ordinary course of business. In the ordinary course of business, the aircraft were leased. Consequently, paragraph 18(1)(a) of the GST Transition Act was not satisfied as the aircraft were not held on 1 July 2000 for the purposes of sale or exchange in the ordinary course of business: [2012] AATA 407 at [73]-[74]. | 1. A conclusion about whether the aircraft were acquired and held for a purpose of sale in the ordinary course of business could not be fixed by an assertion made by the taxpayers in the private ruling application: [2012] AATA 407 at [29]. The conclusion must be based on the facts of the scheme that was the subject of the ruling: [2012] AATA 407 at [29] and [71]. 2. Whilst the decision in LeasePlan Australia Limited v Commissioner of Taxation [2009] FCA 1309 that neither a sole nor a dominant purpose test applied to subsection 66-5(1) of the GST Act was binding, the facts of that case were significantly different from those ruled on: [2012] AATA 407 at [49] and [54]. 3. Based on the facts ruled on, the aircraft were not sold in the ordinary course of business. In the ordinary course of business, the aircraft were leased. Consequently, paragraph 18(1)(a) of the GST Transition Act was not satisfied as the aircraft were not held on 1 July 2000 for the purposes of sale or exchange in the ordinary course of business: [2012] AATA 407 at [73]-[74]. | The Tribunal also expressed the following opinions regarding Division 48 of the GST Act which did not form part of its reasons for upholding the objection decisions: • The deeming of supplies between GST group members not to be taxable supplies by subsection 48-40(2) of the GST Act, only applied to modify the liability to pay GST and not more broadly as the Commissioner submitted in the application of paragraph 66-5(2)(e) of the GST Act: [2012] AATA 408 at [36]. • The decision in The Taxpayer and Commissioner of Taxation [2010] AATA 497 was distinguishable as it did not concern Division 66 of the GST Act; [2012] AATA 408 at [29]. The second taxpayer's single entity argument according to which it should be regarded as having made B company's taxable supply of the aircraft to the entity outside its GST group was preferable, because treating GST group members as if they were discrete entities was problematic:[2012] AATA 408 at [24] and [33]. • Subsection 48-45(3) of the GST Act only enabled an acquisition between GST group members to be a creditable acquisition where Division 84 of the GST Act applied, but Division 84 did not apply to B company's acquisition of aircraft from J company: 2012 AATA 408 at [31] and [35]. | • The deeming of supplies between GST group members not to be taxable supplies by subsection 48-40(2) of the GST Act, only applied to modify the liability to pay GST and not more broadly as the Commissioner submitted in the application of paragraph 66-5(2)(e) of the GST Act: [2012] AATA 408 at [36]. • The decision in The Taxpayer and Commissioner of Taxation [2010] AATA 497 was distinguishable as it did not concern Division 66 of the GST Act; [2012] AATA 408 at [29]. The second taxpayer's single entity argument according to which it should be regarded as having made B company's taxable supply of the aircraft to the entity outside its GST group was preferable, because treating GST group members as if they were discrete entities was problematic:[2012] AATA 408 at [24] and [33]. • Subsection 48-45(3) of the GST Act only enabled an acquisition between GST group members to be a creditable acquisition where Division 84 of the GST Act applied, but Division 84 did not apply to B company's acquisition of aircraft from J company: 2012 AATA 408 at [31] and [35].", "Issues_Decided": "The Tribunal had to determine the following issues: 1. the precise description of the scheme referred to in the rulings; 2. whether in accordance with subsection 66-5(1) of the GST Act the first taxpayer and J company acquired the aircraft for the purposes of sale or exchange (but not manufacture) in the ordinary course of business; 3. whether in accordance with paragraph 18(1)(a) of the A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Transition Act) the first taxpayer and J company held the aircraft on 1 July 2000 for the purposes of sale or exchange (but not manufacture) in the ordinary course of business; 4. whether under paragraph 18(1)(b) of the GST Transition Act, the first taxpayer and J company had held the aircraft prior to 1 July 2000 for any other purpose; and 5. whether, in the event J company satisfied section 18 of the GST Transition Act and subsection 66-5(1) of the GST Act, its sale of aircraft to B company was a supply of goods that was not a taxable supply for the purposes of paragraph 66-5(2)(e) of the GST Act. 1. the precise description of the scheme referred to in the rulings; 2. whether in accordance with subsection 66-5(1) of the GST Act the first taxpayer and J company acquired the aircraft for the purposes of sale or exchange (but not manufacture) in the ordinary course of business; 3. whether in accordance with paragraph 18(1)(a) of the A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Transition Act) the first taxpayer and J company held the aircraft on 1 July 2000 for the purposes of sale or exchange (but not manufacture) in the ordinary course of business; 4. whether under paragraph 18(1)(b) of the GST Transition Act, the first taxpayer and J company had held the aircraft prior to 1 July 2000 for any other purpose; and 5. whether, in the event J company satisfied section 18 of the GST Transition Act and subsection 66-5(1) of the GST Act, its sale of aircraft to B company was a supply of goods that was not a taxable supply for the purposes of paragraph 66-5(2)(e) of the GST Act. The Tribunal found for the Commissioner as follows: 1. A conclusion about whether the aircraft were acquired and held for a purpose of sale in the ordinary course of business could not be fixed by an assertion made by the taxpayers in the private ruling application: [2012] AATA 407 at [29]. The conclusion must be based on the facts of the scheme that was the subject of the ruling: [2012] AATA 407 at [29] and [71]. 2. Whilst the decision in LeasePlan Australia Limited v Commissioner of Taxation [2009] FCA 1309 that neither a sole nor a dominant purpose test applied to subsection 66-5(1) of the GST Act was binding, the facts of that case were significantly different from those ruled on: [2012] AATA 407 at [49] and [54]. 3. Based on the facts ruled on, the aircraft were not sold in the ordinary course of business. In the ordinary course of business, the aircraft were leased. Consequently, paragraph 18(1)(a) of the GST Transition Act was not satisfied as the aircraft were not held on 1 July 2000 for the purposes of sale or exchange in the ordinary course of business: [2012] AATA 407 at [73]-[74]. 1. A conclusion about whether the aircraft were acquired and held for a purpose of sale in the ordinary course of business could not be fixed by an assertion made by the taxpayers in the private ruling application: [2012] AATA 407 at [29]. The conclusion must be based on the facts of the scheme that was the subject of the ruling: [2012] AATA 407 at [29] and [71]. 2. Whilst the decision in LeasePlan Australia Limited v Commissioner of Taxation [2009] FCA 1309 that neither a sole nor a dominant purpose test applied to subsection 66-5(1) of the GST Act was binding, the facts of that case were significantly different from those ruled on: [2012] AATA 407 at [49] and [54]. 3. Based on the facts ruled on, the aircraft were not sold in the ordinary course of business. In the ordinary course of business, the aircraft were leased. Consequently, paragraph 18(1)(a) of the GST Transition Act was not satisfied as the aircraft were not held on 1 July 2000 for the purposes of sale or exchange in the ordinary course of business: [2012] AATA 407 at [73]-[74]. The Tribunal also expressed the following opinions regarding Division 48 of the GST Act which did not form part of its reasons for upholding the objection decisions: • The deeming of supplies between GST group members not to be taxable supplies by subsection 48-40(2) of the GST Act, only applied to modify the liability to pay GST and not more broadly as the Commissioner submitted in the application of paragraph 66-5(2)(e) of the GST Act: [2012] AATA 408 at [36]. • The decision in The Taxpayer and Commissioner of Taxation [2010] AATA 497 was distinguishable as it did not concern Division 66 of the GST Act; [2012] AATA 408 at [29]. The second taxpayer's single entity argument according to which it should be regarded as having made B company's taxable supply of the aircraft to the entity outside its GST group was preferable, because treating GST group members as if they were discrete entities was problematic:[2012] AATA 408 at [24] and [33]. • Subsection 48-45(3) of the GST Act only enabled an acquisition between GST group members to be a creditable acquisition where Division 84 of the GST Act applied, but Division 84 did not apply to B company's acquisition of aircraft from J company: 2012 AATA 408 at [31] and [35]. • The deeming of supplies between GST group members not to be taxable supplies by subsection 48-40(2) of the GST Act, only applied to modify the liability to pay GST and not more broadly as the Commissioner submitted in the application of paragraph 66-5(2)(e) of the GST Act: [2012] AATA 408 at [36]. • The decision in The Taxpayer and Commissioner of Taxation [2010] AATA 497 was distinguishable as it did not concern Division 66 of the GST Act; [2012] AATA 408 at [29]. The second taxpayer's single entity argument according to which it should be regarded as having made B company's taxable supply of the aircraft to the entity outside its GST group was preferable, because treating GST group members as if they were discrete entities was problematic:[2012] AATA 408 at [24] and [33]. • Subsection 48-45(3) of the GST Act only enabled an acquisition between GST group members to be a creditable acquisition where Division 84 of the GST Act applied, but Division 84 did not apply to B company's acquisition of aircraft from J company: 2012 AATA 408 at [31] and [35].", "ATO_View_of_Decision": "The decision on application of paragraph 18(1)(a) of the GST Transition Act was open to the Tribunal on the facts as found. As the Tribunal did not need to make a decision on the other second-hand goods provisions, the Commissioner's submissions on paragraph 18(1)(b) of the GST Transition Act and subsection 66-5(1) of the GST Act were not ruled on. | The decisions suggest that cases decided under former Part IV of the Taxation Administration Act 1953 (TAA 1953) have relevance to similarly worded provisions of Division 359 to Schedule 1 of the TAA 1953: [2012] AATA 407 at [12]. The decisions also emphasise that when making a private binding ruling, careful scrutiny of the facts comprising the scheme ruled upon is necessary. | Those facts can be distinguished from assertions made in the ruling application about satisfaction of the provisions in question. | Unlike in LeasePlan , the leasing activities before the Tribunal did not necessarily require sale of the relevant second-hand goods, in this case aircraft, at the end of a lease period based on a particular sum or residual value. Additionally, there was no evidence of regular aircraft sales and acquisitions: [2012] AATA 407 at [61]. This, coupled with the facts that the aircraft were leased for a substantial period of time before sale and sold after returns from leasing ceased being commercially viable, meant the requirements of section 18 of the GST Transition Act and subsection 66-5(1) of the GST Act could not be satisfied: [2012] AATA 407 at [62] and [70]. | We agree with the Tribunal's conclusion that these factors, where present, demonstrate that an entity has not acquired second-hand goods for a purpose of sale or exchange in the ordinary course of business. | Regarding the GST grouping rules, despite its preference for the second taxpayer's single entity argument , the Tribunal did not find the decision on the interaction between Divisions 48 and 75 of the GST Act in The Taxpayer and Commissioner of Taxation [2010] AATA 497 to be incorrect. We consider that decision, which has not been disturbed on appeal, properly reflects the fact that Division 48 of the GST Act does not confer an unqualified single entity treatment for GST groups under which actions of one group member can generally be ascribed to another. | Additionally, the Tribunal's conclusions on subsection 48-45(3) of the GST Act at [34] of [2012] AATA 408 were consistent with the Commissioner's submission that B company was not entitled to input tax credits for its acquisition of aircraft from J company.", "Administrative_Treatment": "These decisions are broadly consistent with the way in which the Tax Office applies the law. GST group members seeking certainty about the Tax Office view on the application of Divisions 48 and 66 of the GST Act in their particular situation should consider applying for a private binding ruling. | Implications for ATO Precedential documents (Public Rulings & Determinations etc) | GSTD 2013/2 and an addendum to GSTR 2005/3 issued on 28 August 2013 in order to clarify when we consider second hand goods are acquired for the purpose of sale in the ordinary course of business under Division 66 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).", "Related_Documents": "GSTR 2005/3 - Taxpayer Alert TA 2004/9 - exploitation of the second-hand goods provisions to obtain input tax credits | GSTD 2013/2 - When are second hand goods acquired for the purpose of sale in the ordinary course of business under Division 66 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | 2012 ATC 1-046 | 13 | 9-5 | 9-20 | 9-40 | 11-10 | 11-15 | 11-20 | 13-15 | 48-1 | 48-5 | 48-40 | 48-45 | 48-55 | 66-5 | 195-1 | 16 | 18 | 19A | 6 | 70-10 | 995-1 | 14ZZ | Division 359 | 359-1 | 359-10 | 359-5 | 359-60 | (1987) 187 CLR 384 | (1991) 91 ATC 4336 | 92 ATC 4694 | 97 ATC 4986 | (1948) 76 CLR 463 | 80 ATC 4386 | 91 ATC 4546 | 89 ATC 4101 | 2009 ATC 20-144 | (1956) 94 CLR 509 | (1998) 194 CLR 355 | [1998] HCA 28 | [2010] HCA 23 | (1964) 110 CLR 129 | 85 ATC 4398 | Taxpayer Alert TA 2004/9 - Exploitation of the second-hand goods provisions to obtain input tax credits", "Legislative_References": "Acts Interpretation Act 1901 (Cth) 13 A New Tax System (Goods and Services Tax ) Act 1999 (Cth) 9-5 9-20 9-40 11-10 11-15 11-20 13-15 48-1 48-5 48-40 48-45 48-55 66-5 195-1 A New Tax System Goods and Services Tax Transition) Act 1999 (Cth) 16 18 19A Income Tax Assessment Act 1936 (Cth) 6 Income Tax Assessment Act 1997 (Cth) 70-10 995-1 Taxation Administration Act 1953 (Cth) 14ZZ Division 359 359-1 359-10 359-5 359-60", "Case_References": "CIC Insurance Ltd v Bankstown Football Club Ltd (1987) 187 CLR 384 Commissioner of Taxation (Cth) v GKN Kwikform Services Pty Ltd (1991) 91 ATC 4336 21 ATR 1532 Commissioner of Taxation v Hyteco Hiring Pty Ltd (1992) 39 FCR 502 24 ATR 218 92 ATC 4694 Commissioner of Taxation v McMahon (1997) 79 FCR 127 37 ATR 167 97 ATC 4986 Downs Distributing Company Pty Ltd v Associated Blue Star Stores Pty Ltd (In Liquidation) (1948) 76 CLR 463 [1948] HCA 14 Hope v The Council of the City of Bathurst (1980) 144 CLR 1 12 ATR 231 80 ATC 4386 [1980] HCA 16 Imperial Bottleshops Pty Ltd & Egerton v Federal Commissioner of Taxation (1991) 22 ATR 148 91 ATC 4546 John v Commissioner of Taxation of the Commonwealth of Australia (1989) 166 CLR 417 20 ATR 1 89 ATC 4101 LeasePlan Australia Limited v Commissioner of Taxation [2009] FCA 1309 2009 ATC 20-144 74 ATR 33 N.S.W. Associated-Blue Metal Quarries Ltd v Federal Commissioner of Taxation (1956) 94 CLR 509 Project Blue Sky Inc and Others v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28 Saeed v Minister for Immigration and Citizenship (2010) 84 ALJR 507 [2010] HCA 23 Taylor and Anor v White and Anor (1964) 110 CLR 129 The Commissioner of Taxation of the Commonwealth of Australia v Suttons Motors (Chullora) Wholesale Pty Ltd (1985) 157 CLR 277 16 ATR 567 85 ATC 4398 The Taxpayer and the Commissioner of Taxation [2010] AATA 497 76 ATR 917", "Subject_References": "GST input tax credits Acquisition of second-hand goods Purpose of acquisition Lease / hire-purchase agreement Goods acquired or held before the introduction of GST Goods acquired or held for the purposes of sale or exchange (but not manufacture) in the ordinary course of business Application of the GST grouping provisions Taxable supply", "Other_References": "Taxpayer Alert TA 2004/9 - Exploitation of the second-hand goods provisions to obtain input tax credits", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/3714/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision including any precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Atlantis Holdings Pty Limited in its capacity as trustee of the Bruce James Lyon Family Trust", "Venue_Reference_No": "2011/402144", "Venue": "Supreme Court", "Judgment_Date": "22 February 2012", "Date_Published": "24 September 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned the Commissioner's challenge to an application brought by a trustee under section 63 of the Trustee Act 1925 (NSW) for judicial advice.", "Overview_of_Facts": "Following an audit, the Commissioner assessed Atlantis Holdings Pty Ltd as trustee of the Bruce James Lyon Family Trust (the trustee) as liable to pay tax on the trust's net income in respect of the 2007 and 2008 tax years. | The assessments were based in part on the view of the Commissioner that no beneficiary was presently entitled to the income of the trust in those years. | The principal areas of contention between the trustee and the Commissioner were: • whether the class of default beneficiaries (those who were entitled to trust income in default of an appointment by the trustee by 30 June) included certain companies and religious bodies given the clause in the deed dealing with entitlements to income in default of an appointment by the trustee spoke of beneficiaries 'who shall then be living'; • whether any minors included in the class of default beneficiaries could validly disclaim their interest under the deed; • the effect of valid disclaimers. | • whether the class of default beneficiaries (those who were entitled to trust income in default of an appointment by the trustee by 30 June) included certain companies and religious bodies given the clause in the deed dealing with entitlements to income in default of an appointment by the trustee spoke of beneficiaries 'who shall then be living'; • whether any minors included in the class of default beneficiaries could validly disclaim their interest under the deed; • the effect of valid disclaimers. | The trustee filed a Summons with the Supreme Court seeking an order giving the Court's opinion, advice and direction pursuant to section 63(1) of the Trustee Act which provides that: 'A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.' | The matters on which the trustee was seeking advice from the Court concerned: • the effect of the words 'who shall then be living' on the operation of the default beneficiary clause and in particular, which beneficiaries could benefit under that clause • the effectiveness of purported disclaimers made by minor beneficiaries of the trust of their interest as default beneficiaries • the effect of a valid disclaimer vis-a-vis non-disclaiming beneficiaries. | • the effect of the words 'who shall then be living' on the operation of the default beneficiary clause and in particular, which beneficiaries could benefit under that clause • the effectiveness of purported disclaimers made by minor beneficiaries of the trust of their interest as default beneficiaries • the effect of a valid disclaimer vis-a-vis non-disclaiming beneficiaries. | A copy of the summons had been served on the Commissioner. | Prior to a hearing on the questions in which advice was sought by the trustee, the Court determined to hear as a preliminary question whether it was appropriate for the Supreme Court to provide the advice pursuant to section 63. | The trustee submitted that the advice sought by it related to the interpretation of the trust's deed and involved issues affecting distributions to the beneficiaries. The trustee argued that judicial advice from the Supreme Court on the questions posed in the application were likely to lead to the speedy resolution of the dispute with the Commissioner, without the need for proceedings under Part IVC of the Taxation Administration Act 1953, consequent upon objections lodged by the taxpayer against the assessments raised by the Commissioner being disallowed. | The Commissioner submitted that the questions, upon which an opinion or advice was sought, were the exact issues that arise with respect to the objections lodged, and any appeal proceedings (to the Federal Court) or applications for review (to the AAT) that would follow disallowance of the objections as provided for under Part IVC. Accordingly, in the Commissioner's submission, it was not appropriate for the Supreme Court to give advice on the questions, nor was it the purpose of section 63 of the Trustee Act for advice to be given in cases such as this. In effect, the trustee was seeking to challenge the correctness of the assessments made by the Commissioner in circumstances where sections 175 and 177 of the Income Tax Assessment Act 1936 operated to make Part IVC proceedings the appropriate mechanism for such a challenge. | Issues decided by the Supreme Court | Rein J held that the Summons should be dismissed on the basis that the trustee was not actually seeking advice as to what it should do (as contemplated by section 63) but rather was seeking a determination of the key issues in its dispute with the Commissioner. His Honour noted such a determination was not within the purview of section 63 and it would be inappropriate to provide judicial advice on the matters sought [para 22]. | In the alternative, his Honour held that even if what was being sought could properly be characterised as judicial advice within the meaning of section 63, he would remain of the opinion that the matter was not suitable for the provision of advice for reasons including the following: (1) There is no utility in the Court advising the trustee about how a clause in the trust deed is properly to be construed when that question must necessarily be decided in the Part IVC proceedings [para 23(3)]. (2) It would be undesirable and inappropriate for the Supreme Court to express a view on the substantive issues that divide the trustee and the Commissioner when the Commissioner is yet to determine objections lodged and if he disallows them the matter will proceed to either the Administrative Appeals Tribunal or the Federal Court [para 23(1)]. (3) Advice given by the Court on the matters identified by the trustee would not only not be binding on the Commissioner but would not be binding on the trustee itself [para 23(2)]. That is, regardless of the advice given by the Court, neither party would be prevented from agitating the same issues in the context of Part IVC proceedings. | (1) There is no utility in the Court advising the trustee about how a clause in the trust deed is properly to be construed when that question must necessarily be decided in the Part IVC proceedings [para 23(3)]. (2) It would be undesirable and inappropriate for the Supreme Court to express a view on the substantive issues that divide the trustee and the Commissioner when the Commissioner is yet to determine objections lodged and if he disallows them the matter will proceed to either the Administrative Appeals Tribunal or the Federal Court [para 23(1)]. (3) Advice given by the Court on the matters identified by the trustee would not only not be binding on the Commissioner but would not be binding on the trustee itself [para 23(2)]. That is, regardless of the advice given by the Court, neither party would be prevented from agitating the same issues in the context of Part IVC proceedings.", "Issues_Decided": "Rein J held that the Summons should be dismissed on the basis that the trustee was not actually seeking advice as to what it should do (as contemplated by section 63) but rather was seeking a determination of the key issues in its dispute with the Commissioner. His Honour noted such a determination was not within the purview of section 63 and it would be inappropriate to provide judicial advice on the matters sought [para 22]. In the alternative, his Honour held that even if what was being sought could properly be characterised as judicial advice within the meaning of section 63, he would remain of the opinion that the matter was not suitable for the provision of advice for reasons including the following: (1) There is no utility in the Court advising the trustee about how a clause in the trust deed is properly to be construed when that question must necessarily be decided in the Part IVC proceedings [para 23(3)]. (2) It would be undesirable and inappropriate for the Supreme Court to express a view on the substantive issues that divide the trustee and the Commissioner when the Commissioner is yet to determine objections lodged and if he disallows them the matter will proceed to either the Administrative Appeals Tribunal or the Federal Court [para 23(1)]. (3) Advice given by the Court on the matters identified by the trustee would not only not be binding on the Commissioner but would not be binding on the trustee itself [para 23(2)]. That is, regardless of the advice given by the Court, neither party would be prevented from agitating the same issues in the context of Part IVC proceedings. (1) There is no utility in the Court advising the trustee about how a clause in the trust deed is properly to be construed when that question must necessarily be decided in the Part IVC proceedings [para 23(3)]. (2) It would be undesirable and inappropriate for the Supreme Court to express a view on the substantive issues that divide the trustee and the Commissioner when the Commissioner is yet to determine objections lodged and if he disallows them the matter will proceed to either the Administrative Appeals Tribunal or the Federal Court [para 23(1)]. (3) Advice given by the Court on the matters identified by the trustee would not only not be binding on the Commissioner but would not be binding on the trustee itself [para 23(2)]. That is, regardless of the advice given by the Court, neither party would be prevented from agitating the same issues in the context of Part IVC proceedings.", "ATO_View_of_Decision": "The Commissioner views this decision as confirmation that Part IVC proceedings are the appropriate mechanism for challenging the correctness of an assessment. In appropriate cases, the Commissioner will seek to challenge proceedings commenced by a taxpayer under provisions equivalent to section 63 of the Trustee Act that agitate the very issues that are central to the correctness or otherwise of an assessment that will be the subject of Part IVC proceedings. | Similarly, the Commissioner will, in appropriate cases in which other forms of discretionary relief are sought to like end (for example, declaratory relief or an order for equitable rectification), seek to argue that the Court should in exercise of its discretion decline to grant relief, on the basis that Part IVC proceedings are the appropriate mechanism for challenging the correctness of an assessment.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "N/A | [2012] NSWSC 112 | 166 | 175A | 175 | 177 | 63 | Part IVC | [2008] HCA 42 | (2008) 237 CLR 66 | 59 ATR 84 | [2005] NSWCA 399", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) 166 175A 175 177 Trustee Act 1925 (NSW) 63 Tax Administration Act 1953 (Cth) Part IVC", "Case_References": "Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42 (2008) 237 CLR 66 Platypus Leasing Inc v Commissioner of Taxation (No 3) [2005] NSWSC 388 (2005) 189 FLR 441 59 ATR 84 Platypus Leasing Inc & Ors v Commissioner of Taxation [2005] NSWCA 399 (2005) 61 ATR 239", "Subject_References": "Trusts Trustees Application to court for judicial advice Purpose and function of s 63, Trustee Act 1925 (NSW) Judicial discretion as to relief", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/402144/00001", "Unmatched_Content": ""}
{"Case_Name": "Australia and New Zealand Banking Group Limited v Konza", "Venue_Reference_No": "VID227 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "", "Date_Published": "4 December 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether notices requiring information under the Income Tax Assessment Act 1936 (ITAA 36) were invalid and, if valid, whether the notices were capable of being complied with.", "Overview_of_Facts": "The Australia and New Zealand Banking Group Ltd (ANZ) carries on a banking business in Australia. Its subsidiary, ANZ Bank (Vanuatu) Ltd (ANZ Vanuatu) is licensed to carry on a banking business in Vanuatu. | ANZ maintains a digital database in Australia called the 'Global Information Warehouse' (GIW), which includes certain information in respect of bank accounts in Vanuatu held by customers of ANZ Vanuatu. The GIW receives information electronically transmitted by ANZ Vanuatu in accordance with the terms and conditions under which that information was provided to ANZ Vanuatu by its customers. | On 17 December 2010, a Deputy Commissioner issued two notices to ANZ under paragraph 264(1)(a) of the ITAA 1936, requiring ANZ to produce certain information from the GIW, relating to the period 1 July 2008 to 30 November 2010, for customers who held accounts in Vanuatu with ANZ or any of its subsidiaries. | The first notice related to customers who had a specified Australian connection, and the second notice related to customers whose account addresses matched specified Vanuatu addresses. One of the details sought in the second notice was information about any 'officers' of relevant customers. The term 'officer' was defined in the notice by reference to the use of that term in specified Vanuatu legislation. | ANZ did not comply with the notices by the due date, and commenced proceedings in the Federal Court under the Administrative Decisions ( Judicial Review ) Act 1977 and section 39B of the Judiciary Act 1903 , seeking declarations that the notices were invalid, or, in the alternative, that it was not capable of complying with the notices for the purposes of subsection 8C(1B) of the Taxation Administration Act 1953 (TAA). The Commissioner cross-claimed, seeking declarations that the notices were valid, and requiring ANZ to furnish the information sought under the notices. | In the Federal Court, Lander J found that the notices were valid, and that it was not appropriate to make any declaration about the operation of subsection 8C(1B). His Honour also refused to make the declarations sought by the Commissioner in his cross-claim ([2012] FCA 196). | ANZ appealed to the Full Federal Court. The Commissioner did not appeal from the decision on his cross-claim. | Issues decided by the court | The Full Federal Court agreed with Lander J that: • Because the consequences of a failure to comply with a notice issued under section 264 are not found in the section, but in prosecution for an offence under section 8C of the TAA, and in an order to comply under section 8G if the recipient is convicted of an offence, the question whether ANZ is not 'capable of complying' with the notices for the purposes of subsection 8C(1B) only arises if, and when, ANZ is prosecuted under section 8C (paragraphs 14 and 15). • ANZ had not established that the disclosure of the information on the GIW would breach any contractual duty of confidence owed by ANZ to customers of ANZ Vanuatu (paragraph 19). • The expert evidence established that compliance by ANZ with the notices would not mean that it or its employees would commit an offence under Vanuatu law (paragraphs 23 to 26). • Even if disclosure by ANZ of the information sought in the notices might contravene the law of Vanuatu, such disclosure in Australia is governed by the law of Australia, and is authorised by paragraph 264(1)(a), which abrogates contractual duties of confidentiality that a bank owes to its customers, whether those duties arise under Australian or Vanuatu law. As such, the existence of those duties cannot affect the validity of the notices issued to ANZ. Paragraph 264(1)(a) should also not be read down by any foreign law that purports to prohibit the giving of information in Australia to the Commissioner (paragraphs 27 to 35). • The notices were issued for the proper purpose of ascertaining whether persons may have an Australian income tax liability. As there is no requirement that a notice under paragraph 264(1)(a) should identify the person in connection with whose income or assessment the request for information is sought, nor that it should be evident that information in fact relates to a particular taxpayer, the notices in this case are not required to be limited to information directly relating to the income of Australian taxpayers (paragraphs 39 to 42). • The first notice did not create any uncertainty for ANZ as to the information that it was required to furnish from the GIW (paragraphs 48 to 50). | • Because the consequences of a failure to comply with a notice issued under section 264 are not found in the section, but in prosecution for an offence under section 8C of the TAA, and in an order to comply under section 8G if the recipient is convicted of an offence, the question whether ANZ is not 'capable of complying' with the notices for the purposes of subsection 8C(1B) only arises if, and when, ANZ is prosecuted under section 8C (paragraphs 14 and 15). • ANZ had not established that the disclosure of the information on the GIW would breach any contractual duty of confidence owed by ANZ to customers of ANZ Vanuatu (paragraph 19). • The expert evidence established that compliance by ANZ with the notices would not mean that it or its employees would commit an offence under Vanuatu law (paragraphs 23 to 26). • Even if disclosure by ANZ of the information sought in the notices might contravene the law of Vanuatu, such disclosure in Australia is governed by the law of Australia, and is authorised by paragraph 264(1)(a), which abrogates contractual duties of confidentiality that a bank owes to its customers, whether those duties arise under Australian or Vanuatu law. As such, the existence of those duties cannot affect the validity of the notices issued to ANZ. Paragraph 264(1)(a) should also not be read down by any foreign law that purports to prohibit the giving of information in Australia to the Commissioner (paragraphs 27 to 35). • The notices were issued for the proper purpose of ascertaining whether persons may have an Australian income tax liability. As there is no requirement that a notice under paragraph 264(1)(a) should identify the person in connection with whose income or assessment the request for information is sought, nor that it should be evident that information in fact relates to a particular taxpayer, the notices in this case are not required to be limited to information directly relating to the income of Australian taxpayers (paragraphs 39 to 42). • The first notice did not create any uncertainty for ANZ as to the information that it was required to furnish from the GIW (paragraphs 48 to 50). | However, the Full Court found that the second notice was uncertain in relation to so much of the information sought that referred to 'officers' of the relevant customers. The definition of 'officer' in the notice required ANZ to construe foreign legislation and to then decide how that should apply to particular persons. This created uncertainty for ANZ because it did not sufficiently delineate, by criteria of ordinary words provided in the notice, and by reference to information known to ANZ, the information that it was required to produce (paragraph 63). The Full Court also held that the references to 'officers' were so central to the purpose of the notice that they could not be properly severed from it (paragraph 64). | The Full Court noted (paragraphs 31 and 35) that questions of any contravention of the law of Vanuatu may be relevant to whether a court would order the recipient of a notice issued under paragraph 264(1)(a) to furnish the information under section 8G of the TAA, if the person was convicted of an offence under section 8C. | The Full Court also found that its earlier decision in FC of T v De Vonk , that paragraph 264(1)(a) abrogated the privilege against self incrimination, should be followed as not clearly or plainly wrong, and noted that its recent decision in Binetter v DFC of T had found that nothing in the High Court's decision in Daniels Corporation International P/L v ACCC was inconsistent with the reasoning in De Vonk (paragraph 32).", "Issues_Decided": "The Full Federal Court agreed with Lander J that: • Because the consequences of a failure to comply with a notice issued under section 264 are not found in the section, but in prosecution for an offence under section 8C of the TAA, and in an order to comply under section 8G if the recipient is convicted of an offence, the question whether ANZ is not 'capable of complying' with the notices for the purposes of subsection 8C(1B) only arises if, and when, ANZ is prosecuted under section 8C (paragraphs 14 and 15). • ANZ had not established that the disclosure of the information on the GIW would breach any contractual duty of confidence owed by ANZ to customers of ANZ Vanuatu (paragraph 19). • The expert evidence established that compliance by ANZ with the notices would not mean that it or its employees would commit an offence under Vanuatu law (paragraphs 23 to 26). • Even if disclosure by ANZ of the information sought in the notices might contravene the law of Vanuatu, such disclosure in Australia is governed by the law of Australia, and is authorised by paragraph 264(1)(a), which abrogates contractual duties of confidentiality that a bank owes to its customers, whether those duties arise under Australian or Vanuatu law. As such, the existence of those duties cannot affect the validity of the notices issued to ANZ. Paragraph 264(1)(a) should also not be read down by any foreign law that purports to prohibit the giving of information in Australia to the Commissioner (paragraphs 27 to 35). • The notices were issued for the proper purpose of ascertaining whether persons may have an Australian income tax liability. As there is no requirement that a notice under paragraph 264(1)(a) should identify the person in connection with whose income or assessment the request for information is sought, nor that it should be evident that information in fact relates to a particular taxpayer, the notices in this case are not required to be limited to information directly relating to the income of Australian taxpayers (paragraphs 39 to 42). • The first notice did not create any uncertainty for ANZ as to the information that it was required to furnish from the GIW (paragraphs 48 to 50). • Because the consequences of a failure to comply with a notice issued under section 264 are not found in the section, but in prosecution for an offence under section 8C of the TAA, and in an order to comply under section 8G if the recipient is convicted of an offence, the question whether ANZ is not 'capable of complying' with the notices for the purposes of subsection 8C(1B) only arises if, and when, ANZ is prosecuted under section 8C (paragraphs 14 and 15). • ANZ had not established that the disclosure of the information on the GIW would breach any contractual duty of confidence owed by ANZ to customers of ANZ Vanuatu (paragraph 19). • The expert evidence established that compliance by ANZ with the notices would not mean that it or its employees would commit an offence under Vanuatu law (paragraphs 23 to 26). • Even if disclosure by ANZ of the information sought in the notices might contravene the law of Vanuatu, such disclosure in Australia is governed by the law of Australia, and is authorised by paragraph 264(1)(a), which abrogates contractual duties of confidentiality that a bank owes to its customers, whether those duties arise under Australian or Vanuatu law. As such, the existence of those duties cannot affect the validity of the notices issued to ANZ. Paragraph 264(1)(a) should also not be read down by any foreign law that purports to prohibit the giving of information in Australia to the Commissioner (paragraphs 27 to 35). • The notices were issued for the proper purpose of ascertaining whether persons may have an Australian income tax liability. As there is no requirement that a notice under paragraph 264(1)(a) should identify the person in connection with whose income or assessment the request for information is sought, nor that it should be evident that information in fact relates to a particular taxpayer, the notices in this case are not required to be limited to information directly relating to the income of Australian taxpayers (paragraphs 39 to 42). • The first notice did not create any uncertainty for ANZ as to the information that it was required to furnish from the GIW (paragraphs 48 to 50). However, the Full Court found that the second notice was uncertain in relation to so much of the information sought that referred to 'officers' of the relevant customers. The definition of 'officer' in the notice required ANZ to construe foreign legislation and to then decide how that should apply to particular persons. This created uncertainty for ANZ because it did not sufficiently delineate, by criteria of ordinary words provided in the notice, and by reference to information known to ANZ, the information that it was required to produce (paragraph 63). The Full Court also held that the references to 'officers' were so central to the purpose of the notice that they could not be properly severed from it (paragraph 64). The Full Court noted (paragraphs 31 and 35) that questions of any contravention of the law of Vanuatu may be relevant to whether a court would order the recipient of a notice issued under paragraph 264(1)(a) to furnish the information under section 8G of the TAA, if the person was convicted of an offence under section 8C. The Full Court also found that its earlier decision in FC of T v De Vonk , that paragraph 264(1)(a) abrogated the privilege against self incrimination, should be followed as not clearly or plainly wrong, and noted that its recent decision in Binetter v DFC of T had found that nothing in the High Court's decision in Daniels Corporation International P/L v ACCC was inconsistent with the reasoning in De Vonk (paragraph 32).", "ATO_View_of_Decision": "The ATO notes the Full Court's views about the extent of the ability of the Commissioner under paragraph 264(1)(a) to require persons in Australia to provide information to him that is held in Australia. | The ATO also notes the Full Court's views that its earlier decision in De Vonk , that paragraph 264(1)(a) abrogates the privilege against self incrimination, should be followed. | The ATO accepts that it was open to the Court to find that parts of the second notice were uncertain, and that those parts could not be properly severed from the rest of the notice.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "N/A | 2012 ATC 20-347 | 16 | Income Tax Assessment Act 1997 | 8C(1B) | 8G | 1 | 125 | 2(a) | 9 | (1995) 134 ALR 101 | (1996) 69 FCR 531 | (1999) 90 FCR 565 | [1999] FCA 1099 | 2012 ATC 20-331 | [1997] AC 238 | (1979) 143 CLR 499 | 79 ATC 4039 | 95 ATC 4820 | [2002] HCA 49 | (1998) 98 ATC 5192 | 92 ATC 4114 | 89 ATC 5038 | 79 ATC 4418 | [1999] HCA 65 | 99 ATC 4587 | 2001 ATC 4740 | (1983) 152 CLR 328 | [1983] HCA 9 | (1982) 57 FLR 368 | 76 ATC 4364 | 89 ATC 4442 | [1999] FCA 1723 | (1934) 50 CLR 581", "Legislative_References": "Administrative Decisions (Judicial Review) Act 1977 16 Income Tax Assessment Act 1936 264(1)(a) Income Tax Assessment Act 1997 Taxation Administration Act 1953 8C(1B) 8G Companies Act [Cap 191] (Vanuatu) 1 International Companies Act [Cap 222] (Vanuatu) 125 Penal Code [Cap 135] (Vanuatu) 2(a) Trust Companies Act [Cap 69] (Vanuatu) 9", "Case_References": "ASC v Bank Leumi Le-Israel (Switzerland) (1995) 134 ALR 101 (1996) 69 FCR 531 Bank of Valletta PLC v NCA (1999) 164 ALR 45 (1999) 90 FCR 565 [1999] FCA 1099 Binetter v DC of T (No 3) [2012] FCA 704 2012 ATC 20-331 Brannigan v Davison [1997] AC 238 FC of T v Australia & New Zealand Banking Group Limited (1979) 143 CLR 499 9 ATR 483 79 ATC 4039 FC of T v De Vonk (1995) 61 FCR 564 31 ATR 481 95 ATC 4820 Daniels Corporation International Pty Ltd v ACCC (2002) 213 CLR 543 [2002] HCA 49 Deloitte Touche Tohmatsu v DC of T (1998) 98 ATC 5192 40 ATR 435 Donovan v FC of T (1992) 34 FCR 355 23 ATR 129 92 ATC 4114 Fieldhouse v FC of T (1989) 25 FCR 187 20 ATR 1299 89 ATC 5038 Geosam Investments Pty Ltd v Australia & New Zealand Banking Group Ltd (1979) 25 ALR 445 9 ATR 836 79 ATC 4418 In re Westpac Banking Corporation [1992] VUSC 7 Lipohar v R (1999) 200 CLR 485 [1999] HCA 65 May v FC of T (1999) 92 FCR 152 42 ATR 270 99 ATC 4587 McCormack v FC of T (2001) 114 FCR 574 2001 ATC 4740 48 ATR 608 Pyneboard Pty Ltd v TPC (1983) 152 CLR 328 [1983] HCA 9 Pyneboard Pty Ltd v TPC (1982) 57 FLR 368 Smorgon v Australia & New Zealand Banking Group Ltd (1976) 134 CLR 475 76 ATC 4364 6 ATR 690 Stergis v Boucher (1989) 86 ALR 174 20 ATR 591 89 ATC 4442 SZEEU v MIMIA (2006) 150 FCR 214 Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 Transurban City Link Ltd v Allan (1999) 95 FCR 553 [1999] FCA 1723 Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society (1934) 50 CLR 581", "Subject_References": "Notices to furnish information Digital database in Australia Bank's duty of confidence Contravention of foreign law Capable of complying Certainty of notices", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID227of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Barrow and Commissioner of Taxation", "Venue_Reference_No": "2011/5391", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 September 2012", "Date_Published": "9 November 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned substantiation of claims for energy grants and fuel tax credits, and whether a 25% penalty for failure to take reasonable care should be further remitted.", "Overview_of_Facts": "The taxpayer claimed energy grants for the period before 30 June 2006, for diesel fuel and the use of that fuel \"in fishing operations\" for the purposes of the Energy Grant (Credits) Scheme Act 2003 . He also claimed $31,372 in fuel tax credits under the Fuel Tax Act 2006 , in respect of diesel fuel allegedly acquired between 1 July 2006 and 30 September 2009 for use in fishing operations. | Initially when audited, the taxpayer was unable to produce any documentary evidence to substantiate the purchase/acquisition of the fuel in question. Prior to the hearing, he produced some receipts of fuel purchases and WA Department of Fisheries \"trap and line; catch and effort returns\" lodged by him in relation to the period up to May 2007. On that basis, the Commissioner conceded the energy grants claims and the fuel tax credits claims in respect of fuel acquired on or before 30 June 2007. | At the Tribunal hearing, the taxpayer's registered tax agent gave evidence that he (the tax agent) had prepared the relevant BASs and that in relation to BASs for the tax periods up to and including 31 December 2008, had sighted and added up the relevant invoices himself. The tax agent also testified that the invoices in question had since been destroyed as a result of flooding of the tax agent's storage facility. The tax agent further testified, however, that in relation to tax periods from 1 January 2009, the taxpayer tallied the invoices himself and merely presented him with a total in respect of each period. | Issues decided by the tribunal | The Tribunal decided: 1. The taxpayer discharged the burden of proof in relation to his fuel tax credit assessments and the penalty for the period up to 31 December 2008, and accordingly these were set aside. This was because his oral testimony was corroborated by the evidence of his tax agent; 2. The taxpayer failed to discharge his burden of proof in relation to assessments for tax periods from 1 January 2009 to 30 September 2009. There was a conflict between the evidence of the taxpayer and his agent in respect of this period as to whether the agent had sighted and tallied the relevant invoices. The Tribunal was not prepared to accept the taxpayer's uncorroborated oral testimony that the tax agent had done so or that the taxpayer had acquired the relevant fuel. 3. The taxpayer failed to discharge his burden of proof in relation to the tax shortfall penalty for the tax periods 1 January 2009 to 30 September 2009. | 1. The taxpayer discharged the burden of proof in relation to his fuel tax credit assessments and the penalty for the period up to 31 December 2008, and accordingly these were set aside. This was because his oral testimony was corroborated by the evidence of his tax agent; 2. The taxpayer failed to discharge his burden of proof in relation to assessments for tax periods from 1 January 2009 to 30 September 2009. There was a conflict between the evidence of the taxpayer and his agent in respect of this period as to whether the agent had sighted and tallied the relevant invoices. The Tribunal was not prepared to accept the taxpayer's uncorroborated oral testimony that the tax agent had done so or that the taxpayer had acquired the relevant fuel. 3. The taxpayer failed to discharge his burden of proof in relation to the tax shortfall penalty for the tax periods 1 January 2009 to 30 September 2009.", "Issues_Decided": "The Tribunal decided: 1. The taxpayer discharged the burden of proof in relation to his fuel tax credit assessments and the penalty for the period up to 31 December 2008, and accordingly these were set aside. This was because his oral testimony was corroborated by the evidence of his tax agent; 2. The taxpayer failed to discharge his burden of proof in relation to assessments for tax periods from 1 January 2009 to 30 September 2009. There was a conflict between the evidence of the taxpayer and his agent in respect of this period as to whether the agent had sighted and tallied the relevant invoices. The Tribunal was not prepared to accept the taxpayer's uncorroborated oral testimony that the tax agent had done so or that the taxpayer had acquired the relevant fuel. 3. The taxpayer failed to discharge his burden of proof in relation to the tax shortfall penalty for the tax periods 1 January 2009 to 30 September 2009. 1. The taxpayer discharged the burden of proof in relation to his fuel tax credit assessments and the penalty for the period up to 31 December 2008, and accordingly these were set aside. This was because his oral testimony was corroborated by the evidence of his tax agent; 2. The taxpayer failed to discharge his burden of proof in relation to assessments for tax periods from 1 January 2009 to 30 September 2009. There was a conflict between the evidence of the taxpayer and his agent in respect of this period as to whether the agent had sighted and tallied the relevant invoices. The Tribunal was not prepared to accept the taxpayer's uncorroborated oral testimony that the tax agent had done so or that the taxpayer had acquired the relevant fuel. 3. The taxpayer failed to discharge his burden of proof in relation to the tax shortfall penalty for the tax periods 1 January 2009 to 30 September 2009.", "ATO_View_of_Decision": "The decision was one that the Tribunal was entitled to make on the evidence before it and accords with the Commissioner's views on substantiation.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "None | [2012] AATA 640 | 14ZZK(b) | Subdivision 284-B of Schedule 1 | 298-20 of Schedule 1 | 56 | 41-5 | Part 3 of Schedule 3 | 90 ATC 5060 at 5067 per Hill J | 91 ATC 4546 at 4,552 | 2009 ATC 20-135 | 2008 ATC 20-015", "Legislative_References": "Taxation Administration Act 1953 14ZZK(b) Subdivision 284-B of Schedule 1 298-20 of Schedule 1 Energy Grants (Credits) Scheme Act 2003 56 Fuel Tax Act 2006 41-5 Fuel Tax (Consequential and Transitional Provisions) Act 2006 Part 3 of Schedule 3", "Case_References": "McCormack v Federal Commissioner of Taxation [1979] HCA 18 143 CLR 284 at 314 per Jacobs J Gauci v Federal Commissioner of Taxation [1975] HCA 54 136 CLR 81 at 89 per Mason J Galea v Federal Commissioner of Taxation [1990] FCA 456 90 ATC 5060 at 5067 per Hill J Federal Commissioner of Taxation v Dalco [1990] HCA 3 168 CLR 614 at 624 per Brennan J Imperial Bottleshops Pty Ltd & Egerton v Federal Commissioner of Taxation [1991] FCA 276 91 ATC 4546 at 4,552 Federal Commissioner of Taxation v Burness [2009] FCA 1021 2009 ATC 20-135 Federal Commissioner of Taxation v Dixon [2008] FCAFC 54 2008 ATC 20-015", "Subject_References": "Burden of proof Energy Grants (Credit) Scheme Fuel Tax Credits Administrative Penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/5391/00001", "Unmatched_Content": ""}
{"Case_Name": "Bocaz and Federal Commissioner of Taxation", "Venue_Reference_No": "2010/4160", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "30 November 2012", "Date_Published": "15 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case concerning whether a taxpayer's share of expenses in respect of a rental property tenanted to a relative were deductible.", "Overview_of_Facts": "The taxpayer co-owned two properties with her son as joint tenants. During the 2008 income year, the first property was occupied by the taxpayer's ex-husband, who paid $200 rent per week and agreed to undertake necessary renovations and repairs to the property. The second property was occupied by the taxpayer's joint tenant and son and he paid the taxpayer $165 rent per week. Part way during the 2008 income year the taxpayer sold her share of the second property to her other son. The taxpayer argued that the rent constituted assessable income, meaning she could deduct her expenses in relation to the properties. The expenses exceeded the rental income. | Issues decided by the tribunal | The Tribunal decided the following: 1. The rent derived by the taxpayer from the two properties was assessable income. As the taxpayer sold her interest in the second property during the income year, only the rent that was referable to that part of the year when she owned was assessable income. 2. The rental arrangements were not non-commercial arrangements. 3. The taxpayer incurred interest and other expenses in respect of the properties and the taxpayer was entitled to a deduction for the expenses pro-rates, to reflect the period of the taxpayer's ownership during the year. | 1. The rent derived by the taxpayer from the two properties was assessable income. As the taxpayer sold her interest in the second property during the income year, only the rent that was referable to that part of the year when she owned was assessable income. 2. The rental arrangements were not non-commercial arrangements. 3. The taxpayer incurred interest and other expenses in respect of the properties and the taxpayer was entitled to a deduction for the expenses pro-rates, to reflect the period of the taxpayer's ownership during the year.", "Issues_Decided": "The Tribunal decided the following: 1. The rent derived by the taxpayer from the two properties was assessable income. As the taxpayer sold her interest in the second property during the income year, only the rent that was referable to that part of the year when she owned was assessable income. 2. The rental arrangements were not non-commercial arrangements. 3. The taxpayer incurred interest and other expenses in respect of the properties and the taxpayer was entitled to a deduction for the expenses pro-rates, to reflect the period of the taxpayer's ownership during the year. 1. The rent derived by the taxpayer from the two properties was assessable income. As the taxpayer sold her interest in the second property during the income year, only the rent that was referable to that part of the year when she owned was assessable income. 2. The rental arrangements were not non-commercial arrangements. 3. The taxpayer incurred interest and other expenses in respect of the properties and the taxpayer was entitled to a deduction for the expenses pro-rates, to reflect the period of the taxpayer's ownership during the year.", "ATO_View_of_Decision": "This matter was decided on its facts. The decision has no wider ramifications.", "Administrative_Treatment": "Nil | Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "Nil | 2012 ATC 10-286 | 6-5 | 8-1(2) | 8-1(2)(b) | 91 ATC 4950 | 82 ATC 4478 | 84 ATC 4001 | 96 ATC 4640 | 81 ATC 4100", "Legislative_References": "Income Tax Assessment Act 1997 6-5 8-1(2) 8-1(2)(b)", "Case_References": "Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1 (1991) 22 ATR 613 91 ATC 4950 Federal Commissioner of Taxation v Groser (1982) 65 FLR 121 1982) 13 ATR 445 82 ATC 4478 Federal Commissioner of Taxation v Kowal (1983) 79 FLR 75 (1982) 15 ATR 125 84 ATC 4001 Madigan v Commissioner of Taxation (1996) 68 FCR 12 (1996) 33 ATR 164 96 ATC 4640 Ure v Federal Commissioner of Taxation (1981) 50 FLR 219 11 ATR 484 81 ATC 4100", "Subject_References": "Rent as assessable income Domestic tenancy agreements Non-commercial arrangements Deductions for expenses", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/4160/00001", "Unmatched_Content": ""}
{"Case_Name": "Bornstein and Commissioner of Taxation", "Venue_Reference_No": "2011/5143", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "6 July 2012", "Date_Published": "5 October 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case that concerns whether it was appropriate to disregard or allocate to another year one or more superannuation contributions made by a company, to relieve the taxpayer from excess concessional contributions tax.", "Overview_of_Facts": "The applicant was the sole director, secretary and shareholder of Benefel Pty Ltd (the Company), and at all material times was remunerated for his services by the Company. The Company had previously made (and did subsequently make) a single annual superannuation contribution for the applicant just prior to the end of each financial year. The applicant was responsible for making these payments as the director of the Company. Each of these contributions fulfilled the company's superannuation guarantee obligations and included an additional 'voluntary' amount above the required minimum contribution. | The applicant was absent from Australia on a business trip during the period 21 June 2007 to 9 July 2007. An employer contribution of $42,385 was made on 10 July 2007 for the quarter ending 30 June 2007. The company then made an employer contribution of $50,000 on 26 June 2008, for the quarter ending 30 June 2008. | As a result of these payments being made in the same financial year, the applicant exceeded the $50,000 concessional contributions cap in the 2008 financial year by $42,385, and was assessed to excess concessional contributions tax on this amount for the 2008 financial year. | The applicant applied to the Commissioner to have the $42,385 contribution allocated to the 2007 financial year because of special circumstances. The applicant contended that he understood that there would be no adverse consequences for any person if the Company were to make a contribution for the June 2007 quarter by 28 July 2007. The applicant stated that his conclusion was based on advice previously obtained from his tax adviser and his understanding of information obtained from the ATO website. | The Commissioner did not exercise the discretion to reallocate the contribution and this decision was confirmed on the objection decision | Issues decided by the Administrative Appeals Tribunal | The Tribunal decided that the Commissioner's objection decision refusing to exercise the discretion provided in section 292-465 of the Income Tax Assessment Act 1936 should be set aside and that the discretion should be exercised in favour of the applicant. | In determining that the discretion should be exercised in favour of the applicant, the Tribunal stated \"there must be something about the circumstances [of the] case that mark it out as being different or rare or unusual or otherwise distinguishable from the ordinary run of cases\" to constitute special circumstances. | The Tribunal held that, while a mere \"misunderstanding of one's obligations is not enough to constitue special circumstances\", there was \"a 'perfect storm' of events, miscommunications and misunderstandings that combined to leave the taxpayer in an unusual and unfortunate position\". The Tribunal decided that \"in all of the circumstances, ...it would be appropriate to treat his case differently\". | The Tribunal was also satisfied that reallocating the contribution made on 10 July 2007, to the 2007 financial year was consistent with the object of Division 292 of the Income Tax Assessment Act 1936 . The evidence had established that the applicant \"was building up his superannuation by making gradual contributions over the course of his life, as the Division intends", "Issues_Decided": "The Tribunal decided that the Commissioner's objection decision refusing to exercise the discretion provided in section 292-465 of the Income Tax Assessment Act 1936 should be set aside and that the discretion should be exercised in favour of the applicant. In determining that the discretion should be exercised in favour of the applicant, the Tribunal stated \"there must be something about the circumstances [of the] case that mark it out as being different or rare or unusual or otherwise distinguishable from the ordinary run of cases\" to constitute special circumstances. The Tribunal held that, while a mere \"misunderstanding of one's obligations is not enough to constitue special circumstances\", there was \"a 'perfect storm' of events, miscommunications and misunderstandings that combined to leave the taxpayer in an unusual and unfortunate position\". The Tribunal decided that \"in all of the circumstances, ...it would be appropriate to treat his case differently\". The Tribunal was also satisfied that reallocating the contribution made on 10 July 2007, to the 2007 financial year was consistent with the object of Division 292 of the Income Tax Assessment Act 1936 . The evidence had established that the applicant \"was building up his superannuation by making gradual contributions over the course of his life, as the Division intends", "ATO_View_of_Decision": "The Commissioner accepts that the decision to exercise the discretion in favour of the applicant was open to the Tribunal based on the finding that there was \"a 'perfect storm' of events, miscommunications and misunderstandings\". The ATO accepts that more than one conclusion on whether there were 'special circumstances' could be drawn from the findings of fact. | The decision of the Tribunal is consistent with the Commissioner's stated view on the exercise of the discretion contained in PS LA 2008/1. | Relevantly, paragraph 37 of PS LA 2008/1 provides: \"Each individual case will present a unique set of circumstances that need to be considered and weighed up in forming an opinion. It may not be helpful to focus too closely on each particular circumstance and ask whether it is special. Of itself, one particular matter is unlikely to be special for there would be many other individuals in a similar situation. The question is whether, when the relevant circumstances of the individual and the making of the relevant contribution are looked at in their entirety, they may be fairly described as unusual, uncommon or exceptional so as to warrant the exercise of the discretion.\" | The ATO will continue to administer section 292-465 of the ITAA 1997 consistently with the guidleines contained in PS LA 2008/1.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "PS LA 2008/1 | 2012 ATC 10-257 | 292-465 | [2012] AATA 282 | [2012] AATA 129 | 2010 ATC 10-145 | [2012] AATA 130 | 2012 ATC 10-251 | 2012 ATC 10-238 | 2012 ATC 10-250 | [2012] AATA 62 | 2012 ATC 10-236", "Legislative_References": "Income Tax Assessment Act 1997 (ITAA 1997) 292-465", "Case_References": "Kuyper and Commissioner of Taxation [2012] AATA 282 Leckie and Commissioner of Taxation [2012] AATA 129 McMennemin and Commissioner of Taxation [2010] AATA 573 2010 ATC 10-145 79 ATR 898 Naude and Commissioner of Taxation [2012] AATA 130 Paget and Commissioner of Taxation [2012] AATA 334 2012 ATC 10-251 Peaker and Commissioner of Taxation [2012] AATA 140 2012 ATC 10-238 Rawson and Commissioner of Taxation [2012] AATA 322 2012 ATC 10-250 Schuuurmans-Stekhoven and Commissioner of Taxation [2012] AATA 62 82 ATR 731 Tran and Commissioner of Taxation [2012] AATA 123 2012 ATC 10-236", "Subject_References": "Excess contributions tax Excess concessional contributions tax", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/5143/00001", "Unmatched_Content": ""}
{"Case_Name": "Building Company Owner and Commissioner of Taxation", "Venue_Reference_No": "2010/3520-3522", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "1 November 2012", "Date_Published": "20 December 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the taxpayer's circumstances warrant the exercise of the discretion in relation to dividends under s 109RB of the ITAA 1936.", "Overview_of_Facts": "The taxpayer and his brother were the director and shareholder of a building company. The taxpayer withdrew money from the company bank accounts and deposited the funds into his personal bank accounts on several occasions during the years of 2005, 2006 and 2007. | There was no written loan agreement between the taxpayer and the company for the 2005 year. As a result, $261,950, being total amount withdrawn in the year, was assessed by the Commissioner as a dividend under section 109C of the ITAA 1936. | For the 2006 and 2007 year, the taxpayer had an undated written agreement, which lacked details of the loans. The amounts were treated as dividends and assessable under section 109D in the sum of $102, 189 for the 2006 year and $317,729 for 2007. | The main issue before the Tribunal was whether the Commissioner's discretion under section 109RB should have been exercised. | Issues decided by the tribunal | The Tribunal decided that it was appropriate in the circumstances to exercise the discretion, with the result that the amounts treated as dividends were disregarded. In addition, the Tribunal affirmed the Commissioner's objection decision with respect to the income year ended 30 June 2005, although the penalty was reduced from 50% to 25%", "Issues_Decided": "The Tribunal decided that it was appropriate in the circumstances to exercise the discretion, with the result that the amounts treated as dividends were disregarded. In addition, the Tribunal affirmed the Commissioner's objection decision with respect to the income year ended 30 June 2005, although the penalty was reduced from 50% to 25%", "ATO_View_of_Decision": "The case was decided on its own facts.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | N/A | Implications for Law Administration Practice Statements | N/A", "Related_Documents": "N/A | 2012 ATC 1-048 | Div 7A | 109C | 109D | 109E | 109N | 109R | 109RB | Sch 1, Div 280 | 280-160 | Sch 1, Div 284 | 2001 ATC 4111", "Legislative_References": "Income Tax Assessment Act 1936 Div 7A 109C 109D 109E 109N 109R 109RB Taxation Administration Act 1953 Sch 1, Div 280 280-160 Sch 1, Div 284", "Case_References": "BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347 [2001] FCA 164 2001 ATC 4111", "Subject_References": "Money transferred to individual from company of which the individual was a shareholder and director Discretion if deemed dividend arose because of an honest mistake or inadvertent omission", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/3520-3522/00001", "Unmatched_Content": ""}
{"Case_Name": "Cameron v Commissioner of Taxation", "Venue_Reference_No": "NSD 97 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "30 May 2012", "Date_Published": "17 March 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2012 ATC 20-320", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD97of2012/00001", "Unmatched_Content": "Cameron v Commissioner of Taxation [2012] FCAFC 76 2012 ATC 20-320 (2012) 202 FCR 301 (2012) 88 ATR 518 | The adverse aspects of the decision have no wider ramifications beyond the taxpayer's circumstances. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Commissioner of Taxation v Bargwanna", "Venue_Reference_No": "S284/2011", "Venue": "High Court", "Judgment_Date": "29 March 2012", "Date_Published": "11 July 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case concerning whether a public charitable trust should be exempt from income tax where part of the fund is applied for another purpose and not for public charitable purposes.", "Overview_of_Facts": "By deed executed on 14 October 1997, a husband and wife, Mr and Mrs Bargwanna, were appointed trustees of a trust fund established \"for such charitable purposes as [the trustees] shall determine from time to time\". | In 2004, the trustees applied to the Commissioner for endorsement under Item 1.5B of the Table in s.50-5 as an entity exempt from income tax. Item 1.5B applies to a fund established in Australia by will or trust for public charitable purposes. The years for which exemption was sought were the income tax years ended 30 June 2001 to 30 June 2004 | Importantly, in order to qualify for endorsement as an exempt entity, the \"special conditions\" set out in s.50-60 of the Income Tax Assessment Act 1997 (ITAA 1997) required, amongst other things, that \"...the fund [be] applied for the purposes for which it was established...\". | In 2002, the accountant father of one of the trustees provided money as funds subject to the trust. However, that and other amounts were placed by the trustees in the accountant's client trust fund; in other words, trust funds were mixed with the accountant's trust account and therefore mixed with an account in which others had an interest. | Interest income of the trust fund and interest derived by others in the mixed account by the accountant were therefore not readily identifiable. | Further, the trustees used trust fund amounts to satisfy obligations in their personal capacities to reduce a home loan obligation. | At one point, this misuse of the trust fund moneys amounted to a \"shortfall\" of the trust claiming to be a trust fund exempt from tax. It appears to have been the evidence that the trustees undertook this use of the trust fund without an appreciation that the misuse of the trust money may have amounted to maladministration or a breach of trust. | Accordingly, in the circumstances, the Commissioner refused to endorse the trustees' application for endorsement as an exempt under entity Item 1.5B, s.50-60 of the ITAA 1997. | That refusal was made on the basis that the special condition set out in s.50-60 of the ITAA 1997, That is, that \"...the fund [had not been] applied for the purposes for which it was established...\". | The trustees sought a review of that refusal at the AAT, and the matter was eventually dealt with by the High Court after certain appeals in the Federal Court. | Issues decided by the court | The trustees requested the AAT to review the Commissioner's decision to refuse endorsement as a charitable trust fund under s.50-5 of the ITAA 1997. | The High Court decided that the trust fund was not entitled to endorsement as an exempt entity. The Court was of the view that the trustees had not applied the trust fund for the purposes for which it was established: s.50-60 ITAA 1997. | In a joint judgment (French CJ, Hayne, Gummow, Crennan JJ) allowing the Commissioner's appeal from a decision of the Full Federal Court, their Honours held that the terms of s.50-60 of the ITAA 1997 require that a fund be applied for the purposes set out in the trust deed, that is, that the fund be properly administered so as to give effect to those purposes. | In disagreeing with the principles set out by the Full Federal Court, the High Court said it was not sufficient to satisfy the requirements of s.50-60 of the ITAA 1997 that the trust fund be \"substantially\" or largely applied for the purposes set out in the deed of trust. | Heydon J delivered separate reasons, in effect agreeing with the majority judgment of the High Court.", "Issues_Decided": "The trustees requested the AAT to review the Commissioner's decision to refuse endorsement as a charitable trust fund under s.50-5 of the ITAA 1997. The High Court decided that the trust fund was not entitled to endorsement as an exempt entity. The Court was of the view that the trustees had not applied the trust fund for the purposes for which it was established: s.50-60 ITAA 1997. In a joint judgment (French CJ, Hayne, Gummow, Crennan JJ) allowing the Commissioner's appeal from a decision of the Full Federal Court, their Honours held that the terms of s.50-60 of the ITAA 1997 require that a fund be applied for the purposes set out in the trust deed, that is, that the fund be properly administered so as to give effect to those purposes. In disagreeing with the principles set out by the Full Federal Court, the High Court said it was not sufficient to satisfy the requirements of s.50-60 of the ITAA 1997 that the trust fund be \"substantially\" or largely applied for the purposes set out in the deed of trust. Heydon J delivered separate reasons, in effect agreeing with the majority judgment of the High Court.", "ATO_View_of_Decision": "The High Court decision is consistent with the ATO view that any application of a fund for purposes other than those for which it is established means that the fund is not applied for the purpose for which it is established. The particular misapplications of the fund by the trustees meant that the fund was not applied for the purposes for which it was established. The Commissioner was entitled to refuse the trustees' application for endorsement to be treated as an exempt entity under s.50-5 (Item 1.5B) of the ITAA 1997.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not applicable", "Related_Documents": "Not applicable | [2012] HCA 11 | 2012 ATC 20-312 | s 50-5 | s 50-75(1) | [1952] HCA 1 | [2003] HCA 15 | (2003) 212 CLR 484 | 46 ATR 91 | [1998] 2 All ER 705 | (1940) 63 CLR 209 | (1966) 116 CLR 233 | 2008 ATC 20-072 | (1968) 121 CLR 45 | 73 ATC 4107 | 2009 ATC 20-107 | 2011 ATC 20-244", "Legislative_References": "Income Tax Assessment Act 1997 (Cth) s 50-5 s 50-60 s 50-75(1)", "Case_References": "Latimer v Commissioner of Inland Revenue [2004] 3 NZLR 157 [2004] 1 WLR 1466 [2004] 4 All ER 558 Fouche v The Superannuation Fund Board [1952] HCA 1 (1952) 88 CLR 609 Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15 (2003) 212 CLR 484 Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq) [2000] HCA 25 (2000) 202 CLR 588 46 ATR 91 Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] 2 All ER 705 Attorney-General (NSW) v Perpetual Trustee Co (Ltd) [1940] HCA 12 (1940) 63 CLR 209 Mahoney v Commissioner of Taxation (1965) 39 ALJR 62 [1966] ALR 888 Compton v Federal Commissioner of Taxation [1966] HCA 1 (1966) 116 CLR 233 Federal Commissioner of Taxation v Word Investments Ltd [2008] HCA 55 (2008) 236 CLR 204 70 ATR 225 2008 ATC 20-072 Driclad Pty Ltd v Federal Commissioner of Taxation [1968] HCA 91 (1968) 121 CLR 45 Ryland v Federal Commissioner of Taxation [1973] HCA 33 (1973) 128 CLR 404 4 ATR 40 73 ATC 4107 Commissioner of Taxation v Bargwanna as Trustee of the Kalos Metron Charitable Trust [2009] FCA 620 (2009) 72 ATR 963 2009 ATC 20-107 Bargwanna v Federal Commissioner of Taxation [2010] FCAFC 126 (2010) 191 FCR 184 2011 ATC 20-244 80 ATR 594", "Subject_References": "charitable trust charitable fund exempt entities", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S284-2011/00001", "Unmatched_Content": "This decision has no impact for the ATO including precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v Consolidated Media Holdings Ltd", "Venue_Reference_No": "S228 of 2012", "Venue": "High Court", "Judgment_Date": "5 December 2012", "Date_Published": "6 May 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerned the treatment of consideration for an off-market share buy back.", "Overview_of_Facts": "Consolidated Media Holdings Ltd (\"CMH\", then known as PBL) owned all of the ordinary shares in Crown Limited (\"Crown\"). | On 13 June 2002, the Directors of Crown resolved to implement, pursuant to Division 2 of Part 2J.1 of the Corporations Act 2001 , a proposed share buy-back of approximately 840 million ordinary shares from CMH. The consideration for the buy-back of shares was $1 billion. | By a Share Buy-Back Agreement dated 28 June 2002, Crown agreed to purchase, and CMH agreed to sell to Crown, the ordinary Crown shares. | On that day, Crown recorded a debit of $1 billion in a new account labelled \"Share Buy-Back Reserve Account\" created in its general ledger. Crown also maintained a \"Shareholders Equity Account\" which maintained a credit balance and in which no entry was recorded in relation to the share buy-back. | The financial statements of Crown for the year ended 20 June 2002 disclosed that Contributed Equity had been reduced by $1 billion, from $2.4 billion to $1.4 billion, during the year. Crown's audited financial statements for the year ended 30 June 2002 further showed that the company had Retained Profits (Losses) of ($27,352,000). | The taxation consequences of a share buy-back are dealt with in Division 16K of the ITAA 36. In this instance, the buy-back was off-market share buy-back, a fact not disputed by the parties. | In an off-market share buy-back, the difference between the purchase price and any part of the purchase price that is debited against amounts standing to the credit of the company's share capital account is treated, for income taxation purposes, as a dividend paid by the company: s.159GZZZP ITAA36. | Issues decided by the court/Tribunal | The issue in the appeal was whether the $1 billion was debited against amounts standing to the credit of Crown's share capital account, within the meaning of s.159GZZZP (1) ITAA 36. | CMH contended that the Share Buy-Back Reserve was not such an account as no entry was made in Crown's Shareholder's Equity general ledger account. No amount having been debited to Crown's share capital, CMH contended that the amount it received was a dividend (unfranked, though rebateable, under former s.46 ITAA 36). | The Commissioner was of the view that the entire consideration received by CMH was capital, having been debited entirely against an amount standing to the credit of Crown's share capital account. It mattered not that the particular account was labelled Share Buy Back Reserve and held in a separate account to Crown's Shareholder's Equity Account. On this analysis, none of the amount received by CMH was a dividend. | Emmett, J in the Federal Court [2011] FCA 367 agreed with the Commissioner that the Share Buy-Back Reserve formed part of the share capital account of Crown under s.6D ITAA 36. | His Honour noted also that the capital contributed by Crown's shareholders was reduced by $1 billion as a result of the share buy-back. Crown had cancelled the shares bought-back, as required under the Corporations Act 2001, and returned capital to the taxpayer. The cancelled shares were part of the share capital of Crown and some record must be made of this reduction of capital. Despite neither the Shareholder's Equity Account nor the Share Buy-Back Reserve being called a share capital account, Emmett, J found that both accounts were share capital accounts within the meaning of s.6D. The Share Buy-Back Reserve recorded this capital reduction. | The Full Federal Court [2012] FCAFC 36 found for the taxpayer on appeal. The Full Court found that s.6D only applied to an account to which the paid-up capital of the company was originally credited. Therefore a debiting of the Share Buy-Back Reserve could not affect the Shareholder's Equity Account for s.159GZZZP purposes. This was to protect companies from the unintended consequences of the capital 'tainting' rules. | With Special leave, the Commissioner appealed to the High Court. | The High Court, in a unanimous decision, allowed the Commissioner's appeal. The court considered it was sufficient for an account to be a share capital account, under s.6D, for that account to be an account that was either a record of a transaction into which the company had entered in relation to its share capital, or a record of the financial position of the company in relation to its share capital. | The $1 billion debit entry made in the Share Buy-Back Reserve Account was a record of the transaction made by Crown on 28 June 2002 to reduce its share capital. The share capital of Crown could only be understood by reference to both the Shareholders Equity Account and its Share Buy-Back Reserve Account. | The court found that both accounts taken together constituted Crown's share capital. Accordingly, the debit of $1 billion in the Share Buy-Back Reserve account was a debit against the amount standing to the credit of the combined share capital account. | Consequently, none of the amount received by CMH was therefore a dividend. In these circumstances, CMH actually realised a capital gain on the disposal of its Crown shares.", "Issues_Decided": "The issue in the appeal was whether the $1 billion was debited against amounts standing to the credit of Crown's share capital account, within the meaning of s.159GZZZP (1) ITAA 36. CMH contended that the Share Buy-Back Reserve was not such an account as no entry was made in Crown's Shareholder's Equity general ledger account. No amount having been debited to Crown's share capital, CMH contended that the amount it received was a dividend (unfranked, though rebateable, under former s.46 ITAA 36). The Commissioner was of the view that the entire consideration received by CMH was capital, having been debited entirely against an amount standing to the credit of Crown's share capital account. It mattered not that the particular account was labelled Share Buy Back Reserve and held in a separate account to Crown's Shareholder's Equity Account. On this analysis, none of the amount received by CMH was a dividend. Emmett, J in the Federal Court [2011] FCA 367 agreed with the Commissioner that the Share Buy-Back Reserve formed part of the share capital account of Crown under s.6D ITAA 36. His Honour noted also that the capital contributed by Crown's shareholders was reduced by $1 billion as a result of the share buy-back. Crown had cancelled the shares bought-back, as required under the Corporations Act 2001, and returned capital to the taxpayer. The cancelled shares were part of the share capital of Crown and some record must be made of this reduction of capital. Despite neither the Shareholder's Equity Account nor the Share Buy-Back Reserve being called a share capital account, Emmett, J found that both accounts were share capital accounts within the meaning of s.6D. The Share Buy-Back Reserve recorded this capital reduction. The Full Federal Court [2012] FCAFC 36 found for the taxpayer on appeal. The Full Court found that s.6D only applied to an account to which the paid-up capital of the company was originally credited. Therefore a debiting of the Share Buy-Back Reserve could not affect the Shareholder's Equity Account for s.159GZZZP purposes. This was to protect companies from the unintended consequences of the capital 'tainting' rules. With Special leave, the Commissioner appealed to the High Court. The High Court, in a unanimous decision, allowed the Commissioner's appeal. The court considered it was sufficient for an account to be a share capital account, under s.6D, for that account to be an account that was either a record of a transaction into which the company had entered in relation to its share capital, or a record of the financial position of the company in relation to its share capital. The $1 billion debit entry made in the Share Buy-Back Reserve Account was a record of the transaction made by Crown on 28 June 2002 to reduce its share capital. The share capital of Crown could only be understood by reference to both the Shareholders Equity Account and its Share Buy-Back Reserve Account. The court found that both accounts taken together constituted Crown's share capital. Accordingly, the debit of $1 billion in the Share Buy-Back Reserve account was a debit against the amount standing to the credit of the combined share capital account. Consequently, none of the amount received by CMH was therefore a dividend. In these circumstances, CMH actually realised a capital gain on the disposal of its Crown shares.", "ATO_View_of_Decision": "This decision is consistent with the longstanding practice and policy of the ATO in relation to share buy-backs. | Note: On 21 October 2011 the Government released an Exposure Draft Bill concerning the Taxation of Share Buy Backs. The Exposure Draft seeks to amend the taxation law pertaining to share buy-backs. As presently drafted, the existing buy-back provisions considered by the High Court of Australia in this case are not relevantly altered. In particular, the capital component for a share remains that part of a purchase price debited against amounts standing to the credit of the company's share capital account.", "Administrative_Treatment": "None | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "None | 2012 ATC 20-361 | 6D | 159GZZZP", "Legislative_References": "Income Tax Assessment Act 1936 6D 159GZZZP", "Case_References": "", "Subject_References": "Income Tax Off-market share buy-back Share Capital Account", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S228OF2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Crown Insurance Services Ltd", "Venue_Reference_No": "High Court of Australia: B69 of 2012; Full Federal Court: QUD 668 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "2 November 2012", "Date_Published": "6 January 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns questions dealing with source of income derived from business activity and whether income of the taxpayer was derived directly or indirectly from Australian sources.", "Overview_of_Facts": "1. The taxpayer was an insurer incorporated in Vanuatu | 2. The only business of the taxpayer was to provide insurance to Australian companies whose business was the provision of funeral benefits to members of the indigenous community in Australia. | 3. All of the Australian companies and the taxpayer were under common ownership. | 4. The Aboriginal Community Benefit Fund No 2 Pty Ltd ('ACBF Pty Ltd No 2') which was typical of the Australian companies was constituted by a trust deed which provided for it to \"stand possessed of the Trust fund and the income thereof upon trust for the Members upon the trusts and with and subject to the powers and provisions\" expressed in the Deed. | 5. Clause 13.5.1 of the Deed provided \"The Trustee shall at all times maintain a Group Life Policy in respect of the lives of the Members for the time being of the Fund of not less than the total benefits payable to the Members.\" | 6. Pursuant to the terms of the Trust Deed, National Mutual Life Association of Australasia Limited ('National Mutual') was originally utilised as insurers of the full death benefit payable to members. | 7. By about 2000 the Australian companies were dissatisfied with the time taken to process claims in respect of the death of members and decided to establish a new insurer, the business of which would be confined to insuring the Australian companies. | 8. However under Australian law an insurer required net assets of at least $5 million, whereas only $200,000 was required to establish a company in Vanuatu to hold an insurance licence there. | 9. As a result the taxpayer was established in Vanuatu as a Vanuatu company. | 10. The taxpayer subsequently entered into contracts of insurance with the Australian companies. In each case the contract was made in Vanuatu under which contract ACBF Pty Ltd No 2 complied with its obligation to maintain a group life policy. | 11. Pursuant to the group life policies the taxpayer received premiums from the Australian companies. For most of the relevant period ACBF No 2 and the other Australian companies remitted to the taxpayer the premiums received from members less the amount of claims paid out. | 12. On review before the Administrative Appeals Tribunal, the Tribunal decided relevantly that the source of the taxpayer's income \"was the insurance contracts with the various member companies.\" As the contracts were made and performed in Vanuatu, the Tribunal was satisfied that the taxpayer's income was not derived from sources in Australia. | 13. The issues before the Full Federal Court were whether the Tribunal's finding raised a question of law and if so whether the facts found by the Tribunal fell within the terms of s6-5(3) of the ITAA 1997. | Issues decided by the court | The Court's Judgment was handed down on 2 November 2012 with the Court ordering that the Commissioner's appeal be dismissed. The majority of the Court (Lander & Foster JJ) dismissed the appeal on the basis that the appeal was incompetent. They considered that there was no question of law on the construction of s6-5(3). The dissenting Judge (Jessup J) would have allowed the Commissioner's appeal. His Honour was of the view that a question of law did arise on the construction of s.6-5(3), particularly on the meaning of 'income derived ... indirectly..' on the basis of the fifth proposition in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280. Having concluded that a question of law arose, his Honour found that 'there was an undeniable, though indirect, relationship between the [taxpayer's] entitlement to, and the amount of, those premiums, on the one hand, and the circumstances of, and the contributions made by, the members of the No 2 Fund, on the other hand. His Honour took the view, on the basis of the material before the Tribunal, there was only one conclusion open to the Tribunal; and that was that the taxpayer's income had its source in Australia. | At the Special leave application before the High Court heard on 6 June 2013, the High Court in refusing special leave to appeal stated: In light of the decisions of this Court in Nathan v Federal Commissioner of Taxation (1918) 25 CLR 183, Federal Commissioner of Taxation v Mitchum (1965) 113 CLR 401 and Collector of Customs v Agfa-Gevaert (1996) 186 CLR 389, this is not a convenient vehicle in which to explore the distinction between questions of fact and questions of law. Special leave to appeal is refused.", "Issues_Decided": "The Court's Judgment was handed down on 2 November 2012 with the Court ordering that the Commissioner's appeal be dismissed. The majority of the Court (Lander & Foster JJ) dismissed the appeal on the basis that the appeal was incompetent. They considered that there was no question of law on the construction of s6-5(3). The dissenting Judge (Jessup J) would have allowed the Commissioner's appeal. His Honour was of the view that a question of law did arise on the construction of s.6-5(3), particularly on the meaning of 'income derived ... indirectly..' on the basis of the fifth proposition in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280. Having concluded that a question of law arose, his Honour found that 'there was an undeniable, though indirect, relationship between the [taxpayer's] entitlement to, and the amount of, those premiums, on the one hand, and the circumstances of, and the contributions made by, the members of the No 2 Fund, on the other hand. His Honour took the view, on the basis of the material before the Tribunal, there was only one conclusion open to the Tribunal; and that was that the taxpayer's income had its source in Australia. At the Special leave application before the High Court heard on 6 June 2013, the High Court in refusing special leave to appeal stated: In light of the decisions of this Court in Nathan v Federal Commissioner of Taxation (1918) 25 CLR 183, Federal Commissioner of Taxation v Mitchum (1965) 113 CLR 401 and Collector of Customs v Agfa-Gevaert (1996) 186 CLR 389, this is not a convenient vehicle in which to explore the distinction between questions of fact and questions of law. Special leave to appeal is refused.", "ATO_View_of_Decision": "In light of the conclusion of the majority that the question decided by the AAT was one of fact, this case will have no precedential effect. The Tribunal's decision has no application beyond the particular circumstances of the case. Whether income is derived, directly or indirectly, from sources in Australia pursuant to section 6-5(3) of the ITAA 1997 will be determined on the facts as found. Nathan's case is still to be regarded as the leading case on source of income, The High Court's reference therein to income derived indirectly from Australian sources is unaffected by the decision of the Tribunal (emphasis added).", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil", "Related_Documents": "Nil | High Court: | Full Federal Court | [2012] FCAFC 153 | 2012 ATC 20-359 | s 25 | s 43 | s 44 | s 26 | s 6-5 | s 14ZZ | 96 ATC 5240 | (1993) 43 FCR 280 | (1918) 25 CLR 183 | 2007 ATC 5044 | (1938) 59 CLR 194", "Legislative_References": "Administrative Appeals Tribunal Act 1975 s 25 s 43 s 44 Income Tax Assessment Act 1936 s 26 Income Tax Assessment Act 1997 s 6-5 Taxation Administration Act 1953 s 14ZZ", "Case_References": "Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36 (1996) 186 CLR 389 35 ATR 249 96 ATC 5240 Collector of Customs v Pozzolanic Enterprises Pty Ltd [1993] FCA 322 (1993) 43 FCR 280 Nathan v Federal Commissioner of Taxation [1918] HCA 45 (1918) 25 CLR 183 Price Street Professional Centre Pty Ltd v Commissioner of Taxation [2007] FCAFC 154 (2007) 243 ALR 728 2007 ATC 5044 67 ATR 544 Tariff Reinsurance Ltd v Commissioner of Taxation (Vic) [1938] HCA 21 (1938) 59 CLR 194", "Subject_References": "Income tax Foreign resident Australian sourced income Question of law", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/B69of2012;QUD668of2011/00001", "Unmatched_Content": "This decision has no impact for the ATO including precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v Futuris Corporation Limited", "Venue_Reference_No": "SAD 139 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "19 March 2012", "Date_Published": "3 November 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this decision concerning the application of the general anti-avoidance provisions to increase the net capital gain returned as a result of a public float.", "Overview_of_Facts": "This case concerns the amount of the net capital gain assessable to the taxpayer from the public float of the Futuris group's Building Products Division (BPD). | Futuris Corporation Limited (the taxpayer) undertook a complex series of steps prior to the public float of the BPD. As a result of those steps the value shifting provisions of Division 19A of the former Part IIIA of the Income Tax Assessment Act 1936 operated in such a way that there was an increase of $82.95m in the cost base of the shares in the float vehicle. This in turn resulted in the taxpayer returning a net capital gain of $9.7m. The Commissioner applied Part IVA of the Income Tax Assessment Act 1936 , identifying a primary scheme and an alterative scheme, and increased the taxpayer's assessable net capital gain by $82.95m. | At first instance the taxpayer put on expert evidence from a chartered accountant who specialises in corporate finance. The expert concluded that in the absence of the scheme identified by the Commissioner it was reasonable to expect that a different company in the group would have been the float vehicle and consequently a different entity in the group would have made the capital gain (referred to as Counterfactual 1). Evidence before the Court showed that the assessable net capital gain to this subsidiary would have been approximately $95.7m. | Federal Court decision | Besanko J, at first instance, accepted this evidence. His Honour found that in the absence of the scheme identified by the Commissioner the taxpayer would, as a matter of reasonable expectation, have carried out the sale of the BPD in accordance with Counterfactual 1. That led to the conclusion that the taxpayer did not obtain a tax benefit within the meaning of section 177C(1)(a) of the Income Tax Assessment Act 1936 . | However, his Honour also noted that if a tax benefit had been obtained in connection with the scheme identified by the Commissioner, then he would have concluded that the taxpayer had entered into the scheme for the dominant purpose of obtaining a tax benefit. | Additionally, his Honour decided a number of points of law raised by the taxpayer favourably to the Commissioner. Of particular interest are the following points. • The application of a specific anti-avoidance provision does not impliedly limit the operation of Part IVA. • The scheme identified by the Commissioner does not have to include the transaction that gives rise to the tax benefit. It is sufficient if the tax benefit arose in 'connection' with the scheme. • The Commissioner is not required to identify a counterfactual. • The taxpayer must show that \"it would have undertaken or might reasonably be expected to undertake a particular activity in lieu of the scheme and that that activity would or might reasonably be expected to have resulted\" in assessable income no more in amount than was returned by the taxpayer. • If, on the evidence, it is not possible to make a reliable prediction about the counterfactual, then the taxpayer must fail. • The question posed by section 177C (1) (a) is whether, because of the scheme, a particular amount has not been included as assessable income. It is not relevant to that question to consider whether the taxpayer's assessable income included some other amount, such as a dividend. Capital gains and dividends are different amounts. | • The application of a specific anti-avoidance provision does not impliedly limit the operation of Part IVA. • The scheme identified by the Commissioner does not have to include the transaction that gives rise to the tax benefit. It is sufficient if the tax benefit arose in 'connection' with the scheme. • The Commissioner is not required to identify a counterfactual. • The taxpayer must show that \"it would have undertaken or might reasonably be expected to undertake a particular activity in lieu of the scheme and that that activity would or might reasonably be expected to have resulted\" in assessable income no more in amount than was returned by the taxpayer. • If, on the evidence, it is not possible to make a reliable prediction about the counterfactual, then the taxpayer must fail. • The question posed by section 177C (1) (a) is whether, because of the scheme, a particular amount has not been included as assessable income. It is not relevant to that question to consider whether the taxpayer's assessable income included some other amount, such as a dividend. Capital gains and dividends are different amounts. | Issues decided by the Full Federal Court | The Court noted that the definition of 'tax benefit' in section 177C(1)(a) requires that there be a prediction as to what 'might reasonably be expected to have been included in the assessable income of the taxpayer' in the absence of the scheme. That prediction necessarily involves an opinion as to events and transactions that have not taken place. It must be not just a possibility but 'sufficiently reliable for it to be regarded as reasonable': Peabody . | It is for the taxpayer to establish that there is no tax benefit in connection with the scheme (see [62]). The Commissioner is under no obligation to adduce evidence about transactions to which he is a stranger: it is the taxpayer who must establish why an assessment is excessive ([55] and [62]). The '... taxpayer may seek to prove in its own way, that the assessment is excessive' ([62]). Ultimately, it is for the Court to make the '... objective determination of the alternative postulate' ([62] quoting from the decision in FC of T Trail Bros Steel & Plastic Ltd (2010) 186 FCR 410). In some cases the Court may need to decide if there is sufficient evidence to allow such a determination to be made. That is, whether the taxpayer has met its evidential onus. In this context the weight to be given to the taxpayer's expert witness '... must be assessed in the context of other evidence adduced by Futuris' ([68]). | The Court found that direct evidence of contemporaneous consideration of the alternative postulate is not the only way to establish the reliability of a prediction ([80]). The expert's evidence was relevant and persuasive and there was no error in the primary judge accepting his evidence ([81]). | The Court found that the primary judge was correct in concluding that there was no tax benefit in connection with the primary scheme or the alternative scheme within section 177C(1)(a). | The Court found it unnecessary to consider dominant tax purpose under section 177D(b) in view of its decision that the primary judge was correct that there was no tax benefit. | The Full Court's decision did not directly overturn any of the primary judge's rulings on the other points of law raised by the taxpayer.", "Issues_Decided": "The Court noted that the definition of 'tax benefit' in section 177C(1)(a) requires that there be a prediction as to what 'might reasonably be expected to have been included in the assessable income of the taxpayer' in the absence of the scheme. That prediction necessarily involves an opinion as to events and transactions that have not taken place. It must be not just a possibility but 'sufficiently reliable for it to be regarded as reasonable': Peabody . It is for the taxpayer to establish that there is no tax benefit in connection with the scheme (see [62]). The Commissioner is under no obligation to adduce evidence about transactions to which he is a stranger: it is the taxpayer who must establish why an assessment is excessive ([55] and [62]). The '... taxpayer may seek to prove in its own way, that the assessment is excessive' ([62]). Ultimately, it is for the Court to make the '... objective determination of the alternative postulate' ([62] quoting from the decision in FC of T Trail Bros Steel & Plastic Ltd (2010) 186 FCR 410). In some cases the Court may need to decide if there is sufficient evidence to allow such a determination to be made. That is, whether the taxpayer has met its evidential onus. In this context the weight to be given to the taxpayer's expert witness '... must be assessed in the context of other evidence adduced by Futuris' ([68]). The Court found that direct evidence of contemporaneous consideration of the alternative postulate is not the only way to establish the reliability of a prediction ([80]). The expert's evidence was relevant and persuasive and there was no error in the primary judge accepting his evidence ([81]). The Court found that the primary judge was correct in concluding that there was no tax benefit in connection with the primary scheme or the alternative scheme within section 177C(1)(a). The Court found it unnecessary to consider dominant tax purpose under section 177D(b) in view of its decision that the primary judge was correct that there was no tax benefit. The Full Court's decision did not directly overturn any of the primary judge's rulings on the other points of law raised by the taxpayer.", "ATO_View_of_Decision": "The appeal focused on whether there was sufficient relevant and persuasive evidence to allow the primary judge to make his finding in respect of section 177C. | The Full Court's decision turned largely on the question as to whether the taxpayer has met its onus to establish that there was no tax benefit in connection with the scheme. The Full Court concluded that the judge at first instance was correct in concluding that the onus had been met. That is, the case turned on the weight to be given to the evidence, and as such does not appear to have significant implications for other cases. | The Full Court's decision is one of a number of recent Federal Court decisions on the principles to be applied in determining whether a tax benefit is obtained in connection with a scheme. See the ATO's decision impact statement for Commissioner of Taxation v RCI Pty Ltd. | The decision did not overturn any of the findings at first instance on points of law raised by the taxpayer. | The Government has announced that it will introduce amending legislation, with effect from 1 March 2012, dealing with the operation of the 'tax benefit' provisions of Part IVA.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "No relevant rulings or determinations were considered by the Court. | PS LA 2005/24 | 2012 ATC 20-306 | Part IVA | 177B(1) | 177C(1) | 177C(1)(a) | 177F | 14ZZO | 99 ATC 4945 | 2004 ATC 4599 | 2009 ATC 20-141 | 2008 ATC 20-014 | 94 ATC 4663 | 96 ATC 5201 | 2010 ATC 20-198 | 2009 ATC 20-115 | 2010 ATC 20-206", "Legislative_References": "Income Tax Assessment Act 1936 Part IIIA Division 19A Part IVA 177B(1) 177C(1) 177C(1)(a) 177D(a) 177D(b) 177F 160ZZO Taxation Administration Act 1953 14ZZO", "Case_References": "Commissioner of Taxation v Consolidated Press Holdings Ltd (No 1) (1999) 91 FCR 524 99 ATC 4945 (1999) 42 ATR 575 Commissioner of Taxation v Hart (2004) 217 CLR 216 2004 ATC 4599 (2004) 55 ATR 712 Commissioner of Taxation v Trail Bros Steel & Plastic Ltd (2009) 75 ATR 916 2009 ATC 20-141 [2009] FCA 1210 Federal Commissioner of Taxation v Lenzo (2008) 167 FCR 255 [2008] FCAFC 50 2008 ATC 20-014 Federal Commissioner of Taxation v Peabody (1994) 181 CLR 359 94 ATC 4663 28 ATR 344 Federal Commissioner of Taxation v Spotless Services Limited (1996) 186 CLR 404 (1996) 34 ATR 183 96 ATC 5201 (1996) 141 ALR 92 Federal Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd (2010) 186 FCR 410 2010 ATC 20-198 (2010) 79 ATR 780 Futuris Corporation Limited (ACN 004 336 636) v Commissioner of Taxation (2009) 75 ATR 365 [2009] FCA 600 2009 ATC 20-115 Futuris Corporation Limited ACN 004 336 636 v Commissioner of Taxation [2010] FCA 935 2010 ATC 20-206 (2010) 80 ATR 330", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/SAD139of2010/00001", "Unmatched_Content": "Implications on Law Administration Practice Statements: Law Administration Practice Statement PS LA 2005/24: Application of General Anti-Avoidance Rules was updated on 16 September 2016 to reflect statements made by the High Court in this case, in relation to the tax benefit test in subsection 177C(1). Refer to paragraphs 99, 105, 116 and 162 of PS LA 2005/24. | However, section 177CB was inserted by the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 , Schedule 1. In the ATO's view, section 177CB so significantly alters the conceptual framework of the tax benefit test in subsection 177C(1) that earlier case law involving the tax benefit concept can no longer be wholly regarded as representing the law after 16 November 2012, and should be treated with extreme caution. Refer to paragraph 83 of PSLA 2005/24. | Updated to reflect PS LA 2005/24 has been revised"}
{"Case_Name": "Commissioner of Taxation v Kassem", "Venue_Reference_No": "3880 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "31 August 2012", "Date_Published": "23 November 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether payments received by the Commissioner in the company's running balance account and later allocated to pay its superannuation guarantee charge debts, are unfair preferences.", "Overview_of_Facts": "The liquidators of 081 741 531 Pty Ltd, which was formerly known as Mortlake Hire Pty Ltd (\"Mortlake\"), sought to recover two payments in the total sum of $70,000.00 (\"Payments\"), as unfair preferences pursuant to section 588FA of the Corporations Act 2001 ('the Act\"). | The Payments were made to the ATO on behalf of Mortlake by a related third party entity, with Mortlake's authority, and were initially paid into Mortlake's running balance account. The Payments were subsequently applied to reduce Mortlake's superannuation guarantee charge (\"SGC\") debts. | At first instance, Nicholas J of the Federal Court decided that in accordance with section 588FA of the Act, the Payments were unfair preferences because the Commissioner received more in payment of the unsecured tax debts owed by Mortlake, than he would have received if the Payments were set aside and the Commissioner had to prove for those unsecured debts at the winding up of Mortlake. | The Commissioner appealed against the decision of Nicholas J on the basis that his Honour erred in finding that the Payments were unfair preference payments. | Issues decided by the court | The Full Federal Court comprising Jacobson, Siopis and Murphy JJ dismissed the Commissioner's appeal. | The Full Federal Court agreed with the Court at first instance that the relevant time to consider the preferential nature of a payment is at the actual winding up of the company and not a hypothetical winding up of the company at the time that the payment was made. | The Full Federal Court noted that liquidators' costs are necessary and inevitable if creditors wish to have the affairs of an insolvent company properly investigated. Liquidators are therefore creditors in the actual winding up and in accordance with section 556 of the Act, their fees and expenses rank ahead of the SGC debts. | Consequently, the Payments are unfair preferences because the Commissioner received more than he would in the actual winding up of Mortlake, where after payment of the Liquidators' costs, there was no dividend to the creditors. | The Full Federal Court considered that the relevant transactions, for the purposes of section 588FA of the Act, were the payments into Mortlake's running balance account. The Payments were, therefore, not paid in respect of the company's SGC liabilities and could not be afforded any status of priority pursuant to section 556 of the Act. | The Full Federal Court's decision that the liquidators' costs have priority in the winding up of Mortlake, leads to the same conclusion without the Court having to finally determine whether the Commissioner's allocation, or reallocation, of the Payments to the SGC account had the effect of making it a transaction in respect of a SGC and not a transaction in respect of the running balance account.", "Issues_Decided": "The Full Federal Court comprising Jacobson, Siopis and Murphy JJ dismissed the Commissioner's appeal. The Full Federal Court agreed with the Court at first instance that the relevant time to consider the preferential nature of a payment is at the actual winding up of the company and not a hypothetical winding up of the company at the time that the payment was made. The Full Federal Court noted that liquidators' costs are necessary and inevitable if creditors wish to have the affairs of an insolvent company properly investigated. Liquidators are therefore creditors in the actual winding up and in accordance with section 556 of the Act, their fees and expenses rank ahead of the SGC debts. Consequently, the Payments are unfair preferences because the Commissioner received more than he would in the actual winding up of Mortlake, where after payment of the Liquidators' costs, there was no dividend to the creditors. The Full Federal Court considered that the relevant transactions, for the purposes of section 588FA of the Act, were the payments into Mortlake's running balance account. The Payments were, therefore, not paid in respect of the company's SGC liabilities and could not be afforded any status of priority pursuant to section 556 of the Act. The Full Federal Court's decision that the liquidators' costs have priority in the winding up of Mortlake, leads to the same conclusion without the Court having to finally determine whether the Commissioner's allocation, or reallocation, of the Payments to the SGC account had the effect of making it a transaction in respect of a SGC and not a transaction in respect of the running balance account.", "ATO_View_of_Decision": "The Commissioner did not apply to the High Court for special leave to appeal against the decision. | It was previously the Commissioner's position that to determine whether a payment was an unfair preference, it was necessary for the liquidator to show that the Commissioner was preferred when the payment was made. That is, it was necessary to show that there was another unsecured creditor in existence at the time of the impugned payment, who received less in the actual winding up of the company by reason of the impugned payment. | However, the Federal Court in this case has authoritatively decided that the time to determine the preferential effect of payments is at the time of the actual winding up of the company. The Commissioner will act on that basis in future windings up. | The Full Federal Court distinguished personal preference matters, where for an impugned payment to be void, there must be at least one other creditor of the bankrupt at the time of the alleged preference payment whose debt remained unpaid as at the date of sequestration, and that creditor received less then the amount the Commissioner would receive from any distribution in the bankrupt's estate. | For the purposes of the unfair preference provisions, the Full Federal Court found that the relevant \"transactions\" were the payments made to Mortlake's running balance account. | It was not necessary for the Full Federal Court to make a decision about the Commissioner's powers to allocate or reallocate payments. It stated at [80] that the \"allocation or reallocation [of the payments] does not bring about a different result.\" That is, there were no funds available to creditors, after payment of the liquidators' fees and expenses, to even consider any priority afforded to SGC debts. | This decision does not affect the Commissioner's powers to allocate payments received by taxpayers in accordance with the two methods set out in Division 3 of Part IIB of the Taxation Administration Act 1953 .", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "N/A | 588FA | 588FE | 566 | Part 5.7B | 122 | The Act | Part IIB | (1997) 147 ALR 281", "Legislative_References": "Corporations Act 2001 588FA 588FE 566 Part 5.7B Bankruptcy Act 1966 122 Superannuation Guarantee (Administration) Act 1992 The Act Taxation Administration Act 1953 Part IIB", "Case_References": "Airservices Australia v Ferrier (1996) 185 CLR 483 Andrews v ANZ Banking Group Ltd (2011) 86 ACSR 292 Burness v Supaproducts Pty Ltd (2009) 259 ALR 339 Devaynes v Noble; Baring v Bole; Clayton's Case (1816) 1 Mer 572 35 ER 781 Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 Re: Emanuel (No 14) Pty Ltd; Macks v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281 VR Dye & Co v Peninsula Hotels Pty Ltd [1999] 3 VR 201 Walsh v Natra Pty Limited [2000] 1 VR 523", "Subject_References": "Unfair preference Priority of debts Allocation of payments", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/Mortlake/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v McWilliam", "Venue_Reference_No": "NSD 511 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "8 August 2012", "Date_Published": "22 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerns when does a taxpayer acquires a 'right' under an employee share scheme for the purposes of former Division 13A of the Income Tax Assessment Act 1936 ('ITAA 1936').", "Overview_of_Facts": "In about May 2003, the taxpayer was approached by a director of a public company who proposed that he accept employment with the company. Negotiations ensued in respect of possible terms of employment, including the taxpayer being granted options in the company. It was ultimately agreed between the parties during the negotiation period that the granting of options would be part of the taxpayer's employment package. | On 1 July 2003, the taxpayer commenced employment with the company. No formal employment contract was executed. However, a draft contract given to the taxpayer prior to him starting work included a term granting him a specified number of options | On 3 September 2003, the taxpayer was appointed a director of the company. | On 11 September 2003, the Company Secretary lodged with the Australian Stock Exchange Ltd ('ASX') a notice containing information on the taxpayer's interests in the company. It stated that the taxpayer 'has a right, conditional on shareholder's approval, to be granted options over un-issued shares' in the company. | On 28 November 2003, a resolution was passed at the Annual General Meeting approving the issue of 2,000,000 options to the taxpayer. The contract for the acquisition of the options was executed on 22 December 2003. | Issues decided by the court | The issue before the Full Federal Court concerned whether the taxpayer acquired a 'right' under an employee share scheme for the purposes of former Division 13A of the ITAA 1936 upon acquiring a right to require the employer to issue options to purchase shares, or whether the employee acquired that right only upon the issue of the options under the employee share scheme. | The time at which the 'right' is acquired is relevant for ascertaining the market value of the options and in turn calculating the discount given in relation to the acquisition of the option. Any discount given in relation to a share or right granted under an employee share scheme must be included in the assessable income of the taxpayer in the relevant year. | The Full Court relied on the finding of the Tribunal that the taxpayer had acquired the options on 1 July 2003. On that basis, the Commissioner's appeal was found by the Court to be incompetent as not being on a question of law. | The Full Court also concluded, in the alternative, that if the taxpayer did not acquire the options on 1 July 2003, he nevertheless obtained a contractual right to obtain the options to the shares in the company and the contractual right was a right for the purposes of Division 13A.", "Issues_Decided": "The issue before the Full Federal Court concerned whether the taxpayer acquired a 'right' under an employee share scheme for the purposes of former Division 13A of the ITAA 1936 upon acquiring a right to require the employer to issue options to purchase shares, or whether the employee acquired that right only upon the issue of the options under the employee share scheme. The time at which the 'right' is acquired is relevant for ascertaining the market value of the options and in turn calculating the discount given in relation to the acquisition of the option. Any discount given in relation to a share or right granted under an employee share scheme must be included in the assessable income of the taxpayer in the relevant year. The Full Court relied on the finding of the Tribunal that the taxpayer had acquired the options on 1 July 2003. On that basis, the Commissioner's appeal was found by the Court to be incompetent as not being on a question of law. The Full Court also concluded, in the alternative, that if the taxpayer did not acquire the options on 1 July 2003, he nevertheless obtained a contractual right to obtain the options to the shares in the company and the contractual right was a right for the purposes of Division 13A.", "ATO_View_of_Decision": "The decision of the Full Court was based on the findings of fact made by the Tribunal. | The Full Court's conclusion that if the taxpayer did not acquire the options on 1 July 2003, he nevertheless obtained a contractual right to obtain the options to the shares in the company and that was a right for the purposes of Division 13A, appears predicated on a conclusion that the right to the options was unconditional and not subject to a future event. A conditional right to an option of the kind considered by the Full Court in Fowler v Commissioner of Taxation [2013] FCAFC 69 will not be a Division 13A right. | Division 13A has been repealed so the case has little ongoing significance.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "N/A | 2012 ATC 20-339 | 2005 ATC 4151 | 2009 ATC 20-134 | (1964) 112 CLR 12 | 74 ATC 4192 | (1989) 89 ATC 4616 | 2001 ATC 4448", "Legislative_References": "Administrative Appeals Tribunal Act 1975 (Cth) s 44 Income Tax Assessment Act 1936 (Cth) s 139B s 139C s 139CD s 139DD s 139FC s 139FF s 139G", "Case_References": "ACP Publishing Pty Ltd v Commissioner of Taxation (2005) 142 FCR 533 2005 ATC 4151 59 ATR 98 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41 (2009) 239 CLR 27 73 ATR 256 2009 ATC 20-134 Commissioner of Stamp Duties (Q) v Livingston (1964) 112 CLR 12 43 ATC 325 Donaldson v Federal Commissioner of Taxation [1974] 1 NSWLR 627 74 ATC 4192 4 ATR 530 Fraunschiel v Federal Commissioner of Taxation [1989] FCA 236 (1989) 89 ATC 4616 (1989) 20 ATR 955 Industry Research & Development Board v Bridgestone Australia Ltd (2001) 109 FCR 564 47 ATR 469 2001 ATC 4448", "Subject_References": "Employee share schemes Employee share schemes and options Employee share ownership Share discounts on employee share schemes", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD511of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Park", "Venue_Reference_No": "QUD 209 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "31 August 2012", "Date_Published": "15 November 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns a Commissioner's garnishee notice served on a purchaser of land for monies due by it to a taxpayer vendor under a contract of sale where that land was subject to a pre-existing registered mortgage.", "Overview_of_Facts": "The taxpayer was the sole registered proprietor of a property which was subject to a registered mortgage to the National Australia Bank (\"NAB\"). In 2007, the taxpayer granted a second mortgage securing the sum of $430,200 which was duly registered. The taxpayer entered into a contract in January 2013 to sell the property for the sum of $1,675,000 and settlement was to proceed in February 2010. The Commissioner became aware of the contract and issued a notice pursuant to s260-5 in Schedule 1 to the Taxation Administration Act 1953 (\"garnishee notice\") in January and February 2010. The Commissioner was unaware that an unsecured creditor had served a bankruptcy notice on the taxpayer and in February 2010 had applied for the appointment of an interim trustee. | At settlement of the contract, the second mortgagee expected there would be insufficient funds from the purchase price to discharge the total amount secured by both the NAB mortgage and its mortgage. The second mortgagee had agreed to provide a release of the second mortgage in exchange for the balance amount remaining after discharge of the NAB mortgage. | Initially, the contract did not settle because the purchaser was unwilling to pay the balance amount because it sought to pay the Commissioner in accordance with the garnishee notice. Ultimately, the contract settled on the basis that the sum of $75,508.64 (being the sum sought by the Commissioner) be paid into Court and the second mortgagee assign its rights and interest in the disputed sum to the Trustee. The second mortgagee took the remaining funds in exchange for the release of the second mortgage. | The Commissioner sought to enforce his rights under the garnishee notice. | Issues decided by the court | The Full Federal Court by majority (with Siopis J dissenting) upheld the appeal by setting aside the declarations and orders previously made by the Federal Magistrate, and declared that the Commissioner is entitled to the sum of $75,508.64 paid into Court together with any accretions. | As this case was test case funded, the Federal Magistrate's costs order was left undisturbed and the Court ordered the Commissioner to pay the Trustee's costs of the appeal. | 1. Whether the purchase moneys were \"due\" to the taxpayer vendor which in turn created an obligation on the purchaser to pay the Commissioner pursuant to the garnishee notice instead of the taxpayer vendor. | The majority held that, under s260-5, at the instant the moneys become owing by the purchaser to the taxpayer vendor, the puchaser was under a statutory obligation to pay those moneys to the Commissioner. The moneys became owing by the purchaser to the taxpayer vendor, and the purchaser's obligation to pay the Commissioner became absolute at settlement when the taxpayer vendor offered an unemcumbered title to the purchaser. By reason of s260-15, a payment to the Commissioner by the purchaser was sufficient to satisfy the purchaser's obligation under the contract. | 2. Whether security under a mortgage over land extends to the proceeds of sale of the land. | The majority held that security under a mortgage over land does not extend to the proceeds of sale.", "Issues_Decided": "The Full Federal Court by majority (with Siopis J dissenting) upheld the appeal by setting aside the declarations and orders previously made by the Federal Magistrate, and declared that the Commissioner is entitled to the sum of $75,508.64 paid into Court together with any accretions. As this case was test case funded, the Federal Magistrate's costs order was left undisturbed and the Court ordered the Commissioner to pay the Trustee's costs of the appeal. | 1. Whether the purchase moneys were \"due\" to the taxpayer vendor which in turn created an obligation on the purchaser to pay the Commissioner pursuant to the garnishee notice instead of the taxpayer vendor.: The majority held that, under s260-5, at the instant the moneys become owing by the purchaser to the taxpayer vendor, the puchaser was under a statutory obligation to pay those moneys to the Commissioner. The moneys became owing by the purchaser to the taxpayer vendor, and the purchaser's obligation to pay the Commissioner became absolute at settlement when the taxpayer vendor offered an unemcumbered title to the purchaser. By reason of s260-15, a payment to the Commissioner by the purchaser was sufficient to satisfy the purchaser's obligation under the contract. | 2. Whether security under a mortgage over land extends to the proceeds of sale of the land.: The majority held that security under a mortgage over land does not extend to the proceeds of sale.", "ATO_View_of_Decision": "This case confirms the ATO view in relation to the Commissioner's rights arising from a garnishee notice and stated in paragraphs 66 and 67 of Practice Statement Law Administration PSLA 2011/18. | Practice Statement Law Administration 2011/18", "Administrative_Treatment": "", "Related_Documents": "N/A | 2012 ATC 20-344 | Practice Statement Law Administration 2011/18 | Subsection 260-5 | 87 ATC 4454 | (1989) 168 CLR 385 | 81 ATC 4429 | 2009 ATC 20-125 | 96 ATC 4588", "Legislative_References": "Taxation Administration Act 1953 Subsection 260-5", "Case_References": "Tricontinental Corporation Ltd v Commissioner of Taxation [1988] 1 QdR 474 18 ATR 827 87 ATC 4454 Foran v Wight (1989) 168 CLR 385 [1989] HCA 51 Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 12 ATR 173 81 ATC 4429 Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation (2009) 239 CLR 346 72 ATR 856 2009 ATC 20-125 Norton v Yates [1906] 1 KB 112 Zuks v Jackson McDonald (a Firm) (1996) 132 FLR 317 33 ATR 40 96 ATC 4588", "Subject_References": "Garnishee notice to purchaser of land Land subject to a pre-existing mortgage Compliance with garnishee notice Commissioner's entitlement to settlement proceeds", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD209of2011/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements"}
{"Case_Name": "Commissioner of Taxation v Qantas Airways Ltd", "Venue_Reference_No": "S47/2012", "Venue": "High Court", "Judgment_Date": "2 October 2012", "Date_Published": "10 October 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether an airline made a supply for consideration where the airline passenger does not take a booked flight and any payment made by the passenger is not refundable or no refund is claimed.", "Overview_of_Facts": "Qantas (and its subsidiaries, including Jetstar) provide domestic airline travel services. There are different classes of air travel with varying fare rules and conditions of carriage. Some prospective passengers who had booked a flight and made payment failed to take a flight. In accordance with the applicable conditions for these prospective passengers, some fares were forfeited while others were refundable on application within a stipulated period but no refund claim was made. The GST component of the fares for flights not taken was not refunded by Qantas to the prospective passengers. | Qantas sought a refund for GST that it claimed was incorrectly paid to the Commissioner in respect of unused fares in these circumstances. The Commissioner issued notices of assessment for which the net amount included the GST paid by Qantas in respect of the unused fares for the relevant tax periods. | The Administrative Appeals Tribunal affirmed the assessments. On appeal, the Full Federal Court held that what each customer pays for is carriage by air which is the essence and sole purpose of the transaction. The actual travel was the relevant supply and if it did not occur there was no taxable supply. | By special leave, the Commissioner appealed to the High Court. | Issues decided by the court | The issue in dispute was whether Qantas (and its subsidiaries, including Jetstar) had made a taxable supply when it received fares for flights booked but not undertaken by prospective passengers. The critical element of this was whether Qantas made a 'supply for consideration' under the definition of 'taxable supply' in s 9-5(a) of the A New Tax System ( Goods and Services Tax ) Act 1999 (GST Act). | The High Court held, by majority, that Qantas did make a taxable supply and was liable to pay GST on the fares paid. | The majority stated at paragraph [14] that the word 'for' in the phrase 'supply for consideration', 'is not used to adopt contractual principles' but rather 'it requires a connection or relationship between the supply and the consideration'. | The majority considered the decision in Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342; [2008] HCA 22 ( Reliance Carpet ) and stated at paragraph [27] that it ' provides no support for the proposition adopted by the Full Court in the present case that it was necessary to extract from the transaction between the airline and the prospective passenger the \" essence \" and \" sole purpose \" of the transaction' . | After setting out the relevant terms of the Qantas and Jetstar arrangements the majority concluded at paragraph [33] that the 'conditions did not provide an unconditional promise to carry the passenger and baggage on a particular flight'. Rather, '[ t]hey supplied something less than that'. The supply identified by the majority of the court was ' at least a promise to use best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline' . This supply met the requirements of the GST Act and the fares were found to be consideration for that supply. | Justice Heydon provided a dissenting judgement. At paragraph [37], his Honour considered that conduct in reserving a seat for a passenger by setting it aside in an internal reservation system was an act of preparation for a supply, not a supply. Further, at paragraph [43], his Honour stated: ' In a sense the respondent supplied services or created a qualified right or entered a qualified obligation when it accepted the fare and made the reservation. But that stage of the transaction was incidental and preparatory to the central purpose, substance and object of the transaction - an actual air journey. What the intending passenger wanted was not so much a chose in action - a qualified promise to supply an air journey which it would be difficult to enforce legally. The intending passenger wanted the actual supply of an air journey.' His Honour concluded that the appeal should be dismissed essentially for the reasons given by the Full Federal Court (paragraph [48]).", "Issues_Decided": "The issue in dispute was whether Qantas (and its subsidiaries, including Jetstar) had made a taxable supply when it received fares for flights booked but not undertaken by prospective passengers. The critical element of this was whether Qantas made a 'supply for consideration' under the definition of 'taxable supply' in s 9-5(a) of the A New Tax System ( Goods and Services Tax ) Act 1999 (GST Act). The High Court held, by majority, that Qantas did make a taxable supply and was liable to pay GST on the fares paid. The majority stated at paragraph [14] that the word 'for' in the phrase 'supply for consideration', 'is not used to adopt contractual principles' but rather 'it requires a connection or relationship between the supply and the consideration'. The majority considered the decision in Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342; [2008] HCA 22 ( Reliance Carpet ) and stated at paragraph [27] that it ' provides no support for the proposition adopted by the Full Court in the present case that it was necessary to extract from the transaction between the airline and the prospective passenger the \" essence \" and \" sole purpose \" of the transaction' . After setting out the relevant terms of the Qantas and Jetstar arrangements the majority concluded at paragraph [33] that the 'conditions did not provide an unconditional promise to carry the passenger and baggage on a particular flight'. Rather, '[ t]hey supplied something less than that'. The supply identified by the majority of the court was ' at least a promise to use best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline' . This supply met the requirements of the GST Act and the fares were found to be consideration for that supply. Justice Heydon provided a dissenting judgement. At paragraph [37], his Honour considered that conduct in reserving a seat for a passenger by setting it aside in an internal reservation system was an act of preparation for a supply, not a supply. Further, at paragraph [43], his Honour stated: ' In a sense the respondent supplied services or created a qualified right or entered a qualified obligation when it accepted the fare and made the reservation. But that stage of the transaction was incidental and preparatory to the central purpose, substance and object of the transaction - an actual air journey. What the intending passenger wanted was not so much a chose in action - a qualified promise to supply an air journey which it would be difficult to enforce legally. The intending passenger wanted the actual supply of an air journey.' His Honour concluded that the appeal should be dismissed essentially for the reasons given by the Full Federal Court (paragraph [48]).", "ATO_View_of_Decision": "Essence or purpose | The key issue of principle was whether there could only be a 'supply for consideration' in circumstances where the 'essence or purpose' of the transaction was fulfilled (paragraphs [12] and [14]). | The majority implicitly reject this proposition. Instead, they accept that consideration could be in connection with more than one supply (see paragraphs [5] and [19]) but emphasise that the GST would only be payable once. It is apparent from the majority approach that in establishing that there is a 'supply for consideration', it is sufficient for just one of the supplies, to which the consideration is connected, to occur. In the case, it was the promise by Qantas to use 'best endeavours' to carry the passenger and their baggage. There is no need for the 'essence or purpose' of the transaction to be fulfilled. | In cases where a payment is made on entry into a contract which secures rights (whether conditional or not) to a further supply, the Commissioner considers that the payment will be consideration for a supply consisting at least of the provision of those rights (and entry into corresponding obligations), even if the further contemplated supply is not ultimately made (see GSTR 2009/3, paragraph 24). | The decision does not cause any significant change in the way the Commissioner approaches 'supply', or the nexus between supply and consideration. Obviously, it is necessary in any case where a payment is made to consider the particular facts and circumstances to determine whether there is anything supplied, and if so whether the payment has a sufficient nexus to be consideration for what is supplied. | Characterisation | The majority made reference to earlier cases concerning the characterisation of supplies, including the High Court's own decision in Travelex Ltd v Commissioner of Taxation ( Travelex ) and the decision of the Full Federal Court in Saga Holidays Ltd v Commissioner of Taxation ( Saga Holidays ). The court disagreed (at paragraph [21]) with Qantas' submissions that the approach of the courts in those cases, which involved various specific provisions, lent support to Qantas' construction of 'the supply for consideration' in s 9-5(a) of the GST Act. | The decision does not cast any doubt on the correctness of those earlier decisions, but confirms that they are not of assistance in answering the question of whether there is any 'supply for consideration' at all . The majority decision suggests (at paragraphs [21] and [22]) that the process of characterising a supply is only required where it is necessary to determine whether the supply meets the description in a particular statutory provision that may be in issue in a particular case. An example is where it is necessary to determine whether a particular supply meets the requirements of a particular provision that would make it GST-free or input taxed (as was the case in Travelex ). | The Commissioner considers that observations in earlier cases concerning how to characterise supplies continue to be relevant where such characterisation is necessary to apply the statute in any particular case. | There is nothing in the Qantas decision that would suggest that supplies need to be 'dissected' into their component parts, or that the focus of GST should be on contractual rights and obligations instead of performance. | The Commissioner maintains the view, as recognised in his public rulings, that in many cases, the entry into contractual obligations and corresponding creation of rights should be construed, where relevant, as part of a composite supply that includes the performance of those obligations. See particularly GSTR 2009/3, at paragraph 103, which draws on the Full Federal Court decision in Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd ( Westley Nominees ). We note that paragraph 9-10(2)(h), emphasised at paragraph [18] of the majority's judgment in Qantas , makes specific reference to a supply including 'any combination' of the matters referred to in the definition of supply. | More broadly, the Commissioner maintains the views expressed in public rulings in respect of characterisation issues. See particularly GSTR 2001/8 at paragraphs 19 to 20 and at paragraphs 40 to 63, where reference is made to a number of court decisions, including those of the Full Federal Court in Saga Holidays, Westley Nominees and Commissioner of Taxation v Luxottica Retail Australia Pty Ltd . | Even where goods or services contemplated by the contract are not supplied, it does not mean that the GST treatment of the transaction will necessarily be affected. First, as the High Court points out, GST is paid once and attribution does not depend on the time of making the supply. If in a subsequent tax period there is a refund of the consideration paid, this may give rise to an adjustment. | Secondly, the Commissioner's view, as set out in GSTR 2009/3 at paragraph 30, is that if there is a supply of a right for the customer to receive a further supply and that further supply would have been GST-free or input-taxed, then the supply of rights would be GST-free or input-taxed as appropriate (pursuant to paragraphs 9-30(1)(b) or 9-30(2)(b)). Thus, for these purposes there is consistent GST treatment between a right to receive a supply and the subsequent satisfaction of that right. The Commissioner does not consider that this analysis is affected by the mere fact the relevant rights might be conditional in some way. | In the context of connection with Australia, there is a similar provision (paragraph 9-25(5)(c)), though it may be noted that the question of whether there is a right to acquire another thing that is connected with Australia, only arises where the 'thing' is not done in Australia and the supply is not through an enterprise the supplier carries on in Australia. | Supply of services | The decision of the majority does not provide any direct views on the Tribunal's conclusion that there was a supply in the ordinary meaning in the sense of the airline holding itself ready to fly the passenger. The majority note at paragraph [13] that there has been no failure by Qantas in its performance. However, the majority did not address whether any performance by Qantas of the contract was or was not part of what it supplied. | Adjustments | The court considered that there was a supply in this case consisting of the promise to use best endeavours to transport the passenger and their baggage. The court also observed that there was no failure by Qantas in its performance. | Although there was not a direct argument about the application of the adjustment provisions in this case, the Commissioner considers that the mere failure of a ticketholder to utilise their rights to transport or of entry to an event would not have the effect of cancelling a supply that is made on sale of the ticket. | Implications for ATO Precedential documents (Public Rulings & Determinations etc) | Following the High Court decision, the Commissioner published an addendum to GSTR 2001/8 on 15 May 2013 and an addendum to GSTR 2009/3 on 28 August 2013. The Commissioner is not intending to publish any further rulings or addenda to deal with the case. | Implications for Law Administration Practice Statements | None", "Administrative_Treatment": "", "Related_Documents": "GSTR 2001/8 | GSTR 2006/9 | GSTR 2009/3 | 2012 ATC 20-352 | 7-1 | 9-5 | 9-10 | 9-15 | 29-5(1) | 2011 ATC 20-243 | 2008 ATC 20-028 | 2008 ATC 20-007 | 68 ATR 927 | 2010 ATC 10-165 | 2011 ATC 20-276 | 2006 ATC 4841 | 2005 ATC 4512 | 2010 ATC 20-214 | 2006 ATC 4363", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 7-1 9-5 9-10 9-15 29-5(1) Taxation Administration Act 1953 Sch 1 105-65", "Case_References": "Commissioner of Taxation v Luxottica Retail Australia Pty Ltd [2011] FCAFC 20 (2011) 191 FCR 561 2011 ATC 20-243 79 ATR 768 Commissioner of Taxation v Reliance Carpet Co Pty Ltd [2008] HCA 22 (2008) 236 CLR 342 2008 ATC 20-028 68 ATR 158 KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159 (2008) 168 FCR 319 2008 ATC 20-007 68 ATR 927 Re Qantas Airways Ltd and Commissioner of Taxation [2010] AATA 977 2010 ATC 10-165 81 ATR 170 Qantas Airways Ltd v Commissioner of Taxation [2011] FCAFC 113 (2011) 195 FCR 260 2011 ATC 20-276 81 ATR 816 Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191 (2006) 156 FCR 256 2006 ATC 4841 64 ATR 602 TAB Ltd v Commissioner of Taxation [2005] NSWSC 552 2005 ATC 4512 59 ATR 430 Travelex Ltd v Commissioner of Taxation [2010] HCA 33 (2010) 241 CLR 510 2010 ATC 20-214 76 ATR 329 Westley Nominees Pty Ltd v Coles Supermarkets Pty Ltd [2006] FCAFC 115 (2006) 152 FCR 461 2006 ATC 4363 62 ATR 682", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S47/2012/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision including any precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v RCI Pty Ltd", "Venue_Reference_No": "S 324 of 2011 (High Court); NSD 563 of 2011 (Full Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "10 February 2012", "Date_Published": "7 November 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse Full Federal Court decision | Commissioner's special leave application refused", "Summary_of_Decision": "Outlines the ATO response to this decision which concerned whether the Commissioner was correct in determining that the general anti-avoidance provisions applied in the circumstances of a particular transaction entered into by the taxpayer.", "Overview_of_Facts": "As part of an international corporate reorganisation codenamed Project Chelsea (also called Project Scully initially), the James Hardie Group transferred its operating companies into a new more tax effective structure headed by James Hardie NV. | Project Chelsea had been planned since early 1997. A key step in the Project from its inception had been a revaluation of assets and the subsequent payment of a dividend. | In October 1998, as part of the Project, the taxpayer (\"RCI\"), a wholly owned subsidiary of James Hardie Industries Ltd (\"JHIL\"), transferred its wholly owned US subsidiary, James Hardie (Holdings) Inc (\"JHH\") to a new group company, RCI Malta Holdings Ltd (\"RCI Malta\"). This transfer triggered a CGT event for RCI in the 1999 income year. RCI was, and is, an Australian resident company. JHH, incorporated in the US state of Nevada, was the holding company of the US sub-group, which was engaged in a business of manufacturing and sale in the US. | In March 1998, about seven months prior to the disposal of JHH, the following events took place: (a) JHH revalued its shareholding in its immediate wholly owned US subsidiary, James Hardie (USA), through which JHH held the US sub-group, resulting in identification of a US$318 million surplus; (b) JHH paid an exempt s23AJ dividend of US$318 million (A$478,555,305) to RCI out of the revaluation amount; and (c) To satisfy its liability to RCI to pay the dividend, JHH paid US$20 million in cash to RCI and, in exchange for JHIL crediting US$298 million to RCI's intercompany account with JHIL, issued a promissory note to JHIL for US$307,415,972. The promissory note was the first of three intra-group notes issued as part of Project Chelsea. | (a) JHH revalued its shareholding in its immediate wholly owned US subsidiary, James Hardie (USA), through which JHH held the US sub-group, resulting in identification of a US$318 million surplus; (b) JHH paid an exempt s23AJ dividend of US$318 million (A$478,555,305) to RCI out of the revaluation amount; and (c) To satisfy its liability to RCI to pay the dividend, JHH paid US$20 million in cash to RCI and, in exchange for JHIL crediting US$298 million to RCI's intercompany account with JHIL, issued a promissory note to JHIL for US$307,415,972. The promissory note was the first of three intra-group notes issued as part of Project Chelsea. | In August 1998, RCI injected US$50.2 million additional equity into JHH by way of a share subscription. In October 1998, RCI sold its shares in JHH to RCI Malta. | The exempt dividend had the effect of reducing the market value of RCI's shareholding in JHH. RCI included a capital gain of A$45,971,764 from the disposal of JHH in its 1999 income tax return. | As a result of an audit, the Commissioner issued an amended assessment for the 1999 year pursuant to a Part IVA determination on the basis that RCI had obtained a tax benefit being the non-inclusion of an amount of capital gain of A$478,237,746 in its assessable income. | The taxpayer's objection against the amended assessment was disallowed in full. | This was the Commissioner's application to the High Court for special leave to appeal against the decision of the Full Federal Court, delivered on 22 August 2011 that had been unfavourable to the Commissioner. The Full Court had allowed the taxpayer's appeal against the decision of Stone J at first instance, delivered on 1 September 2010, which was favourable to the Commissioner. | Issue decided by the High Court | Whether a grant of special leave to the Commissioner to appeal against the decision of the Full Federal Court was warranted in the circumstances of this case. | Answer: No. | At the special leave hearing on 10 February 2012, the High Court (Gummow, Hayne and Heydon JJ) refused to grant special leave to the Commissioner to appeal against the decision of the Full Federal Court. The High Court observed that it refused the application on the grounds that it was not satisfied that the Commissioner had sufficient prospect of success in demonstrating error by the Full Federal Court in its findings respecting the criterion in section 177C of the 1936 Act (regarding whether the taxpayer had obtained a \"tax benefit\" in entering into or carrying out the alleged scheme). | Issue decided by the Full Federal Court | Whether Part IVA applied to the scheme identified by the Commissioner. | Answer: No. | The key points from the Full Federal Court's decision on 22 August 2011 are as follows. | Tax benefit | In paragraph 129, the Full Court noted that Stone J at first instance said in her reasons at [88] that the taxpayer carries the onus of establishing that the Commissioner's counterfactual is unreasonable; and that if the taxpayer does not establish that the counterfactual is unreasonable, then the taxpayer fails to prove that the assessment is excessive on that ground. In paragraph 130 the Court went on to find that such a statement of the onus is \"erroneous, but if not, certainly unhelpful because it can lead one into error.\" Later in paragraph 130 it went on to say: \"That is because the issue is not whether the Commissioner puts forward a reasonable counterfactual or not; it is a question of the Court determining objectively, and on all of the evidence... What would have or might reasonably be expected to have occurred if the scheme had not been entered into.\" | In paragraph 131 in a further statement of why the Court considered that Stone J's formulation of the onus was erroneous, the Court observed: \"...it implies that if the Commissioner's counterfactual is reasonable that is the end of the matter, even if the Court were to conclude, on all of the evidence, .... that if the scheme had not been entered into the taxpayer would or might reasonably be expected to have done something which did not give rise to a tax benefit.... In our view, that cannot be correct.\" | In paragraph 135 in discussing how a taxpayer successfully discharges the onus regarding the Commissioner's counterfactual, the Court noted that, in a given case, it may not be necessary for the taxpayer to lead evidence of what it would have done differently, \"...because, for example, the result of any objective enquiry as to the counterfactual is, at best, inevitable or, at worst, compelling. In such a case, the failure to lead evidence to say that the taxpayer would have undertaken a particular activity... in lieu of the scheme... will not lead to the taxpayer failing to discharge the onus.\" | In paragraph 150, turning to the facts of the present case, the Court found that if the scheme had not been entered into or carried out, the reasonable expectation was that the relevant parties would have either abandoned the proposal (i.e. the \"do nothing\" counterfactual), indefinitely deferred it, or altered it, \"...but they would not have proceeded to have RCI transfer its shares...at a cost of $172 million. On this view, RCI did not obtain the tax benefit it was alleged by the Commissioner to have obtained in connection with the scheme.\" | Notably, it was, in effect, the largeness of the very tax cost the avoidance of which the Commissioner complained of that led the Court to conclude that Project Chelsea would not have proceeded in the same form, had the dividend not been paid. | Dominant purpose | In paragraph 151 the Court noted that having found that there was no tax benefit obtained by the taxpayer in connection with the scheme it was not strictly necessary for it to make any finding about dominant purpose, but in the event that Stone J was correct, the Full Court went on to discuss dominant purpose at paragraphs 152-169. | In paragraph 169 the Court said that the only objective indicia that arguably would suggest that the relevant parties had entered into the transaction for the dominant purpose of tax avoidance was the size of the dividend, being US$318 million. However the size of the dividend was explicable for other reasons as contended by RCI, and as a result it could not be concluded (by reference to a balanced consideration of the eight factors contained in s177D(b)) that the relevant parties had entered into the transaction for the dominant purpose of tax avoidance. | In paragraph 170 the Court said that, in the event that it was incorrect about the taxpayer not having obtained a tax benefit in connection with the scheme, it would as a result of the above also have come to a different conclusion to the primary judge in relation to the evidence on dominant purpose.", "Issues_Decided": "Whether a grant of special leave to the Commissioner to appeal against the decision of the Full Federal Court was warranted in the circumstances of this case.: Answer: No. At the special leave hearing on 10 February 2012, the High Court (Gummow, Hayne and Heydon JJ) refused to grant special leave to the Commissioner to appeal against the decision of the Full Federal Court. The High Court observed that it refused the application on the grounds that it was not satisfied that the Commissioner had sufficient prospect of success in demonstrating error by the Full Federal Court in its findings respecting the criterion in section 177C of the 1936 Act (regarding whether the taxpayer had obtained a \"tax benefit\" in entering into or carrying out the alleged scheme). | Whether Part IVA applied to the scheme identified by the Commissioner.: Answer: No. The key points from the Full Federal Court's decision on 22 August 2011 are as follows. | Tax benefit: In paragraph 129, the Full Court noted that Stone J at first instance said in her reasons at [88] that the taxpayer carries the onus of establishing that the Commissioner's counterfactual is unreasonable; and that if the taxpayer does not establish that the counterfactual is unreasonable, then the taxpayer fails to prove that the assessment is excessive on that ground. In paragraph 130 the Court went on to find that such a statement of the onus is \"erroneous, but if not, certainly unhelpful because it can lead one into error.\" Later in paragraph 130 it went on to say: \"That is because the issue is not whether the Commissioner puts forward a reasonable counterfactual or not; it is a question of the Court determining objectively, and on all of the evidence... What would have or might reasonably be expected to have occurred if the scheme had not been entered into.\" In paragraph 131 in a further statement of why the Court considered that Stone J's formulation of the onus was erroneous, the Court observed: \"...it implies that if the Commissioner's counterfactual is reasonable that is the end of the matter, even if the Court were to conclude, on all of the evidence, .... that if the scheme had not been entered into the taxpayer would or might reasonably be expected to have done something which did not give rise to a tax benefit.... In our view, that cannot be correct.\" In paragraph 135 in discussing how a taxpayer successfully discharges the onus regarding the Commissioner's counterfactual, the Court noted that, in a given case, it may not be necessary for the taxpayer to lead evidence of what it would have done differently, \"...because, for example, the result of any objective enquiry as to the counterfactual is, at best, inevitable or, at worst, compelling. In such a case, the failure to lead evidence to say that the taxpayer would have undertaken a particular activity... in lieu of the scheme... will not lead to the taxpayer failing to discharge the onus.\" In paragraph 150, turning to the facts of the present case, the Court found that if the scheme had not been entered into or carried out, the reasonable expectation was that the relevant parties would have either abandoned the proposal (i.e. the \"do nothing\" counterfactual), indefinitely deferred it, or altered it, \"...but they would not have proceeded to have RCI transfer its shares...at a cost of $172 million. On this view, RCI did not obtain the tax benefit it was alleged by the Commissioner to have obtained in connection with the scheme.\" Notably, it was, in effect, the largeness of the very tax cost the avoidance of which the Commissioner complained of that led the Court to conclude that Project Chelsea would not have proceeded in the same form, had the dividend not been paid. | Dominant purpose: In paragraph 151 the Court noted that having found that there was no tax benefit obtained by the taxpayer in connection with the scheme it was not strictly necessary for it to make any finding about dominant purpose, but in the event that Stone J was correct, the Full Court went on to discuss dominant purpose at paragraphs 152-169. In paragraph 169 the Court said that the only objective indicia that arguably would suggest that the relevant parties had entered into the transaction for the dominant purpose of tax avoidance was the size of the dividend, being US$318 million. However the size of the dividend was explicable for other reasons as contended by RCI, and as a result it could not be concluded (by reference to a balanced consideration of the eight factors contained in s177D(b)) that the relevant parties had entered into the transaction for the dominant purpose of tax avoidance. In paragraph 170 the Court said that, in the event that it was incorrect about the taxpayer not having obtained a tax benefit in connection with the scheme, it would as a result of the above also have come to a different conclusion to the primary judge in relation to the evidence on dominant purpose.", "ATO_View_of_Decision": "As indicated in previous Decision Impact Statements on Part IVA cases, the Commissioner will take all decisions of the High Court and Federal Court into account in applying Part IVA to the particular facts of cases. | With the High Court having refused the Commissioner's application for special leave, the decision of the Full Federal Court (Edmonds, Logan and Gilmour JJ) to allow RCI's appeal against the decision of Stone J at first instance stands and became final. | Tax benefit | The Commissioner accepts that the decision is authority for the propositions set out above under the heading 'Issues decided by the Full Federal Court'. | How to discharge the onus of proof | The Commissioner will not automatically accept unsubstantiated assertions that a particular commercial transaction would not have been entered into if the tax advantage in question had not been available. The onus of proof remains on the taxpayer to make good such assertions, for example by reference to cogent evidence or compelling commercial logic. See paragraphs 133-136 of the Full Court's decision. | Dominant purpose | The Full Court's finding on purpose turned on the facts of the case. | Legislative announcement | The views outlined above represent the views of the Commissioner in relation to the application of Pt IVA as it currently stands. Those views are subject to the prospect of legislative change taking effect from 1 March 2012, as announced by the former Assistant Treasurer on that date.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | CGT reduction arrangement schemes are the subject of Taxation Determination TD 2003/3. Any alteration to TD 2003/3 required as a result of the RCI case has been superseded by the changes to Part IVA introduced by the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 , Schedule 1. | Implications for Law Administration Practice Statements | Law Administration Practice Statement PS LA 2005/24 Application of General Anti Avoidance Rules was updated on 16 September 2016 to reflect statements made by the High Court in this case, in relation to discharging the onus of proof for the tax benefit test under subsection 177C(1). Refer to paragraphs 102 and 104-105 of the PS LA 2005/24. | However, section 177CB was inserted by the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 , Schedule 1. In the ATO's view, section 177CB so significantly alters the conceptual framework of the tax benefit test in subsection 177C(1) that earlier case law involving the tax benefit concept can no longer be wholly regarded as representing the law after 16 November 2012, and should be treated with extreme caution. Refer to paragraph 83 of PS LA 2005/24. | Date of amendment Part Comment 7 November 2011 Administrative treatment Updated to advise the treatment of TD 2003/3 and PS LA 2005/24 Comments section Deleted", "Related_Documents": "TD 2003/3 - Income tax: Can Part IVA of the Income Tax Assessment Act 1936 (the '1936 Act') apply to a 'Capital Gains Tax reduction arrangement' of the type described in this Taxation Determination? | High Court | Full Federal Court | 2011 ATC 20-275 | Part IVA | 177A | 177C | 177D | 177E | 177F | 102-5 | 14ZZO | 2010 ATC 20-191 | 2010 ATC 20-224 | 2010 ATC 20-198 | 2010 ATC 20-206 | 2008 ATC 20-009", "Legislative_References": "Income Tax Assessment Act 1936 Part IVA 177A 177C 177D 177E 177F Income Tax Assessment Act 1997 102-5 Taxation Administration Act 1953 14ZZO", "Case_References": "Commissioner of Taxation v News Australia Holdings Pty Ltd [2010] FCAFC 78 2010 ATC 20-191 (2010) 79 ATR 461 Federal Commissioner of Taxation v AXA Asia Pacific Holdings Ltd (2010) 189 FCR 204 2010 ATC 20-224 (2010) 81 ATR 180 Federal Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd (2010) 186 FCR 410 2010 ATC 20-198 (2010) 79 ATR 780 Futuris Corporation Limited v Commissioner of Taxation [2010] FCA 935 2010 ATC 20-206 (2010) 80 ATR 330 McCutcheon v Federal Commissioner of Taxation (2008) 168 FCR 149 2008 ATC 20-009 (2008) 69 ATR 607", "Subject_References": "Exempt dividend Capital gain Scheme Tax benefit Reasonable expectation Counterfactual Alternative postulate", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S324of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Visy Industries USA Pty Ltd", "Venue_Reference_No": "VID 1124 of 2011; VID 1125 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "10 August 2012", "Date_Published": "18 January 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's reponse to this case which concerned whether the taxpayer could claim a deduction for an indemnity fee paid to a related party in relation to a contract which the ATO submitted was not commercial or made with a view to profit.", "Overview_of_Facts": "The taxpayer was a member of the Pratt Group of companies whose business included waste collection, paper and cardboard manufacture, primary packaging and property and share investments. The taxpayer was the Australian holding company of the Pratt Group's overseas manufacturing division which operated in the United States. | The matter concerned whether an indemnity fee of $27.05 million paid by the taxpayer to a Pratt Group company was an allowable deduction in the 1999 income year under s 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). The fee was for the taxpayer to be indemnified against any losses that it might incur under a foreign currency internal hedging arrangement with Pratt Finance Pty Ltd, another Pratt Group company. | In 1997 Pratt Finance borrowed USD $400 million from a syndicate of 18 US financial institutions by issuing bonds with maturity dates ranging from 15 to 20 years. Pratt Finance entered into external hedges to cover its foregin exchange risk as to USD $200 million and an internal hedge (the forward exchange contract) to cover the risk on the remaining USD $200 million of borrowings. The internal hedge, for which the taxpayer was not paid a fee [40], required it to deliver USD currency to Pratt Finance on dates in 2015, 2016 and 2017 at an exchange rate of 0.775. As the taxpayer was the holding company of Pratt group subsidiaries that conducted the operations in the US and held US dollar denominated assets, the internal hedge was said to equate to a 'natural hedge' against adverse movements in the USD/AUD exchange rate. | By the middle of 1998, the Australian dollar had fallen against the US dollar and the taxpayer, as a result of the forward exchange contract, had an unrealised loss of AUD 80 million. This raised issues about the ability of the taxpayer to meet the liability if it was called on to do so. The taxpayer did not have direct access to US dollars and the only way it could meet its liability would be to raise US debt itself or sell some of its US assets. At about the same time, the external auditors questioned the effectiveness of the forward exchange contract as an internal hedge. The internal hedge was important to Pratt Finance's ability to satisfy its borrowing covenants and avoid accounting exposures. | By April 1999, the AUD had reached 0.645 and it was agreed that to mitigate its exposure under the internal hedge the taxpayer should enter into an agreement (the forward agreement) with a related counterparty. This occurred and in June 1999 the taxpayer paid the equivalent of A$27.05 million (the indemnity fee) to its wholly owned subsidiary company to be indemnified against any losses that it might incur under the internal hedge with Pratt Finance. | Although there was no contemporaneous evidence of how the taxpayer could realise profit before maturity of the hedged borrowings between 2015 and 2017, at first instance the Federal Court accepted oral evidence from senior Visy/Pratt executives that the taxpayer could enter into some form of derivative transaction and that this could occur without compromising the internal hedge arrangements. | The Federal Court held that the indemnity fee was deductible as being incurred in gaining or producing assessable income, or as being incurred in carrying on a business for that purpose, and that it was not an outgoing of capital or of a capital nature. | Issues decided by the Full Federal Court | The Commissioner pressed 12 grounds in relation to the appeal from the Federal Court, which mainly challenged the conclusions that the Court drew from the findings of primary fact. | The grounds included that: • the deduction was not allowable under s 8-1 as the requisite profit making purpose was not established, • that the gross amount which might be received under the hedging arrangement after 18 years could not in itself be said to be a recognised category of income until any profit outcome is known, • that receipts and outgoings accounting does not give a correct reflex of the outcome of the profit making undertaking (the Court described this as the 'tax accounting ground') and • that the payment of the indemnity fee was an outgoing of capital. | • the deduction was not allowable under s 8-1 as the requisite profit making purpose was not established, • that the gross amount which might be received under the hedging arrangement after 18 years could not in itself be said to be a recognised category of income until any profit outcome is known, • that receipts and outgoings accounting does not give a correct reflex of the outcome of the profit making undertaking (the Court described this as the 'tax accounting ground') and • that the payment of the indemnity fee was an outgoing of capital. | The Full Federal Court rejected the Commissioner's challenge to specific findings of secondary fact that underpinned the Federal Court's conclusion that Visy USA entered into the Forward Exchange Contract with a not insignificant purpose of profit-making (Visy at [53]- [55]). The Full Court found no error in the Federal Court's finding that a business activity may be carried on notwithstanding that the activity may be dependent, in part, on chance (Visy at [58]): No error was found in the primary judge's treatment of the indemnity fee as: \"substituted expenditure\", relying on W Nevill & Co Ltd v FCT (1937) 56 CLR 290 at 307, per Dixon, J. (Visy at [61])-[63]); or a payment that was similar to insurance, having regard to Australian National Hotels v FCT (1988) 19 FCR 234 (Visy at [64]-[70) and, in the Court's view more aptly, to WD & HO Wills (Aust) Pty Ltd v FCT (1996) 65 FCR 298. | The Full Court stated that: '...in the present case neither the size of the Indemnity Fee nor the fact that the insurer was related to Visy USA furthers a conclusion that it was an outgoing of a capital nature.' The Full Court noted that although the related party agreements may have been outside the ordinary course of its business, they were entered into for the purpose of profit-making. Accordingly, they have the same revenue consequences as a transaction entered into by the taxpayer in the ordinary course of its business. In addition, at [75], their Honours said that the taxpayer wished to protect itself from the possibility that it may incur foreign exchange losses and this was an advantage or benefit sought from a 'practical and business point of view'. | The Full Court's conclusions in these respects were, primarily, founded on the pivotal passage in Commissioner of Taxation v Myer Emporium Ltd (1986-1987) 163 CLR 199 at 209-210. In that passage, the High Court distinguished profits or gains made in the ordinary course of business and profits or gains from transactions entered into outside the ordinary course of a taxpayer's business. In the latter case, the character of the profit or gain generally depends on the taxpayer's intention or purpose (Visy at [52]). The requisite purpose had been found to be present in this case. | That the payment of the indemnity fee may have enabled Visy USA or the Pratt Group to avoid bringing to account or disclosing the unrealised loss under the Forward Exchange Contract did not re-characterise as capital a revenue outgoing incurred in the course of the taxpayer's business, albeit not in the ordinary course (Visy at [75]-[76]). | Further, as to Nevill, the Full Court expressed the view, in obiter dicta, that there is nothing in its reasoning that would confine the \"substituted expenditure\" principle to expenditure incurred in carrying on a business (Visy at [63]). | Finally, the Full Court held that the 'tax accounting ground' (Visy at [80]) was misconceived as: (a) the indemnity payment was incurred in the course of the taxpayer's business, even though outside its ordinary course. In such a case, FCT v Montgomery (1999) 198 CLR 639 at [111] contemplated that it was gross receipts not the net profit of an adventure that were to be characterised as revenue receipts (Visy at [83]); and (b) more fundamentally, if an amount is otherwise income derived, or a deduction allowed, in a given year, then derivation or deductibility is not deferred until a later year when a profit can be determined by reference to some wider transaction of which (relevantly) the outgoing forms a part (Visy at [84]). | (a) the indemnity payment was incurred in the course of the taxpayer's business, even though outside its ordinary course. In such a case, FCT v Montgomery (1999) 198 CLR 639 at [111] contemplated that it was gross receipts not the net profit of an adventure that were to be characterised as revenue receipts (Visy at [83]); and (b) more fundamentally, if an amount is otherwise income derived, or a deduction allowed, in a given year, then derivation or deductibility is not deferred until a later year when a profit can be determined by reference to some wider transaction of which (relevantly) the outgoing forms a part (Visy at [84]).", "Issues_Decided": "The Commissioner pressed 12 grounds in relation to the appeal from the Federal Court, which mainly challenged the conclusions that the Court drew from the findings of primary fact. The grounds included that: • the deduction was not allowable under s 8-1 as the requisite profit making purpose was not established, • that the gross amount which might be received under the hedging arrangement after 18 years could not in itself be said to be a recognised category of income until any profit outcome is known, • that receipts and outgoings accounting does not give a correct reflex of the outcome of the profit making undertaking (the Court described this as the 'tax accounting ground') and • that the payment of the indemnity fee was an outgoing of capital. • the deduction was not allowable under s 8-1 as the requisite profit making purpose was not established, • that the gross amount which might be received under the hedging arrangement after 18 years could not in itself be said to be a recognised category of income until any profit outcome is known, • that receipts and outgoings accounting does not give a correct reflex of the outcome of the profit making undertaking (the Court described this as the 'tax accounting ground') and • that the payment of the indemnity fee was an outgoing of capital. The Full Federal Court rejected the Commissioner's challenge to specific findings of secondary fact that underpinned the Federal Court's conclusion that Visy USA entered into the Forward Exchange Contract with a not insignificant purpose of profit-making (Visy at [53]- [55]). The Full Court found no error in the Federal Court's finding that a business activity may be carried on notwithstanding that the activity may be dependent, in part, on chance (Visy at [58]): No error was found in the primary judge's treatment of the indemnity fee as: \"substituted expenditure\", relying on W Nevill & Co Ltd v FCT (1937) 56 CLR 290 at 307, per Dixon, J. (Visy at [61])-[63]); or a payment that was similar to insurance, having regard to Australian National Hotels v FCT (1988) 19 FCR 234 (Visy at [64]-[70) and, in the Court's view more aptly, to WD & HO Wills (Aust) Pty Ltd v FCT (1996) 65 FCR 298. The Full Court stated that: '...in the present case neither the size of the Indemnity Fee nor the fact that the insurer was related to Visy USA furthers a conclusion that it was an outgoing of a capital nature.' The Full Court noted that although the related party agreements may have been outside the ordinary course of its business, they were entered into for the purpose of profit-making. Accordingly, they have the same revenue consequences as a transaction entered into by the taxpayer in the ordinary course of its business. In addition, at [75], their Honours said that the taxpayer wished to protect itself from the possibility that it may incur foreign exchange losses and this was an advantage or benefit sought from a 'practical and business point of view'. The Full Court's conclusions in these respects were, primarily, founded on the pivotal passage in Commissioner of Taxation v Myer Emporium Ltd (1986-1987) 163 CLR 199 at 209-210. In that passage, the High Court distinguished profits or gains made in the ordinary course of business and profits or gains from transactions entered into outside the ordinary course of a taxpayer's business. In the latter case, the character of the profit or gain generally depends on the taxpayer's intention or purpose (Visy at [52]). The requisite purpose had been found to be present in this case. That the payment of the indemnity fee may have enabled Visy USA or the Pratt Group to avoid bringing to account or disclosing the unrealised loss under the Forward Exchange Contract did not re-characterise as capital a revenue outgoing incurred in the course of the taxpayer's business, albeit not in the ordinary course (Visy at [75]-[76]). Further, as to Nevill, the Full Court expressed the view, in obiter dicta, that there is nothing in its reasoning that would confine the \"substituted expenditure\" principle to expenditure incurred in carrying on a business (Visy at [63]). Finally, the Full Court held that the 'tax accounting ground' (Visy at [80]) was misconceived as: (a) the indemnity payment was incurred in the course of the taxpayer's business, even though outside its ordinary course. In such a case, FCT v Montgomery (1999) 198 CLR 639 at [111] contemplated that it was gross receipts not the net profit of an adventure that were to be characterised as revenue receipts (Visy at [83]); and (b) more fundamentally, if an amount is otherwise income derived, or a deduction allowed, in a given year, then derivation or deductibility is not deferred until a later year when a profit can be determined by reference to some wider transaction of which (relevantly) the outgoing forms a part (Visy at [84]). (a) the indemnity payment was incurred in the course of the taxpayer's business, even though outside its ordinary course. In such a case, FCT v Montgomery (1999) 198 CLR 639 at [111] contemplated that it was gross receipts not the net profit of an adventure that were to be characterised as revenue receipts (Visy at [83]); and (b) more fundamentally, if an amount is otherwise income derived, or a deduction allowed, in a given year, then derivation or deductibility is not deferred until a later year when a profit can be determined by reference to some wider transaction of which (relevantly) the outgoing forms a part (Visy at [84]).", "ATO_View_of_Decision": "The ATO accepts that once it was concluded that the taxpayer's entry into the Forward Exchange Contract was within the scope of its business (though not the ordinary course of its business), it was open to conclude that the not insignificant purpose of profit making attributed to the Forward Exchange Contract led to the same taxation consequences as a transaction entered into by a taxpayer in the ordinary course of its business [67]. If a loss was incurred under the Forward Exchange Contract it would be deductible under s.8-1(1)(b), assuming it was not on capital account. With that established, it was open to the Court to conclude that the Forward Agreement should carry the same revenue consequences as the Forward Exchange Contract [67]. | The ATO respectfully accepts that the various statements of legal principle in the decision are correct.", "Administrative_Treatment": "Nil | Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil", "Related_Documents": "Nil | 2012 ATC 20-340 | 6-5 | 8-1 | 87 ATC 4363 | (1937) 56 CLR 290 | 90 ATC 4413 | 2006 ATC 4404 | 88 ATC 4627", "Legislative_References": "Income Tax Assessment Act 1997 6-5 8-1 Evidence Act 1995 (Cth) 191 Taxation Administration Act 1953", "Case_References": "Commissioner of Taxation v Myer Emporium Ltd (1986-1987) 163 CLR 199 18 ATR 693 87 ATC 4363 [1987] HCA 18 W Nevill & Co Ltd v Federal Commissioner of Taxation (1937) 56 CLR 290 [1937] HCA 9 GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124 21 ATR 1 90 ATC 4413 [1990] HCA 25 Federal Commissioner of Taxation v Citylink Melbourne Limited (2006) 228 CLR 1 [2006] HCA 35 62 ATR 648 2006 ATC 4404 Australian National Hotels v Federal Commissioner of Taxation (1988) 19 FCR 234 19 ATR 1575 88 ATC 4627", "Subject_References": "Deductibility of indemnity fee Forward exchange contract Internal hedge Isolated transaction", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1124of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "Cyonara Snowfox Pty Ltd v Federal Commissioner of Taxation", "Venue_Reference_No": "QUD 69 of 2011 & QUD 70 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "4 December 2012", "Date_Published": "29 July 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case involving the application of the margin scheme and the going concern provisions of the GST Act; together with the four year limit on recovery in section 105-50 of Schedule 1 to the Taxation Administration Act 1953 .", "Overview_of_Facts": "Cyonara Snowfox Pty Ltd (Cyonara) is a property developer that, at all relevant times, was registered for GST. | In 1997 Cyonara acquired a parcel of land that it subsequently subdivided into allotments, referred to as Lots 1, 6, 9 and 10 and Lot 8 respectively. | Cyonara sold Lots 1, 6, 9 and 10 on various dates between September 2004 and February 2007. Upon settlement, as provided by each of the respective settlement statements, the respective purchasers of Lots 1, 6, 9 and 10 paid, to Cyonara, an additional amount equivalent to 10% of the GST exclusive contract price on account of GST. | Cyonara did not account for, or pay, any GST to the Commissioner for its sales of Lots 1 and 10. Cyonara reported and paid an amount of GST equivalent to 10% of the GST exclusive contract price for its sales of Lots 6 and 9. | Lot 8 was sold by Cyonara in December 2005 for a purchase price of $3.7 million. Subsequently, on 31 March 2007 Cyonara issued a tax invoice to the purchaser showing GST of $370,299.02 in consideration of the purchaser's promise to pay that amount, in addition to the $3.7 million purchase price already paid, to Cyonara. | Cyonara submitted that Lot 8 was the subject of a leasing enterprise that it was engaged in and carrying on up until the day of the supply, and that the supply of the property was a supply of a GST-free going concern. Cyonara did not account for or pay any GST to the Commissioner for its sale of Lot 8. | Cyonara acquired a parcel of land referred to as Lot 202 in December 2005. Cyonara reported an entitlement to input tax credits of $309,090 in its activity statement, in relation to its acquisition of Lot 202, for the tax period ended 28 February 2007. | Following the completion of an audit, the Commissioner made assessments of Cyonara's net amount for relevant tax periods to: • include an amount of GST payable, equal to 10% of the GST exclusive contract price, for the sale of Lots 1, 8 and 10. • to increase the GST payable in relation to Cyonara's sales of Lot 6 & 9 as a result of various adjustments made on settlement. • to reduce to nil the reported input tax credit entitlement of $309,090 on the acquisition of Lot 202. | • include an amount of GST payable, equal to 10% of the GST exclusive contract price, for the sale of Lots 1, 8 and 10. • to increase the GST payable in relation to Cyonara's sales of Lot 6 & 9 as a result of various adjustments made on settlement. • to reduce to nil the reported input tax credit entitlement of $309,090 on the acquisition of Lot 202. | The Commissioner issued a notice of these assessments to the taxpayer on 24 May 2007. | Subject to effect being given to a concession made by the Commissioner, prior to the hearing, in relation to the taxpayer's acquisition of Lot 202, the AAT affirmed the assessments under review. The AAT rejected Cyonara's submission that it could retrospectively 'choose' to apply the margin scheme in 'working out' its GST liability for relevant sales of real property, and based upon a lack of sufficient evidence, rejected Cyonara's contention that Lot 8 was sold as a GST-free supply of a going concern. | Cyonara appealed to the Federal Court. The matter was subsequently referred to a full bench of the Federal Court for determination. | The taxpayer filed an application for special leave to appeal to the High Court which was dismissed on 5 June 2013. | Issues decided by the court | 1. The Full Federal Court unanimously upheld the Tribunal's decision that section 75-5 of the GST Act, as it stood prior to 29 June 2005, required a taxpayer to make the choice to apply the margin scheme, to work out its GST liability for a taxable supply of real property, no later than the time of the supply. | 2. The Court rejected Cyonara's contention that the AAT made an error of law in making a finding of fact, contrary to the director's oral testimony, that Lot 8 was not the subject of a lease up until the day of its sale by Cyonara. Notwithstanding the director's oral testimony, by failing to put the executed lease into evidence or to adduce further evidence, Cyonara had not satisfied the AAT, on the balance or probabilities, as to the existence of the lease. | Relevantly, at [107], their Honours stated: \"The discharge of Cyonara's burden before the Tribunal is not made good simply as a function of a director giving oral narrative evidence of a contended fact (without producing to the tribunal of fact the central document that speaks to critical aspects of the matter in issue), on the contended footing that oral narrative evidence must be persuasive because the Commissioner has not adduced evidence to contradict the director's oral evidence.\" | 3. Their Honours unanimously upheld the Tribunal's decision that the overstatement of an amount payable in the notice of assessments issued by the Commissioner on 24 May 2007 did not render the notice invalid for the purposes of subsection 105-50(3) of Schedule 1 to the Taxation Administration Act 1953 (TAA). Thus, the Commissioner was not precluded by the four year time limit in section 105-50 from recovering the unpaid amounts of GST from Cyonara.", "Issues_Decided": "1. The Full Federal Court unanimously upheld the Tribunal's decision that section 75-5 of the GST Act, as it stood prior to 29 June 2005, required a taxpayer to make the choice to apply the margin scheme, to work out its GST liability for a taxable supply of real property, no later than the time of the supply. 2. The Court rejected Cyonara's contention that the AAT made an error of law in making a finding of fact, contrary to the director's oral testimony, that Lot 8 was not the subject of a lease up until the day of its sale by Cyonara. Notwithstanding the director's oral testimony, by failing to put the executed lease into evidence or to adduce further evidence, Cyonara had not satisfied the AAT, on the balance or probabilities, as to the existence of the lease. Relevantly, at [107], their Honours stated: \"The discharge of Cyonara's burden before the Tribunal is not made good simply as a function of a director giving oral narrative evidence of a contended fact (without producing to the tribunal of fact the central document that speaks to critical aspects of the matter in issue), on the contended footing that oral narrative evidence must be persuasive because the Commissioner has not adduced evidence to contradict the director's oral evidence.\" 3. Their Honours unanimously upheld the Tribunal's decision that the overstatement of an amount payable in the notice of assessments issued by the Commissioner on 24 May 2007 did not render the notice invalid for the purposes of subsection 105-50(3) of Schedule 1 to the Taxation Administration Act 1953 (TAA). Thus, the Commissioner was not precluded by the four year time limit in section 105-50 from recovering the unpaid amounts of GST from Cyonara.", "ATO_View_of_Decision": "Choice to apply the margin scheme | The Full Federal Court's decision is consistent with the Commissioner's view, as expressed in GSTR 2006/7, GSTR 2006/8 and PS LA 2005/2 (GA), that section 75-5 of the GST Act, as it stood and applied prior to 29 June 2005, required a taxpayer to make a choice to apply the margin scheme no later than the time when the supply is made. | It is not necessary to amend GSTR 2006/7, GSTR 2006/8 or PS LA 2005/2 (GA) as a result of the Full Federal Court's decision. | Taxpayer's burden of proof in the AAT | The Court's decision confirms that in order to discharge their burden of proof under section 14ZZK of the TAA, a taxpayer must put before the Tribunal, or adduce, sufficient evidence that satisfies the Tribunal, on the balance of probabilities, of the existence a particular fact. | Oral testimony made by a taxpayer or on behalf a taxpayer that is not contradicted by evidence adduced by the Commissioner does not necessarily discharge a taxpayer's burden of proof in cases where a taxpayer fails to put before the Tribunal, or adduce, evidence that is central or critical to the asserted fact. | Notice requirements under section 105-50 of Schedule 1 to the TAA | The Full Federal Court's decision is consistent with the Commissioner's view in PS LA 2009/3 that a notice of assessment is a valid notice for the purposes of the four year limitation on recovery in section 105-50 of Schedule 1 to the TAA. | There is no need to amend PS LA 2009/3 as a result of the Court's decision.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "N/A | High Court | Full Federal Court | 2012 ATC 20-362 | GSTR 2006/7 | GSTR 2006/8 | Law Administration Practice Statement (General Administration) PS LA 2005/2 (GA) | Law Administration Practice Statement PS LA 2009/3 | s 75-5 | s 38-325 | s 14ZZK | 2010 ATC 10-125 | 2011 ATC 10-176 | [1959] HCA 8 | (1959) 101 CLR 298 | [1959] ALR 367", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 s 75-5 s 38-325 Taxation Administration Act 1953 s 14ZZK s 105-50", "Case_References": "Cyonara Snowfox Pty Ltd v Federal Commissioner of Taxation [2010] AATA 137 2010 ATC 10-125 78 ATR 632 Cyonara Snowfox Pty Ltd v Federal Commissioner of Taxation [2011] AATA 124 2011 ATC 10-176 80 ATR 225 Jones v Dunkel [1959] HCA 8 (1959) 101 CLR 298 [1959] ALR 367 32 ALJR 395", "Subject_References": "Goods and services tax GST payable GST free GST supply of going concern Margin scheme Four year time limit", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD69of2011-QUD70of2010/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements."}
{"Case_Name": "ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust & Anor v Commissioner of Taxation", "Venue_Reference_No": "NSD 1569 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "31 July 2012", "Date_Published": "12 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether premises designed and operated to provide student accommodation are commercial residential premises.", "Overview_of_Facts": "Under the terms of a development lease entered into with the State of Queensland, the trustee of the Nest Southbank Unit Trust (NSUT) had premises constructed that were designed for student accommodation and serviced apartments. | NSUT entered into a lease with the State of Queensland under which the premises were able to be operated for student accommodation and/or serviced apartment purposes. NSUT subsequently granted a sub-lease of the premises to the trustee of the Urbanest Southbank Leasing Trust (USLT) under which the premises were permitted to be used for managed residential accommodation. | The premises consisted of 132 shared apartments, 27 studio apartments and various common areas. The shared apartments incorporated a cluster of study/bedrooms (in 4, 5 or 6 room configurations) with a shared kitchen and living facilities. Some study/bedrooms were double occupancy rooms. Each study/bedroom included a single bed or bunk bed, private ensuite bathroom, study desk, air-conditioning and storage area. The studio apartments consisted of a bedroom with ensuite bathroom, private study and living space and a kitchen. | The premises incorporated within its common areas: • a coin operated laundry, • games rooms, • TV areas, • external garden with barbeque areas, • group study rooms and individual study booths, • library, • meeting and presentation rooms, • a bike storage room, • a cafeteria-style eating area, and • a reception desk, operating 24 hours per day, which provided various services. | • a coin operated laundry, • games rooms, • TV areas, • external garden with barbeque areas, • group study rooms and individual study booths, • library, • meeting and presentation rooms, • a bike storage room, • a cafeteria-style eating area, and • a reception desk, operating 24 hours per day, which provided various services. | Accommodation was provided by USLT in the premises pursuant to a Rooming Accommodation Agreement (for shared apartments) or a Studio Accommodation Agreement, both incorporating terms mandated by the Residential Tenancies and Rooming Accommodation Act 2008 (Qld). The Rooming Accommodation Agreement required residents to comply with house rules. | USLT supplied accommodation to two individuals pursuant to Rooming Accommodation Agreements and to another individual pursuant to the Studio Accommodation Agreement. | Issues decided by the court | The issues in dispute were whether: • the supply, by way of sub-lease, by NSUT to USLT of the premises was a supply of commercial residential premises for the purposes of section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and • the supplies of accommodation made to the three individuals were supplies of accommodation in commercial residential premises provided to individuals by the entity that owns or controls the commercial residential premises for the purposes of section 40-35 of the GST Act. | • the supply, by way of sub-lease, by NSUT to USLT of the premises was a supply of commercial residential premises for the purposes of section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and • the supplies of accommodation made to the three individuals were supplies of accommodation in commercial residential premises provided to individuals by the entity that owns or controls the commercial residential premises for the purposes of section 40-35 of the GST Act. | If the supplies were of commercial residential premises and accommodation in commercial residential premises respectively, the supplies would be taxable supplies under section 9-5 of the GST Act. If not, the supplies would be input taxed supplies by operation of section 40-35 of the GST Act. | NSUT and USLT sought declarations from the Federal Court that each of the supplies was a taxable supply. | Section 195-1 of the GST Act relevantly defines commercial residential premises as meaning: (a) a hotel, motel, inn, hostel or boarding house; or ... (f) anything similar to residential premises described in paragraph (a). | Nicholas J decided at [67] that the premises supplied by way of sub-lease by NSUT to USLT was either a hostel, or very similar to a hostel. The premises were therefore properly regarded as commercial residential premises for the purposes of the GST Act at [70]. In forming this view, his Honour considered the Macquarie Dictionary 5th Edition definition of the term 'hostel', being a supervised place of accommodation, usually supplying board and lodging, provided at a comparatively low cost, as one for students, nurses, etc. | His Honour concluded at [66] that the accommodation available at the premises was intended to be (at least in the case of the shared apartments) comparatively low in cost and was obviously configured with the needs of students seeking low cost accommodation in mind. The accommodation provided was supervised in the sense that the reception desk was staffed 24 hours a day. His Honour inferred that residents may lodge complaints with management through the reception desk about the behaviour of other residents or visitors including in relation to excessive noise, failures to maintain the cleanliness of shared apartments and like matters dealt with in the House Rules. The fact that meals were not provided to residents did not mean that the premises could not be described as a hostel, or similar to a hostel. | Nicholas J observed at [71] \"that the legislature has drawn a distinction between residential premises and commercial residential premises such that accommodation provided in commercial residential premises, even if of a long-term nature, is taxable if the entity that supplies the accommodation owns or controls the commercial residential premises in which such accommodation is provided. The fact that such accommodation (which might as in this case take the form of either a shared apartment or a self-contained apartment) is the principal place of residence of the individual concerned does not mean that the supply is not taxable.\" | His Honour determined that there are a number of features that distinguish hotels and motels from the premises supplied by NSUT at [51 to 64]. His Honour also found that the premises were not similar to an inn or a boarding house at [68]. | His Honour further found at [72] that each supply made to each of the three individuals was a supply to an individual of accommodation in commercial residential premises made by the entity (USLT) that controlled the premises. Accordingly, the supplies of accommodation were not input taxed by operation of paragraph 40-35(1)(a) of the GST Act and were therefore taxable supplies.", "Issues_Decided": "The issues in dispute were whether: • the supply, by way of sub-lease, by NSUT to USLT of the premises was a supply of commercial residential premises for the purposes of section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and • the supplies of accommodation made to the three individuals were supplies of accommodation in commercial residential premises provided to individuals by the entity that owns or controls the commercial residential premises for the purposes of section 40-35 of the GST Act. • the supply, by way of sub-lease, by NSUT to USLT of the premises was a supply of commercial residential premises for the purposes of section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and • the supplies of accommodation made to the three individuals were supplies of accommodation in commercial residential premises provided to individuals by the entity that owns or controls the commercial residential premises for the purposes of section 40-35 of the GST Act. If the supplies were of commercial residential premises and accommodation in commercial residential premises respectively, the supplies would be taxable supplies under section 9-5 of the GST Act. If not, the supplies would be input taxed supplies by operation of section 40-35 of the GST Act. NSUT and USLT sought declarations from the Federal Court that each of the supplies was a taxable supply. Section 195-1 of the GST Act relevantly defines commercial residential premises as meaning: (a) a hotel, motel, inn, hostel or boarding house; or ... (f) anything similar to residential premises described in paragraph (a). Nicholas J decided at [67] that the premises supplied by way of sub-lease by NSUT to USLT was either a hostel, or very similar to a hostel. The premises were therefore properly regarded as commercial residential premises for the purposes of the GST Act at [70]. In forming this view, his Honour considered the Macquarie Dictionary 5th Edition definition of the term 'hostel', being a supervised place of accommodation, usually supplying board and lodging, provided at a comparatively low cost, as one for students, nurses, etc. His Honour concluded at [66] that the accommodation available at the premises was intended to be (at least in the case of the shared apartments) comparatively low in cost and was obviously configured with the needs of students seeking low cost accommodation in mind. The accommodation provided was supervised in the sense that the reception desk was staffed 24 hours a day. His Honour inferred that residents may lodge complaints with management through the reception desk about the behaviour of other residents or visitors including in relation to excessive noise, failures to maintain the cleanliness of shared apartments and like matters dealt with in the House Rules. The fact that meals were not provided to residents did not mean that the premises could not be described as a hostel, or similar to a hostel. Nicholas J observed at [71] \"that the legislature has drawn a distinction between residential premises and commercial residential premises such that accommodation provided in commercial residential premises, even if of a long-term nature, is taxable if the entity that supplies the accommodation owns or controls the commercial residential premises in which such accommodation is provided. The fact that such accommodation (which might as in this case take the form of either a shared apartment or a self-contained apartment) is the principal place of residence of the individual concerned does not mean that the supply is not taxable.\" His Honour determined that there are a number of features that distinguish hotels and motels from the premises supplied by NSUT at [51 to 64]. His Honour also found that the premises were not similar to an inn or a boarding house at [68]. His Honour further found at [72] that each supply made to each of the three individuals was a supply to an individual of accommodation in commercial residential premises made by the entity (USLT) that controlled the premises. Accordingly, the supplies of accommodation were not input taxed by operation of paragraph 40-35(1)(a) of the GST Act and were therefore taxable supplies.", "ATO_View_of_Decision": "Nicholas J observed at [50] that in considering whether premises are, or are similar to, a hotel, motel, inn, hostel or boarding house, the application of the test raises questions of fact involving matters of impression and degree. | On the facts of this matter, it was open to the Court to conclude that the premises met the ordinary meaning of the term 'hostel', or were similar to a hostel, and therefore commercial residential premises. His Honour's decision focuses upon a specific dictionary meaning of the term 'hostel' that is relevant to premises used to provide accommodation to students.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | The Commissioner issued GSTR 2012/6 on 19 December 2012 which sets out the Commissioner's views on how section 9-5, Subdivision 40-B, and Subdivision 40-C of the GST Act apply to supplies of commercial residential premises and supplies of accommodation in commercial residential premises. The views set out in GSTR 2012/6 apply the Court's decision. | Implications for Law Administration Practice Statements | N/A", "Related_Documents": "GSTR 2012/6 | N/A | 2012 ATC 20-336 | 9-5 | 9-30(2) | s9-40 | 11-15 | 15-10 | Pt 2-5 | 38-1 | 40-35 | 40-35(1)(a) | Div 87 | 87-1 | 87-5 | 87-20 | 87-25(1) | 87-25(2) | 87-25(3) | 195-1 | s10-40, s247, s249, s253 | 2004 ATC 5068", "Legislative_References": "A New Tax System (Goods and Services Tax) 1999 (Cth) 9-5 9-30(2) s9-40 11-15 15-10 Pt 2-5 38-1 40-35 40-35(1)(a) Div 87 87-1 87-5 87-20 87-25(1) 87-25(2) 87-25(3) 195-1 Residential Tenancies and Rooming Accommodation Act 2008 (Qld) s10-40, s247, s249, s253", "Case_References": "Meridien Marinas Horizon Shores Pty Ltd v Federal Commissioner of Taxation [2009] FCA 1594 2009 ATC 20-158 (2009) 74 ATR 787 Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR 299 2004 ATC 5068 (2004) 57 ATR 521", "Subject_References": "Goods and Services Tax Commercial residential premises Premises that are, or similar, to a hotel, motel, inn, hostel or boarding house Shared apartments and studio style apartments", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1569of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Elliott and Commissioner of Taxation", "Venue_Reference_No": "2011/3225-3226", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "9 July 2012", "Date_Published": "5 October 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which mainly concerned whether the Commissioner could amend income tax assessments more than two years after notices of the assessments were given.", "Overview_of_Facts": "The applicant was employed as a pilot by a wholly owned subsidiary of Cathay Pacific. In his income tax returns for the 2006 and 2007 income years, the applicant had disclosed amounts of foreign employment income under a label for 'Exempt foreign employment income', rather than under the label for 'Assessable foreign source income'. The applicant didn't claim the dependant spouse rebate in either return, and only provided his private health insurance details in his 2007 return. Based on those returns, notices of assessment issued for the 2006 and 2007 years on 21 May 2007 and 28 April 2008, respectively. | The Commissioner advised the applicant on 24 October 2008 that he was of the view that the applicant's employment income returned was not exempt under section 23AG of the Income Tax Assessment Act 1936 (ITAA). As a result of the decision in OABL v FC of T (2009) 175 FCR 449, the Commissioner issued amended assessments to the applicant on 27 May 2010 for both years, including as assessable income the amounts the applicant had returned as exempt foreign employment income, and specifying amounts payable for the Medicare Levy and Medicare Levy Surcharge. | Before the AAT hearing, the applicant accepted that his employment income was not exempt, and the Commissioner conceded that the applicant was entitled to the dependant spouse rebate. In relation to the application of section 170, the Commissioner contended that he was authorised by Item 5 of Regulation 20 of the Income Tax Regulations 1936 to amend the applicant's assessments within four years after notice of those assessments was given to the applicant. | Issues decided by the Administrative Appeals Tribunal | The Tribunal found that the Commissioner was not authorised to amend the applicant's assessments for the 2006 and 2007 years more than two years after notice of those assessments was given to the applicant. Item 5 of Regulation 20 did not apply to extend the amendment period to four years because, for the purposes of Item 5(a), the applicant did identify ordinary income from foreign transactions in his returns for both years. The Tribunal did not agree with the Commissioner's submission that the applicant had not 'identified' the relevant income because he had not 'identified' the income under the correct label in his returns. The Tribunal found that, in the context of Regulation 20, the applicant had only to identify in his returns an amount of income from a foreign transaction, as he had, and did not have to go the further step and make a correct assessment about whether that income was exempt or assessable. | Accordingly, the Tribunal found that the applicant was liable to pay the Medicare Levy only on the amount of taxable income originally assessed to him. The Tribunal also accepted that the applicant had provided evidence that he had private health insurance from 25 May 2006, and, therefore, was not liable to pay the Medicare Levy Surcharge, and was entitled to the private health insurance tax offset, after that date.", "Issues_Decided": "The Tribunal found that the Commissioner was not authorised to amend the applicant's assessments for the 2006 and 2007 years more than two years after notice of those assessments was given to the applicant. Item 5 of Regulation 20 did not apply to extend the amendment period to four years because, for the purposes of Item 5(a), the applicant did identify ordinary income from foreign transactions in his returns for both years. The Tribunal did not agree with the Commissioner's submission that the applicant had not 'identified' the relevant income because he had not 'identified' the income under the correct label in his returns. The Tribunal found that, in the context of Regulation 20, the applicant had only to identify in his returns an amount of income from a foreign transaction, as he had, and did not have to go the further step and make a correct assessment about whether that income was exempt or assessable. Accordingly, the Tribunal found that the applicant was liable to pay the Medicare Levy only on the amount of taxable income originally assessed to him. The Tribunal also accepted that the applicant had provided evidence that he had private health insurance from 25 May 2006, and, therefore, was not liable to pay the Medicare Levy Surcharge, and was entitled to the private health insurance tax offset, after that date.", "ATO_View_of_Decision": "The ATO accepts that the Tribunal's view of the interpretation of Item 5 of Regulation 20, and its application of that view to the facts in this case, were properly open to it.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "N/A | 2012 ATC 10-258 | 15AA | 15AB | 23AG | 170 | 170(1) | 170(5) | 251R | 251R(2) | 251S | 251T | 13(1) | 6 | 8D | Income Tax Amendment Regulations 2006 (No.2) | 2009 ATC 20-134 | 241 CLR 252 | 2009 ATC 20-089 | 81 ATC 4292 | 80 ATC 4357 | (1998) 194 CLR 355 | [1998] HCA 28 | (1987) 162 CLR 514 | [2010] HCA 23", "Legislative_References": "Acts Interpretation Act 1901 15AA 15AB Income Tax Assessment Act 1936 23AG 159J 159J(1AA) 170 170(1) 170(5) 251R 251R(2) 251S 251T Income Tax Assessment Act 1997 61-335 Legislative Instruments Act 2003 6(a) 13(1) Medicare Levy Act 1986 6 8D Income Tax Regulations 1936 Reg 20, Item 5 Income Tax Amendment Regulations 2006 (No.2)", "Case_References": "Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) (2009) 239 CLR 27 73 ATR 256 2009 ATC 20-134 241 CLR 252 Overseas Aircrew Basing Ltd v FC of T (2009) 175 FCR 449 2009 ATC 20-089 [2009] FCA 7 74 ATR 850 Cooper Brookes (Wollongong) Pty Ltd v FC of T (1980) 147 CLR 297 11 ATR 949 81 ATC 4292 [1981] HCA 26 FC of T v Westraders Pty Ltd (1979) 144 CLR 55 11 ATR 24 80 ATC 4357 Project Blue Sky Inc and Ors v ABT (1998) 194 CLR 355 [1998] HCA 28 Re Bolton; Ex parte Beane (1987) 162 CLR 514 Saeed v Minister for Immigration and Citizenship (2010) 84 ALJR 507 [2010] HCA 23 241 CLR 252", "Subject_References": "Assessments Amended assessments Exempt foreign employment income Dependent spouse rebate Medicare Levy Medicare levy Surcharge", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/3225-3226/00001", "Unmatched_Content": ""}
{"Case_Name": "Esso Australia Resources Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "M19 of 2012 (HC) & VID 630 of 2011; VID 631 of 2011 (FFC)", "Venue": "Federal Court of Australia", "Judgment_Date": "17 August 2012", "Date_Published": "28 November 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns deductibility under the Petroleum Resource Rent Tax Assessment Act 1987 (\"PRRTAA\") of various office facility, administrative and accounting expenditures, service fees and mutualised research costs.", "Overview_of_Facts": "Office Facility, Administrative and Accounting Expenditure and Service Fees | Esso Australia Resources Pty Ltd (\"EAR\") was engaged in a petroleum project (\"the Project\") in Bass Strait involving exploring for, recovering, treating and selling petroleum and natural gas. The Project was conducted as a joint venture with BHP Billiton Petroleum (Bass Strait) Pty Ltd (\"BHP\") pursuant to an Operating Agreement. A Service Agreement between EAR and Esso Australia Ltd (\"EAL\") provided that EAL would make available to EAR trained personnel, equipment and facilities to enable EAR to conduct its petroleum exploration, production and marketing operations in Australia and on the continental shelf. [1] | Under the Service Agreement, EAR agreed to pay to EAL the costs EAL incurred in providing the agreed services to EAR, a share of EAL's overhead costs proportionate to the services performed, and a fee of 7.5% of EAR's share of the overhead costs (sub-clauses 4(a), (b) and (c) respectively of the agreement). [2] | In working out, for PRRTAA purposes, its taxable profit from the Project for the 2003 and 2004 income years, EAR claimed as deductible expenditure amounts referable to its liability to EAL under the Service Agreement. An apportionment methodology was used in working out the amount of some of the claims. The Commissioner disallowed some of the claimed amounts that can be broadly described as relating to office facility, administrative and accounting expenditure and service fees (sub-clause 4(b) overhead costs). | The amounts were disallowed because, in the Commissioner's view, it had not been shown that they were a liability incurred to procure the carrying on or providing the things comprising the Project, or, if they were, then, in accordance with section 41 of the PRRTAA, they were excluded expenditure under paragraphs 44(j) and (k). [3] | The part of the 7.5% fee relating to the disallowed office facilities, administrative and accounting expenditure was also disallowed (sub-clause 4(c) fee). [4] It was accepted that the deductibility of this expenditure would depend upon the deductibility of the overhead costs from which it derived. [5] | Mutualised Research Charge (\"MRC\") | EAR had also entered into an Upstream Cost Sharing Agreement (\"the UCSA\") with ExxonMobil Upstream Research Company (\"URC\"). [6] URC operated a Mutualised Research Program which affiliate companies in the ExxonMobil Group could join. | Under the UCSA, EAR obtained access to 'royalty-free' licences over URC's patent rights and other technical information for use in its upstream operations. An associated agreement allowed EAL to access this information, which it used in providing services to EAR under the Service Agreement. [7] | The UCSA provided that EAR was required to pay a share of the net cost of upstream research. [8] EAR received monthly invoices from URC comprising an exploration charge and a production charge. [9] | The MRC was disallowed by the Commissioner on the basis that it was not made in carrying on or providing the operations and facilities of the Project in terms of sections 37 and 38 of the PRRTAA. [10] | The taxpayer applied to the High Court for special leave to appeal against the decision of the Full Court of the Federal Court, delivered on 20 February 2012. The Full Court had allowed the Commissioner's appeal against the decision of Ryan J at first instance, delivered on 30 May 2011. | Issues decided by the court | Issue decided by the High Court | Whether a grant of special leave to the taxpayer to appeal against the decision of the Full Federal Court was warranted | At the special leave hearing the High Court refused to grant special leave to the taxpayer to appeal against the decision of the Full Court of the Federal Court. | It refused the application on the grounds that there were insufficient prospects of success in displacing the order of the Full Court, given the terms in which the provisions of the PRRTAA and the service agreement are expressed. In particular, those terms were considered so intractable as to deny the apportionment of expenditure as contended for by the taxpayer. | Issues decided by the Full Federal Court | Office Facility, Administrative and Accounting Expenditure and Service Fees | No deduction was available for the claims in issue under sections 37 or 38 of the PRRTAA. | The Full Court made a number of general observations about the operation of the PRRTAA. [11] Two observations about the statutory context of section 41 set the background to the Court's decision. [12] The first observation is that section 41 is the only basis for obtaining deductions under sections 32, 37, 38 and 39 where a person derives income in relation to a petroleum project but it does not itself (or by an agent) carry on the operations comprising the project. This was the situation in this case. [13] The second observation was that there is nothing to suggest that a person who engages a contractor to carry on the activities comprising the project should have deductible expenditure that the person would not have obtained if it itself had carried on the activities. | The Full Court held that section 41 of PRRTAA does not permit a deduction for excluded expenditure in section 44 of the PRRTAA (the claims in issue) or for payments which include such expenditure in relation to activities that section 41 deems to have been carried on by EAR. [14] Further, there was no other basis on which such expenditure could be deducted. | This conclusion was reached without needing to determine if the total amount payable under clause 4 of the Service Agreement was \"one indivisible payment\" or represented payments of separate liabilities under each of subclauses 4(a), (b) and (c) of the agreement. [15] | If payments under clause 4 of the Service Agreement are viewed as the payment of an indivisible liability, it seems to the Commissioner that the Court took the view that this is a situation where the payment includes excluded expenditure, and section 41 of the PRRTAA does not permit a deduction. | It appears this was because in terms of section 41 the liability to make such a payment was not wholly to procure another person to carry on or provide the relevant activities that are of a kind referred to in sections 37, 38 or 39 of the PRRTAA. | The services to be provided under the Service Agreement related to EAR's operations in Australia and on the continental shelf. As a result, the relevant liability for payments under the Service Agreement were for activities not confined to the Project, so that the liability was not wholly to procure another person to carry on or provide activities of a kind referred to in sections 37, 38 and 39 of the PRRTAA. [16] The inference to be drawn is that apportionment of such a liability is not possible for the purposes of sections 37, 38, 39 and 41. | However, if payments under clause 4 of the Service Agreement were payments of liabilities separately created under sub-clauses 4(a), (b) and (c), then the claims under sub-clauses 4(b) and (c) (relating to the claims in issue) were more readily seen to comprise excluded expenditure (paragraphs 44(j) and (k) of the PRRTAA). [17] | The Full Court's thinking here appears to be that the liability to make the payments was sufficiently divisible so it could be concluded that what was procured in relation to the Project was of a kind referred to in sections 37, 38 or 39 of the PRRTAA. That is, the relevant services procured were confined to the Project. As a result section 41 of the PRRTAA would apply so that EAR is deemed to have carried on or provided the relevant services and sections 37, 38 or 39 (including section 44 of the PRRTAA) would need to be considered to determine the deductibility of the payments. | The Full Court also observed that if the fee payable under clause 4 of the Service Agreement were regarded as one indivisible liability to make a payment, then sections 37 and 38 of the PRRTAA do not cover such a payment. This is because the fee under the Service Agreement cannot be said to be made to discharge a liability in carrying on the activities comprising the Project. The liability to make a payment also relates to services not confined to the Project. The arrangement enabled EAR to conduct its petroleum exploration, production and marketing operations in Australia and on the continental shelf. Again, the inference to be drawn is that apportionment of such a liability is not possible for the purposes of sections 37, 38 and 39 of the PRRTAA. | The Court does not appear to have relied upon this observation to conclude that the claims in issue are not deductible. Rather, they referred to the operation of section 41 as being sufficient for this purpose. [18] | The 7.5% fee was not deductible on the basis that its treatment was the same as the overhead costs to which it relates. | Mutualised Research Charge (\"MRC\") | No deduction is available for the MRC under sections 37 or 38 of the PRRTAA. | The work conducted by URC that EAR contributed to by the MRC was not conducted in carrying on the activities comprising the Project. [19] The URC's work may have been used for the benefit of the Project, but URC cannot be said to have carried on or provided any of the operations, facilities or things comprising the Project | Further observations of the Full Federal Court | The Full Court made a number of observations about the operation of the PRRTAA throughout their judgments. Some of these observations are outlined in what follows. | A number of additional observations were made by Keane CJ and Edmonds J at paragraphs [116] to [121] of their judgment. They note that they addressed the arguments put by the Commissioner and the taxpayer in their decision and decided the matters accordingly. However, they considered that the premise upon which the Commissioner's amended assessments were predicated was wrong and took the opportunity to outline their views. [20] | The premise was that the consideration paid by EAR to EAL under the Service Agreement, which was not disallowed by the Commissioner, is deductible expenditure. [21] Although it is not clear, it appears that the observations are made on the basis that the liability under which the payments were made was indivisible. | The first observation is that the terms of the Service Agreement are such that it cannot be said that the consideration paid by EAR to EAL qualifies as being incurred by EAR in relation to the Project, in terms of section 37 or 38 of the PRRTAA. [22] That is, EAR cannot be said to have itself (or by an agent) carried on the operations comprising the Project and incurred the expenditure. [23] | Secondly, the services to be provided by EAL to EAR under the Service Agreement are not confined to the Project so they are not of a kind referred to in sections 37, 38 and 39 of the PRRTAA, and as a result section 41 of the PRRTAA is not engaged. The inference to be drawn is that apportionment of such a liability is not possible for the purposes of sections 37, 38, 39 and 41. | A number of observations are then made about how section 41 of the PRRTAA would operate if it applied to the Service Agreement relationship between EAR and EAL (contrary to the view above). | The application of section 41 of the PRRTAA is 'described shortly as working a statutory agency as between EAL and EAR for the purposes of ss 32, 37, 38 and 39 of the Act'. The effect of paragraph 41(a) of the PRRTAA in the context of the Service Agreement is stated by the Full Court to be that the operations, facilities and other things comprising the project are taken to have been carried on or provided by EAR. Paragraph 41(b) of the PRRTAA takes the liability of EAR under the Service Agreement to be incurred in carrying on or providing the same things comprising the project that paragraph 41(a) of the PRRTAA takes EAR to have done. [24] | The further point is made that the consideration paid by EAR under the Service Agreement is attributed with the same characteristics as the various components of EAL's expenditure. This means that if a component of EAL's expenditure is excluded expenditure under section 44 of the PRRTAA, then the equivalent proportion of the consideration paid by EAR will be excluded expenditure. The effect of this is that such expenditure will be denied deductibility.", "Issues_Decided": "Issue decided by the High Court: Whether a grant of special leave to the taxpayer to appeal against the decision of the Full Federal Court was warranted At the special leave hearing the High Court refused to grant special leave to the taxpayer to appeal against the decision of the Full Court of the Federal Court. It refused the application on the grounds that there were insufficient prospects of success in displacing the order of the Full Court, given the terms in which the provisions of the PRRTAA and the service agreement are expressed. In particular, those terms were considered so intractable as to deny the apportionment of expenditure as contended for by the taxpayer. | Issues decided by the Full Federal Court: Office Facility, Administrative and Accounting Expenditure and Service Fees No deduction was available for the claims in issue under sections 37 or 38 of the PRRTAA. The Full Court made a number of general observations about the operation of the PRRTAA. [11] Two observations about the statutory context of section 41 set the background to the Court's decision. [12] The first observation is that section 41 is the only basis for obtaining deductions under sections 32, 37, 38 and 39 where a person derives income in relation to a petroleum project but it does not itself (or by an agent) carry on the operations comprising the project. This was the situation in this case. [13] The second observation was that there is nothing to suggest that a person who engages a contractor to carry on the activities comprising the project should have deductible expenditure that the person would not have obtained if it itself had carried on the activities. The Full Court held that section 41 of PRRTAA does not permit a deduction for excluded expenditure in section 44 of the PRRTAA (the claims in issue) or for payments which include such expenditure in relation to activities that section 41 deems to have been carried on by EAR. [14] Further, there was no other basis on which such expenditure could be deducted. This conclusion was reached without needing to determine if the total amount payable under clause 4 of the Service Agreement was \"one indivisible payment\" or represented payments of separate liabilities under each of subclauses 4(a), (b) and (c) of the agreement. [15] If payments under clause 4 of the Service Agreement are viewed as the payment of an indivisible liability, it seems to the Commissioner that the Court took the view that this is a situation where the payment includes excluded expenditure, and section 41 of the PRRTAA does not permit a deduction. It appears this was because in terms of section 41 the liability to make such a payment was not wholly to procure another person to carry on or provide the relevant activities that are of a kind referred to in sections 37, 38 or 39 of the PRRTAA. The services to be provided under the Service Agreement related to EAR's operations in Australia and on the continental shelf. As a result, the relevant liability for payments under the Service Agreement were for activities not confined to the Project, so that the liability was not wholly to procure another person to carry on or provide activities of a kind referred to in sections 37, 38 and 39 of the PRRTAA. [16] The inference to be drawn is that apportionment of such a liability is not possible for the purposes of sections 37, 38, 39 and 41. However, if payments under clause 4 of the Service Agreement were payments of liabilities separately created under sub-clauses 4(a), (b) and (c), then the claims under sub-clauses 4(b) and (c) (relating to the claims in issue) were more readily seen to comprise excluded expenditure (paragraphs 44(j) and (k) of the PRRTAA). [17] The Full Court's thinking here appears to be that the liability to make the payments was sufficiently divisible so it could be concluded that what was procured in relation to the Project was of a kind referred to in sections 37, 38 or 39 of the PRRTAA. That is, the relevant services procured were confined to the Project. As a result section 41 of the PRRTAA would apply so that EAR is deemed to have carried on or provided the relevant services and sections 37, 38 or 39 (including section 44 of the PRRTAA) would need to be considered to determine the deductibility of the payments. The Full Court also observed that if the fee payable under clause 4 of the Service Agreement were regarded as one indivisible liability to make a payment, then sections 37 and 38 of the PRRTAA do not cover such a payment. This is because the fee under the Service Agreement cannot be said to be made to discharge a liability in carrying on the activities comprising the Project. The liability to make a payment also relates to services not confined to the Project. The arrangement enabled EAR to conduct its petroleum exploration, production and marketing operations in Australia and on the continental shelf. Again, the inference to be drawn is that apportionment of such a liability is not possible for the purposes of sections 37, 38 and 39 of the PRRTAA. The Court does not appear to have relied upon this observation to conclude that the claims in issue are not deductible. Rather, they referred to the operation of section 41 as being sufficient for this purpose. [18] The 7.5% fee was not deductible on the basis that its treatment was the same as the overhead costs to which it relates. Mutualised Research Charge (\"MRC\") No deduction is available for the MRC under sections 37 or 38 of the PRRTAA. The work conducted by URC that EAR contributed to by the MRC was not conducted in carrying on the activities comprising the Project. [19] The URC's work may have been used for the benefit of the Project, but URC cannot be said to have carried on or provided any of the operations, facilities or things comprising the Project | Further observations of the Full Federal Court: The Full Court made a number of observations about the operation of the PRRTAA throughout their judgments. Some of these observations are outlined in what follows. A number of additional observations were made by Keane CJ and Edmonds J at paragraphs [116] to [121] of their judgment. They note that they addressed the arguments put by the Commissioner and the taxpayer in their decision and decided the matters accordingly. However, they considered that the premise upon which the Commissioner's amended assessments were predicated was wrong and took the opportunity to outline their views. [20] The premise was that the consideration paid by EAR to EAL under the Service Agreement, which was not disallowed by the Commissioner, is deductible expenditure. [21] Although it is not clear, it appears that the observations are made on the basis that the liability under which the payments were made was indivisible. The first observation is that the terms of the Service Agreement are such that it cannot be said that the consideration paid by EAR to EAL qualifies as being incurred by EAR in relation to the Project, in terms of section 37 or 38 of the PRRTAA. [22] That is, EAR cannot be said to have itself (or by an agent) carried on the operations comprising the Project and incurred the expenditure. [23] Secondly, the services to be provided by EAL to EAR under the Service Agreement are not confined to the Project so they are not of a kind referred to in sections 37, 38 and 39 of the PRRTAA, and as a result section 41 of the PRRTAA is not engaged. The inference to be drawn is that apportionment of such a liability is not possible for the purposes of sections 37, 38, 39 and 41. A number of observations are then made about how section 41 of the PRRTAA would operate if it applied to the Service Agreement relationship between EAR and EAL (contrary to the view above). The application of section 41 of the PRRTAA is 'described shortly as working a statutory agency as between EAL and EAR for the purposes of ss 32, 37, 38 and 39 of the Act'. The effect of paragraph 41(a) of the PRRTAA in the context of the Service Agreement is stated by the Full Court to be that the operations, facilities and other things comprising the project are taken to have been carried on or provided by EAR. Paragraph 41(b) of the PRRTAA takes the liability of EAR under the Service Agreement to be incurred in carrying on or providing the same things comprising the project that paragraph 41(a) of the PRRTAA takes EAR to have done. [24] The further point is made that the consideration paid by EAR under the Service Agreement is attributed with the same characteristics as the various components of EAL's expenditure. This means that if a component of EAL's expenditure is excluded expenditure under section 44 of the PRRTAA, then the equivalent proportion of the consideration paid by EAR will be excluded expenditure. The effect of this is that such expenditure will be denied deductibility.", "ATO_View_of_Decision": "The orders of the Full Court were those sought by the Commissioner in the proceedings. | Many aspects of the decision are consistent with the Commissioner's views on the operation of the deductible expenditure provisions in the PRRTAA. | Given the considered views of the Full Court about the operation of the PRRTAA in its additional observations, the Commissioner is of the respectful opinion that he should have regard to these observations in administering the law in this area. | On the basis of the Full Court's decision and observations it seems that a number of propositions can be drawn: • Sections 37, 38 and 39 of the PRRTAA do not allow for apportionment of expenditure where the liability to make a payment is not confined to the carrying on or providing of the operations, facilities and other things comprising the petroleum project • Section 41 of the PRRTAA does not allow for apportionment of expenditure where the liability to make a payment is not confined to procuring the carrying on or providing of operations, facilities or other things of a kind referred to in sections 37, 38 or 39 of the PRRTAA • Section 41 of the PRRTAA impresses the character of the contractor's expenditure onto the liability to pay of the eligible person in terms of what it procures. This can include the relevant proportion of an expenditure of a particular character relative to other expenditure. | • Sections 37, 38 and 39 of the PRRTAA do not allow for apportionment of expenditure where the liability to make a payment is not confined to the carrying on or providing of the operations, facilities and other things comprising the petroleum project • Section 41 of the PRRTAA does not allow for apportionment of expenditure where the liability to make a payment is not confined to procuring the carrying on or providing of operations, facilities or other things of a kind referred to in sections 37, 38 or 39 of the PRRTAA • Section 41 of the PRRTAA impresses the character of the contractor's expenditure onto the liability to pay of the eligible person in terms of what it procures. This can include the relevant proportion of an expenditure of a particular character relative to other expenditure. | The first two dot points above effectively mean that an indivisible liability to make a payment (including such a liability that is a component of a divisible liability) must be wholly confined to the relevant things comprising the petroleum project in terms of sections 37, 38 or 39 of the PRRTAA before the application of those sections (and section 41 of the PRRTAA) can be considered.", "Administrative_Treatment": "The ATO will now apply the law in accordance with its views of the Full Federal Court's decision and observations when it determines assessments, rulings, objections and appeals. | The ATO accepts it has administered the PRRTAA in this area in a manner which is consistent with the views expressed in the Draft Taxation Rulings (TR 2010/D4, TR 2010/D5 & TR 2010/D6) for a number of years. Therefore, the ATO will generally not seek to disturb assessments for the 2012 financial year and earlier years where taxpayers have self assessed on the basis of: • Apportioning an amount of expenditure for the purposes of section 37, 38 or 39 of PRRTAA in a manner that is consistent with the Draft Taxation Rulings. • Apportioning an amount for the purposes of section 41 of the PRRTAA where the liability to make a payment is not confined to procuring the carrying on or providing of the operations, facilities or other things of a kind referred to in section 37, 38 or 39 in a manner that is consistent with the Draft Taxation Rulings. • The views expressed in the Draft Taxation Rulings about the operation of section 41 to the effect that: - A liability to make a payment to a contractor will be apportioned if the taxpayer procures the contractor to provide a number of services and some of those services are items covered by the excluded expenditure provision in section 44 of the PRRTAA or those services are not directly related to the project as outlined in the Draft Taxation Rulings. - A payment to a third party contractor may be fully deductible in some circumstances. This may be the case where a taxpayer procures a contractor to provide a specific service, that is directly related to the project and is not an item covered by the excluded expenditure provision (e.g. a drilling service), and the contractor spends some of the money on items of excluded expenditure that would not be deductible in the hands of the taxpayer had they incurred them as expressed in TR 2010/D6. | • Apportioning an amount of expenditure for the purposes of section 37, 38 or 39 of PRRTAA in a manner that is consistent with the Draft Taxation Rulings. • Apportioning an amount for the purposes of section 41 of the PRRTAA where the liability to make a payment is not confined to procuring the carrying on or providing of the operations, facilities or other things of a kind referred to in section 37, 38 or 39 in a manner that is consistent with the Draft Taxation Rulings. • The views expressed in the Draft Taxation Rulings about the operation of section 41 to the effect that: - A liability to make a payment to a contractor will be apportioned if the taxpayer procures the contractor to provide a number of services and some of those services are items covered by the excluded expenditure provision in section 44 of the PRRTAA or those services are not directly related to the project as outlined in the Draft Taxation Rulings. - A payment to a third party contractor may be fully deductible in some circumstances. This may be the case where a taxpayer procures a contractor to provide a specific service, that is directly related to the project and is not an item covered by the excluded expenditure provision (e.g. a drilling service), and the contractor spends some of the money on items of excluded expenditure that would not be deductible in the hands of the taxpayer had they incurred them as expressed in TR 2010/D6. | - A liability to make a payment to a contractor will be apportioned if the taxpayer procures the contractor to provide a number of services and some of those services are items covered by the excluded expenditure provision in section 44 of the PRRTAA or those services are not directly related to the project as outlined in the Draft Taxation Rulings. - A payment to a third party contractor may be fully deductible in some circumstances. This may be the case where a taxpayer procures a contractor to provide a specific service, that is directly related to the project and is not an item covered by the excluded expenditure provision (e.g. a drilling service), and the contractor spends some of the money on items of excluded expenditure that would not be deductible in the hands of the taxpayer had they incurred them as expressed in TR 2010/D6. | However, our information indicates some taxpayers may have self-assessed amounts of deductible expenditure in the 2012 financial year and earlier years on a basis that is not consistent with the Draft Taxation Rulings. The ATO is currently considering what action (if any) it may take in relation to these taxpayers. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | The following ATO precedential documents will be withdrawn as a result of the Full Federal Court decision. • Draft Taxation Ruling TR2010/D4 • Draft Taxation Ruling TR 2010/D5 • Draft Taxation Ruling TR 2010/D6 • Miscellaneous Taxation Ruling MT 93/2 | • Draft Taxation Ruling TR2010/D4 • Draft Taxation Ruling TR 2010/D5 • Draft Taxation Ruling TR 2010/D6 • Miscellaneous Taxation Ruling MT 93/2 | The ATO is not proposing to issue a public ruling on the implications of the Full Federal Court decision as amendments were made to the PRRTAA on 30 July 2013 to provide certainty to industry following the court decision (see Tax Laws Amendment (2013 Measures No 2) Act 2013 ). The ATO in consultation with Industry has issued practical guidance on apportioning expenditure and will continue with its practice of consulting with Industry to prioritise and work through issues that may arise over time from the new measures or from withdrawing the Draft Taxation Rulings and MT 93/2. | Implications for Law Administration Practice Statements | N/A | [1] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 2-3. | [2] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 3. | [3] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 4 and 29-31. | [4] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 31. | [5] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 31. | [6] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 32. | [7] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 34-37. | [8] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 33. | [9] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 37. | [10] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 37. | [11] For example, Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 92 and 116-121. | [12] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 99. | [13] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 76-78 and 118. | [14] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 110 and 123. | [15] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 110. | [16] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 104 and 119. | [17] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 107. | [18] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 104. | [19] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 112. | [20] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 117. | [21] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 116. | [22] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 118. | [23] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 76-78. | [24] Esso Australia Resources Pty Ltd v Commissioner of Taxation [2012] FCAFC 5 at 121.", "Related_Documents": "Draft Taxation Ruling TR 2010/D4 | Draft Taxation Ruling TR 2010/D5 | Draft Taxation Ruling TR 2010/D6 | Miscellaneous Taxation Ruling MT 93/2 | [2012] FCAFC 5 | The Act | 37 | 38 | 41 | 44 | 2004 ATC 4945 | 91 ATC 4154 | [2011] FCAFC 154 | [2011] FCA 565 | [1949] HCA 15 | (1949) 78 CLR 47", "Legislative_References": "Fringe Benefits Tax Assessment Act 1986 (Cth) The Act Income Tax Assessment Act 1936 (Cth) The Act Income Tax Assessment Act 1997 (Cth) The Act Petroleum Resource Rent Tax Act 1987 (Cth) The Act Petroleum Resource Rent Tax Assessment Act 1987 (Cth) 37 38 41 44 The Act Petroleum (Submerged Lands) Act 1967 (Cth) The Act Taxation Laws Amendment Act (No.3) 2002 (Cth) The Act", "Case_References": "City Link Melbourne Ltd v Commissioner of Taxation [2004] FCAFC 272 141 FCR 69 2004 ATC 4945 57 ATR 316 Commissioner of Taxation v Mount Isa Mines Ltd (1991) 28 FCR 269 21 ATR 1294 91 ATC 4154 Esso Australia Resources Pty Ltd v Commissioner of Taxation [2011] FCAFC 154 Esso Australia Resources Pty Ltd v The Commissioner of Taxation [2011] FCA 565 Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15 (1949) 78 CLR 47", "Subject_References": "Petroleum Rent Resource Tax Petroleum Project Expenditure Deductible Expenditure Service Agreement Service Fee Mutualised Research Costs Indirect Costs", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID630-631of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "Gem Plant Hire Pty Ltd atf The Condello Family Trust and Commissioner of Taxation", "Venue_Reference_No": "2011-4448", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "4 December 2012", "Date_Published": "25 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerns whether a hire company is considered to have used fuel in carrying on its enterprise under section 41-5 of the Fuel Tax Act 2006 when it provides fuelled vehicles and equipment to a hirer.", "Overview_of_Facts": "The taxpayer supplied trucks and equipment under a hire arrangement to a hirer. The taxpayer was required to fuel, service, maintain and insure the trucks and equipment, and the hirer did not, nor was it required to reimburse fuel charges or other expenses. The hirer paid the hire charges levied for the trucks and equipment and was responsible for providing drivers or operators as part of the hire arrangement. | The taxpayer acquired fuel in discharge of its responsibilities to provide the trucks and equipment on a fuelled basis to the hirer. The hirer used the hired trucks and equipment to supply earthwork services to its own customers, and the fuel acquired by the taxpayer was consumed in the process of doing so. The taxpayer provided fuel cards enabling drivers and operators of the hirer to act as agents of the taxpayer when purchasing fuel for the trucks and equipment. | Issues Decided by the Tribunal | This decision concerns subsection 41-5(1) of the Fuel Tax Act 2006 which provides - ' You are entitled to a fuel tax credit for taxable fuel that you acquire ... to the extent that you do so for use in carrying on your enterprise' . The specific issue was whether the taxable fuel acquired by the taxpayer through the agency of the hirer's drivers and operators was ' for use in carrying on your [ the taxpayer's ] enterprise' . | The Administrative Appeals Tribunal (AAT) observed at [16] that section 41-5 does '... not impose a requirement that the use is to be only or exclusively by the taxpayer in question in a personal sense ... ' The AAT also said at [16] that the provision '... is expressed in terms wide enough to contemplate use by actions of another entity so long as the use is in carrying on the enterprise of the taxpayer in question, whether or not the use might also be in carrying on another taxpayer's enterprise.' | Given the taxpayer's enterprise consisted of hiring out trucks and equipment on a fuelled basis in return for rental income, the AAT concluded at [17] that the ' only consumption of the fuel is by the use of the vehicles which is as an incidental part of that enterprise.' This was unaffected by the fact that the hirer may also use the vehicles in their own enterprise, or possibly in their customers' enterprises. The AAT observed at [19] that its approach was consistent with Riviera Nautic Pty Ltd v Commissioner of Taxation , ' albeit that decision concerned different legislation' .", "Issues_Decided": "This decision concerns subsection 41-5(1) of the Fuel Tax Act 2006 which provides - ' You are entitled to a fuel tax credit for taxable fuel that you acquire ... to the extent that you do so for use in carrying on your enterprise' . The specific issue was whether the taxable fuel acquired by the taxpayer through the agency of the hirer's drivers and operators was ' for use in carrying on your [ the taxpayer's ] enterprise' . The Administrative Appeals Tribunal (AAT) observed at [16] that section 41-5 does '... not impose a requirement that the use is to be only or exclusively by the taxpayer in question in a personal sense ... ' The AAT also said at [16] that the provision '... is expressed in terms wide enough to contemplate use by actions of another entity so long as the use is in carrying on the enterprise of the taxpayer in question, whether or not the use might also be in carrying on another taxpayer's enterprise.' Given the taxpayer's enterprise consisted of hiring out trucks and equipment on a fuelled basis in return for rental income, the AAT concluded at [17] that the ' only consumption of the fuel is by the use of the vehicles which is as an incidental part of that enterprise.' This was unaffected by the fact that the hirer may also use the vehicles in their own enterprise, or possibly in their customers' enterprises. The AAT observed at [19] that its approach was consistent with Riviera Nautic Pty Ltd v Commissioner of Taxation , ' albeit that decision concerned different legislation' .", "ATO_View_of_Decision": "The Commissioner accepts that, based on material before the AAT, it was open to conclude that the taxpayer had used the fuel in carrying on its enterprise. On this basis, the Commissioner has discontinued an appeal to the Federal Court. The Commissioner considers that, as this decision relates to specific facts and circumstances, it does not have broader implications for subsection 41-5(1). | It was agreed before the AAT that the taxpayer and not the hirer had acquired the fuel. The taxpayer did not dispose of the fuel to the hirer, but instead gave the hirer a 'licence to use' the fuel under the hire arrangement. The decision, therefore, is consistent with the view in FTR 2009/1 at [47], which states that ' fuel is used by a hire company in carrying on their enterprise in licence to use arrangements - when it ceases to exist when the hirer operates the vehicle and equipment' . | FTR 2009/1 emphasises that, in determining if a hire company has disposed of fuel or provided a licence to use fuel, reference must be had to the contract and surrounding circumstances. Other taxpayers should not rely on similarities in their arrangements producing the same outcome as in this case. Taxpayers should also be aware that, given that this issue was not a matter in dispute before the AAT, material facts relevant to its determination are not set out in the AAT decision. Instead, they should seek guidance from FTR 2009/1. | Further, as the issue was limited to whether the fuel was used in carrying on the taxpayer's enterprise, the AAT was not required to consider other matters that may be relevant to quantifying a taxpayer's fuel tax credit entitlement. For example, a hire company may need to determine the quantity of fuel used for particular purposes in order to calculate the correct effective rates for available fuel tax credits. | The AAT indicated that consumption of fuel and the use of the vehicles by the hirer was 'incidental' to the taxpayer's enterprise. The Commissioner considers that this is an alternative way of expressing the view in FTR 2009/1 at [47]. The Commissioner also agrees that, based on the facts and circumstances of each case, once it is concluded that the hire company has provided a licence to use fuel to the hirer, this decision and Rivera Nautic resulted in similar outcomes.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | The AAT decision on the facts before it is consistent with the treatment of a hire arrangement for FTR 2009/1 purposes where a licence to use fuel has been given. FTR 2009/1, therefore, does not require amendment in this regard. However, to provide further guidance where there is a licence to use fuel, the Commissioner will consider if an additional example should be included in FTR 2009/1.", "Related_Documents": "Fuel Tax Ruling FTR 2009/1 | [2012] AATA 852 | s 2-1 | s 40-5 | s 41-1 | s 41-5 | 50 ATR 1106 | [2008] HCA 49 | 47 ATR 541 | [1998] HCA 28 | 194 CLR 355 | 2009 ATC 20-134", "Legislative_References": "Fuel Tax Act 2006 s 2-1 s 40-5 s 41-1 s 41-5", "Case_References": "Riviera Nautic Pty Ltd v Commissioner of Taxation [2002] AATA 657 50 ATR 1106 Northern Territory v Collins [2008] HCA 49 235 CLR 619 249 ALR 621 Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue [2001] HCA 49 207 CLR 72 47 ATR 541 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28 194 CLR 355 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41 239 CLR 27 73 ATR 256 2009 ATC 20-134", "Subject_References": "Fuel tax credits FTC use FTC carrying on an enterprise", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011-4448/00001", "Unmatched_Content": "This decision has no impact for the ATO including precedential documents and Law Administration Practice Statements"}
{"Case_Name": "General Aviation Maintenance Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2010/5564-5567", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "6 March 2012", "Date_Published": "5 July 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether a sky dive instructor engaged by the taxpayer was an employee within the meaning of s 12 of the Superannuation Guarantee (Administration) Act 1992 (\"SGAA\"), for the purposes of determining the Applicant's liability to a superannuation guarantee charge.", "Overview_of_Facts": "The Applicant conducted a skydive business. | The worker was paid by the Applicant for packing parachutes, undertaking tandem descents and for video recording skydives which were then provided to the Applicant's clients. The worker frequently, if not exclusively, wore the Applicant's uniform. The worker was required to attend at times specified by the Applicant; be courteous to the Applicant's clients while providing the services he provided, as well as maintain the appearance, grooming, and hygiene expected within the tourism industry. There was no written contract between the Applicant and the worker nor was the worker paid for annual leave or sick leave. | The Applicant did not make superannuation contributions on behalf of the worker. | Following an audit regarding the superannuation obligations of the taxpayer, the Commissioner concluded that the worker was, for the purposes of the superannuation guarantee charge, an employee within the meaning of subsections 12(1) and/or 12(3) of the SGAA. | The taxpayer contended that the worker was engaged by a third party, alternatively it contended that the worker was an independent contractor, and was not an employee within the meaning of section 12 of the SGAA. Further, the applicant contended that, even if the worker was an employee for the purposes of the SGAA, only that portion of the payments made relating to skydiving would amount to salary and wages. The portion relating to video recording and production services was payment for a result. | Before the hearing, it was established that incorrect calculations were made of the salary and wages of the worker and to this extent the Commissioner conceded that the assessments were excessive. | Issues decided by the tribunal | The Tribunal found the worker was an employee within the meanings of subsections 12(1), 12(3) and/or 12(8) of the SGAA. | Subsection 12(1): an employee within the ordinary meaning of the term | On a holistic consideration of all relevant factors, the worker was found to be an employee within the ordinary meaning of the word. | Subsection 12(3): contracts for the labour of the person | The Tribunal found that if its conclusion that the worker was an employee within the ordinary meaning of the term was incorrect then s 12(3) had a role to play. As the Applicant failed to establish that all or part of the payments made were not for the worker's labour, the Tribunal found that the worker was an employee of the Applicant within the extended definition in subsection 12(3) of the SGAA. . | Subsection 12(8): person paid to participate in the presentation of entertainment or paid to provide services in connection with the performance or presentation of entertainment | Further, if the amounts paid to the worker were not otherwise salary or wages, then s 12(8) applied. The Tribunal found that the worker was contracted to participate in the provision of entertainment and therefore was an employee within the extended definition in subsection 12(8)(a) of the SGAA. The Tribunal further found that the Applicant paid the worker to produce a film or disc, which is a service within the scope of the extended definition in subection 12(8)(b) and (c).. Accordingly payments made by the Applicant to the worker for the production of video recordings of the descent formed part of the worker's salary and wages. | The Tribunal also noted that subsections 11(ba) and (d) act to include any amount of payments, made for labour as contemplated by 12(3) or under a contract as contemplated by 12(8), to a worker who is an employee under subsections 12(3) or 12(8) will be salary and wages for the purpose of the SGAA. | The Tribunal referred the matter back to the Commissioner to amend the assessments to reflect the correct calculations and otherwise affirmed all other aspect's of the Commissioner's decision.", "Issues_Decided": "The Tribunal found the worker was an employee within the meanings of subsections 12(1), 12(3) and/or 12(8) of the SGAA. Subsection 12(1): an employee within the ordinary meaning of the term On a holistic consideration of all relevant factors, the worker was found to be an employee within the ordinary meaning of the word. Subsection 12(3): contracts for the labour of the person The Tribunal found that if its conclusion that the worker was an employee within the ordinary meaning of the term was incorrect then s 12(3) had a role to play. As the Applicant failed to establish that all or part of the payments made were not for the worker's labour, the Tribunal found that the worker was an employee of the Applicant within the extended definition in subsection 12(3) of the SGAA. . Subsection 12(8): person paid to participate in the presentation of entertainment or paid to provide services in connection with the performance or presentation of entertainment Further, if the amounts paid to the worker were not otherwise salary or wages, then s 12(8) applied. The Tribunal found that the worker was contracted to participate in the provision of entertainment and therefore was an employee within the extended definition in subsection 12(8)(a) of the SGAA. The Tribunal further found that the Applicant paid the worker to produce a film or disc, which is a service within the scope of the extended definition in subection 12(8)(b) and (c).. Accordingly payments made by the Applicant to the worker for the production of video recordings of the descent formed part of the worker's salary and wages. The Tribunal also noted that subsections 11(ba) and (d) act to include any amount of payments, made for labour as contemplated by 12(3) or under a contract as contemplated by 12(8), to a worker who is an employee under subsections 12(3) or 12(8) will be salary and wages for the purpose of the SGAA. The Tribunal referred the matter back to the Commissioner to amend the assessments to reflect the correct calculations and otherwise affirmed all other aspect's of the Commissioner's decision.", "ATO_View_of_Decision": "The Commissioner's views in SGR 2005/1 and SGR 2009/1 are consistent with the Tribunal's conclusion that the worker's activities fit into the broad terms in s12(8)(a), either as \"... entertainment, possibly sport, or a similar activity' [30]. This is the first decision considering the application of s 12(8) of the SGAA. | The Commissioner accepts that it was open to the Tribunal to remit the matter to the Commissioner to issue amended assessments reflecting the amounts referred to at paragraph 15(q) of the reasons for decision.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None.", "Related_Documents": "None | [2012] AATA 120 | 2012 ATC 10-235 | Section 11 | Subsection 12(1) | Subsection 12(3) | Subsection 12(8) | 2001 ATC 4508 | 2000 ATC 4659 | 93 CLR 561 | 2011 ATC 20-258 | Superannuation Guarantee Ruling SGR 2005/1: Superannuation guarantee: who is an employee? | Superannuation Guarantee Ruling SGR 2009/1: Superannuation guarantee: payments made to sportspersons. | ATO ID 2002/376 Superannuation guarantee scheme: employment status", "Legislative_References": "Superannuation Guarantee (Administration) Act 1992 Section 11 Subsection 12(1) Subsection 12(3) Subsection 12(8)", "Case_References": "Hollis v Vabu [2001] HCA 44 207 CLR 21 2001 ATC 4508 47 ATR 559 Commissioner of Taxation v Broken Hill Pty Company Ltd [2000] FCA 1431 2000 ATC 4659 45 ATR 507 Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73 93 CLR 561 On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366 2011 ATC 20-258", "Subject_References": "Superannuation guarantee charge Definition of employee", "Other_References": "Superannuation Guarantee Ruling SGR 2005/1: Superannuation guarantee: who is an employee? Superannuation Guarantee Ruling SGR 2009/1: Superannuation guarantee: payments made to sportspersons. ATO ID 2002/376 Superannuation guarantee scheme: employment status", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010-5564-5567/00001", "Unmatched_Content": ""}
{"Case_Name": "Hamad and Commissioner of Taxation", "Venue_Reference_No": "2012/0487", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "9 August 2012", "Date_Published": "28 November 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned the exercise of the discretion to disregard or allocate to another year one or more superannuation contributions made to relieve the taxpayer from excess concessional contributions tax.", "Overview_of_Facts": "The taxpayer had a long-standing salary sacrifice agreement with his employer under which he agreed to forgo certain amounts of salary in exchange for superannuation contributions made by his employer. The agreement did not require the employer to make the relevant contributions at any particular time. | The taxpayer was paid his wages once a month. The taxpayer's payslip recorded the amount of salary sacrificed to fund the employer superannuation contribution. The payslip also separately showed the amount the employer was required to contribute to meet its superannuation guarantee obligations. | The taxpayer received member statements from his superannuation fund twice each financial year for the periods ending 31 December and 30 June. | The employer usually made contributions to the taxpayer's superannuation fund in the month following the sacrifice. However in respect of the salary sacrificed amounts for the months of April, May and June 2009, the employer made a single contribution in July 2009 (after the end of the relevant financial year). | The taxpayer sought review of the Commissioner's decision not to allocate amounts received by the superannuation fund in July 2009 to June 2009. The taxpayer contended that he had had 15 months' worth of superannuation contributions made for him in the 2009-10 financial year as his employer had paid the salary sacrifice contributions for the months of April, May and June 2009 in July 2009. | The taxpayer stated that he was aware of the concessional contributions cap and had tried to stay within it by monitoring his payslips and adjusting his level of salary sacrifice amounts to remain within the relevant caps. His payment summary for the 2009-10 year also supported his belief that his employer had paid only $40,000 in salary sacrifice contributions to his fund for the year. | The taxpayer stated he did not consider the member statement received from his superannuation fund showing when contributions were received by his fund in relation to the periods ending 30 June 2009 or 31 December 2009 when adjusting the salary sacrifice agreement during the 2009-10 financial year. | Issues decided by the Tribunal | The Tribunal had to determine two issues: 1) Whether special circumstances existed under paragraph 292-465(3)(a) of the Income Tax Assessment Act 1997 (ITAA 1997); and 2) Whether making a determination to disregard or to allocate to another year certain of the employer contributions would be consistent with the object of Division 292 of the ITAA 1997 as provided in section 292-5 of ITAA 1997? | 1) Whether special circumstances existed under paragraph 292-465(3)(a) of the Income Tax Assessment Act 1997 (ITAA 1997); and 2) Whether making a determination to disregard or to allocate to another year certain of the employer contributions would be consistent with the object of Division 292 of the ITAA 1997 as provided in section 292-5 of ITAA 1997? | As to first issue, the Tribunal stated at [21] that \" special circumstances do exist in this matter in that, despite his checking his payment advices, the taxpayer was positively misled by his employer, improperly in my opinion, retaining amounts directed to superannuation and making late payments \". | As to the second issue, the Tribunal at [16] stated it would be consistent with the object of Division 292 to allocate the contributions to the earlier financial year as \"[ the taxpayer's ] behaviour confirms he was building up his superannuation by making gradual contributions over the course of his life, as the division intends \". | Accordingly, the Tribunal set aside the Commissioner's objection decision and decided the employer contributions (both superannuation guarantee and salary sacrifice) received by the superannuation fund in July 2009 should be allocated to the financial year ended 30 June 2009.", "Issues_Decided": "The Tribunal had to determine two issues: 1) Whether special circumstances existed under paragraph 292-465(3)(a) of the Income Tax Assessment Act 1997 (ITAA 1997); and 2) Whether making a determination to disregard or to allocate to another year certain of the employer contributions would be consistent with the object of Division 292 of the ITAA 1997 as provided in section 292-5 of ITAA 1997? 1) Whether special circumstances existed under paragraph 292-465(3)(a) of the Income Tax Assessment Act 1997 (ITAA 1997); and 2) Whether making a determination to disregard or to allocate to another year certain of the employer contributions would be consistent with the object of Division 292 of the ITAA 1997 as provided in section 292-5 of ITAA 1997? As to first issue, the Tribunal stated at [21] that \" special circumstances do exist in this matter in that, despite his checking his payment advices, the taxpayer was positively misled by his employer, improperly in my opinion, retaining amounts directed to superannuation and making late payments \". As to the second issue, the Tribunal at [16] stated it would be consistent with the object of Division 292 to allocate the contributions to the earlier financial year as \"[ the taxpayer's ] behaviour confirms he was building up his superannuation by making gradual contributions over the course of his life, as the division intends \". Accordingly, the Tribunal set aside the Commissioner's objection decision and decided the employer contributions (both superannuation guarantee and salary sacrifice) received by the superannuation fund in July 2009 should be allocated to the financial year ended 30 June 2009.", "ATO_View_of_Decision": "The Commissioner will continue to consider each application for the exercise of the discretion in section 292-465 of the ITAA 1997 on its merits. This will involve an examination of the evidence of the contributions made; whether an excess was reasonably foreseeable, including taking into account the control a taxpayer has over the amount; and the timing of any particular contribution, as these are matters the Parliament has chosen to prescribe may be taken into account. | In this case, the Tribunal considered the relevant matters and reached conclusions consistent with its findings on the facts. In particular, the Tribunal accepted that the Taxpayer controlled the amount of the contribution. The Tribunal made findings as to the amounts to be contributed at [8]. However it must also be implied from the statement in [21] that the employer \" improperly ... retained amounts directed to superannuation \" that the Tribunal found the taxpayer did not control the timing of the contributions. It is therefore clear that the Tribunal took account of the taxpayer's capacity to control the timing and amount of the contributions.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | Nil. | Implications for Law Administration Practice Statements | Nil.", "Related_Documents": "N/A | 2012 ATC 10-280 | 292-465 | 2012 ATC 10-257 | [2012] AATA 282 | [2012] AATA 129 | 2012 ATC 10-270 | 2010 ATC 10-145 | [2012] AATA 130 | 2012 ATC 10-251 | 2012 ATC 10-238 | 2012 ATC 10-250 | [2012] AATA 62 | 2012 ATC 10-236", "Legislative_References": "Income Tax Assessment Act 1997 (ITAA 1997) 292-465", "Case_References": "Bornstein and Commissioner of Taxation [2012] AATA 424 2012 ATC 10-257 Kuyper and Commissioner of Taxation [2012] AATA 282 Leckie and Commissioner of Taxation [2012] AATA 129 82 ATR 975 Longcake and Commissioner of Taxation [2012] AATA 576 2012 ATC 10-270 McMennemin and Commissioner of Taxation [2010] AATA 573 2010 ATC 10-145 79 ATR 898 Naude and Commissioner of Taxation [2012] AATA 130 Paget and Commissioner of Taxation [2012] AATA 334 2012 ATC 10-251 Peaker and Commissioner of Taxation [2012] AATA 140 2012 ATC 10-238 Rawson and Commissioner of Taxation [2012] AATA 322 2012 ATC 10-250 Schuuurmans-Stekhoven and Commissioner of Taxation [2012] AATA 62 82 ATR 731 Tran and Commissioner of Taxation [2012] AATA 123 2012 ATC 10-236", "Subject_References": "Excess contributions tax Excess concessional contributions tax", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/0487/00001", "Unmatched_Content": ""}
{"Case_Name": "Hansen Yuncken Pty Ltd v Ian James Ericson trading as Flea's Concreting & Anor", "Venue_Reference_No": "7864/2009", "Venue": "Supreme Court", "Judgment_Date": "14 March 2012", "Date_Published": "25 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case concerning the effect of a garnishee notice and a payment into Court of funds where the Commissioner claimed an entitlement, and in circumstances where priority was the subject of competing claims by other creditors.", "Overview_of_Facts": "Hansen Yuncken the recipient of a notice issued under section 260-5 in Schedule 1 to the Taxation Administration Act 1953 (\"garnishee notice\") paid moneys into Court pending the determination of competing claims to the moneys. The Commissioner expressly reserved his rights to the moneys. | The Commissioner's application to the Supreme Court for payment of the moneys out of Court was unsuccessful. | The Commissioner filed an appeal to the Queensland Court of Appeal from the Supreme Court decision on 11 April 2012, which was subsequently dismissed by consent on 23 July 2012. | Decision to withdraw appeal to QLD Court of Appeal | A sequestration order was made against the tax debtor, Mr Ericson, and consequently all the property of Mr Ericson vested in the trustees, including the debt owed to Mr Ericson by Hansen Yuncken. The garnishee notice was issued after the commencement date of the bankruptcy and accordingly the Commissioner could not on this basis seek to enforce the obligations under the garnishee notice in any event. | Issues decided by the Queensland Supreme Court | 1. The effect of the statutory charge created by the garnishee notice | His Honour McMurdo J at first instance held that the garnishee notice conferred upon the Commissioner a statutory charge over the relevant debt. However, it was a charge in a limited sense, in that it was not a charge which provided the Commissioner with a proprietary interest in the subject debt. | Consequently, when that debt was extinguished, the Commissioner could claim no proprietary entitlement to what was paid to extinguish that debt, that is to say, the moneys held by the court. | 2. The extinguishment of the debt owed by Hansen Yuncken to Mr Ericson | His Honour determined that, by the payment into court, Hansen Yuncken had extinguished its liability to Mr Ericson. Consequently, Hansen Yuncken was no longer a person who owed or might owe money to Mr Ericson for the purposes of the garnishee notice. | Furthermore, his Honour considered that the fact that the Commissioner agreed to the payment into court only on the basis of his express reservations that his rights under the garnishee notice were not prejudiced, could not provide the Commissioner with rights in respect of the moneys which the statute had not conferred on the Commissioner. | Issues decided by the Queensland Court of Appeal | Nil. Appeal dismissed by consent without a hearing on its merits", "Issues_Decided": "1. The effect of the statutory charge created by the garnishee notice: His Honour McMurdo J at first instance held that the garnishee notice conferred upon the Commissioner a statutory charge over the relevant debt. However, it was a charge in a limited sense, in that it was not a charge which provided the Commissioner with a proprietary interest in the subject debt. Consequently, when that debt was extinguished, the Commissioner could claim no proprietary entitlement to what was paid to extinguish that debt, that is to say, the moneys held by the court. | 2. The extinguishment of the debt owed by Hansen Yuncken to Mr Ericson: His Honour determined that, by the payment into court, Hansen Yuncken had extinguished its liability to Mr Ericson. Consequently, Hansen Yuncken was no longer a person who owed or might owe money to Mr Ericson for the purposes of the garnishee notice. Furthermore, his Honour considered that the fact that the Commissioner agreed to the payment into court only on the basis of his express reservations that his rights under the garnishee notice were not prejudiced, could not provide the Commissioner with rights in respect of the moneys which the statute had not conferred on the Commissioner. | Issues decided by the Queensland Court of Appeal: Nil. Appeal dismissed by consent without a hearing on its merits", "ATO_View_of_Decision": "1. The effect of the statutory charge created by the garnishee notice | In so far as his Honour decided that the Commissioner did not have any proprietary interest in the money, the decision is consistent with settled authority. | His Honour's conclusion that the garnishee notice created a statutory charge over the debt is also consistent with the authorities: Clyne v Deputy Commissioner of Taxation (Cth) (1981) 150 CLR 1 (\"Clyne\"), Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238 (\"Macquarie Health\") and Federal Commissioner of Taxation v Donnelly (1989) 25 FCR 432 (\"Donnelly\"). Those authorities establish that the effect of a garnishee notice is to create a statutory charge over any debts then due, or at some later time due, by the recipient of the notice to the taxpayer. | Specifically, Hill J. in Donnelly at 456, found that the service of a garnishee notice creates: • negative rights to prevent the taxpayer accepting payment of the debt or disposing or it; and • positive rights for what is owing under the notice, being the right to give a valid receipt and discharge for the money by the notice recipient; and • in the case of non-payment by the notice recipient, the right to obtain judgment and execution as against the notice recipient: see also Commissioner of Taxation v Barnes Development Pty Ltd [2009] FCA 830 (\"Barnes Developments\"). | • negative rights to prevent the taxpayer accepting payment of the debt or disposing or it; and • positive rights for what is owing under the notice, being the right to give a valid receipt and discharge for the money by the notice recipient; and • in the case of non-payment by the notice recipient, the right to obtain judgment and execution as against the notice recipient: see also Commissioner of Taxation v Barnes Development Pty Ltd [2009] FCA 830 (\"Barnes Developments\"). | Thus, the effect of the garnishee notice is that the Commissioner has a secured interest in the chose of action that accrues to the extent of the amount required to be paid under the garnishee notice. | 2. Extinguishment of the debt by the payment into court | His Honour's view that the payment of monies, which is the subject of a garnishee notice, into court extinguishes the obligation of the recipient of the notice to comply with the notice is inconsistent with the earlier authorities of Commissioner of Taxation v Government Insurance Office of New South Wales (1992) 36 FCR 314 (\"GIO\") and Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238 (\"Macquarie Health\"). | There appears to be no basis for distinguishing GIO and Macquarie Health in this matter. It is the Commissioner's view, conformably with GIO and Macquarie Health , that payment into court provides a practical mechanism for a recipient of a garnishee notice, in the face of competing claims, to allow proper consideration by the Court as to whom his debt is to be paid. Such payment does not extinguish the debt owed by the notice recipient to the taxpayer particularly in circumstances where the Commissioner expressly reserve his rights prior to the payment being made into court. Rather, the money is placed into the temporary custody of the court whilst the parties await judicial determination as to who is entitled to the money. The use of this mechanism simply allows the notice recipient/judgment debtor to avoid exposure to legal claims for its failure to comply with the terms of the Court's order; or the obligations under the Commissioner's garnishee notice. | Furthermore, it is the Commissioner's view that the effect of the decision of Hill J. in Donnelly is such that, by the operation of s260-5, the Commissioner had negative rights which accrued and prevented Mr Ericson from accepting payment of the debt, or otherwise disposing of the debt, owed to him by Hansen Yuncken. Conformably with this view and with due respect, it may have been unnecessary for his Honour to explore whether the Commissioner has proprietary rights in the money that as paid into Court by Hansen Yuncken. Rather, it was open to the Court to proceed on the basis that Mr Ericson was statutorily prohibited from accepting that payment in reduction of the debt owed to him by Hansen Yuncken. The ultimate effect being that the debt owed by Hansen Yuncken had not been extinguished by the payment into Court and as such the Commissioner's statutory rights persisted. | Finally, the effect of his Honour's decision is that the Commissioner would, conformably with the decision in Barnes Developments , have independent rights to bring action in debt against the notice recipient for incorrectly paying amounts into court rather than in accordance with the statutory obligation in s260-5. It is the Commissioner's view that this is a reasonably open consequence of his Honour's decision in this matter.", "Administrative_Treatment": "The Commissioner considers that the decision as it relates to the extinguishment of a debt by payment into court may be inconsistent with the decisions in GIO and Macquarie Health . The Commissioner proposes to raise this issue in future cases to seek clarity on any conflicting authorities. | The Commissioner will continue to permit the payment into court of moneys that is the subject of a garnishee notice and to which there exist competing claims. However, so as to avoid any unnecessary litigation, the Commissioner will only be agreeable to this course of action where all parties expressly agree that the payment into court by the notice recipient is not intended to, nor does it, extinguish the liability owed by the notice recipient to the tax debtor. | In circumstances where a notice recipient has paid money into court without the knowledge of the Commissioner, the Commissioner reserves his rights in appropriate instances to: • seek to enforce his rights under the garnishee notice such that any moneys paid into Court do not affect the Commissioner's statutory rights under s260-5; or • institute proceedings in debt as against the notice recipient for incorrectly paying amounts into court rather than in accordance with the statutory obligation imposed by s260-5 | • seek to enforce his rights under the garnishee notice such that any moneys paid into Court do not affect the Commissioner's statutory rights under s260-5; or • institute proceedings in debt as against the notice recipient for incorrectly paying amounts into court rather than in accordance with the statutory obligation imposed by s260-5", "Related_Documents": "N/A | [2012] QSC 51 | 2012 ATC 20-307 | 260-5 of Schedule 1 | 81 ATC 4429 | 2009 ATC 20-125 | 89 ATC 5071 | 92 ATC 4295 | 2000 ATC 4015 | (1993) 43 NSWLR 484 | (1961) 108 CLR 84 | 2009 ATC 20-121", "Legislative_References": "Taxation Administration Act 1953 260-5 of Schedule 1", "Case_References": "Clyne v Deputy Federal Commissioner of Taxation (1981) 150 CLR 1 12 ATR 173 81 ATC 4429 Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation [2009] HCA 32 72 ATR 856 2009 ATC 20-125 Tricontinental Corporation Ltd v Commissioner of Taxation [1988] 1 Qd R 474 18 ATR 827 Deputy Commissioner of Taxation (NSW) v Donnelly & Ors (1989) 25 FCR 432 89 ATC 5071 20 ATR 1331 Commissioner of Taxation v Government Insureance Office of New South Wales (1992) 36 FCR 314 23 ATR 378 92 ATC 4295 Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238 43 ATR 650 2000 ATC 4015 Blacktown Concrete Services Pty Ltd v Ultra Refurbishing & Construction Pty Ltd (in liq) (1993) 43 NSWLR 484 143 FLR 372 Bond v McClay [1903] StRQd 1 Emanuel v Bridger (1874) LR 9 QB 286 Hall v Richards (1961) 108 CLR 84 Commissioner of Taxation v Barnes Development Pty Ltd [2009] FCA 830 2009 ATC 20-121 (2009) 76 ATR 570", "Subject_References": "Garnishee notice Statutory charge Moneys paid into court by recipient of garnishee notice pending resolution of dispute over moneys Compliance with garnishee notice Commissioner's entitlement to the moneys paid into court", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/7864/2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Hopkins v Federal Commissioner of Taxation", "Venue_Reference_No": "2010/3063; 2010/3064; 2010/3062", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 May 2012", "Date_Published": "17 August 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned the assessment of the net income of a trust.", "Overview_of_Facts": "The applicants were objects of a discretionary trust in respect of whom the trust income could be appointed. The trust deed provided that the trustee was required to exercise its discretion to appoint income by 30 June of each year. It further provided that if the trustee failed to appoint the trust income by that date, the income was taken to have been paid or applied for the benefit of certain beneficiaries (default beneficiaries) in equal shares. The applicants were also within the class of default beneficiaries. | The discretionary trust was a unit holder in a unit trust. In the years ended 30 June 2004 and 2005 the unit trust participated in an Employee Entitlement Fund scheme (EEF). The EEF deductions were disallowed, resulting in an increase in the net income of the unit trust and, in the Commissioner's view, an increase in the net income of the discretionary trust. | The Commissioner issued amended assessments to the applicants, increasing their assessable income by their share of increased net income of the discretionary trust. That share was determined by reference to the 2004 and 2005 income tax returns of the discretionary trust. The returns disclosed that the applicants were the only beneficiaries presently entitled to income of the trust in the 2004 year (other than a person who was subsequently discovered not to be a beneficiary); and the applicant, Ronald Hopkins was the only beneficiary entitled to income of the trust for the 2005 year. | After the amended assessments were affirmed on objection, the applicants applied to the Administrative Appeals Tribunal for a review of the objection decision. | The applicants agreed that the EEF deductions were not allowable, so the only issue in dispute at the hearing was whether any additional amount should be assessed to the applicants in their capacity as beneficiaries of the discretionary trust as a result of the increase in the net income of the unit trust. | The applicants sought a review on a number of grounds, including that: - the trustee of the discretionary trust had not exercised its discretion to appoint income to the applicants by 30 June, - the applicants had disclaimed their entitlement to the income of the discretionary trust for the relevant income years, and - there was no income of the unit trust (and therefore no share of the net income of that trust should be included in the net income of the discretionary trust) - the basis of this argument being that the trust accounts for the unit trust had been prepared incorrectly. | - the trustee of the discretionary trust had not exercised its discretion to appoint income to the applicants by 30 June, - the applicants had disclaimed their entitlement to the income of the discretionary trust for the relevant income years, and - there was no income of the unit trust (and therefore no share of the net income of that trust should be included in the net income of the discretionary trust) - the basis of this argument being that the trust accounts for the unit trust had been prepared incorrectly. | During the course of the hearing the applicants abandoned the disclaimer argument. | Issues decided by the tribunal | The Tribunal found that the trustee of the discretionary trust had not made a valid resolution to distribute the income of the trust by 30 June of the relevant years. [paragraph 51] | As a result, the default distribution clause operated to deem the income of the trust to have been paid or applied for the benefit of 46 default beneficiaries (including the applicants) in equal shares. [paragraphs 52 and 53] | As the applicants were only assessable in the relevant income years on a 1/46 share of the trust's net income, the Tribunal found that the amended assessments were excessive. [paragraph 56] Consequently the Tribunal found it unnecessary to consider the other arguments raised by the parties. [paragraph 56]", "Issues_Decided": "The Tribunal found that the trustee of the discretionary trust had not made a valid resolution to distribute the income of the trust by 30 June of the relevant years. [paragraph 51] As a result, the default distribution clause operated to deem the income of the trust to have been paid or applied for the benefit of 46 default beneficiaries (including the applicants) in equal shares. [paragraphs 52 and 53] As the applicants were only assessable in the relevant income years on a 1/46 share of the trust's net income, the Tribunal found that the amended assessments were excessive. [paragraph 56] Consequently the Tribunal found it unnecessary to consider the other arguments raised by the parties. [paragraph 56]", "ATO_View_of_Decision": "The Commissioner agrees that, on the Tribunal's finding of fact, the amended assessments were excessive. | In coming to that conclusion the Tribunal found it unnecessary to consider whether there was income of the unit trust for the relevant years to which the trustee of the discretionary trust was presently entitled (the third ground of review referred to above). | While the question was not decided in the present case, the Commissioner maintains the view that what must be determined in analogous situations is whether the trustee's original calculation of the income of the trust was in accordance with the deed. If the original calculation was in accordance with the deed, the Commissioner does not accept that it is open to a party (not a beneficiary of that trust) to later argue that the trustee should have calculated the trust income in a different manner.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None. Whilst the Commissioner relies on information provided in tax returns to make assessments of tax liability, guidelines setting out the ATO's approach to prosecutions, including in respect of the making of false and misleading statements such as in a tax return, are already set out in ATO prosecution guidelines (CMPI 2007/02/02 to be read in conjunction with PS CM 2007/02 Fraud control and the prosecution process).", "Related_Documents": "None | 2012 ATC 10-249 | Section 97 | 2011 ATC 20-235", "Legislative_References": "Income Tax Assessment Act 1936 Section 97", "Case_References": "Colonial First State Investments v Federal Commissioner of Taxation [2011] FCA 16 2011 ATC 20-235 81 ATR 772", "Subject_References": "Discretionary trust Employee entitlement fund scheme deductions Present entitlement Net income of the trust Trust income", "Other_References": "ATO prosecution guidelines CMPI 2007/02/02 (Internal link only) Fraud control and the prosecution process (Internal link only)", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/3063/00001", "Unmatched_Content": ""}
{"Case_Name": "Howard v Commissioner of Taxation", "Venue_Reference_No": "High Court (M115 of 2012)", "Venue": "Federal Court of Australia", "Judgment_Date": "", "Date_Published": "14 August 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether distributions of trust corpus received by an Australian resident individual in the 2006 income year from a Jersey Trust were assessable income of the taxpayer in that year.", "Overview_of_Facts": "The Esparto Trust was established in the Isle of Jersey. The trustee of the trust was also a resident of Jersey. | Shares in a company incorporated in Jersey, Esparto Ltd, were held by the Esparto Trust via two other companies acting as nominees (trustees of trusts again established in Jersey). One of these companies was called Juris Ltd and the trust of which it was a trustee was referred to as the Juris Trust. | The taxpayer, Mr Howard, an Australian resident, was a beneficiary of the Esparto Trust. | During the 2006 year, Mr Howard had paid to or applied for his benefit certain amounts totalling $6,339,733. The amounts consisted of distributions of corpus of the Esparto Trust that were sourced from corpus distributions from the Juris Trust and were received by the trustee of the Esparto Trust in its capacity as beneficiary of the Juris Trust. The distributions of corpus from the Juris Trust were in turn sourced from the proceeds of a share buyback received by the trustee of the Juris Trust in connection with a purchase back by Esparto Ltd of the shares held in the company by the trustee. | Thus in summary the facts were: Esparto Ltd paid an amount to the trustee of the Juris Trust in connection with a share buyback, a distribution of corpus was then made in favour of the trustee of the Esparto Trust which in turn made a distribution of corpus in favour of Mr Howard. | The Commissioner assessed Mr Howard on the basis that the amounts received by Mr Howard during the 2006 year from the Esparto Trust formed part of his assessable income for that year. | Administrative shortfall penalty was imposed at 75% for intentional disregard of the law. | Issues Decided by the Court | 1. Whether the amounts received by Mr Howard during the 2006 year from the Esparto Trust formed part of his assessable income for that year; and | 2. Whether, if so, an administrative penalty should be imposed. | Assessability of amounts received by Mr Howard | The Full Federal Court held that the amounts received by Mr Howard were included in his assessable income under subsection 99B(1) of the Income Tax Assessment Act 1936 . This was so because: - the amounts met the statutory description of 'property of a trust estate ... paid to, or applied for the benefit of, a beneficiary of the trust estate who was a resident at any time during the year of income'; and - subsection 99B(2) did not apply to reduce what would otherwise be included in Mr Howard's assessable income under subsection (1): while the amounts paid to or applied for the benefit of Mr Howard represented corpus of the Esparto trust estate, they were also 'attributable to amounts derived by [the Esparto Trust estate, namely distributions of corpus from the Juris Trust received by the trustee of the Esparto Trust] that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer' (see paragraph 99B(2)(a)). | - the amounts met the statutory description of 'property of a trust estate ... paid to, or applied for the benefit of, a beneficiary of the trust estate who was a resident at any time during the year of income'; and - subsection 99B(2) did not apply to reduce what would otherwise be included in Mr Howard's assessable income under subsection (1): while the amounts paid to or applied for the benefit of Mr Howard represented corpus of the Esparto trust estate, they were also 'attributable to amounts derived by [the Esparto Trust estate, namely distributions of corpus from the Juris Trust received by the trustee of the Esparto Trust] that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer' (see paragraph 99B(2)(a)). | The Full Court concluded that the distributions of corpus from the Juris Trust to the trustee of the Esparto Trust would have been included in the assessable of a resident taxpayer if they had been derived by such a taxpayer. This conclusion itself followed from the conclusion that the amounts received by the Juris Trust estate from Esparto Ltd would have been assessable income of the Juris Trust had the trustee of the Juris Trust been a resident taxpayer. | The Court explained this point as follows: 41. ...Section 99B(2)(a) will simply apply as many times as there are interposed layers of trusts. Each application of s 99B(2)(a) leads to a hypothetical question about whether the amounts received by the trust estate would have been assessable income if they had been earned by a resident taxpayer. Once an answer to that question is known at the level of the deepest trust the answer cascades back up to the original (genuine) resident taxpayer. To unpick that slightly: if the Juris Trust estate had been a resident taxpayer and the amounts received by it had been assessable income, then the amounts received by the Esparto Trust, although corpus, would have fallen within the parenthetic excision in s 99B(2)(a) and would have been assessable income in its hands. This, in turn, provides the affirmative answer to the question posed by s 99B(2)(a) as to whether the amounts received by the Esparto Trust estate would have been assessable income on the hypothesis that the Esparto Trust estate was a resident taxpayer. But it is that answer on that hypothesis which applies to Mr Howard himself... | The amounts received by the Juris Trust estate from Esparto Ltd would have been assessable income had it been a resident taxpayer because \"that hypothetical taxpayer would have been required to include in its assessable income the dividends paid out of profits deemed by s 159GZZZP(1) to have existed and by s 44(1)(a)(i) to have been assessable\" (para 45). (Subsection 159GZZZP(1) deems the proceeds of an off-market share buyback above paid-up capital to be a dividend paid out of profits and paragraph 44(1)(a) includes in the assessable income of a resident shareholder of a company dividends paid to the shareholder by the company out of profits derived by it from any source.) | Penalty | The primary judge found that, rather than showing intentional disregard of the law or recklessness as to the operation of the law, Mr Howard had instead failed to take reasonable care to comply with a taxation law. | The Full Court held that Jessup J's conclusion that Mr Howard's shortfall did not result from an intentional disregard of the law or recklessness as to the operation of the law was \"plainly correct\" (para 56). The Full Court also agreed with the primary judge's conclusion that the taxpayer had failed to take reasonable care to comply with a taxation law and accordingly an administrative penalty applied at the rate of 25%. While Mr Howard had sought advice from counsel, he had not referred them to the fact that his return of capital had proceeded from a share buyback. The Full Court observed that: 61. ... [i]t was the critical effect of s 159GZZZP(1) which transformed the distribution to income. The lack of reasonable care identified by the primary judge related to the failure of Mr Howard, once he was aware that return of capital was to be accomplished using the means of a share buy-back, to take further advice on the issue.", "Issues_Decided": "1. Whether the amounts received by Mr Howard during the 2006 year from the Esparto Trust formed part of his assessable income for that year; and 2. Whether, if so, an administrative penalty should be imposed. | Assessability of amounts received by Mr Howard: The Full Federal Court held that the amounts received by Mr Howard were included in his assessable income under subsection 99B(1) of the Income Tax Assessment Act 1936 . This was so because: - the amounts met the statutory description of 'property of a trust estate ... paid to, or applied for the benefit of, a beneficiary of the trust estate who was a resident at any time during the year of income'; and - subsection 99B(2) did not apply to reduce what would otherwise be included in Mr Howard's assessable income under subsection (1): while the amounts paid to or applied for the benefit of Mr Howard represented corpus of the Esparto trust estate, they were also 'attributable to amounts derived by [the Esparto Trust estate, namely distributions of corpus from the Juris Trust received by the trustee of the Esparto Trust] that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer' (see paragraph 99B(2)(a)). - the amounts met the statutory description of 'property of a trust estate ... paid to, or applied for the benefit of, a beneficiary of the trust estate who was a resident at any time during the year of income'; and - subsection 99B(2) did not apply to reduce what would otherwise be included in Mr Howard's assessable income under subsection (1): while the amounts paid to or applied for the benefit of Mr Howard represented corpus of the Esparto trust estate, they were also 'attributable to amounts derived by [the Esparto Trust estate, namely distributions of corpus from the Juris Trust received by the trustee of the Esparto Trust] that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer' (see paragraph 99B(2)(a)). The Full Court concluded that the distributions of corpus from the Juris Trust to the trustee of the Esparto Trust would have been included in the assessable of a resident taxpayer if they had been derived by such a taxpayer. This conclusion itself followed from the conclusion that the amounts received by the Juris Trust estate from Esparto Ltd would have been assessable income of the Juris Trust had the trustee of the Juris Trust been a resident taxpayer. The Court explained this point as follows: 41. ...Section 99B(2)(a) will simply apply as many times as there are interposed layers of trusts. Each application of s 99B(2)(a) leads to a hypothetical question about whether the amounts received by the trust estate would have been assessable income if they had been earned by a resident taxpayer. Once an answer to that question is known at the level of the deepest trust the answer cascades back up to the original (genuine) resident taxpayer. To unpick that slightly: if the Juris Trust estate had been a resident taxpayer and the amounts received by it had been assessable income, then the amounts received by the Esparto Trust, although corpus, would have fallen within the parenthetic excision in s 99B(2)(a) and would have been assessable income in its hands. This, in turn, provides the affirmative answer to the question posed by s 99B(2)(a) as to whether the amounts received by the Esparto Trust estate would have been assessable income on the hypothesis that the Esparto Trust estate was a resident taxpayer. But it is that answer on that hypothesis which applies to Mr Howard himself... The amounts received by the Juris Trust estate from Esparto Ltd would have been assessable income had it been a resident taxpayer because \"that hypothetical taxpayer would have been required to include in its assessable income the dividends paid out of profits deemed by s 159GZZZP(1) to have existed and by s 44(1)(a)(i) to have been assessable\" (para 45). (Subsection 159GZZZP(1) deems the proceeds of an off-market share buyback above paid-up capital to be a dividend paid out of profits and paragraph 44(1)(a) includes in the assessable income of a resident shareholder of a company dividends paid to the shareholder by the company out of profits derived by it from any source.) | Penalty: The primary judge found that, rather than showing intentional disregard of the law or recklessness as to the operation of the law, Mr Howard had instead failed to take reasonable care to comply with a taxation law. The Full Court held that Jessup J's conclusion that Mr Howard's shortfall did not result from an intentional disregard of the law or recklessness as to the operation of the law was \"plainly correct\" (para 56). The Full Court also agreed with the primary judge's conclusion that the taxpayer had failed to take reasonable care to comply with a taxation law and accordingly an administrative penalty applied at the rate of 25%. While Mr Howard had sought advice from counsel, he had not referred them to the fact that his return of capital had proceeded from a share buyback. The Full Court observed that: 61. ... [i]t was the critical effect of s 159GZZZP(1) which transformed the distribution to income. The lack of reasonable care identified by the primary judge related to the failure of Mr Howard, once he was aware that return of capital was to be accomplished using the means of a share buy-back, to take further advice on the issue.", "ATO_View_of_Decision": "Assessability of amounts received by Mr Howard | As to the court's approach to the existence of a nominee structure between the Esparto Trust and Esparto Ltd, see below under the heading 'Administrative Treatment'. | As to court's approach to the application of section 99B, the views expressed by the Full Court (applying to a distribution of corpus from a non-resident trust estate), including its approach to paragraph 99B(2)(a), are consistent with the Commissioner's view regarding the operation of the section. | One point regarding the Full Court's treatment of section 99B is however worthy of note. | In considering the assessability of the amounts received by Mr Howard, the Full Court found it unnecessary to consider first the application of section 97. This was so although the framework of Division 6 gives priority to the operation of section 97: by reason of subparagraph 99B(2)(c)(i), the amount that would otherwise be included in assessable income under subsection 99B(1) is reduced by 'so much of the amount as represents ... (c) an amount: (i) that is or has been included in the assessable income of the beneficiary in pursuance of section 97 ...'. | At first instance, Jessup J analysed in detail the operation of section 97 to the affairs of Mr Howard. Jessup J's conclusion was that of the sum of $6,339,733 distributed to Mr Howard: - $3,944,682.61 was included in his assessable income under section 97 (this figure being Mr Howard's share of the net income of the Esparto Trust as calculated using the methodology prescribed in section 96C (specifically in subsection 96C(2)) as required by section 96B) and; - the balance, $2,395,050.39 was included in his assessable income under section 99B. (Refer para 182 of Jessup J's judgment) | - $3,944,682.61 was included in his assessable income under section 97 (this figure being Mr Howard's share of the net income of the Esparto Trust as calculated using the methodology prescribed in section 96C (specifically in subsection 96C(2)) as required by section 96B) and; - the balance, $2,395,050.39 was included in his assessable income under section 99B. | (Refer para 182 of Jessup J's judgment) | The Full Court was able to confine its consideration to the application of section 99B because 51 ... whatever is not included under s 97 will [in this case] be included by the necessary operation of s 99B(2)(c). That provision is a catch-all and, if necessary, as such is apt to catch the whole of the distribution to Mr Howard even if it be not brought to tax under s 97. | Note: while sections 96B and 96C have been repealed, with the repeal taking effect from the 2010-11 year of income, the statutory scheme remains otherwise as described by the Court.", "Administrative_Treatment": "As noted above, the relevant shares that were bought back were held by the Esparto Trust via Juris Ltd, pursuant to a nominee arrangement. The remaining shares held by the Esparto Trust in Esparto Ltd were also held via another entity, again under a nominee arrangement. | As also noted above, in contrast to the approach adopted by the Full Court, Jessup J approached the case by first determining how much of the amount received by Mr Howard was assessable to him under section 97, before considering the application of section 99B to the remainder. | In recognition of the nature of the existence of the nominee arrangements, the Commissioner put forward various alternative arguments as to how sections 159GZZZP(1), 44, 96B, 96C and 97 worked together to assess Mr Howard on a share of the net income of the Esparto Trust. | Justice Jessup however proceeded on the basis that \"the existence of Juris between [the trustee of the Esparto Trust] and Esparto [Ltd] cannot be ignored\" (para 112). His Honour observed that the \"reality\" of the case was that Juris Ltd as trustee was the registered holder of the shares in Esparto Ltd that were bought back, not the trustee of the Esparto Trust (para 146): In the present case, there was on any view a distinct trust, albeit a very simple one, interposed between [the trustee of the Esparto Trust] and the share register of Esparto.. [para 156] | This approach is consistent with the Commissioner's view as expressed in the Decision Impact Statement for Colonial First State Investment Ltd v Commissioner of Taxation [2011] FCA 16 that: ... so-called 'bare trusts' (including those referred to as nominee or custodian arrangements) are recognised for all income tax purposes (except pursuant to relevant CGT provisions and in cases materially the same as those in Colonial First State). | Nonetheless, as stated in that DIS: ... the Commissioner understands that there is a current practice of essentially ignoring bare trusts for most income tax purposes, except in situations where the trustee has an obligation to withhold tax or is otherwise liable to pay tax in respect of a beneficiary (for example, pursuant to section 98 of the ITAA 1936)... | The Commissioner therefore concluded in the DIS that: ... notwithstanding his view on this issue, the Commissioner will not generally seek to disturb the current practice (as described above) while [reform options to address this issue] are being considered [by Government]. | Amendments to the law to address the position of bare trusts of the type contemplated in the Colonial First State DIS have not to date been legislated. However, in recognition of the continued prevalence of the practice of essentially ignoring bare trusts for most income tax purposes, and the minimal risk associated with this practice in most instances, the Commissioner proposes to maintain the approach to bare trusts that he has taken in that DIS. We propose to consult with practitioners about the best way to more formally restate this approach. | Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | N/A | Implications for impacted Law Administration Practice Statements | N/A", "Related_Documents": "Decision Impact Statement | N/A | High Court | Full Federal Court | 2012 ATC 20-355 | Div 6 Pt III | sections 44(1) | 95 | 97 | 99B | 159GZZZP(1) | 264 | subparagraph 14ZZO(b)(i) | subsection 284-90(1) of Schedule 1 | (2011) 2011 ATC 20-235 | (1986) 86 ATC 4171 | (2007) 2007 ATC 4731 | (2011) 2011 ATC 20-298 | (1969) 69 ATC 4084", "Legislative_References": "Income Tax Assessment Act 1936 Div 6 Pt III sections 44(1) 95 96B 96C 97 99B 159GZZZP(1) 264 Taxation Administration Act 1953 subparagraph 14ZZO(b)(i) subsection 284-90(1) of Schedule 1", "Case_References": "Colonial First State Investment Ltd v Commissioner of Taxation (2011) 192 FCR 298 [2011] FCA 16 (2011) 81 ATR 772 (2011) 2011 ATC 20-235 Federal Commissioner of Taxation v Comber (1986) 10 FCR 88 (1986) 17 ATR 413 (1986) 86 ATC 4171 Federal Commissioner of Taxation v R & D Holdings Pty Ltd (2007) 160 FCR 248 [2007] FCAFC 107 (2007) 2007 ATC 4731 (2007) 67 ATR 790 Howard v Commissioner of Taxation (No 2) [2011] FCA 1421 (2011) 2011 ATC 20-298 (2011) 86 ATR 753 Union Fidelity Trustee Company of Australia Limited v Federal Commissioner of Taxation (1969) 119 CLR 177 [1969] HCA 36 (1969) 69 ATC 4084 (1969) 1 ATR 200", "Subject_References": "Income Tax Non-resident trusts Trust distributions Discretionary trusts", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M115of2012/00001", "Unmatched_Content": "Note: A separate aspect of the Howard litigation concerned whether an award of equitable damages was received by the taxpayer in his personal capacity or as constructive trustee for Disctronics Ltd or was assigned such that it was otherwise not derived beneficially by the taxpayer. This aspect of the litigation is dealt within a separate Decision Impact Statement . | This decision has no impact for ATO precedential documents and Law Administration Practice Statements"}
{"Case_Name": "Interhealth Energies Pty Ltd as Trustee of the Interhealth Superannuation Fund v Commissioner of Taxation", "Venue_Reference_No": "QUD 187 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "17 December 2012", "Date_Published": "8 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case concerning the trustee's application that the Commissioner was not the Regulator and whether the trustee complied with its undertaking under section 262A of the Superannuation Industry Supervision Act 1993 (SISA).", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "The Full Court applied established case law in refusing Interhealth's application to advance a ground on appeal that was not raised at first instance. While not needing to decide the matter, the Full Court's observations that the Commissioner was the correct Regulator pursuant to subsection 10(4) of the SISA are consistent with the Commissioner's views on the application of this provision. | The decision of Logan J at first instance is also consistent with the Commissioner's views on the operation of section 262A of the SISA. His Honour confirmed that the Commissioner may apply to the Court for enforcement of undertakings provided by trustees of superannuation funds regulated by the Commissioner and that the provision has broad application. | The comments of Logan J that Interhealth had not collected payments of unpaid distributions owed to the ISF by the Greenhaven Unit Trust, through the acquisition of additional units in that trust, need to be considered in the context of the enforceable undertaking under consideration and in light of the specific facts of this case. His Honour emphasised at [58] that the collection requirement in the enforceable undertaking was not to be read in isolation from the other principal requirement of the undertaking, which was to pay out in full Mr Wilson's entitlements by 30 May 2008, which required liquid funds. Consequently, the Commissioner does not consider that this decision impacts on the views expressed in SMSFD 2007/1 and SMSFR 2009/3.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "N/A | [2012] FCAFC 185 | 6 | 10 | 10(4) | 17A | 40 | 42 | 42A | 262A | (2004) 216 CLR 109 | [2004] HCA 7 | [2012] NSWCA 123 | (1986) 162 CLR 1 | [1985] Ch 270 | [1984] 2 All ER 750 | [2008] FCAFC 128 | [2001] HCA 24 | [1985] HCA 28 | (1915) 20 CLR 425 | (1988) 180 CLR 491", "Legislative_References": "Superannuation Industry (Supervision) Act 1993 (Cth) 6 10 10(4) 17A 40 42 42A 262A", "Case_References": "Alexander v Perpetual Trustees WA Limited (2004) 216 CLR 109 [2004] HCA 7 Association of Quality Child Care Centres of New South Wales v Manefield [2012] NSWCA 123 Coulton v Holcombe (1986) 162 CLR 1 [1986] HCA 33 Cowan v Scargill [1985] Ch 270 [1984] 2 All ER 750 Hussain v Minister for Foreign Affairs (2008) 169 FCR 241 [2008] FCAFC 128 Liftronic Pty Ltd v Unver [2001] HCA 24 Metwally (No 2) v University of Wollongong [1985] HCA 28 Re Speight (1883) 22 Ch D 727 R v Kidman (1915) 20 CLR 425 Repatriation Commission v Warren (2008) 167 FCR 511 [2008] FCAFC 64 Rizhao Steel Holding Group Co Ltd v Koolan Iron Ore Pty Ltd [2012] WASCA 50 Water Board v Moustakas (1988) 180 CLR 491 [1988] HCA 12", "Subject_References": "Raising new point on appeal Self managed superannuation fund Enforceable undertaking pursuant to s 262A Superannuation Industry (Supervision) Act 1993 (Cth) Breach of undertaking Statutory and common law duties by trustee Award of compound interest Commissioner of Taxation as 'Regulator' under Superannuation Industry (Supervision) Act", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD187of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Intoll Management Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 567/2012", "Venue": "Federal Court of Australia", "Judgment_Date": "11 December 2012", "Date_Published": "7 September 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns the application of section 23AJ of the ITAA 1936 to dividends paid to a trustee, where that entity was the trustee of a trust which elected to be treated as the head company of a consolidated group.", "Overview_of_Facts": "In 1996, a public trading trust within the terms of Division 6C of the Income Tax Assessment Act 1936 (ITAA 1936) was established by Deed of Trust (the 'Trust'). | The Trust was a 'public trading trust' under Division 6C of the ITAA 1936 until the year ended 30 June 2004. | The Trust had several sources of income, but importantly for the purposes of the proceedings in the matter before the Full Federal Court, it held shares in two foreign corporations. | The Trust made a choice to form a tax consolidated group effective 1 July 2003 and is the head company of that group. | As trustee of the Trust, the taxpayer owned 13.4% of the shareholding in Macquarie Infrastructure (Luxembourg) SA (MILSA) and 13.4% of the shareholding in Macquarie Infrastructure (Toll Route) SA (MITRSA). MILSA and MITRSA are companies incorporated in Luxembourg and are not Australian residents for the purposes of Part X of the ITAA 1936. | On 2 November, 2004 the applicant received the following dividends: • $127,606,402 from MILSA in respect of the applicant's MILSA shares, and • $55,716,657 from MITRSA in respect of the applicant's MITRSA shares. | • $127,606,402 from MILSA in respect of the applicant's MILSA shares, and • $55,716,657 from MITRSA in respect of the applicant's MITRSA shares. | The Trust, as an assumed head company of a consolidated group, lodged a tax return for the year ended 30 June 2005 on 3 April 2006. It excluded the MILSA and MITRSA dividends from its assessable income on the basis that section 23AJ of the ITAA 1936 treated them as non assessable non exempt dividends; ie, non-portfolio dividends satisfying the section 317 of the ITAA 1936 definition. A deemed assessment for the year ended 30 June 2005 arose upon the applicant's lodgment of the return. | The Commissioner amended the Trust's (the 'assumed company's') assessment by notice issued on 18 February 2011 and included the MILSA and MITRSA dividends in the Trust's assessable income. | Issues decided by the court | The issues relevantly before the Court were: • if section 44 of the ITAA 1936 would otherwise operate to include the dividends in assessable income of the Trust, now an assumed company under Subdivision 713-C of Pt 3-90 of the ITAA 1997, whether section 23AJ of the ITAA 1936 operated to exclude the dividends received by the taxpayer from two non-resident companies from assessable income. At the centre of the issue was that section 23AJ of the ITAA 1936 did not treat dividends as non-assessable non-exempt income received by an Australian resident company in circumstances where: (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. • if the taxpayer was unsuccessful on the first issue, whether the Commissioner was bound by his Taxation Determination TD 2008/25: Sch 1, section 357-60 of the Taxation Administration Act 1953 (the \"TAA 1953\"). | • if section 44 of the ITAA 1936 would otherwise operate to include the dividends in assessable income of the Trust, now an assumed company under Subdivision 713-C of Pt 3-90 of the ITAA 1997, whether section 23AJ of the ITAA 1936 operated to exclude the dividends received by the taxpayer from two non-resident companies from assessable income. At the centre of the issue was that section 23AJ of the ITAA 1936 did not treat dividends as non-assessable non-exempt income received by an Australian resident company in circumstances where: (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. • if the taxpayer was unsuccessful on the first issue, whether the Commissioner was bound by his Taxation Determination TD 2008/25: Sch 1, section 357-60 of the Taxation Administration Act 1953 (the \"TAA 1953\"). | (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. | The Full Federal Court unanimously allowed the taxpayer's appeal. | Issue 1 | The first issue was whether, if section 44 of the ITAA 1936 would otherwise apply to treat the dividends received from the foreign companies, Subdivision 713-C of the Income Tax Assessment Act 1997 (ITAA 1997) would also allow section 23AJ of the ITAA 1936 to apply to those dividends so as to exclude them from assessable income. | The taxpayer argued that Subdivision 713-C of the ITAA 1997 treated the Trust as a company, and for that reason it had the effect of deeming the Trust to be the beneficial owner of the shares within the meaning of section 160AFB(4) of the ITAA 1936 and that section 23AJ of the ITAA 1936 applies to make the dividends non assessable, non exempt income. | The Commissioner contended that the exemption in section 23AJ of the ITAA 1936 does not apply because the taxpayer is the trustee and not the beneficial owner of the shares. The Trust (as head company) is assessable under s 44 on receipt of the dividends. | On the interaction between the provisions, their Honours outlined at [37] that: \"... the words of ss713-135 and 713-140 are clear, they apply equally to s23AJ as they do to s44 of the 1936 Act .\" | In determining the applicability of section 23AJ of the ITAA 1936, their Honours said, at [39-40]: \" It is the Trust which (as head company) is assessed on having derived the dividends. The assessment is not issued to a beneficiary or some actual or intended trust estate of which the Trust is the trustee (even if the Trust as trustee were a meaningful, relevant concept ). The Trust does not receive the dividend as trustee, but for its own benefit as an assumed company, so as to be assessable upon it under s 44, subject to the operation of s 23AJ .\" | Issue 2 | Although the Court found it unnecessary to consider Issue 2, that is, whether Tax Determination TD 2008/25 would have bound the Commissioner to allow the taxpayer the benefit of section 23AJ of the ITAA 1936, the Court made the following comments and observations obiter dictum. | The Full Federal Court was of the view that the Tax Determination was expressed in such a way that it would have bound the Commissioner to allow the taxpayer the beneficial treatment provided for by section 23AJ of the ITAA 1936. | The Tax Determination was divided into several parts, with headings such as 'Question', 'Ruling' (which purported to answer the question posed by the 'Question' the Tax Determination was attempting to deal with), 'Explanation', 'Date of Effect' amongst other items. | Paragraph 20 of Tax Determination TD 2008/25 reads as follows: \"Subdivision 713-C of the ITAA 1997 contains special provisions that allow a corporate unit trust or public trading trust that chooses to form a consolidated group to be treated like the head company of the group, and in turn to be regarded as a company for most income tax purposes. Therefore, although an Australian resident company receiving a dividend in its capacity as trustee of a trust is specifically excluded from section 23AJ of the ITAA 1936, a trustee of a corporate unit trust or public trading trust that has chosen to be the head company of a consolidated group, and in turn to be regarded as a company for most income tax purposes, is not excluded. However, section 23AJ of the ITAA 1936 does not apply to a dividend paid to the trustee of a corporate unit trust or a public trading trust because the dividend will not be a non-portfolio dividend. The trustee is not the beneficial owner of the shares; the shares are held by the trustee for the benefit of the unit holders, who are not part of the consolidated group.\" | This statement appeared under the heading \"Explanation\". | However, under the heading 'Ruling', the Tax Determination made the following statement: \"...[ Section ] 23AJ will apply to a dividend that is paid to a trust which is part of a consolidated group or a multiple entity consolidated (MEC) group .\" | The Full Federal Court held that, notwithstanding whatever else was stated in the Tax Determination, (a public ruling for the purposes of the TAA 1953), the latter statement would have bound the Commissioner to allow the Trust the treatment afforded by section 23AJ of the ITAA 1936: Sch 1, s.357-60 of the TAA 1953.", "Issues_Decided": "The issues relevantly before the Court were: • if section 44 of the ITAA 1936 would otherwise operate to include the dividends in assessable income of the Trust, now an assumed company under Subdivision 713-C of Pt 3-90 of the ITAA 1997, whether section 23AJ of the ITAA 1936 operated to exclude the dividends received by the taxpayer from two non-resident companies from assessable income. At the centre of the issue was that section 23AJ of the ITAA 1936 did not treat dividends as non-assessable non-exempt income received by an Australian resident company in circumstances where: (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. • if the taxpayer was unsuccessful on the first issue, whether the Commissioner was bound by his Taxation Determination TD 2008/25: Sch 1, section 357-60 of the Taxation Administration Act 1953 (the \"TAA 1953\"). • if section 44 of the ITAA 1936 would otherwise operate to include the dividends in assessable income of the Trust, now an assumed company under Subdivision 713-C of Pt 3-90 of the ITAA 1997, whether section 23AJ of the ITAA 1936 operated to exclude the dividends received by the taxpayer from two non-resident companies from assessable income. At the centre of the issue was that section 23AJ of the ITAA 1936 did not treat dividends as non-assessable non-exempt income received by an Australian resident company in circumstances where: (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. • if the taxpayer was unsuccessful on the first issue, whether the Commissioner was bound by his Taxation Determination TD 2008/25: Sch 1, section 357-60 of the Taxation Administration Act 1953 (the \"TAA 1953\"). (a) the dividend was received by the company in the capacity of a trustee, and (b) the dividend was not a non-portfolio dividend as then defined by section 317 of the ITAA 1936. The Full Federal Court unanimously allowed the taxpayer's appeal. Issue 1 The first issue was whether, if section 44 of the ITAA 1936 would otherwise apply to treat the dividends received from the foreign companies, Subdivision 713-C of the Income Tax Assessment Act 1997 (ITAA 1997) would also allow section 23AJ of the ITAA 1936 to apply to those dividends so as to exclude them from assessable income. The taxpayer argued that Subdivision 713-C of the ITAA 1997 treated the Trust as a company, and for that reason it had the effect of deeming the Trust to be the beneficial owner of the shares within the meaning of section 160AFB(4) of the ITAA 1936 and that section 23AJ of the ITAA 1936 applies to make the dividends non assessable, non exempt income. The Commissioner contended that the exemption in section 23AJ of the ITAA 1936 does not apply because the taxpayer is the trustee and not the beneficial owner of the shares. The Trust (as head company) is assessable under s 44 on receipt of the dividends. On the interaction between the provisions, their Honours outlined at [37] that: \"... the words of ss713-135 and 713-140 are clear, they apply equally to s23AJ as they do to s44 of the 1936 Act .\" In determining the applicability of section 23AJ of the ITAA 1936, their Honours said, at [39-40]: \" It is the Trust which (as head company) is assessed on having derived the dividends. The assessment is not issued to a beneficiary or some actual or intended trust estate of which the Trust is the trustee (even if the Trust as trustee were a meaningful, relevant concept ). The Trust does not receive the dividend as trustee, but for its own benefit as an assumed company, so as to be assessable upon it under s 44, subject to the operation of s 23AJ .\" Issue 2 Although the Court found it unnecessary to consider Issue 2, that is, whether Tax Determination TD 2008/25 would have bound the Commissioner to allow the taxpayer the benefit of section 23AJ of the ITAA 1936, the Court made the following comments and observations obiter dictum. The Full Federal Court was of the view that the Tax Determination was expressed in such a way that it would have bound the Commissioner to allow the taxpayer the beneficial treatment provided for by section 23AJ of the ITAA 1936. The Tax Determination was divided into several parts, with headings such as 'Question', 'Ruling' (which purported to answer the question posed by the 'Question' the Tax Determination was attempting to deal with), 'Explanation', 'Date of Effect' amongst other items. Paragraph 20 of Tax Determination TD 2008/25 reads as follows: \"Subdivision 713-C of the ITAA 1997 contains special provisions that allow a corporate unit trust or public trading trust that chooses to form a consolidated group to be treated like the head company of the group, and in turn to be regarded as a company for most income tax purposes. Therefore, although an Australian resident company receiving a dividend in its capacity as trustee of a trust is specifically excluded from section 23AJ of the ITAA 1936, a trustee of a corporate unit trust or public trading trust that has chosen to be the head company of a consolidated group, and in turn to be regarded as a company for most income tax purposes, is not excluded. However, section 23AJ of the ITAA 1936 does not apply to a dividend paid to the trustee of a corporate unit trust or a public trading trust because the dividend will not be a non-portfolio dividend. The trustee is not the beneficial owner of the shares; the shares are held by the trustee for the benefit of the unit holders, who are not part of the consolidated group.\" This statement appeared under the heading \"Explanation\". However, under the heading 'Ruling', the Tax Determination made the following statement: \"...[ Section ] 23AJ will apply to a dividend that is paid to a trust which is part of a consolidated group or a multiple entity consolidated (MEC) group .\" The Full Federal Court held that, notwithstanding whatever else was stated in the Tax Determination, (a public ruling for the purposes of the TAA 1953), the latter statement would have bound the Commissioner to allow the Trust the treatment afforded by section 23AJ of the ITAA 1936: Sch 1, s.357-60 of the TAA 1953.", "ATO_View_of_Decision": "Where a trustee is paid a dividend from a non-resident in circumstances where that entity is the trustee of a trust that is the head of a consolidated group, the Commissioner will treat the dividend as having satisfied the requirement of the definition of 'non-portfolio dividend' in section 317 of the ITAA 1936, insofar as that section requires that the company (the trust) has a 'voting interest' in the relevant company that paid the dividend; specifically, that it is the 'beneficial owner of the shares', as required by former section 160AFB (now section 334A of the ITAA 1936). | The other requirements of section 23AJ and the definition of 'non-portfolio dividend' in section 317, including the requirement that the voting interest be held by the Australian entity amounts to 10% of the voting power as defined by s.334A of the ITAA 1936, will need to be considered on a case by case basis and properly satisfied.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | The Commissioner has reviewed Taxation Determination TD 2008/25 following the decision of the Full Federal Court in this matter. As such, no further amendments were required to be made.", "Related_Documents": "Tax Determination TD 2008/25 | [2012] FCAFC 179 | 2012 ATC 20-363 | s 44(1) | s 160AFB(4) | s 317 | Part 3-90 | Subdivision 713-C | Schedule 1, section 357-60", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) s 23AJ s 44(1) s 160AFB(4) s 317 Income Tax Assessment Act 1997 (Cth) Part 3-90 Subdivision 713-C Taxation Administration Act 1953 (Cth) Schedule 1, section 357-60", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD567-2012/00001", "Unmatched_Content": ""}
{"Case_Name": "JCZC and Commissioner of Taxation", "Venue_Reference_No": "2009/1304-05", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "12 June 2012", "Date_Published": "5 September 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the taxpayer's position on a shortfall amount under the income tax law was not reasonably arguable, and whether that amount also resulted from recklessness by the taxpayer or its agent.", "Overview_of_Facts": "The taxpayer is the corporate trustee of the B Trust and, during the 1999 to 2003 income years, was a beneficiary of related trusts which were also beneficiaries of the M Trust. Mr X was the sole director and shareholder of the taxpayer and the trustee of the M Trust. | Mr X purchased a motor yacht in December 1998 on behalf of the M Trust which claimed income tax deductions of over $3m in the 1999 to 2003 years, for expenditure in relation to the yacht. The claims were disallowed, resulting in an assessment to the taxpayer for the 2003 year. The taxpayer did not dispute this assessment before the Tribunal. | That assessment gave rise to a shortfall amount and an assessement of penalty of 25% for applying a view of the law that was not reasonably arguable. A further assessment of penalty (50%) issued, based on recklessness of the taxpayer or its agent. | There was evidence before the Tribunal that Mr X acquired the yacht for the purpose of selling it for a profit and that he had entered into a sub-agency agreement to sell Dyna boats in Australia. An experienced agent was appointed to market the yacht. Although some attempts were made to sell it and to use it as a display boat, it was also used by Mr X for private purposes on some 15 occasions, including use as accommodation for him and his wife. | Before purchasing the yacht, Mr X sought advice from his tax agents as to whether the M Trust could claim income tax deductions for holding and running costs associated with the yacht. They advised that deductions would be allowable if private use of the yacht was kept to a minimum and if a sub-agency agreement to market Dyna boats was entered into which would allow him to sell to buyers outside South Australia. | Issues decided by the tribunal | At the beginning of the hearing in the Tribunal, the taxpayer's counsel effectively conceded that it did not have a reasonably arguable position on the law. In the light of evidence given during the hearing, counsel sought to withdraw that concession. The Tribunal refused to allow the concession to be withdrawn because it found that the evidence did not raise a serious doubt as to the correctness of the concession (paragraph 16). | The Tribunal found that the shortfall amount did not arise as a result of recklessness on the part of the taxpayer or of Mr X, as the guiding mind of both the M Trust and the B Trust. In claiming the relevant deductions on the basis that the taxpayer had the necessary profit-making purpose in relation to the yacht, Mr X relied on his tax agents for advice that the deductions were allowable. He was unaware that there was any real risk that the claims for deduction might not be allowable (paragraphs 43 to 48). | The Tribunal also found that the tax agents were not reckless. Based on the facts as they understood them, their advice about deductibility involved a reasonable professional judgement that could not be said to be grossly careless (paragraphs 49 and 50).", "Issues_Decided": "At the beginning of the hearing in the Tribunal, the taxpayer's counsel effectively conceded that it did not have a reasonably arguable position on the law. In the light of evidence given during the hearing, counsel sought to withdraw that concession. The Tribunal refused to allow the concession to be withdrawn because it found that the evidence did not raise a serious doubt as to the correctness of the concession (paragraph 16). The Tribunal found that the shortfall amount did not arise as a result of recklessness on the part of the taxpayer or of Mr X, as the guiding mind of both the M Trust and the B Trust. In claiming the relevant deductions on the basis that the taxpayer had the necessary profit-making purpose in relation to the yacht, Mr X relied on his tax agents for advice that the deductions were allowable. He was unaware that there was any real risk that the claims for deduction might not be allowable (paragraphs 43 to 48). The Tribunal also found that the tax agents were not reckless. Based on the facts as they understood them, their advice about deductibility involved a reasonable professional judgement that could not be said to be grossly careless (paragraphs 49 and 50).", "ATO_View_of_Decision": "The ATO accepts that it was reasonably open to the Tribunal, on the evidence before it, to find that neither Mr X, nor his tax agents, had acted recklessly in causing the trustee of the M Trust to claim the relevant deductions in relation to the yacht.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "None | 2012 ATC 1-045 | 14ZZK | 284-15 | 284-30 | 284-75 | 284-80 | 284-90 | 2001 ATC 4111 | 46 FLR 409 | 2010 ATC 20-163 | 2003 ATC 4665 | (1987) 11 ALD 456 | (1983) 5 ALD 277 | 2012 ATC 20-318", "Legislative_References": "Taxation Administration Act 1953 14ZZK 284-15 284-30 284-75 284-80 284-90", "Case_References": "BRK (Bris) Pty Ltd v FCT [2001] FCA 164 2001 ATC 4111 46 ATR 347 Drake and Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 46 FLR 409 24 ALR 577 Forrest v FCT (2010) 78 ATR 417 [2010] FCAFC 6 2010 ATC 20-163 78 ATR 417 Hart and FCT [2003] FCAFC 105 131 FCR 203 2003 ATC 4665 53 ATR 371 Re Marks and Secretary, Department of Defence (1987) 11 ALD 456 Re Martin and Clth of Australia (1983) 5 ALD 277 Sent and Commissioner of Taxation [2012] FCA 382 2012 ATC 20-318 Tuite and AAT [1993] FCA 71 (1993) 40 FCR 483", "Subject_References": "Administrative penalty False or misleading statement Reasonably arguable position Recklessness by taxpayer or tax agent", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/1304-05/00001", "Unmatched_Content": ""}
{"Case_Name": "Kingston and Commissioner of Taxation", "Venue_Reference_No": "2011/0615-17; 2011/0612-14", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "19 December 2012", "Date_Published": "13 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case concerning whether Part IVA of the Income Tax Assessment Act 1936 applies to the assessable income of the taxpayers as beneficiaries of a trading trust.", "Overview_of_Facts": "Prior to the income tax years ended 30 June 2002, 30 June 2003 and 30 June 2004 ('the relevant years') the taxpayers, Mr and Mrs Kingston as beneficiaries of the Kingston Family Trust, received income from the trust. The Kingston Family Trust was a trading trust that carried on a farming business. | Clause 4.2 of the Trust Deed stated that \"if the Trustee shall not by or at the end of any accounting period have exercised its discretion to pay apply set aside or accumulate the whole or any part of such Net Income in the manner aforesaid then the Trustee shall hold the Net Income not so paid applied set aside or accumulated for that accounting period in trust for such of the Primary Beneficiaries as are then living or in existence and if more than one (1) absolutely as tenants in common in equal shares. | \"Primary Beneficiaries\" was defined in the Trust Deed to mean Trevor Kingston. | On 29 June 2002 the Bethel Trust was created with four unit holders, namely Mr and Mrs Kingston, the trustee of the Bethel Trust and the Eleventh Hour Unit Trust (EHUT). | In each of the income years ended 30 June 2002 to 30 June 2004 the Kingston Family Trust lodged tax returns purporting to distribute significant amounts of the net income of the Kingston Family Trust to the Bethel Trust. The Bethel Trust then purported to distribute the income received to the EHUT. The distributions were notional with only 15% of the notional distribution paid to the EHUT as a promoter's fee for setting up the profit washing scheme. The balance remained available for the benefit of Mr and Mrs Kingston. | The Commissioner made a determination that there was avoidance of tax by Mr and Mrs Kingston for the 2002, 2003 and 2004 years of income, due to fraud or evasion and subsequently made determinations under Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) that the amounts purportedly distributed to the Bethel Trust be deemed to be included by virtue of section 97 of the ITAA 1936 in the assessable income of Trevor Kingston and Jeannie Kingston on a 50/50 basis. The Commissioner also imposed an administrative penalty at 50% of the shortfall amount. | Issues decided by the tribunal | 1. Whether Mr and Mrs Kingston should be assessed to the income purportedly distributed to the Bethel Trust; | 2. Whether there was an avoidance of tax due to fraud or evasion under the former section 170(2) of the ITAA 1936 such that the Commissioner could make amended assessments after the expiration of 4 years; | 3. Whether the administrative penalty imposed should be remitted.", "Issues_Decided": "1. Whether Mr and Mrs Kingston should be assessed to the income purportedly distributed to the Bethel Trust; 2. Whether there was an avoidance of tax due to fraud or evasion under the former section 170(2) of the ITAA 1936 such that the Commissioner could make amended assessments after the expiration of 4 years; 3. Whether the administrative penalty imposed should be remitted.", "ATO_View_of_Decision": "During the course of the litigation/hearing, the taxpayers conceded that the purported distribution to the Bethel Trust was a sham and that the Bethel trust should be disregarded. They contended that the tax liability should fall on the trustee of the Kingston Family Trust. | The Commissioner contended that the tax liability should fall on Mr and Mrs Kingston on the basis of evidence before the AAT of the Trustee exercising the discretion to make payments or apply income of the Trust in favour of the relevant benefiaries in reliance on section 101 ITAA 1936. In the alternative, the Commissioner contended clause 4.2 of the Trust Deed applied such that the purported trust distributions to the Bethel Trust should be assessed to Mr Kingston as the primary beneficiary. | The decision of the AAT in applying clause 4.2 of the Kingston Family Trust Deed to make the entirety of the distribution assessable to Trevor Kingston is consistent with the alternative submission made by the Commissioner. | In terms of fraud and evasion, the AAT found that in light of the taxpayers' concession of sham that the facts presented as a clear case of evasion and the Commissioner's power to amend under the former s170(2)(a) was enlivened. In addition, the administrative penalty imposed by the Commissioner at 50% of the shortfall amount was confirmed. | The Commissioner considers the AAT's decision to be broadly consistent with TA 2005/1 and TD 2005/34.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "Nil | [2012] AATA 898 | Schedule 1, Div 284 | Schedule 1, 298-20(1) | (1949) 79 CLR 296 | 2008 ATC 20-015 | 91 ATC 5000 | [2012] AATA 823", "Legislative_References": "Income Tax Assessment Act 1936 170(2)(a) Taxation Administration Act 1953 Schedule 1, Div 284 Schedule 1, 298-20(1)", "Case_References": "Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) (1949) 79 CLR 296 Dixon (as trustee) v Commissioner of Taxation [2008] FCAFC 54 (2008) 167 FCR 287 2008 ATC 20-015 (2008) 69 ATR 627 Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 (1991) 22 ATR 726 91 ATC 5000 [1991] HCA 51 Re Lack and Federal Commissioner of Taxation [2012] AATA 823", "Subject_References": "tax avoidance scheme trusts distribution of income amendment to original assessments discretion to remit penalties in whole or in part", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/0615-17/00001", "Unmatched_Content": ""}
{"Case_Name": "Lake Fox Ltd v Commissioner of Taxation", "Venue_Reference_No": "2011/0407", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "4 May 2012", "Date_Published": "6 July 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a benefit provided by an employer to its employees (the payment of the employees' private health insurance premium) was an exempt benefit under the Fringe Benefits Tax Assessment Act 1986 (FBTAA).", "Overview_of_Facts": "The taxpayer operates a major road transport business. It specialises in carrying high explosives for the mining industry and also has a general freight operation. The taxpayer has various statutory obligations regarding managing heavy vehicle driver fatigue including the monitoring and assessment of the health of such drivers. | As part of managing heavy vehicle driver fatigue, including by having in place an 'Advanced Fatigue Management system', the taxpayer determined to 'offer a health scheme arrangement to employees'. | The taxpayer entered into a Corporate Health and Wellbeing Agreement (the Plan) with MBF Australia Pty Ltd (MBF). There were two aspects to the Plan, access for employees to health insurance cover and what is described as a 'wellness program'. It was common ground that for the year of tax ending 31 March 2010 that only the former part of the Plan was entered into so that all of the costs that the taxpayer incurred relevant to the Plan were in the payment of premiums payable by permanent employees on health insurance with MBF. | Under the Plan with MBF each of its employees was able to take out an MBF health insurance product, choose the level of cover and whether it be single, family or some other rate. The taxpayer initially funded the entire premium and it later recovered from each employee any proportion that it did not subsidise for that particular employee. The amount of the subsidy paid by the employer was dependent on the years of service of an employee, with a person employed for more than 5 years being eligible for a 100 percent subsidy of the premium (i.e. no cost to the employee). The employee is the policyholder and is responsible for ensuring the premiums are paid. | The cover provided by MBF to the employees under the Plan is typical of the health insurance cover ordinarily provided to other policy holders who were not party to a corporate health plan. These plans were described to typically provide hospital cover and 'extras' cover. | For the FBT assessment in relation to the year ended 31 March 2010, the Commissioner concluded that: • The taxpayer's payments were benefits provided in respect of the employee's employment and that the payments satisfied the definition of 'expense payment benefit'; • There is no sufficient connection between the 'expense payment benefit' (i.e. the taxpayer paying the health insurance premium on behalf of the employee) and health services within subparagraph (i) - (iv) of s58M(1)(a) of the FBTAA; • That subsection 58M(2) of the FBTAA is directed to matters which are not covered by subsection 58M(1) of the FBTAA, viz. it is directed to certain incidental expenses; • That the benefit provided by the taxpayer (the payment of the health insurance premiums), was not an exempt benefit. | • The taxpayer's payments were benefits provided in respect of the employee's employment and that the payments satisfied the definition of 'expense payment benefit'; • There is no sufficient connection between the 'expense payment benefit' (i.e. the taxpayer paying the health insurance premium on behalf of the employee) and health services within subparagraph (i) - (iv) of s58M(1)(a) of the FBTAA; • That subsection 58M(2) of the FBTAA is directed to matters which are not covered by subsection 58M(1) of the FBTAA, viz. it is directed to certain incidental expenses; • That the benefit provided by the taxpayer (the payment of the health insurance premiums), was not an exempt benefit. | The taxpayer contended the payments were provided in respect of the employment of the employee and were expense payment benefits in respect of one of the matters in subparagraph (i) to (iv) of s58M(1)(a) of the FBTAA. Alternatively, the payments were 'associated' benefits within subsection 58M(2) of the FBTAA. | The matter was funded under the Test Case Litigation Program. | Issues decided by the court | The Tribunal held that no part of the payments made by the employer for its employee's health insurance was exempt under s58M of the FBTAA. | The Tribunal noted, however, that the present assessment is for an incorrect amount (it was under stated). The Tribunal set aside the assessment and remitted the matter to the Commissioner to reassess on the basis that no part of the payments was an exempt benefit. The Tribunal confirmed the decision could not be considered as favourable to the taxpayer. | In regards to subsection 58M(1) of the FBTAA, at paragraph 28 of the reasons for decision, Deputy President Hack stated that: 'The question is one of characterisation - what is the nature of the expenditure in question? The answer must be that it is expenditure to acquire health insurance, that is, it is expenditure \"in respect of\" health insurance. The fact that the insurance might, in turn, cover the employee for the cost of expenditure on what might be capable of being characterised as expenditure on work-related medical screening or work-related preventative health care does not change the character of the expenditure as expenditure in respect of medical insurance.' | In regards to subsection 58M(2) of the FBTAA, at paragraph 33 of the reasons for decision: 'The alternative argument, that based on s58M(2), also fails. It is, as the Commissioner submits, directed to incidental expenses associated with obtaining the direct benefits contemplated by s58M(1).' | The decision of the Tribunal affirmed the Commissioner's view that expenditure by an employer on private health insurance for an employee did not quality for exemption under either subsections 58M(1) or 58M(2) of the FBTAA.", "Issues_Decided": "The Tribunal held that no part of the payments made by the employer for its employee's health insurance was exempt under s58M of the FBTAA. The Tribunal noted, however, that the present assessment is for an incorrect amount (it was under stated). The Tribunal set aside the assessment and remitted the matter to the Commissioner to reassess on the basis that no part of the payments was an exempt benefit. The Tribunal confirmed the decision could not be considered as favourable to the taxpayer. In regards to subsection 58M(1) of the FBTAA, at paragraph 28 of the reasons for decision, Deputy President Hack stated that: 'The question is one of characterisation - what is the nature of the expenditure in question? The answer must be that it is expenditure to acquire health insurance, that is, it is expenditure \"in respect of\" health insurance. The fact that the insurance might, in turn, cover the employee for the cost of expenditure on what might be capable of being characterised as expenditure on work-related medical screening or work-related preventative health care does not change the character of the expenditure as expenditure in respect of medical insurance.' In regards to subsection 58M(2) of the FBTAA, at paragraph 33 of the reasons for decision: 'The alternative argument, that based on s58M(2), also fails. It is, as the Commissioner submits, directed to incidental expenses associated with obtaining the direct benefits contemplated by s58M(1).' The decision of the Tribunal affirmed the Commissioner's view that expenditure by an employer on private health insurance for an employee did not quality for exemption under either subsections 58M(1) or 58M(2) of the FBTAA.", "ATO_View_of_Decision": "Deputy President Hack's conclusions on the application of the FBT exemption to the taxpayer's expenditure on private health insurance, under subsection 58M(1) and subsection 58M(2), are consistent with the ATO's submissions in the case. | The case has provided law clarification on the scope of the FBT exemption and whether it extends to private health insurance payments.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "None | 20 | 58M | 58M(1) | 58M(1)(a) | 58M(1)(a)(i) | 58M(1)(a)(ii) | 58M(1)(a)(iii) | 58M(1)(a)(iv) | 58M(2) | 136(1)", "Legislative_References": "Fringe Benefits Tax Assessment Act 1986 (Cth) 20 58M 58M(1) 58M(1)(a) 58M(1)(a)(i) 58M(1)(a)(ii) 58M(1)(a)(iii) 58M(1)(a)(iv) 58M(2) 136(1)", "Case_References": "", "Subject_References": "Exempt benefits FBT expense payment FBT work-related counselling FBT work-related medical screening FBT work-related preventative healthcare FBT work-related trauma", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/0407/00001", "Unmatched_Content": ""}
{"Case_Name": "Linfox Australia Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2011/1053", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "", "Date_Published": "3 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerned whether or not the amount of the fuel tax credit for fuel acquired for use in a refrigeration unit in a heavy vehicle travelling on a public road is reduced by the road user charge.", "Overview_of_Facts": "At all relevant times, the applicant carried on an enterprise which involved the transportation of temperature sensitive goods in refrigerated trailers that were towed by a prime mover on public roads throughout Australia. A refrigerated trailer is an insulated (wheeled) trailer to which a refrigeration unit is affixed. Each prime mover and trailer used by the applicant had a gross vehicle mass in excess of 4.5 tonnes. | The refrigeration units affixed to each trailer functioned either by an internal diesel powered mechanically driven compressor, or by an internal diesel engine generator that provided power to the compressor. The supply of diesel to the refrigeration unit was always kept separate from the supply of diesel to the prime mover. Fuel was not sourced from the prime mover's fuel tank, even if the refrigeration unit's fuel tank emptied. | There was no dispute that the applicant was entitled, under section 41-5 of the Fuel Tax Act 2006 , to a fuel tax credit for the use of diesel fuel in its refrigeration units. | Issues decided by the tribunal | The issue to be decided by the AAT was whether fuel acquired by the applicant for use in a refrigeration unit in a refrigerated trailer travelling on a public road was \"fuel to use, in a vehicle, for travelling on a public road\" for the purposes of subsection 43-10(3). If it was (as the Commissioner contended), the amount of the fuel tax credit to which the applicant was entitled for the fuel would be reduced by the amount of the road user charge. | The AAT found [1] that the punctuation in the phrase \"fuel to use, in a vehicle, for travelling on a public road\" in subsection 43-10(3) meant that, in order for the provision to apply, fuel must be acquired both: • to use in a vehicle; and • to use for travelling on a public road [our emphasis] | • to use in a vehicle; and • to use for travelling on a public road [our emphasis] | Based on the ordinary meaning of the word \"for\", the AAT concluded [2] that the only circumstance in which the second of these two conditions would be met is: ...where fuel is acquired to use for the purpose of travelling on a public road | The AAT found [3] that the fuel in question was not acquired for this purpose, but was instead acquired and used for the \"entirely different\" purpose of refrigerating cargo inside the refrigerated trailer. It followed that the fuel did not satisfy the second condition of subsection 43 10(3) and was not, therefore, subject to the road user charge. | In discussing the statutory context, the AAT referred [4] to the differences in wording between subsection 43-10(3) and the similarly worded section 41-20 and noted that: ...there is a clear intention emerging from s 41-20 to ensure that in the case of a light vehicle, the fuel tax credit is to be denied for all on-road applications of taxable fuel in the vehicle. That is not the case in s 43-10(3), where the use of the word \"for\" before the phrase \"travelling on a public road\" is evidently intended to narrow the reach of the provision, such that the RUC on taxable fuel is only imposed where the purpose is to propel the vehicle on a public road [our emphasis].", "Issues_Decided": "The issue to be decided by the AAT was whether fuel acquired by the applicant for use in a refrigeration unit in a refrigerated trailer travelling on a public road was \"fuel to use, in a vehicle, for travelling on a public road\" for the purposes of subsection 43-10(3). If it was (as the Commissioner contended), the amount of the fuel tax credit to which the applicant was entitled for the fuel would be reduced by the amount of the road user charge. The AAT found [1] that the punctuation in the phrase \"fuel to use, in a vehicle, for travelling on a public road\" in subsection 43-10(3) meant that, in order for the provision to apply, fuel must be acquired both: • to use in a vehicle; and • to use for travelling on a public road [our emphasis] • to use in a vehicle; and • to use for travelling on a public road [our emphasis] Based on the ordinary meaning of the word \"for\", the AAT concluded [2] that the only circumstance in which the second of these two conditions would be met is: ...where fuel is acquired to use for the purpose of travelling on a public road The AAT found [3] that the fuel in question was not acquired for this purpose, but was instead acquired and used for the \"entirely different\" purpose of refrigerating cargo inside the refrigerated trailer. It followed that the fuel did not satisfy the second condition of subsection 43 10(3) and was not, therefore, subject to the road user charge. In discussing the statutory context, the AAT referred [4] to the differences in wording between subsection 43-10(3) and the similarly worded section 41-20 and noted that: ...there is a clear intention emerging from s 41-20 to ensure that in the case of a light vehicle, the fuel tax credit is to be denied for all on-road applications of taxable fuel in the vehicle. That is not the case in s 43-10(3), where the use of the word \"for\" before the phrase \"travelling on a public road\" is evidently intended to narrow the reach of the provision, such that the RUC on taxable fuel is only imposed where the purpose is to propel the vehicle on a public road [our emphasis].", "ATO_View_of_Decision": "The Commissioner considers that the AAT's reasoning leads to the conclusion that the phrase \"fuel to use, in a vehicle, for travelling on a public road\" in subsection 43-10(3) covers fuel that is used in a vehicle: • for the purpose of propelling that vehicle on a public road; and • all aspects of the vehicle function and operation that are for the purpose of travelling on a public road. Fuel for travelling would include fuel used for stopping and idling while stationary in the course of a journey as well as the use of lights, brakes, power-steering and windscreen wipers. | • for the purpose of propelling that vehicle on a public road; and • all aspects of the vehicle function and operation that are for the purpose of travelling on a public road. Fuel for travelling would include fuel used for stopping and idling while stationary in the course of a journey as well as the use of lights, brakes, power-steering and windscreen wipers. | Accordingly, the road user charge will only apply to such fuel. Determining whether an aspect of the vehicle's function or operation has this character requires a practical assessment of its connection with travelling, as distinct from some other function of the vehicle. In the Commissioner's view, it does not matter whether the fuel is located in the same tank as the tank which supplies fuel to the prime mover's engine or whether it is located in a separate tank. The location of the fuel would not, of itself, determine the purpose for which the fuel was acquired (although it may be a factor that is taken into account in working out whether fuel was acquired for the purpose of travelling on a public road).", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | The AAT's reasoning differs from the view previously set out in Fuel Tax Ruling FTR 2008/1 that the phrase \"fuel to use, in a vehicle, for travelling on a public road\" in subsection 43-10(3) covers both fuel used for propulsion and fuel used to power auxiliary equipment, such as a refrigeration unit, in (or affixed to) a vehicle while it is travelling on a public road. Accordingly, the Commissioner has revised this ruling to reflect the AAT's reasoning. | This revision will impact the heavy trucking, cement manufacturing, and coach and bus industries. Local governments will also be affected. Specifically, fuel used to operate any apparatus or piece of machinery on a vehicle that is not for the purpose of travelling is no longer considered to be 'fuel used in a vehicle, for travelling'. Some examples of machinery of this nature are the hydraulic arm lift of a garbage collection vehicle, the mixing bowl of a cement truck, the refrigeration unit on a perishables transportation truck and air-conditioning units of commercial buses and coaches. | The Commissioner is working with industry to determine appropriate examples for apportionment methods for these fuel uses, and will be proving further guidance material in relation to this. | Implications for Law Administration Practice Statements | None | [1] At paragraphs 30 and 31 | [2] At paragraph 34 | [3] At paragraph 35 | [4] At paragraphs 40 to 44", "Related_Documents": "FTR 2008/1 | [2012] AATA 517 | 41-20 | 43-10 | items 10 and 11 | ATO ID 2007/80 (withdrawn) | ATO ID 2009/61 (withdrawn)", "Legislative_References": "Fuel Tax Act 2006 41-20 43-10 Fuel Tax (Consequential and Transitional Provisions) Act 2006 items 10 and 11", "Case_References": "", "Subject_References": "Fuel tax Fuel tax credits Road user charge", "Other_References": "ATO ID 2007/80 (withdrawn) ATO ID 2009/61 (withdrawn)", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/1053/00001", "Unmatched_Content": ""}
{"Case_Name": "Longcake and Commissioner of Taxation", "Venue_Reference_No": "2012/0354", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "30 August 2012", "Date_Published": "20 November 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether it was appropriate to disregard or allocate to another year superannuation contributions made by a company to relieve the taxpayer from excess concessional contributions tax.", "Overview_of_Facts": "The taxpayer was employed during the 2009-10 year. His employer made contributions to two superannuation funds in the relevant period: AMP and Tasplan. | By a signed document dated 30 June 2008, the taxpayer requested to salary sacrifice superannuation contributions equal to 55% of his gross remuneration\" and \"100% of any bonus entitlements\" that \"accrued in respect of the future period commencing 1/7/2008 ... and if applicable ending 30/6/2009 be paid to AMP\". | By letter to the taxpayer dated 1 July 2008, the employer confirmed that salary sacrifice arrangement. The letter stated, in part, that any such contributions \"will be paid to your superannuation fund on a monthly basis\". | The taxpayer established a similar salary sacrifice arrangement for the 2009-10 financial year. For services performed that year, contributions were to be made to Tasplan and not AMP. | Contributions were made to AMP in July 2009. The contributions were not made monthly and were irregular. The contributions were recorded by AMP as being received on 7 and 8 July 2009. | In working out his employer's contributions to Tasplan for the 2010 year, the taxpayer did not take into account any contributions made to AMP, including those made in July 2009. The Tribunal found the taxpayer had no knowledge of the amount contributed to AMP for him in July 2009. | As a consequence, the taxpayer exceeded his $50,000 concessional contributions cap for the 2010 financial year by $21,551.44 and was assessed to excess concessional contributions tax on this amount for the 2010 income year. | The taxpayer applied to the Commissioner to have the $21,551.44 contribution allocated to the 2009 financial year because of special circumstances. | The Commissioner did not exercise the discretion to reallocate the contribution and this decision was confirmed on objection. | Issues decided by the Tribunal | The Tribunal decided that the Commissioner's objection decision refusing to exercise the discretion provided in section 292-465 of the Income Tax Assessment Act 1997 should be set aside and that the discretion should be exercised in favour of the taxpayer. | The Tribunal found, that all of the employer's salary sacrifice contributions in respect of the 2008-09 year were required by the salary sacrifice arrangement to be made by monthly contributions to AMP by 30 June 2009. The Tribunal concluded that the employer's contributions to both AMP and Tasplan followed an irregular pattern and that the contributions made to AMP in July 2009 were a significant part of the irregularity. The Tribunal found that those amounts were part of the amounts intended to be paid in relation to the 2008/2009 year and that payments from 1 July 2009 were intended to be made to Tasplan. | The Tribunal found that the taxpayer was not aware of the irregularity of payments until some ten months after the end of the relevant financial year when informed of the excess contributions by the ATO in a letter. Consequently, the Tribunal concluded that it was not reasonably foreseeable that the taxpayer would exceed his concessional contributions cap in the 2009-10 financial year. | The Tribunal determined that special circumstances existed, there being \"particular circumstances which set this case apart from the usual or ordinary\". The Tribunal listed six factors which together comprised special circumstances in this case: • the taxpayer had sought to arrange his affairs so that the concessional contribution cap was not exceeded, • the decision to switch his contributions to a new superannuation fund, • the July 2009 payments to AMP were intended for the 2008/2009 financial year, • it was not reasonably forseeable that the contributions tax would be exceeded, • the taxpayer expected contributions to be made in a timely manner, and • the taxpayer was not aware of the irregularity of the contributions. | • the taxpayer had sought to arrange his affairs so that the concessional contribution cap was not exceeded, • the decision to switch his contributions to a new superannuation fund, • the July 2009 payments to AMP were intended for the 2008/2009 financial year, • it was not reasonably forseeable that the contributions tax would be exceeded, • the taxpayer expected contributions to be made in a timely manner, and • the taxpayer was not aware of the irregularity of the contributions. | The Tribunal stated that \"a degree of injustice and unfairness would be caused to the taxpayer\" if the objection decision was allowed to stand. | The Tribunal stated it \"would be appropriate to allocate part of the concessional contributions made in the relevant year (2009-10) to the 2008-09 year, provided such a decision is consistent with the relevant object of the legislation. In the circumstances of this case, the Tribunal found that \"reallocation of contributions into the previous financial year is entirely consistent with the essential object of the relevant Division of the Act\".", "Issues_Decided": "The Tribunal decided that the Commissioner's objection decision refusing to exercise the discretion provided in section 292-465 of the Income Tax Assessment Act 1997 should be set aside and that the discretion should be exercised in favour of the taxpayer. The Tribunal found, that all of the employer's salary sacrifice contributions in respect of the 2008-09 year were required by the salary sacrifice arrangement to be made by monthly contributions to AMP by 30 June 2009. The Tribunal concluded that the employer's contributions to both AMP and Tasplan followed an irregular pattern and that the contributions made to AMP in July 2009 were a significant part of the irregularity. The Tribunal found that those amounts were part of the amounts intended to be paid in relation to the 2008/2009 year and that payments from 1 July 2009 were intended to be made to Tasplan. The Tribunal found that the taxpayer was not aware of the irregularity of payments until some ten months after the end of the relevant financial year when informed of the excess contributions by the ATO in a letter. Consequently, the Tribunal concluded that it was not reasonably foreseeable that the taxpayer would exceed his concessional contributions cap in the 2009-10 financial year. The Tribunal determined that special circumstances existed, there being \"particular circumstances which set this case apart from the usual or ordinary\". The Tribunal listed six factors which together comprised special circumstances in this case: • the taxpayer had sought to arrange his affairs so that the concessional contribution cap was not exceeded, • the decision to switch his contributions to a new superannuation fund, • the July 2009 payments to AMP were intended for the 2008/2009 financial year, • it was not reasonably forseeable that the contributions tax would be exceeded, • the taxpayer expected contributions to be made in a timely manner, and • the taxpayer was not aware of the irregularity of the contributions. • the taxpayer had sought to arrange his affairs so that the concessional contribution cap was not exceeded, • the decision to switch his contributions to a new superannuation fund, • the July 2009 payments to AMP were intended for the 2008/2009 financial year, • it was not reasonably forseeable that the contributions tax would be exceeded, • the taxpayer expected contributions to be made in a timely manner, and • the taxpayer was not aware of the irregularity of the contributions. The Tribunal stated that \"a degree of injustice and unfairness would be caused to the taxpayer\" if the objection decision was allowed to stand. The Tribunal stated it \"would be appropriate to allocate part of the concessional contributions made in the relevant year (2009-10) to the 2008-09 year, provided such a decision is consistent with the relevant object of the legislation. In the circumstances of this case, the Tribunal found that \"reallocation of contributions into the previous financial year is entirely consistent with the essential object of the relevant Division of the Act\".", "ATO_View_of_Decision": "The Commissioner will continue to consider each application for the exercise of the discretion in section 292-465 of the ITAA 1997 on its merits. This will involve an examination of the evidence of the contributions made, the extent of control a taxpayer has over the amount and timing of any particular contribution and the extent to which an excess is foreseeable, as these are matters the Parliament has chosen to prescribe may be taken into account.", "Administrative_Treatment": "Implications for ATO precedential documents | Nil", "Related_Documents": "Nil | 2012 ATC 10-270 | Section 292-465 | 2012 ATC 10-257 | [2012] AATA 282 | [2012] AATA 129 | 2010 ATC 10-145 | [2012] AATA 130 | 2012 ATC 10-251 | 2012 ATC 10-238 | 2012 ATC 10-250 | [2012] AATA 62 | 2012 ATC 10-236", "Legislative_References": "Income Tax Assessment Act 1997 Section 292-465", "Case_References": "Other AAT decisions that have considered section 292-465 of the ITAA 1997 include: Bornstein v Commissioner of Taxation [2012] AATA 424 2012 ATC 10-257 Kuyper v Commissioner of Taxation [2012] AATA 282 Leckie v Commissioner of Taxation [2012] AATA 129 82 ATR 975 McMennemin v Commissioner of Taxation [2010] AATA 573 2010 ATC 10-145 79 ATR 898 Naude v Commissioner of Taxation [2012] AATA 130 Paget v Commissioner of Taxation [2012] AATA 334 2012 ATC 10-251 Peaker v Commissioner of Taxation [2012] AATA 140 2012 ATC 10-238 Rawson v Commissioner of Taxation [2012] AATA 322 2012 ATC 10-250 Schuuurmans-Stekhoven v Commissioner of Taxation [2012] AATA 62 82 ATR 731 Tran v Commissioner of Taxation [2012] AATA 123 2012 ATC 10-236", "Subject_References": "Excess contributions tax Excess concessional contributions tax", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012-0354/00001", "Unmatched_Content": ""}
{"Case_Name": "LVR (WA) Pty Ltd and Anor v Administrative Appeals Tribunal and Commissioner of Taxation", "Venue_Reference_No": "WAD 428 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "22 June 2012", "Date_Published": "12 October 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case that concerns dismissal of applications for the taxpayer's failure to comply with directions; AAT's failure to take into account a relevant consideration; copying of submissions without attribution; and model litigant obligations.", "Overview_of_Facts": "On 30 July 2010, the AAT dismissed applications for review of the Commissioner's objection decisions, without proceeding to review the objection decisions, on the basis that there had been a failure to comply within a reasonable time with AAT directions. The applications were lodged on 30 August 2007, and the AAT directions were first made on 26 August 2009. | The only ground relied on by the taxpayer before the Full Federal Court was that the AAT had failed to take into account a relevant consideration, namely an affidavit the taxpayers had filed in the AAT proceedings several days before the dismissal hearing. It was common ground that the AAT's reasons for decision did not refer to the affidavit in question. | At first instance in the Federal Court, Gilmour J dismissed the judicial review application on the basis that the AAT had in fact taken into account the affidavit in question. | It was common ground in the Full Federal Court that approximately 95% of the AAT's reasons had been copied from the written submissions of the Commissioner. | Issues decided by the court | The Full Federal Court unanimously allowed the appeal and set aside the decision of Gilmour J in the Federal Court. | The Full Federal Court held that the AAT had failed to take into account a relevant consideration, namely, an affidavit lodged on behalf of the taxpayers, in coming to its decision to dismiss the applications. As a consequence of this failure, the AAT 'decision-maker thereby failed either to embark on or to complete his jurisdictional task'. | As there had been a failure to take into account a relevant consideration by the AAT, the Full Federal Court expressly did not decide whether the copying without attribution amounted to a constructive failure by the AAT to exercise jurisdiction. The Full Federal Court, however, was critical of the extensive unattributed copying by the AAT and also critical of the parties and their counsel in not drawing the extent and context of the copying to the judge's attention. | The Full Federal Court noted that, if counsel for the taxpayers failed to fully explain the position to Gilmour J, counsel for the Commissioner should have done so to make sure that the judge understood the full circumstances surrounding the AAT's reasons for decision. | The Full Federal Court discussed the nature of the model litigant obligation and the obligations of counsel representing federal government agencies. These comments were made, however, 'without reflecting' on counsel who appeared before the Full Federal Court.", "Issues_Decided": "The Full Federal Court unanimously allowed the appeal and set aside the decision of Gilmour J in the Federal Court. The Full Federal Court held that the AAT had failed to take into account a relevant consideration, namely, an affidavit lodged on behalf of the taxpayers, in coming to its decision to dismiss the applications. As a consequence of this failure, the AAT 'decision-maker thereby failed either to embark on or to complete his jurisdictional task'. As there had been a failure to take into account a relevant consideration by the AAT, the Full Federal Court expressly did not decide whether the copying without attribution amounted to a constructive failure by the AAT to exercise jurisdiction. The Full Federal Court, however, was critical of the extensive unattributed copying by the AAT and also critical of the parties and their counsel in not drawing the extent and context of the copying to the judge's attention. The Full Federal Court noted that, if counsel for the taxpayers failed to fully explain the position to Gilmour J, counsel for the Commissioner should have done so to make sure that the judge understood the full circumstances surrounding the AAT's reasons for decision. The Full Federal Court discussed the nature of the model litigant obligation and the obligations of counsel representing federal government agencies. These comments were made, however, 'without reflecting' on counsel who appeared before the Full Federal Court.", "ATO_View_of_Decision": "The ATO has decided not to seek special leave to appeal from the decision of the Full Federal Court. The decision turned on the particular material, submissions and sequence of events before the AAT and the Federal Court hearing at first instance. The dismissal issue will be considered again by the AAT in due course. | The Full Federal Court did not find that the Commissioner breached his model litigant obligation. The Court, however, referred at length to the nature and extent of the model litigant obligation, which is binding on federal government agencies and their counsel. The Commissioner will continue to strive to meet every aspect of the model litigant obligation in all matters, and before all courts and tribunals. In particular, he will consider what action should be taken in any matters where verbatim copying issues arise. The Commissioner has reviewed all current appeals to the Federal Court from decisions of the AAT in light of the Full Federal Court judgment.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "N/A | 33(1)(a) | 42A(5)(b) | [2011] FCAFC 59 | (1979) 46 FLR 409 | (2010) 241 CLR 390 | [2010] HCA 32 | (1912) 15 CLR 133 | (1986) 162 CLR 24 | [1996] HCA 6 | (2001) 206 CLR 323 | [2001] HCA 30 | [2011] FCAFC 123 | [2009] FCA 205 | [2010] FCA 107 | 60 MJ 27 (2004) | [2003] FCAFC 319 | [1994] FCA 926 | (1994) 48 FCR 294", "Legislative_References": "Administrative Appeals Tribunal Act 1975 (Cth) 33(1)(a) 42A(5)(b)", "Case_References": "Bat Advocacy NSW Inc v Minister for Environment Protection, Heritage and the Arts (2011) 180 LGERA 99 [2011] FCAFC 59 Drake v Minister for Immigration and Ethnic Affairs (1979) 46 FLR 409 Kostas v HIA Insurance Services Pty Ltd (2010) 241 CLR 390 [2010] HCA 32 Melbourne Steamship Limited v Moorhead (1912) 15 CLR 133 Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 [1986] HCA 40 Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 [1996] HCA 6 Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 [2001] HCA 30 Rana v Repatriation Commissioner (2011) 196 FCR 137 [2011] FCAFC 123 Rezaei v Minister for Immigration and Multicultural Affairs [2001] FCA 1294 Singh v Minister for Immigration and Multicultural Affairs [2006] FCA 1113 SZMUV v Minister for Immigration and Citizenship [2009] FCA 205 SZNRZ v Minister for immigration and Citizenship [2010] FCA 107 United States v Troy B. Jenkins 60 MJ 27 (2004) WAFK v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCAFC 319 Wu Shan Lian v Minister for Immigration [1994] FCA 926 (1994) 32 ALD 735 (1994) 48 FCR 294", "Subject_References": "Administrative Law Power of AAT to dismiss application without proceeding to review the decision Failure of applicants within reasonable time to comply with AAT directions Mandatory relevant considerations Reasons of AAT substantially copied without attribution from written submissions Whether constructive failure to exercise jurisdiction Practice and Procedure Obligations of parties to court Model litigant obligation Obligation to inform court of source of decision-maker's reasons where copied verbatim and without attribution from party's written submissions", "Other_References": "Legal Services Directions 2005 (Cth)", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD428of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "Ma and Anor v Commissioner of Taxation", "Venue_Reference_No": "2010/2657-62; 2010/2663-65", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 January 2012", "Date_Published": "4 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether deposits made by a private company into a joint bank account of the company's directors was income derived beneficially by the taxpayers and thus assessable in their hands.", "Overview_of_Facts": "Mr and Mrs Ma were directors of a private company which carried on business as an importer and seller of bearings to the wholesale industry. | In January 2008, the ATO began an audit for the income years ended 30 June 2001 to 2006 inclusive. The audit revealed that amounts reported in the company's income tax returns as \"payments to associated persons\" had actually been paid into the taxpayers' joint bank account. The taxpayers did not return the amounts as income in their income tax returns during the relevant years. | The wife passed away in September 2008. Her husband was the executor of her Estate. | The taxpayer claimed, on behalf of himself and the Estate of his wife, that the payments represented wages paid to his three children and his nephew. | The Commissioner issued amended assessments to the taxpayer and the Estate of his wife for each of the years under audit on the ground that the amounts deposited in their account was ordinary income that they had beneficially derived. In respect of the taxpayer, an administrative penalty of 50% of the tax shortfall was imposed. | The Tribunal reviewed the amended assessments for the taxpayer for the 2005 and 2006 income years and the amended assessments for the 2004, 2005 and 2006 income years for the Estate of the wife. | Issues decided by the court | 1. Whether the amended assessments were excessive? | The Tribunal found that the children had spent significant hours working for the company, but there was insufficient evidence to substantiate all the hours they claimed to have worked. Therefore, only a small proportion of the amounts deposited represented wages of the children. | In respect of the nephew, the Tribunal found he was expected to work, he would be paid for this work and that he did indeed perform the work. When money was paid by the company in the bank account as a wage paid to the nephew, that money was held on trust for the nephew. | In so far as the payments constituted wages of the children and the nephew, the amended assessments were excessive. | 2. Whether the administrative penalties should be set aside? | The Tribunal found that the 50% penalty was appropriate. There was no basis for remitting the penalty. However, the objection decision in relation to administrative penalties was set aside to be recalculated having regard to the revised shortfall amount.", "Issues_Decided": "1. Whether the amended assessments were excessive? The Tribunal found that the children had spent significant hours working for the company, but there was insufficient evidence to substantiate all the hours they claimed to have worked. Therefore, only a small proportion of the amounts deposited represented wages of the children. In respect of the nephew, the Tribunal found he was expected to work, he would be paid for this work and that he did indeed perform the work. When money was paid by the company in the bank account as a wage paid to the nephew, that money was held on trust for the nephew. In so far as the payments constituted wages of the children and the nephew, the amended assessments were excessive. 2. Whether the administrative penalties should be set aside? The Tribunal found that the 50% penalty was appropriate. There was no basis for remitting the penalty. However, the objection decision in relation to administrative penalties was set aside to be recalculated having regard to the revised shortfall amount.", "ATO_View_of_Decision": "The decision was based solely on the facts and will not have any impact on subsequent cases.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A", "Related_Documents": "None | 2012 ATC 10-232 | s 6-5 | s 6-10 | s 6-25 | s 14ZY | s 14ZZ | s 14ZQ | s 14ZZK | Part IVC | Schedule 1 Division 284 | Schedule 1 Division 298 | s 175A | 2009 ATC 20-111 | 47 CLR 417 | 90 ATC 4088 | 2010 ATC 20-218 | 2010 ATC 20-171 | 75 ATC 4257 | 2003 ATC 4665 | [1959] HCA 8 | 101 CLR 298 | 79 ATC 4111 | 56 CLR 63 | 2010 ATC 20-219", "Legislative_References": "Income Tax Assessment Act 1997 s 6-5 s 6-10 s 6-25 Taxation Administration Act 1953 s 14ZY s 14ZZ s 14ZQ s 14ZZK Part IVC Schedule 1 Division 284 Schedule 1 Division 298 Income Tax Assessment Act 1936 s 175A", "Case_References": "3D Scaffolding Pty Ltd v Federal Commissioner of Taxation [2009] FCAFC 75 75 ATR 604 2009 ATC 20-111 Countess of Bective v Federal Commissioner of Taxation [1932] HCA 22 47 CLR 417 Federal Commissioner of Taxation v Dalco [1990] HCA 3 168 CLR 614 20 ATR 1370 90 ATC 4088 Federal Commissioner of Taxation v H [2010] FCAFC 128 188 FCR 440 2010 ATC 20-218 Federal Commissioner of Taxation v Rozman [2010] FCA 324 186 FCR 1 75 ATR 782 2010 ATC 20-171 Gauci v Federal Commissioner of Taxation [1975] HCA 54 135 CLR 81 5 ATR 672 75 ATC 4257 Hart v Commissioner of Taxation [2003] FCAFC 105 131 FLR 203 2003 ATC 4665 53 ATR 371 Jones v Dunkel [1959] HCA 8 101 CLR 298 McCormack v Federal Commissioner of Taxation [1979] HCA 18 143 CLR 284 9 ATR 610 79 ATC 4111 Trautwein v Federal Commissioner of Taxation [1936] HCA 77 56 CLR 63 Uratoriu v Commissioner of Taxation [2010] FCA 1157 2010 ATC 20-219 80 ATR 646", "Subject_References": "Deemed dividends or ordinary income Whether assessments were excessive Payments to associated persons Whether children and relatives were employees Domestic or private arrangement Documentary evidence Wages not paid directly to children or relatives Trusts Burden of proof in taxation matters Recklessness Whether penalties should be remitted Decisions under review varied", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010-2657-622010;2663-65/00001", "Unmatched_Content": ""}
{"Case_Name": "Mehta and Commissioner of Taxation", "Venue_Reference_No": "2011/2220", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "13 April 2012", "Date_Published": "1 June 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "The Tribunal set aside the Commissioner's objection decision and remitted the matter to the Commissioner with the direction that in the tax year ending 30 June 2009 the taxpayer carried on the business of trading in shares.", "Summary_of_Decision": "", "Overview_of_Facts": "The taxpayer was in full time employment at all times during the income years under review. On 26 June 2007, the taxpayer made an application for a margin lending facility and soon thereafter made his first purchase of shares. | During the income tax year ended 30 June 2008, the taxpayer made a total of 32 purchases and 3 sales. The taxpayer did not regard himself to be in a business of share trading for the year ended 30 June 2008. | During the income year ended 30 June 2009, the taxpayer carried out a total of 22 purchases and 27 sales of shares. He contributed $150,000 of his own capital to purchase shares and borrowed another $500,000 from BT Australia. The taxpayer also established a dedicated office for the share trading business in his home. | In his income tax return for the year ended 30 June 2009, the taxpayer claimed a loss of $125,293. | The Commissioner disallowed the claim on the basis that the taxpayer was not carrying on a business of share trading. The taxpayer objected and then applied to the Administrative Appeals Tribunal for review of the objection decision which affirmed the original decision. | Issues decided by the tribunal | The Tribunal found that the taxpayer was in the business of carrying on a business of share trading in the 2009 income year.", "Issues_Decided": "The Tribunal found that the taxpayer was in the business of carrying on a business of share trading in the 2009 income year.", "ATO_View_of_Decision": "The case was decided on its facts and will not have any impact on any existing or future litigation proceedings.", "Administrative_Treatment": "None | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "None | 2012 ATC 10-246 | s 262A | s 8-1 | s 14ZZK | 90 ATC 4088 | 91 ATC 4689 | 82 ATC 4031 | 80 ATC 4386 | 89 ATC 4101 | (1953) 90 CLR 470 | (1989) 89 ATC 4765 | 2009 ATC 20-109 | 72 ATC 4094 | 72 ATC 4157", "Legislative_References": "Income Tax Assessment Act 1936 s 262A Income Tax Assessment Act 1997 s 8-1 Taxation Administration Act 1953 s 14ZZK", "Case_References": "Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 90 ATC 4088 (1990) 20 ATR 1370 Federal Commissioner of Taxation v Radnor Pty Ltd (1991) 102 ALR 187 91 ATC 4689 (1991) 22 ATR 344 Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355 82 ATC 4031 (1982) 12 ATR 692 Hope v Bathurst City Council (1980) 144 CLR 1 80 ATC 4386 (1980) 12 ATR 231 John v Federal Commissioner of Taxation (1989) 166 CLR 417 89 ATC 4101 (1989) 20 ATR 1 Martin v Federal Commissioner of Taxation (1953) 90 CLR 470 North Australian Cement Limited v Federal Commissioner of Taxation (1989) 89 ATC 4765 (1989) 20 ATR 1058 Spriggs v Federal Commissioner of Taxation (2009) 239 CLR 1 2009 ATC 20-109 (2009) 72 ATR 148 The Commissioners of Inland Revenue v Livingston (1927) 11 TC 538 Thomas v Federal Commissioner of Taxation [1972-73] ALR 368 3 ATR 165 72 ATC 4094 Williams v Federal Commissioner of Taxation (1972) 128 CLR 645 72 ATC 4157 (1972) 3 ATR 236", "Subject_References": "Income tax whether carrying on a business of share trading or investing in shares", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/2220/00001", "Unmatched_Content": "Précis for the web page index: Outlines the ATO response to the Tribunal's decision in this matter which concerned whether the particular taxpayer's activities in share trading amounted to carrying on a business of share trading."}
{"Case_Name": "Mills v Commissioner of Taxation", "Venue_Reference_No": "S225/2012", "Venue": "High Court", "Judgment_Date": "14 November 2012", "Date_Published": "21 January 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case on whether, in terms of the general anti-avoidance rule in s177EA of the Income Tax Assessment Act 1936 , a Bank had a more than incidental purpose of enabling investors to obtain imputation benefits from the issue of hybrid stapled securities.", "Overview_of_Facts": "On 14 October 2009, 10,000,000 \"Perpetual Exchangeable Resaleable Listed Securities V\" (PERLS V) were issued by the Commonwealth Bank of Australia (the Bank) and transferred to successful applicants at an application price of AUD $200 each. The total capital raised by the PERLS v offering was AUD $2,000 million. | PERLS v are stapled securities each comprising an unsecured subordinated Note issued by the Bank through its New Zealand branch and a Preference Share in the Bank. PERLS v qualified as non-innovative residual Tier 1 capital for regulatory purposes. | Relevant features of the PERLS v securities include: • Until the happening of certain events, scheduled distributions to investors are interest payments on the Note • Distributions are calculated by reference to a benchmark interest rate reduced by the value of the franking benefit provided to investors • To the extent that a distribution is not fully-franked, the Bank will compensate investors by increasing the cash component of the distribution • The securities are scheduled to convert into ordinary shares in the Bank on 31 October 2014 • On conversion, investors will receive a number of shares having approximately the same value as their initial investment | • Until the happening of certain events, scheduled distributions to investors are interest payments on the Note • Distributions are calculated by reference to a benchmark interest rate reduced by the value of the franking benefit provided to investors • To the extent that a distribution is not fully-franked, the Bank will compensate investors by increasing the cash component of the distribution • The securities are scheduled to convert into ordinary shares in the Bank on 31 October 2014 • On conversion, investors will receive a number of shares having approximately the same value as their initial investment | Funds raised through the issue of PERLS v were lent by the New Zealand branch of the Bank to a New Zealand subsidiary or have otherwise been employed in the branch business. The income of the New Zealand branch is exempt from Australian tax under s23AH of the Income Tax Assessment Act 1936 (ITAA36) and the Bank claims deductions for the distributions on the note in New Zealand. | A Determination under s177EA(5)(b) of the ITAA36 was made by the Commissioner on 15 December 2009, to deny imputation benefits attached to a distribution expected to be made in February 2010 to a representative taxpayer. The taxpayer was unsuccessful in challenging the Determination before the Federal Court, and on appeal to the Full Federal Court, but was successful in the High Court. | Issues decided by the court | The issue before the High Court was whether, having regard to relevant circumstances, s177EA applied to deny imputation benefits attached to distributions to investors on the basis that the arrangement was entered into or carried out for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling investors to obtain the imputation benefits. | The High Court unanimously allowed the taxpayers appeal with French CJ, Hayne, Kiefel and Bell JJ agreeing with the reasons of Justice Gageler. | Justice Gageler noted two uncontroversial features of the \"relevant circumstances\" in s177EA(17). First, that the relevance of the relevant circumstances lies in the extent to which they are probative of the ultimate question as to purpose. Secondly, that while the circumstances referred to in s177EA(17) are not exhaustive, they are mandatory relevant considerations and, where they exist, must be taken into account. However, their degree of relevance will vary according to the extent to which they are probative of the ultimate question. | His Honour identified two questions of construction of s177EA(3)(e) pivotal to the application of s177EA , namely, what amounts to a \"purpose of enabling\" and when is such a purpose \"an incidental purpose\". | In considering when a purpose is an incidental purpose, his Honour quoted the statement in the Explanatory Memorandum for s177EA that \"a purpose is an incidental purpose when it occurs fortuitously or in subordinate conjunction with another purpose, or merely follows another purpose as its natural incident\". His Honour went on to say that a purpose would be an incidental purpose and outside the scope of s177EA(3)(e) \"if that purpose does no more than further some other purpose or follow from some other purpose\". His Honour said that in adopting that meaning of incidental purpose there was no warrant for further confining the application of s177EA by adopting a strained meaning of the word \"enabling\" in s177EA(3)(e) (as argued for by the appellant) and that it was best read in the sense suggested by the majority in the Full Federal Court as that of \"supplying with the requisite means or opportunities to [that] end\" | However, his Honour disagreed with the majority of the Full Federal Court in relation to the construction of s177EA(3)(e) in two respects. At [66] his Honour stated that: \"...a purpose can be incidental even where it is central to the design of a scheme if that design is directed to the achievement of another purpose. Indeed, the centrality of a purpose to the design of a scheme directed to the achievement of another purpose may be the very thing that gives it a quality of subsidiarity and therefore incidentality. That is not impermissibly to confine the scope of s177EA(3)(e) to a dominant purpose: the categories of \"dominant\" and \"incidental\" are not exhaustive. \" and \"...counterfactual analysis is not antithetical to the statutory inquiry mandated by s 177EA(3)(e). Purpose is a matter for inference and incidentality is a matter of degree. Consideration of possible alternatives may well assist the drawing of a conclusion in a particular case that a purpose of enabling a holder to obtain a franking credit does or does not exist and, if such a purpose exists, that the purpose is or is not incidental to some other purpose.\" | and \"...counterfactual analysis is not antithetical to the statutory inquiry mandated by s 177EA(3)(e). Purpose is a matter for inference and incidentality is a matter of degree. Consideration of possible alternatives may well assist the drawing of a conclusion in a particular case that a purpose of enabling a holder to obtain a franking credit does or does not exist and, if such a purpose exists, that the purpose is or is not incidental to some other purpose.\" | Based on that construction of s177EA(3)(e) his Honour considered that, in the case of a capital raising where the issuer intended to frank distributions on an equity interest, there would be a purpose of enabling the holder of the interest to obtain franking credits. However, if the franking served no other purpose than to facilitate the capital raising, that would be an incidental purpose and s177EA would not apply. His Honour contrasted that with franking credit trading and franking credit streaming where it is the issue of equity interests that is incidental to the provision of franking credits. His Honour noted that there are other scenarios where the circumstances would be more nuanced. | His Honour, in considering the Commissioner's notice of contention, also disagreed with the Full Federal Court on the construction of s177EA(17)(ga) and whether s177D(b)(vi) was a relevant circumstance. His Honour observed that the language in s177EA(17)(ga) of distributions \"sourced, directly or indirectly, from unrealised or untaxed profits\" was not used elsewhere in the legislation and that the expression \"unrealised or untaxed profits\" was not further defined. His Honour considered that the language of s177EA(17)(ga) should be read in light of the list of categories of unfrankable distributions in s202-45 and its stated object \"to ensure that only distributions equivalent to realised taxed profits can be franked\". His Honour went on to say at [69] that: | \"The word \"profits\" has no rigid meaning in income tax law . It is consistent with the object of s 177EA as a whole to treat s 177EA(17)(ga) as designed to capture distributions outside the listed categories of unfrankable distributions which were traceable to a source which had not borne income tax . The circumstance that distributions on the notes were to be paid by the New Zealand branch of the Bank without payment of Australian income tax by the Bank on the source of funding is therefore a relevant consideration within s 177EA(17)(ga).\" | In respect of s177D(b)(vi), his Honour inferred that without PERLS v the Bank would have raised Tier 1 capital by other means at a higher cost and therefore agreed that there was a change in the financial position of the Bank by the issue of PERLS v as it constituted the raising of capital by the Bank at a cheaper cost. | His Honour observed that, similar to s177D(b), an individual analysis of each of the relevant circumstances in s177EA(17) was not required and that a global assessment of purpose was permissible as long as the factors were taken into account. In this regard, his Honour noted how the primary judge and the Full Court had dealt with the matter by painstaking analysis of the 18 circumstances listed in s177EA(17) which demonstrated that very few of those circumstances had a material bearing on the ultimate conclusion required to be drawn under s177EA(3)(e). | For the purposes of the present case, his Honour decided that the question posed by s177EA(3)(e) could be broken down into two sub-questions. In issuing PERLS V, did the Bank have a purpose of enabling holders to obtain franking credits? If so, was that purpose subordinate to or in subsidiary conjunction with some other purpose? | His Honour stated that the answer to both questions was \"yes\" and went on to say at [75 ]and [76] that: \"The Bank obviously issued PERLS v with the intention of holders obtaining franking credits: the proposed franking of distributions was not only disclosed in the prospectus, it was integral to the calculation of the distribution on the notes (s 177EA(17)(f)), integral to the calculation of yield to investors (ss 177D(b)(ii) and 177D(b)(iv)) and integral to the calculation by the Bank of its after tax cost of capital (ss 177D(b)(ii), 177D(b)(iv) and 177D(b)(vi)). The Bank equally obviously issued PERLS v because the Bank needed to raise Tier 1 capital in circumstances where all the means available to the Bank to raise Tier 1 capital would have involved the Bank franking distributions to the same extent and where PERLS v represented the most commercially attractive of those available means (s 177D(b)(ii)). The circumstances that Tier 1 capital raised by the Bank from the issue of PERLS v was to be used by the Bank to generate income in New Zealand not taxable in Australia, and that distributions on the notes were deductible against assessable income in New Zealand, are required to be taken into account as relevant circumstances (ss 177EA(17)(ga), 177D(b)(ii) and 177D(b)(vi)). However, their probative value for the purpose of answering the question ultimately posed by s 177EA(3)(e) is elusive. They do not make it more or less likely that the Bank had a purpose of enabling the holders of PERLS v to obtain franking credits and they do nothing to alter the relationship between that purpose and its purpose of raising Tier 1 capital. \"", "Issues_Decided": "The issue before the High Court was whether, having regard to relevant circumstances, s177EA applied to deny imputation benefits attached to distributions to investors on the basis that the arrangement was entered into or carried out for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling investors to obtain the imputation benefits. The High Court unanimously allowed the taxpayers appeal with French CJ, Hayne, Kiefel and Bell JJ agreeing with the reasons of Justice Gageler. Justice Gageler noted two uncontroversial features of the \"relevant circumstances\" in s177EA(17). First, that the relevance of the relevant circumstances lies in the extent to which they are probative of the ultimate question as to purpose. Secondly, that while the circumstances referred to in s177EA(17) are not exhaustive, they are mandatory relevant considerations and, where they exist, must be taken into account. However, their degree of relevance will vary according to the extent to which they are probative of the ultimate question. His Honour identified two questions of construction of s177EA(3)(e) pivotal to the application of s177EA , namely, what amounts to a \"purpose of enabling\" and when is such a purpose \"an incidental purpose\". In considering when a purpose is an incidental purpose, his Honour quoted the statement in the Explanatory Memorandum for s177EA that \"a purpose is an incidental purpose when it occurs fortuitously or in subordinate conjunction with another purpose, or merely follows another purpose as its natural incident\". His Honour went on to say that a purpose would be an incidental purpose and outside the scope of s177EA(3)(e) \"if that purpose does no more than further some other purpose or follow from some other purpose\". His Honour said that in adopting that meaning of incidental purpose there was no warrant for further confining the application of s177EA by adopting a strained meaning of the word \"enabling\" in s177EA(3)(e) (as argued for by the appellant) and that it was best read in the sense suggested by the majority in the Full Federal Court as that of \"supplying with the requisite means or opportunities to [that] end\" However, his Honour disagreed with the majority of the Full Federal Court in relation to the construction of s177EA(3)(e) in two respects. At [66] his Honour stated that: \"...a purpose can be incidental even where it is central to the design of a scheme if that design is directed to the achievement of another purpose. Indeed, the centrality of a purpose to the design of a scheme directed to the achievement of another purpose may be the very thing that gives it a quality of subsidiarity and therefore incidentality. That is not impermissibly to confine the scope of s177EA(3)(e) to a dominant purpose: the categories of \"dominant\" and \"incidental\" are not exhaustive. \" and \"...counterfactual analysis is not antithetical to the statutory inquiry mandated by s 177EA(3)(e). Purpose is a matter for inference and incidentality is a matter of degree. Consideration of possible alternatives may well assist the drawing of a conclusion in a particular case that a purpose of enabling a holder to obtain a franking credit does or does not exist and, if such a purpose exists, that the purpose is or is not incidental to some other purpose.\" and \"...counterfactual analysis is not antithetical to the statutory inquiry mandated by s 177EA(3)(e). Purpose is a matter for inference and incidentality is a matter of degree. Consideration of possible alternatives may well assist the drawing of a conclusion in a particular case that a purpose of enabling a holder to obtain a franking credit does or does not exist and, if such a purpose exists, that the purpose is or is not incidental to some other purpose.\" Based on that construction of s177EA(3)(e) his Honour considered that, in the case of a capital raising where the issuer intended to frank distributions on an equity interest, there would be a purpose of enabling the holder of the interest to obtain franking credits. However, if the franking served no other purpose than to facilitate the capital raising, that would be an incidental purpose and s177EA would not apply. His Honour contrasted that with franking credit trading and franking credit streaming where it is the issue of equity interests that is incidental to the provision of franking credits. His Honour noted that there are other scenarios where the circumstances would be more nuanced. His Honour, in considering the Commissioner's notice of contention, also disagreed with the Full Federal Court on the construction of s177EA(17)(ga) and whether s177D(b)(vi) was a relevant circumstance. His Honour observed that the language in s177EA(17)(ga) of distributions \"sourced, directly or indirectly, from unrealised or untaxed profits\" was not used elsewhere in the legislation and that the expression \"unrealised or untaxed profits\" was not further defined. His Honour considered that the language of s177EA(17)(ga) should be read in light of the list of categories of unfrankable distributions in s202-45 and its stated object \"to ensure that only distributions equivalent to realised taxed profits can be franked\". His Honour went on to say at [69] that: \"The word \"profits\" has no rigid meaning in income tax law . It is consistent with the object of s 177EA as a whole to treat s 177EA(17)(ga) as designed to capture distributions outside the listed categories of unfrankable distributions which were traceable to a source which had not borne income tax . The circumstance that distributions on the notes were to be paid by the New Zealand branch of the Bank without payment of Australian income tax by the Bank on the source of funding is therefore a relevant consideration within s 177EA(17)(ga).\" In respect of s177D(b)(vi), his Honour inferred that without PERLS v the Bank would have raised Tier 1 capital by other means at a higher cost and therefore agreed that there was a change in the financial position of the Bank by the issue of PERLS v as it constituted the raising of capital by the Bank at a cheaper cost. His Honour observed that, similar to s177D(b), an individual analysis of each of the relevant circumstances in s177EA(17) was not required and that a global assessment of purpose was permissible as long as the factors were taken into account. In this regard, his Honour noted how the primary judge and the Full Court had dealt with the matter by painstaking analysis of the 18 circumstances listed in s177EA(17) which demonstrated that very few of those circumstances had a material bearing on the ultimate conclusion required to be drawn under s177EA(3)(e). For the purposes of the present case, his Honour decided that the question posed by s177EA(3)(e) could be broken down into two sub-questions. In issuing PERLS V, did the Bank have a purpose of enabling holders to obtain franking credits? If so, was that purpose subordinate to or in subsidiary conjunction with some other purpose? His Honour stated that the answer to both questions was \"yes\" and went on to say at [75 ]and [76] that: \"The Bank obviously issued PERLS v with the intention of holders obtaining franking credits: the proposed franking of distributions was not only disclosed in the prospectus, it was integral to the calculation of the distribution on the notes (s 177EA(17)(f)), integral to the calculation of yield to investors (ss 177D(b)(ii) and 177D(b)(iv)) and integral to the calculation by the Bank of its after tax cost of capital (ss 177D(b)(ii), 177D(b)(iv) and 177D(b)(vi)). The Bank equally obviously issued PERLS v because the Bank needed to raise Tier 1 capital in circumstances where all the means available to the Bank to raise Tier 1 capital would have involved the Bank franking distributions to the same extent and where PERLS v represented the most commercially attractive of those available means (s 177D(b)(ii)). The circumstances that Tier 1 capital raised by the Bank from the issue of PERLS v was to be used by the Bank to generate income in New Zealand not taxable in Australia, and that distributions on the notes were deductible against assessable income in New Zealand, are required to be taken into account as relevant circumstances (ss 177EA(17)(ga), 177D(b)(ii) and 177D(b)(vi)). However, their probative value for the purpose of answering the question ultimately posed by s 177EA(3)(e) is elusive. They do not make it more or less likely that the Bank had a purpose of enabling the holders of PERLS v to obtain franking credits and they do nothing to alter the relationship between that purpose and its purpose of raising Tier 1 capital. \"", "ATO_View_of_Decision": "As indicated in previous Decision Impact Statements on Part IVA, the ATO will take all decisions of the High Court and Federal Court into account in applying Part IVA to the particular facts of cases. | In this case, the High Court found that the Bank had a demonstrated need to raise Tier 1 capital; that this was its main purpose; and that all means available to do so would have involved the Bank franking distributions to the same extent. The High Court held, therefore, that the franking purpose was no more than incidental in the sense that it furthered, or followed as a natural consequence of, the commercial requirement for Tier 1 capital and that the other identified relevant circumstances were not sufficiently probative of purpose to alter this conclusion. | If the same facts and circumstances subsist in other cases of Tier 1 capital-raising, it is clear that s177EA will not apply. | Incidental purpose | The High Court stated at [64] that, in the context of s177EA, a franking purpose will be incidental \"if that purpose does no more than further some other purpose or follow from some other purpose\" and at paragraph 66 that \"a purpose can be incidental even where it is central to the design of a scheme if that design is directed to the achievement of another purpose\". | The High Court did emphasise, however, that this does not \"impermissibly confine the scope of s177EA(3)(e) to a dominant purpose: the categories of \"dominant\" and \"incidental\" are not exhaustive. \" | The decision suggests that in cases where a substantial, albeit not dominant, purpose of franking is evident, there will be a need to carefully scrutinise the extent to which the franking purpose can be said to do no more than further, or follow from, some other purpose. | Relevant circumstances | The High Court has confirmed that the circumstances listed in s177EA(17) are not exhaustive of the matters that may be probative of the ultimate question as to purpose. Accordingly, it was stated at [66] that counterfactual analysis was not antithetical to the inquiry mandated by paragraph 177EA(3)(e), noting that purpose is a matter for inference and incidentality is a matter of degree. This type of analysis was held to be a relevant consideration, not only fitting within subparagraph 177D(b)(ii) in the circumstances of the case, but also because it was logically probative of the conclusion to be drawn under paragraph177EA(3)(e). | However, the Court did not go so far as to say that this was a mandatory consideration or that it operated in the same way as s177C to establish the existence of the relevant tax (imputation) benefit. Rather, the High Court said that consideration of possible alternatives may well assist the drawing of a conclusion in a particular case as to the existence of the relevant purpose of enabling a holder to obtain an imputation benefit and, if so, whether that purpose is incidental or not to some other purpose. | In light of the High Court's confirmation that the list of relevant circumstances in s177EA(17) is not exhaustive, it can also be contemplated that particular fact patterns in other types of cases may reveal other relevant considerations beyond the mandatory considerations in s177EA(17) that could have a bearing on the statutory question of purpose. | Other forms of capital raising | Whether s177EA applies in situations other than the particular circumstances of the Tier 1 capital-raising considered in this decision will depend on the facts and circumstances of each case. | At {67], the High Court compared a capital-raising where the intended franking does no more than facilitate the capital raising and is, therefore, an incidental purpose, with franking credit trading and franking credit streaming where it is the issue of equity interests that is incidental to the provision of franking credits. Between these ends of the spectrum, however, the High Court observed that \"there are other scenarios within the \"catch all\" operation of s177EA where the circumstances are more nuanced.\" | No doubt in these other cases the probative value of some of the listed relevant circumstances would become less elusive. | In the absence of a consideration of all of the facts of a case, which is always necessary in determining the application of the general anti-avoidance rule, it is not possible for the ATO to indicate where on the spectrum various types of capital-raising will lie.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | TR2009/3 deals with arrangements that are somewhat different from the one considered in this decision. However, aspects of the Ruling will need to be considered, and possibly amended, to take into account the reasoning of the High Court.", "Related_Documents": "TR2009/3 | 2012 ATC 20-360 | 177D | 177EA | Pt 3-6 | Div 974 | 96 ATC 5201 | 2005 ATC 4955 | 2004 ATC 4599 | 2001 ATC 4343", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) 177D 177EA Income Tax Assessment Act 1997 (Cth) Pt 3-6 Div 974", "Case_References": "Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 [1996] HCA 34 34 ATR 183 96 ATC 5201 Federal Commissioner of Taxation v Sun Alliance Investments Pty Ltd (2005) 225 CLR 488 [2005] HCA 70 60 ATR 560 2005 ATC 4955 Federal Commissioner of Taxation v Hart (2004) 217 CLR 216 [2004] HCA 26 55 ATR 712 2004 ATC 4599 Federal Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235 [2001] HCA 32 47 ATR 229 2001 ATC 4343", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S225/2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Mitsui Co (Australia) Ltd v Commissioner of Taxation", "Venue_Reference_No": "WAD 17 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "14 August 2012", "Date_Published": "21 October 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case about whether a taxpayer purchasing a percentage interest in a petroleum production licence acquired a single depreciating asset (the licence) or two depreciating assets, being the rights to produce and explore granted under the licence.", "Overview_of_Facts": "Under a Sale and Purchase Agreement (Sale Agreement), the purchaser acquired a 40% interest in certain assets, including an exploration permit (Permit) and a production licence (Licence) granted under the Petroleum (Submerged Lands) Act 1967 (PSLA). The purchaser is a subsidiary member of a consolidated group of which the taxpayer is the head company. | The Permit had originally been granted to the vendor in 1997. The permit area was located off the coast of Western Australia, and was delineated by reference to a number of graticular blocks. The vendor carried out exploration in the permit area and three petroleum fields were discovered in the area, referred to as the Vincent Field, the Enfield Field and the Laverda Field. | In 2001 the vendor had nominated three of those graticular blocks covered by the original Permit as a \"location\" for the purposes of the PSLA, and the Designated Authority made a declaration of location in respect of those blocks. The Enfield Field was located wholly within those three adjacent graticular blocks. The Vincent Field was partly within one of those graticular blocks (and partly within the area of another exploration permit granted under the PSLA). | In 2003 the vendor, having formed the view that the Enfield Field was economically viable, made an application for a production licence in respect of those three graticular blocks. The vendor submitted a field development plan to the Designated Authority in respect of the Enfield Field. | In March 2004 the Licence was granted to the vendor by the Designated Authority. The Licence area covered the three graticular blocks nominated as a location; these blocks were excised from the Permit area. The result of this was that the Enfield Field was wholly within the area of the Licence and the Vincent Field was partly within the area of the Licence. (No part of the Laverda Field was within the Licence.) | The purchaser subsequently entered into the Sale Agreement with the vendor and acquired the 40% interest in the Licence and the Permit (as well as a 40% interest in other assets). The Sale Agreement provided for a single purchase price, with no provision for apportionment between any particular assets. The purchaser and vendor also entered into two joint operating agreements, one relating to the Permit and the other to the Licence. | Section 52 of the PSLA authorises the holder of a production licence to: • recover petroleum in the area constituted by the blocks that are the subject of the licence; • explore for petroleum in that area; and • carry on such operations and execute such works in that area as are necessary for those purposes. | • recover petroleum in the area constituted by the blocks that are the subject of the licence; • explore for petroleum in that area; and • carry on such operations and execute such works in that area as are necessary for those purposes. | For the purposes of preparing its income tax return for the 2005 income year, the taxpayer apportioned the purchase price paid under the Sale Agreement between the Enfield Field, Vincent Field and Laverda Field, on the basis that the amount paid was attributable to having acquired separate rights in respect of each of the fields. The taxpayer contended that the authorisation to explore for petroleum constituted a separate \"mining, quarrying or prospecting right\" for the purposes of the definition in section 995-1 of the ITAA 1997, and a separate depreciating asset. Therefore, it was contended that the taxpayer was entitled to a deduction in the 2005 income year equal to the portion of the purchase price it apportioned to the Vincent Field, that being the amount of the decline in value of the right to explore. | In the alternative, the taxpayer contended that if the authorisation to explore and authorisation to recover were not separate depreciating assets, then they were components of one depreciating asset which were functionally different and capable of being exercised separately, such that they were to be treated as separate depreciating assets under subsection 40-30(4). | The Commissioner contended that the 40% interest acquired by the purchaser in the Licence was a single mining, quarrying or prospecting right and therefore a single depreciating asset for the purposes of Division 40. On this basis, the Commissioner said that the taxpayer was not entitled to an immediate deduction in the 2005 income year for the part of the purchase price apportioned by the taxpayer to the Vincent Field. | Issues decided by the Court l | The Full Federal Court held that the Licence comprised a \"mining, quarrying and prospecting right\" for the purposes of the definition of that term in section 995-1 of the ITAA 1997, and therefore constituted a single depreciating asset. | The Licence and rights conferred by section 52 of the PSLA were intangible assets and therefore were not depreciating assets unless they fall within one of the types of depreciating assets specified in subsection 40-30(2). | Therefore the question was not whether each right acquired as a result of the grant of the Licence was an asset, but whether the taxpayer acquired a \"mining, quarrying or prospecting right\" as defined. | The Court rejected the taxpayer's submission that the word \"right\" as used in that definition referred to underlying or substantive statutory rights conferred on the holder of such a production licence. Their Honours observed (at [50]): \"Thus, the words authority, licence, permit, right and lease are descriptive of the various types of mining titles that might arise under various Australian laws. The fact that a particular Australian law dealing with a mining title might use a different term to convey the concept of authority, permission or licence to mine, quarry or prospect, such as the term retention lease in the Petroleum Act, does not mean that that mining title cannot fall within the definition. It will do so if it can fairly be characterised as an authority, licence, permit or right to mine, quarry or prospect for minerals or petroleum.\" | Further, the Court noted that although other provisions of Division 40 of the ITAA 1997 might refer to petroleum fields, the definition of mining, quarrying or prospecting right makes no reference to a particular field or site, nor did the PSLA. The scheme of the PSLA was to grant rights only in respect of graticular blocks. The fact that a mining title might derive its value from the underlying entitlements that it conferred did not determine whether each of those entitlements was a separate depreciating asset for the purposes of Division 40. | In relation to the taxpayer's alternative argument, the Court said that subsection 40-30(4) could not apply. A production licence was not a \"composite\" asset because it was the licence itself (or interest in the licence) that fell within the definition of a mining, quarrying or prospecting right. It was therefore deemed to be a depreciating asset by subsection 40-30(2) and not capable of being further divided. In any event, for an asset to be a composite item each of its components must be capable of separate existence. For intangible property created by statute, the issue of whether it is a composite item requires consideration of the legal character of the item, by reference to the relevant statute. Here, the statutory scheme of the PSLA did not support the conclusion that the production licence was a composite item, or that the components of a production licence are separate depreciating assets.", "Issues_Decided": "The Full Federal Court held that the Licence comprised a \"mining, quarrying and prospecting right\" for the purposes of the definition of that term in section 995-1 of the ITAA 1997, and therefore constituted a single depreciating asset. The Licence and rights conferred by section 52 of the PSLA were intangible assets and therefore were not depreciating assets unless they fall within one of the types of depreciating assets specified in subsection 40-30(2). Therefore the question was not whether each right acquired as a result of the grant of the Licence was an asset, but whether the taxpayer acquired a \"mining, quarrying or prospecting right\" as defined. The Court rejected the taxpayer's submission that the word \"right\" as used in that definition referred to underlying or substantive statutory rights conferred on the holder of such a production licence. Their Honours observed (at [50]): \"Thus, the words authority, licence, permit, right and lease are descriptive of the various types of mining titles that might arise under various Australian laws. The fact that a particular Australian law dealing with a mining title might use a different term to convey the concept of authority, permission or licence to mine, quarry or prospect, such as the term retention lease in the Petroleum Act, does not mean that that mining title cannot fall within the definition. It will do so if it can fairly be characterised as an authority, licence, permit or right to mine, quarry or prospect for minerals or petroleum.\" Further, the Court noted that although other provisions of Division 40 of the ITAA 1997 might refer to petroleum fields, the definition of mining, quarrying or prospecting right makes no reference to a particular field or site, nor did the PSLA. The scheme of the PSLA was to grant rights only in respect of graticular blocks. The fact that a mining title might derive its value from the underlying entitlements that it conferred did not determine whether each of those entitlements was a separate depreciating asset for the purposes of Division 40. In relation to the taxpayer's alternative argument, the Court said that subsection 40-30(4) could not apply. A production licence was not a \"composite\" asset because it was the licence itself (or interest in the licence) that fell within the definition of a mining, quarrying or prospecting right. It was therefore deemed to be a depreciating asset by subsection 40-30(2) and not capable of being further divided. In any event, for an asset to be a composite item each of its components must be capable of separate existence. For intangible property created by statute, the issue of whether it is a composite item requires consideration of the legal character of the item, by reference to the relevant statute. Here, the statutory scheme of the PSLA did not support the conclusion that the production licence was a composite item, or that the components of a production licence are separate depreciating assets.", "ATO_View_of_Decision": "The Full Court's conclusions on the identification of the relevant depreciating asset for the purposes of Division 40 of the ITAA 1997 arising from the grant of the production license granted under the PSLA are consistent with the ATO's submissions in the case. The outcome of the case also reflects the conclusion reached by the ATO in ATO ID 2010/45.", "Administrative_Treatment": "Implications for ATO Precedential documents | Following the decision of the Full Federal Court, the Commissioner will review the legislative interpretation contained in the following ATO Interpretative Decisions: ATO ID 2007/116 ATO ID 2009/130 ATO ID 2010/2 ATO ID 2010/45 ATO ID 2010/64 ATO ID 2010/65 ATO ID 2010/66 ATO ID 2010/67 ATO ID 2011/25 | Implications for Law Administration Practice Statements | None | Your comments | We invite you to advise us if you feel this decision has consequences we have not identified, or if a precedential decision such as a Public Ruling or an ATO ID requires reconsideration or amendment. Please forward your comments to the contact officer by the due date. Date issued: 20 December 2012 Contact officer details have been removed as the comments period has ended. | Date of amendment Part Comment 21 October 2014 Relevant Rulings/Determinations Amend heading to read 'Relevant ATO precedential documents' Inserted relevant ATO IDs Administrative treatment Updated to include ATO IDs under review", "Related_Documents": "ATO ID 2007/116 | ATO ID 2009/130 | ATO ID 2010/2 | ATO ID 2010/45 | ATO ID 2010/64 | ATO ID 2010/65 | ATO ID 2010/66 | ATO ID 2010/67 | ATO ID 2011/25 | 2012 ATC 20-341 | 40-25 | 40-30 | 40-40 | 40-80 | 40-95 | 40-110 | 40-730 | 995-1", "Legislative_References": "Income Tax Assessment Act 1997 (Cth) 40-25 40-30 40-40 40-80 40-95 40-110 40-730 995-1", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD17of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 1325 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "20 June 2012", "Date_Published": "22 May 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerns the taxpayer's claim, by reference to s13 of GST Transition Act 1999, to a refund of GST paid on a lease entered into in 1998. The lease payments had been increased to take account of GST.", "Overview_of_Facts": "By way of a contract dated 27 February 1998, the taxpayer, in a partnership, purchased the property on which a building known as R G Casey Building (\"the Building\") had been constructed, and commenced a lease with Department of Foreign Affairs and Trade (\"DFAT\") for the occupation of part of the building effective from 25 April 1998. The term of the lease spanned the whole of the period from the date of royal assent to the GST Transition Act , namely 8 July 1999 to 30 June 2005. | The consideration under the lease had four components: rent component, amortisation costs, statutory outgoings and an annual fee for carparking spaces. | The lease also provided for 'review dates' from March 1999 to 2005 under which the rent was increased by 10% on account of GST from 1 March 2001. The lease did not provide for review of the amortisation or outgoings components. | From 1 March 2001 to 30 June 2005, the taxpayer remitted GST of approximately $7.5 million to the Commissioner on the rent and the car parking components. Equivalent amounts had been paid to it by DFAT such that the taxpayer was not out-of-pocket. There was no evidence that DFAT had not claimed input tax credits. | Subsequently the taxpayer claimed that section 13 of the GST Transition Act applied and that GST was not payable at all. It sought a refund of $7,457,531 which the Commissioner refused on the basis that that the supply was correctly treated as 'taxable'. The taxpayer then lodged an application for review of the Commissioner's decision with the Administrative Appeals Tribunal. | On the 31 October 2011, the Tribunal handed down a decision favourable to the Commissioner (other than on the s105-55 notification issue). The Tribunal (comprised of the then President, Downes J and Senior Member O'Loughlin) in MTAA Superannuation Fund ( R G Casey ) Building Property Pty Ltd v Commissioner of Taxation [2011] AATA 769 held that section 13 of the GST Transition Act did not render the supplies GST-free because after the royal assent date the supply and consideration identified in the lease were materially different to the supply and consideration identified before the royal assent date and therefore section 13(1) did not apply. The Tribunal also found that there was a review opportunity as nearly all of the consideration was reviewable under section 13(5). | The Tribunal considered that the taxpayer's notification of an entitlement to a refund was valid for the purposes of section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (\"TAA\"). The Tribunal further considered that, if there was an amount refundable without consideration of the discretion under section 105-65 of Schedule 1 to the TAA, the discretion ought to be exercised to refuse to pay any refund as neither party was out-of-pocket and the intention of the legislation was to prevent windfall gains. | The taxpayer appealed the Tribunal's decision to the Full Federal Court. | Issues decided by the Full Federal Court | The main issue in dispute was whether the taxpayer was entitled to recover, what it claimed was, overpaid GST from the Commissioner in respect of quarterly tax periods from 30 June 2001 to 30 June 2005, inclusive. | The Full Court dismissed the taxpayer's appeal. It upheld the Tribunal's finding that section 13 of the GST Transition Act did not apply to the lease from 1 March 2001 as the relevant supplies from that date were not made for consideration \"satisfactorily identified\" in the pre-royal assent lease [at paragraph 45]. The Full Court noted [at paragraph 53] that, by agreeing to pay an additional 10% on account of GST, MTAA and DFAT departed from the consideration specified in the pre-royal assent lease, and section 13 does not afford protection to suppliers who make supplies after the date of royal assent for a consideration which is not specified, or worked out pursuant to an agreement entered into before the date of royal assent. | Further, the Full Court held that the Tribunal was correct in finding that the consideration was varied by a two-step process involving (i) the agreement to increase the rent on account of GST and (ii) the increase in the rental resulting from the rent review process provided for in the pre-royal assent agreement. | The Full Court agreed with the Tribunal's finding that a review opportunity within the meaning of section 13(5) did arise from 1 March 2001 because \"nearly all\" (other than 2.86%) of the consideration under the lease was reviewable and that this constituted the necessary \"general\" review amounting to a \"review opportunity\" for the purposes of section 13(5) of the GST Transition Act . The Full Court held [at paragraph 71] that the word \"general\" qualifies the nature of the review but does not require that the review be \"universal\". It is enough that it is \"almost universal\". It is not correct that only trivial or de minimis amounts may be excluded from reviewable consideration. Such expressions are unjustifiable glosses on the meaning of \"general\" qualifying the word \"review\" and are at odds with the meaning adopted by the Full Court in DB Rreef Funds Management Limited v Commissioner of Taxation [2005] FCA 509, (2005) 218 ALR 144 and Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115, (2006) 152 FCR 461. | The Full Court did not deal with the issue of the discretion in section 105-65 of Schedule 1 to the TAA,as the discretion was never exercised by the Commissioner nor reviewed by the Tribunal. However, the Full Court made the observation that it would reject the taxpayer's submission that section 105-65 does not operate to restrict a refund in respect of agreements which were GST-free under section 13 because this would otherwise frustrate the purpose of section 13 [at paragraph 81]. We also note that the Full Court said [at paragraph 29] that it was by no means clear why the taxpayer, which is not out-of-pocket, brought the proceedings. The Tribunal had commented that 'any refund to the applicant, before any payment to the Department, would be a windfall gain to a party who has not borne the real cost of the GST overpaid.' | Although the Commissioner filed a Notice of Contention in respect of the validity of the taxpayer's notification under section 105-55 of Schedule 1 to the TAA, he did not press the issue when the appeal was heard.", "Issues_Decided": "The main issue in dispute was whether the taxpayer was entitled to recover, what it claimed was, overpaid GST from the Commissioner in respect of quarterly tax periods from 30 June 2001 to 30 June 2005, inclusive. The Full Court dismissed the taxpayer's appeal. It upheld the Tribunal's finding that section 13 of the GST Transition Act did not apply to the lease from 1 March 2001 as the relevant supplies from that date were not made for consideration \"satisfactorily identified\" in the pre-royal assent lease [at paragraph 45]. The Full Court noted [at paragraph 53] that, by agreeing to pay an additional 10% on account of GST, MTAA and DFAT departed from the consideration specified in the pre-royal assent lease, and section 13 does not afford protection to suppliers who make supplies after the date of royal assent for a consideration which is not specified, or worked out pursuant to an agreement entered into before the date of royal assent. Further, the Full Court held that the Tribunal was correct in finding that the consideration was varied by a two-step process involving (i) the agreement to increase the rent on account of GST and (ii) the increase in the rental resulting from the rent review process provided for in the pre-royal assent agreement. The Full Court agreed with the Tribunal's finding that a review opportunity within the meaning of section 13(5) did arise from 1 March 2001 because \"nearly all\" (other than 2.86%) of the consideration under the lease was reviewable and that this constituted the necessary \"general\" review amounting to a \"review opportunity\" for the purposes of section 13(5) of the GST Transition Act . The Full Court held [at paragraph 71] that the word \"general\" qualifies the nature of the review but does not require that the review be \"universal\". It is enough that it is \"almost universal\". It is not correct that only trivial or de minimis amounts may be excluded from reviewable consideration. Such expressions are unjustifiable glosses on the meaning of \"general\" qualifying the word \"review\" and are at odds with the meaning adopted by the Full Court in DB Rreef Funds Management Limited v Commissioner of Taxation [2005] FCA 509, (2005) 218 ALR 144 and Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115, (2006) 152 FCR 461. The Full Court did not deal with the issue of the discretion in section 105-65 of Schedule 1 to the TAA,as the discretion was never exercised by the Commissioner nor reviewed by the Tribunal. However, the Full Court made the observation that it would reject the taxpayer's submission that section 105-65 does not operate to restrict a refund in respect of agreements which were GST-free under section 13 because this would otherwise frustrate the purpose of section 13 [at paragraph 81]. We also note that the Full Court said [at paragraph 29] that it was by no means clear why the taxpayer, which is not out-of-pocket, brought the proceedings. The Tribunal had commented that 'any refund to the applicant, before any payment to the Department, would be a windfall gain to a party who has not borne the real cost of the GST overpaid.' Although the Commissioner filed a Notice of Contention in respect of the validity of the taxpayer's notification under section 105-55 of Schedule 1 to the TAA, he did not press the issue when the appeal was heard.", "ATO_View_of_Decision": "Transitional contracts | The Full Court confirmed the decision of the Tribunal that section 13 of the GST Transition Act will not apply where the consideration for the relevant supplies is not specified or worked out pursuant to an agreement entered into before the date of royal assent. | This means that, where the parties agreed outside of the terms of the relevant agreement to increase the consideration for GST, their supplies would not be GST-free under subsection 13(1). | The Full Court's conclusion is consistent with the view in GSTR 2000/16 that section 13 ceases to apply where there is a 'new agreement' (see paragraphs 68 to 72 of that ruling). However, as the Tribunal had noted, the issue is not whether there is a 'new agreement', but rather whether the consideration (or way of working it out) was adequately identified by the pre-royal assent agreement. | The Full Court [at paragraph 59] indicated that it could not consider the question of whether the agreement to change the consideration was a product of a 'mistake'. Nevertheless, having regard to the Full Court's analysis at paragraphs 45 and 53, the Commissioner considers that, where consideration is grossed-up for GST outside the terms of the agreement, the question of whether the increase in consideration was by 'mistake' might not be determinative. Consideration for GST purposes is broader than contractual consideration, and a substantial increase of consideration, even founded on a mistake, may result in the agreement ceasing to satisfactorily identify the consideration (or way of working it out) for the supply. | The Full Court also concluded that, in determining whether a review of the consideration was a general review for the purposes of paragraph 13(5)(b) of the GST Transition Act , it is appropriate to consider the percentage of the entire consideration that is subject to review. | The ATO takes a comparable approach in GSTR 2000/16. It is not possible to take a prescriptive view of what percentage of reviewable consideration is sufficient. The question is ultimately whether the review should be described as 'general.' | Section 13 of the GST Transition Act ceased to operate from 1 July 2005. Rather than update GSTR 2000/16 to take account of the Court's reasons for decision in this case, and the decision of the Tribunal in National Jet Systems Pty Ltd v FCT [2011] AATA 766, the Commissioner proposes simply to withdraw the ruling. | Refund restriction provision | The Full Court's conclusion that section 105-65 would operate if a supply was treated as a taxable supply to any extent but should have been treated as GST-free pursuant to section 13 is consistent with the Commissioner's view. The Commissioner notes the observations of the Tribunal and the Full Court that the taxpayer was not out-of-pocket. | Tribunal's decision regarding notification of entitlement | The Commissioner did not seek to challenge before the Full Court the Tribunal's conclusion that the taxpayer's notification was valid for the purposes of section 105-55 of Schedule 1 to the TAA . The Commissioner will issue an addendum to MT 2009/1 refining the explanation of the requirements of a notification in light of this decision and other recent cases. | There may be circumstances where a notification for the purposes of section 105-55 provides some information about a claimed refund, but is framed in a general way such that there is some doubt as to whether there is a particular refund entitlement that is being identified, or whether the notice is merely seeking to reserve the taxpayer's rights in the event it later identifies refund opportunities. Where a notification is fairly general in nature, if and when a subsequent claim for a refund is made, the Commissioner will consider the circumstances to determine if the notification in fact sought to cover the later claimed refund, or whether instead the notification was merely speculative in seeking to reserve rights in case a claim can be identified. | The Commissioner considers that if at the time the notification is made there is no refund that has been identified, the notification cannot be valid. This is consistent with the approach in MT 2009/1 at paragraph 14 and paragraphs 48 to 49.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | The appeal decision had minor impacts on GSTR 2000/16. As section 13 of the GST Transition Act only operates to make supplies GST-free where the supply is made before 1 July 2005, rather than updating the ruling, the Commissioner has withdrawn the ruling with effect from 15 May 2013. | An addendum to MT 2009/1 was published on 27 March 2013 to reflect the Tribunal decision in this case and other recent Tribunal and Federal Court cases [1] . | The decision has no impact on MT 2010/1 as both the Tribunal and Court's observations in any event reflect the Commissioner's approach to the operation of section 105-65. | Implications for Law Administration Practice Statements | None.", "Related_Documents": "GSTR 2000/16 | MT 2009/1 | MT 2010/1 | 2012 ATC 20-323 | 13(1) | 13(2) | 13(5) | 2005 ATC 4151 | 2006 ATC 4282 | 2011 ATC 10-213 | 2006 ATC 4363", "Legislative_References": "A New Tax System (Goods and Services Tax Transition) Act 1999 13(1) 13(2) 13(5) Taxation Administration Act 1953 105-65", "Case_References": "ACP Publishing Pty Ltd v Commissioner of Taxation (2005) 142 FCR 533 [2005] FCAFC 57 59 ATR 98 2005 ATC 4151 Commissioner of Taxation v DB Rreef Funds Management Ltd (2006) 152 FCR 437 2006 ATC 4282 62 ATR 699 DB Rreef Funds Management Limited v Commissioner of Taxation [2005] FCA 509 (2005) 218 ALR 144 2006 ATC 4282 62 ATR 699 MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd v Commissioner of Taxation [2011] AATA 769 2011 ATC 10-213 Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 (2006) 152 FCR 461 2006 ATC 4363 62 ATR 682", "Subject_References": "Goods and Services Tax Refund claim Lease Refunds Exercise of discretion", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1325of2011/00001", "Unmatched_Content": "Footnotes: [1] National Jet Systems Pty Ltd v FCT [2011] AATA 766; 2011 ATC 10-212 Central Equity Ltd v FCT [2011] FCA 908; 2011 ATC 20-274"}
{"Case_Name": "Noza Holdings Pty Ltd and Ors v Federal Commissioner of Taxation; Federal Commissioner of Taxation v Noza Holdings Pty Ltd", "Venue_Reference_No": "VID 758-763, VID 764 & VID 908 of 2009 (First Instance); VID 195-198 & VID 200-201 of 2011 (Appeal)", "Venue": "Federal Court of Australia", "Judgment_Date": "4 February 2011", "Date_Published": "18 March 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which primarily concerned the allowablity of a section 25-90 deduction in respect of an arrangement which utilised redeemable preference shares as a means of financing.", "Overview_of_Facts": "1. In 2001, ITW Inc and its wholly owned subsidiaries (collectively the ITW Group), operated some 600 decentralised businesses in over 40 countries, principally concerned with the manufacture and sale of a wide range of consumer and industrial products. At that time, the ITW Group's annual revenues exceeded US$9 billion, approximately two thirds of which was derived from the ITW Group's US operations. | 2. In 2001, the ITW Group entered into a series of transactions designed to centralise ownership of its customer based intangibles and crystallise their value, thereby facilitating any future legal action for their protection and giving rise to state tax savings in the US. This involved the creation of various royalty income streams and their transfer for value between companies in the ITW Group (including via two Australian entities, CSA Pty Ltd (\" CSA \") and ITW AFC Pty Ltd (\" AFC \")). | 3. The transactions were initially envisaged to be tax neutral from an Australian point of view but the final implementation of the transactions was altered from the original design after the last minute identification of a US foreign exchange reporting issue. | Final implementation of the Royalty Income Stream transfer | 4. CSFI LLC (\" CSFI \"), a Delaware company, subscribed for redeemable preference shares issued by CSA in exchange for a $US1 billion demand note. Under the terms of the CSA redeemable preference shares, an obligation arose for CSA to pay CSFI a dividend every year until the stock was redeemed subject to sufficient available profits. Any unpaid dividend would be carried forward and a default dividend would also accrue as a result. | 5. CSA endorsed that $US1 billion demand note to AFC in exchange for redeemable preference shares issued by AFC. Under the terms of the AFC redeemable preference shares, an obligation arose for AFC to pay CSA a dividend every year on similar terms to the CSA redeemable preference shares issued to CSFI. | 6. CSFI transferred the royalty income streams to AFC in exchange for AFC endorsing the $1 billion demand note back to it and also issuing a $US 3 billion purchase note to it. | 7. AFC then transferred the royalty income streams to SGTS Inc (\" SGTS \"), a Delaware company, in exchange for SGTS assuming AFC's obligations under the $US3 billion purchase note and issuing preferred stock to AFC. Under the terms of the SGTS preferred stock, an obligation arose for SGTS to pay AFC a dividend every year until the stock was redeemed, subject to sufficient 'accumulated earnings'. Any unpaid dividend would be carried forward and an interest charge would also accrue as a result. | Dividends declared and paid on the Preferred Stock and Redeemable Preference Shares | 8. In the 2002 income year, no dividend was declared or paid by SGTS to AFC, by AFC to CSA, or by CSA to CSFI. | 9. On 1 December 2002 (i.e. the commencement of a substituted 2003 income year), Noza Holdings Pty Ltd (\" Noza \") became the head entity of a Multiple Entry Consolidated group pursuant to Division 719 of Part 3-90 of the Income Tax Assessment Act 1997 (\" the ITAA97 \"). CSA and AFC were part of the consolidated group. | 10. On 14 November 2003 (i.e. during the substituted 2003 income year): • SGTS and AFC entered into a Dividend Distribution Agreement (\" the DDA \"), governed under the Delaware General Corporations Law (\" the DGCL \"), such that, in lieu of a cash, SGTS issued a promissory note to AFC, payable on 24 November 2003, in the amount of $222,655,981 in satisfaction of all dividends and default dividends accrued for the 2002 and 2003 income years. Mr Sutherland executed the DDA and on behalf of both entities and also signed the promissory note as President of SGTS. SGTS did not have sufficient accumulated earnings to pay a dividend of $222,655,981; • the directors of AFC held a meeting to accept payment in satisfaction of SGTS' dividend obligations for the 2002 and 2003 income years in the form of a promissory note and further resolved that a dividend of $222,655,981 be declared, payable out of the profits of the company, and be paid to CSA by endorsing the promissory note in favour of it. Mr Sutherland made the resolution; and • the directors of CSA also held a meeting to accept payment in satisfaction of AFC's dividend obligations for the 2002 and 2003 income years in the form of a promissory note and further resolved to pay a dividend of $222,655,981 to CSFI by declaring that the dividend be payable out of the profits of the company and by endorsing the promissory note in favour of CSFI. Mr Sutherland also made that resolution. | • SGTS and AFC entered into a Dividend Distribution Agreement (\" the DDA \"), governed under the Delaware General Corporations Law (\" the DGCL \"), such that, in lieu of a cash, SGTS issued a promissory note to AFC, payable on 24 November 2003, in the amount of $222,655,981 in satisfaction of all dividends and default dividends accrued for the 2002 and 2003 income years. Mr Sutherland executed the DDA and on behalf of both entities and also signed the promissory note as President of SGTS. SGTS did not have sufficient accumulated earnings to pay a dividend of $222,655,981; • the directors of AFC held a meeting to accept payment in satisfaction of SGTS' dividend obligations for the 2002 and 2003 income years in the form of a promissory note and further resolved that a dividend of $222,655,981 be declared, payable out of the profits of the company, and be paid to CSA by endorsing the promissory note in favour of it. Mr Sutherland made the resolution; and • the directors of CSA also held a meeting to accept payment in satisfaction of AFC's dividend obligations for the 2002 and 2003 income years in the form of a promissory note and further resolved to pay a dividend of $222,655,981 to CSFI by declaring that the dividend be payable out of the profits of the company and by endorsing the promissory note in favour of CSFI. Mr Sutherland also made that resolution. | 11. Apart from the promissory note, the CSA accounts showed a profit of $3,571,819 for the 2003 income year. | 12. On 24 November 2003, the promissory note was settled in full via wire transfer of cash from SGTS to CSFI. | 13. No dividend was declared or paid by SGTS to AFC, by AFC to CSA, or by CSA to CSFI in the 2004 or 2005 income years. | Withholding Tax | 14. Due to changes brought in from 1 July 2003 via the Protocol amending the US Double Tax Agreement (DTA) which resulted in the payment being subject to the Dividend Article in the US DTA, no Withholding Tax was payable on the amount of $222,655,981 when declared by CSA to CSFI on 14 November 2003 or when paid by settlement of the Promissory Note on 24 November 2003. | 15. The International Tax Agreements Act 1953 was subsequently amended with the changes having been announced on 11 September 2003. As a result, a dividend paid by CSA to CSFI on or after 5 December 2003 would have been subject to the Interest Article in the US DTA rather than the Dividend Article and therefore subject to Withholding Tax. | Section 25-90 issues decided by the Full Court | The Full Court found that, having regard to the terms of the CSA redeemable preference shares, a deduction was available to Noza, as the relevant taxpayer, in the 2003 income year when the dividend was declared and/or paid by CSA to CSFI. The Full Court also upheld the finding of Gordon J below that only part of the amount paid by CSA to CSFI, i.e. an amount of $170,983,354, was allowable to Noza, as the relevant taxpayer, in the 2003 income year. This was because the balance of the payment was not \"interest, an amount in the nature of interest or an other amount that is calculated by reference to the time value of money\" for the purposes of subparagraph 820-40(1)(a)(i) of the ITAA97. | Specifically, in respect of whether a loss or outgoing was incurred by Noza, the Full Court found that: • read in context, the terms of the AFC and CSA redeemable preference shares made it clear that a shareholder's entitlement to receive a dividend is out of the profits of the respective company; • on a proper construction of the terms of the AFC and CSA redeemable preference shares, a shareholder had no entitlement to a dividend and the respective company had no obligation to pay it, until a declaration has been made by the directors of the respective company; • this case was distinguishable from the circumstances of Commissioner of Taxation v Australian Guarantee Corporation Ltd [1984] FCA 240; (1984) 2 FCR 483 because the incurrence of the obligation here was subject to conditions concerning profitability and a resolution of the directors, and those conditions went to the existence of the entitlement and not merely to the time of payment; • the liability must exist during the relevant year and if there is no such liability, it does not matter how likely or certain it is that the liability will come into existence in a future year; • Noza incurred a liability when CSA declared a dividend to CSFI because of the language of subsection 254V(2) of the Corporations Act which created a debt at the time of declaration; • although the resolution made by CSA's directors stated that the dividend was to \"be declared payable out of profits\", that wording did not express the existence of sufficient profit as a condition of the validity of the declaration. The wording was merely descriptive; and • alternatively, even if the debt created by declaration was invalidly created, it was at best voidable and the consequences for payment of such a dividend were affected by section 256D of the Corporations Act. In the absence of any action by a shareholder or creditor of CSA to declare the dividend void, CSA was definitely committed and completely subjected to paying the dividend. • alternatively, the primary judge was correct in finding that a dividend paid in contravention of the DGCL was neither void nor invalid and that the promissory note was therefore enforceable in the hands of each of AFC, CSA and CSFI and CSA therefore incurred a liability when it endorsed the promissory note in favour of CSFI to pay the dividend. | • read in context, the terms of the AFC and CSA redeemable preference shares made it clear that a shareholder's entitlement to receive a dividend is out of the profits of the respective company; • on a proper construction of the terms of the AFC and CSA redeemable preference shares, a shareholder had no entitlement to a dividend and the respective company had no obligation to pay it, until a declaration has been made by the directors of the respective company; • this case was distinguishable from the circumstances of Commissioner of Taxation v Australian Guarantee Corporation Ltd [1984] FCA 240; (1984) 2 FCR 483 because the incurrence of the obligation here was subject to conditions concerning profitability and a resolution of the directors, and those conditions went to the existence of the entitlement and not merely to the time of payment; • the liability must exist during the relevant year and if there is no such liability, it does not matter how likely or certain it is that the liability will come into existence in a future year; • Noza incurred a liability when CSA declared a dividend to CSFI because of the language of subsection 254V(2) of the Corporations Act which created a debt at the time of declaration; • although the resolution made by CSA's directors stated that the dividend was to \"be declared payable out of profits\", that wording did not express the existence of sufficient profit as a condition of the validity of the declaration. The wording was merely descriptive; and • alternatively, even if the debt created by declaration was invalidly created, it was at best voidable and the consequences for payment of such a dividend were affected by section 256D of the Corporations Act. In the absence of any action by a shareholder or creditor of CSA to declare the dividend void, CSA was definitely committed and completely subjected to paying the dividend. • alternatively, the primary judge was correct in finding that a dividend paid in contravention of the DGCL was neither void nor invalid and that the promissory note was therefore enforceable in the hands of each of AFC, CSA and CSFI and CSA therefore incurred a liability when it endorsed the promissory note in favour of CSFI to pay the dividend. | In respect of whether the loss or outgoing incurred by Noza was incurred in deriving income from a foreign source, the Full Court found that: • the promissory note issued by SGTS to AFC was enforceable in the hands of AFC such that it was money or money's worth; • the word 'income' in section 25-90 of the ITAA97 is a reference to income at general law and the test is therefore conducted by reference to the character of the receipt in the hands of the recipient; • AFC derived a gain from property upon receipt of the promissory note under the principles enunciated in McNeil; • alternatively, even when viewed from the perspective of the source or account from which the corporate distribution was made, SGTS paid the dividend out of 'surplus' (amounts received on the issue of shares over the par value of those shares) which was not a capital account; and • further, there was nothing put forward by the Commissioner to warrant a review that AFC did not at least have an expectation to income from SGTS at the time it incurred the relevant outgoing. | • the promissory note issued by SGTS to AFC was enforceable in the hands of AFC such that it was money or money's worth; • the word 'income' in section 25-90 of the ITAA97 is a reference to income at general law and the test is therefore conducted by reference to the character of the receipt in the hands of the recipient; • AFC derived a gain from property upon receipt of the promissory note under the principles enunciated in McNeil; • alternatively, even when viewed from the perspective of the source or account from which the corporate distribution was made, SGTS paid the dividend out of 'surplus' (amounts received on the issue of shares over the par value of those shares) which was not a capital account; and • further, there was nothing put forward by the Commissioner to warrant a review that AFC did not at least have an expectation to income from SGTS at the time it incurred the relevant outgoing. | Part IVA issues decided at first instance | The Commissioner did not appeal Gordon J's decision below in respect of the applicability of Part IVA to the obtaining of the section 25-90 deduction. | Her Honour had concluded below that there was a scheme within the meaning of section 177A of the Income Tax Assessment Act 1936 (\"the ITAA36\") by way of which Noza had obtained a tax benefit. Her Honour also concluded that the exclusion in subparagraph 177C(2)(b)(i) of the ITAA36 was not engaged because the allowance of the deduction could not be said to be attributable to the making of the election to consolidate. | However, her Honour also concluded below that, based on the facts and circumstances of the case, the dominant purpose of the scheme entered into was not to obtain a tax benefit but to address the foreign exchange reporting issue identified just before the implementation of the transfer of the royalty income streams was to occur. | The Commissioner also did not appeal Gordon J's findings below in respect of the applicability of Part IVA to the Withholding Tax issue. | Her Honour had concluded below that Part IVA could not apply as there was no tax benefit since at both the time the scheme was entered into (i.e. the payment of $222,655,981 on 14 November 2003) and at the time the amount was paid (i.e. the settlement of the Promissory Note on 24 November 2003), no Withholding Tax was payable under the US DTA. For completeness, her Honour had also found that if there was a tax benefit, the dominant purpose of the scheme entered into was to satisfy the obligations that arose under the terms of the CSA preference shares. | ATO view of the section 25-90 issues decided by the Full Court | Section 25-90 of the ITAA97 allows an Australian resident taxpayer a deduction for a loss or outgoing that is a particular type of 'cost' in relation to a debt interest and which is incurred in deriving non-assessable non-exempt dividend income from a non-resident company, in which the taxpayer has at least a ten percent shareholding. | The Full Court found that an amount had been incurred for the purposes of section 25-90 of the ITAA97 when the dividend was declared by CSA to CSFI. In reaching this conclusion, the Full Court considered that the liability must exist during the relevant income year and, if there is no such liability, it does not matter how likely or certain it is that the liability will come into existence in a future income year. The Full Court applied, by analogy, the principles developed in relation to subsection 51(1) of the ITAA36 and section 8 1 of the ITAA97. The Commissioner's view is that the application of these principles will require, in each case, a consideration of the terms of the relevant instruments to determine if, and when, they give rise to an amount being incurred. | The Full Court also found that the word 'income' in paragraph 25-90(1)(a) of the ITAA97 is a reference to income at general law and the test is therefore conducted by reference to the character of the receipt in the hands of the recipient. However, the Commissioner considers that an amount also has to satisfy the definition of a 'dividend' under subsection 6(1) of the ITAA36 for it to satisfy all of the requirements of section 25-90 of the ITAA97. If an amount is not income at general law or not a 'dividend' as defined under subsection 6(1) of the ITAA36, it will not satisfy the requirements of section 25 90 of the ITAA97 and no deduction will be available for an outgoing incurred in deriving that amount. | ATO view of the Part IVA issues decided at first instance | It was open to her Honour, on the facts of this case, to find that the dominant purpose of both the deduction and Withholding Tax schemes entered into was not to obtain a tax benefit. | Her Honour's conclusion, that the exclusion in subparagraph 177C(2)(b)(i) of the ITAA36 was not engaged because the allowance of the deduction to Noza could not be said to be attributable to the making of the election to consolidate, was in accordance with the Commissioner's view.", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | On 20 February 2013, an addendum was issued for Taxation Determination TD 2009/21. That addendum amended footnote 3 in paragraph 6 of that Taxation Determination to include a reference to Commissioner of Taxation v Noza Holdings Pty Ltd [2012] FCAFC 43 at [42] and [44]. | Implications for Law Administration Practice Statements | None", "Related_Documents": "TD 2009/21 | First Instance | 2011 ATC 20-241 | Appeal | 2012 ATC 20-313 | 25-90 | 44(1) | 128B | 177C | 177D | 177F | 254T | 254V(2) | 256D | 2007 ATC 5302 | 2010 ATC 20-212 | 84 ATC 4642 | 2006 ATC 4404 | 2008 ATC 20-064 | 2007 ATC 4223 | (1944) 71 CLR 596 | 88 ATC 4392 | 83 ATC 4709 | 81 ATC 4031 | [1949] HCA 15 | (1949) 78 CLR 47 | 99 ATC 4945", "Legislative_References": "Income Tax Assessment Act 1997 (Cth) 25-90 Income Tax Assessment Act 1936 (Cth) 23AJ 44(1) 128B 177C 177D 177F Corporations Act 2001 (Cth) 254T 254V(2) 256D", "Case_References": "BHP Billiton Finance Ltd v Commissioner of Taxation [2009] FCA 276 (2009) 72 ATR 746 Bluebottle UK Ltd v Deputy Commissioner of Taxation [2007] HCA 54 (2007) 232 CLR 598 67 ATR 1 2007 ATC 5302 Commissioner of Taxation v American Express Wholesale Currency Service Pty Ltd [2010] FCAFC 122 (2010) 187 FCR 398 2010 ATC 20-212 77 ATR 12 Commissioner of Taxation v Australian Guarantee Corporation Ltd [1984] FCA 240 (1984) 2 FCR 483 15 ATR 982 84 ATC 4642 Commissioner of Taxation v Citylink Melbourne Limited [2006] HCA 35 (2006) 228 CLR 1 62 ATR 648 2006 ATC 4404 Commissioner of Taxation v Day [2008] HCA 53 (2008) 236 CLR 163 2008 ATC 20-064 70 ATR 14 Commissioner of Taxation v McNeil [2007] HCA 5 (2007) 229 CLR 656 64 ATR 431 2007 ATC 4223 Emu Bay Railway Company Limited v Commissioner of Taxation [1944] HCA 28 (1944) 71 CLR 596 Hooker Rex Pty Ltd v Commissioner of Taxation (1988) 79 ALR 181 19 ATR 1241 88 ATC 4392 Marra Developments Ltd v B W Rofe Pty Ltd [1977] 2 NSWLR 616 15 ATR 1 83 ATC 4709 Nilsen Development Laboratories v Commissioner of Taxation [1981] HCA 6 (1981) 144 CLR 616 11 ATR 505 81 ATC 4031 Ronpibon Tin NL v Commissioner of Taxation [1949] HCA 15 (1949) 78 CLR 47 Commissioner of Taxation v Consolidated Press Holdings Ltd (No 1) (1999) 91 FCR 524 [1999] FCA 1199 99 ATC 4945 42 ATR 575", "Subject_References": "declaration of dividend payment of dividend operation of subsection 254V(2) of the Corporations Act 2001 (Cth) ('the Corporations Act') validity of dividend where payment is in breach of provisions of the Corporations Act deriving income from a foreign source appropriate time to consider expectation as to derivation of income whether scheme entered into for the dominant purpose of a tax benefit withholding tax and Part IVA dividend withholding tax", "Other_References": "Explanatory Memorandum, Company Law", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID758-763/00001", "Unmatched_Content": ""}
{"Case_Name": "Outbound Logistics Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2011/5198", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "19 December 2012", "Date_Published": "9 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2012 ATC 10-289", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011-5198/00001", "Unmatched_Content": "Outbound Logistics Pty Ltd v Commissioner of Taxation [2012] AATA 899 2012 ATC 10-289 (2012) 89 ATR 194 | The adverse aspects of the decision concern administrative penalties and have no wider ramifications. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Pabian Park Pty Ltd Superannuation Benefits Fund v Federal Commissioner of Taxation", "Venue_Reference_No": "2010/2004", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 June 2012", "Date_Published": "28 August 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Unfavourable", "Summary_of_Decision": "Outlines the ATO response to this case which concerned whether a notice of non-compliance issued to the trustee of a self managed superannuation fund should be confirmed or revoked.", "Overview_of_Facts": "1. The Applicants are the trustees of the Pabian Park Pty Ltd Superannuation Benefits Fund (Fund), which is a self-managed superannuation fund (SMSF) under the Superannuation Industry (Supervision) Act 1993 (SIS Act). The Commissioner accepted that the fund was a \"complying superannuation fund\" for a number of years, which entitled it to concessional tax treatment. | 2. The Applicants are also directors of Pabian Park Pty Ltd (Pabian Park) to which the Fund made certain loans in 2007. The Commissioner found that the Fund had breached the SIS Act in 2008 because the loans were 'in-house assets' representing more than 5% of the market value of Fund assets. The Commissioner accepted an undertaking that the loans would be repaid by 30 September 2009. | 3. When the loans were not repaid by the agreed date, the Commissioner issued a notice of non-compliance under section 40(1) of the SIS Act for the 2006 income year. As a result, the Fund lost the benefit of concessional tax rates, and was assessed for additional tax for the 2006 and 2007 income years. There was no dispute that the Fund had breached a number of SIS Act provisions. | 4. The Applicants sought review of the decision to issue the notice. When the Commissioner confirmed his decision, the Applicants applied to the Tribunal for further review. After 'weighing up all the factors', the Tribunal set aside the decision of the Commissioner. | Issues decided by the court or tribunal | Exercise of discretion | Subsection 40(1) enables the Commissioner as the Regulator to give a notice to the trustee of an entity stating whether the entity is or is not a complying superannuation fund in relation to a year of income. Paragraph 42A(5)(b) provides that, in deciding whether a notice of compliance should be given to a superannuation fund where the trustee has contravened regulatory provisions, the Commissioner as the Regulator must consider - tax consequences arising from the fund being treated as non-complying, seriousness of the contraventions, and 'all other relevant circumstances'. | The Tribunal accepted that, as stated in PS LA 2006/19, the factors specified in paragraph 42A(5)(b) are 'equally relevant' in exercising the subsection 40(1) discretion to issue a notice of non-compliance. | The Tribunal's findings on each factor were as follows. | Tax consequences | As a result of the Fund becoming non-complying, the taxable income for the Fund increased from $56,361 to $309,827, with gross tax increasing from $8,454.15 to $145,618.69 [55]. The Tribunal found the adverse tax consequences were significant and that this would leave the Applicants with minimal savings in their Fund [56]. | Seriousness of contraventions | The Tribunal found that making unsecured loans to Pabian Park breached sections 62 and 84 of the SIS Act. The loans were not on commercial terms in breach of section 109, and were also in breach of the in-house assets rule [59]. The Tribunal found that the Applicants did not appreciate the significance of their regulatory breaches, did not comply with their undertaking and did not try to repay the loans at the earliest possible opportunity. These breaches were 'serious but they were not wilful' [63]. | Other relevant circumstances | The Tribunal also found that the tax consequences of the issue of the notice were likely to deplete most of the assets of the Fund, the age of the Applicants left little opportunity to rebuild retirement savings, the trustees did rectify the breach (though not in a timely manner) and there was no previous non-compliance [64-69]. | Conclusion | The Tribunal accepted (consistent with PS LA 2006/19) that the discretion is to be exercised taking into account the objects of the SIS Act [50], and noted that the case was 'finely balanced' [74]. Failure of the Applicants to appreciate the seriousness of the issue was a 'serious error of judgment', but it would be 'disproportionately harsh not to exercise the discretion in their favour' [75]. The Tribunal concluded that, 'weighing up all the factors', it would 'not be inconsistent with the objects of the SIS Act to exercise the discretion in favour of the Fund' [76].", "Issues_Decided": "Exercise of discretion: Subsection 40(1) enables the Commissioner as the Regulator to give a notice to the trustee of an entity stating whether the entity is or is not a complying superannuation fund in relation to a year of income. Paragraph 42A(5)(b) provides that, in deciding whether a notice of compliance should be given to a superannuation fund where the trustee has contravened regulatory provisions, the Commissioner as the Regulator must consider - tax consequences arising from the fund being treated as non-complying, seriousness of the contraventions, and 'all other relevant circumstances'. The Tribunal accepted that, as stated in PS LA 2006/19, the factors specified in paragraph 42A(5)(b) are 'equally relevant' in exercising the subsection 40(1) discretion to issue a notice of non-compliance. The Tribunal's findings on each factor were as follows. | Tax consequences: As a result of the Fund becoming non-complying, the taxable income for the Fund increased from $56,361 to $309,827, with gross tax increasing from $8,454.15 to $145,618.69 [55]. The Tribunal found the adverse tax consequences were significant and that this would leave the Applicants with minimal savings in their Fund [56]. | Seriousness of contraventions: The Tribunal found that making unsecured loans to Pabian Park breached sections 62 and 84 of the SIS Act. The loans were not on commercial terms in breach of section 109, and were also in breach of the in-house assets rule [59]. The Tribunal found that the Applicants did not appreciate the significance of their regulatory breaches, did not comply with their undertaking and did not try to repay the loans at the earliest possible opportunity. These breaches were 'serious but they were not wilful' [63]. | Other relevant circumstances: The Tribunal also found that the tax consequences of the issue of the notice were likely to deplete most of the assets of the Fund, the age of the Applicants left little opportunity to rebuild retirement savings, the trustees did rectify the breach (though not in a timely manner) and there was no previous non-compliance [64-69]. | Conclusion: The Tribunal accepted (consistent with PS LA 2006/19) that the discretion is to be exercised taking into account the objects of the SIS Act [50], and noted that the case was 'finely balanced' [74]. Failure of the Applicants to appreciate the seriousness of the issue was a 'serious error of judgment', but it would be 'disproportionately harsh not to exercise the discretion in their favour' [75]. The Tribunal concluded that, 'weighing up all the factors', it would 'not be inconsistent with the objects of the SIS Act to exercise the discretion in favour of the Fund' [76].", "ATO_View_of_Decision": "Although the Tribunal reached a conclusion different to the Commissioner on exercise of the discretion, it is acknowledged that the case was finely balanced and that it was open to the Tribunal to reach its decision on the facts as found. In doing so, the Tribunal also accepted and followed the general approach taken in PS LA 2006/19.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None", "Related_Documents": "PS LA 2006/19: Self managed superannuation funds - notice of non-compliance | 2012 ATC 10-253 | 3 | 38A | 39 | 40 | 41 | 42A | 45 | 62 | 83 | 84 | 109 | 262A | 344 | [2009] AATA 522 | 2009 ATC 1-011 | (2010) 74 ATR 730 | 2007 ATC 5105", "Legislative_References": "Superannuation Industry (Supervision) Act 1993 3 38A 39 40 41 42A 45 62 83 84 109 262A 344", "Case_References": "Re JNVQ and Commissioner of Taxation [2009] AATA 522 2009 ATC 1-011 (2010) 74 ATR 730 Vivian (DCT (Superannuation)) v Fitzgeralds [2007] FCA 602 2007 ATC 5105 (2007) 69 ATR 834", "Subject_References": "Complying superannuation fund Self managed superannuation fund Notice of non-compliance", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/2004/00001", "Unmatched_Content": ""}
{"Case_Name": "Parrish and Commissioner of Taxation", "Venue_Reference_No": "2012/2571; 2012/2572", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 December 2012", "Date_Published": "9 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "[2012] AATA 909", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/1824-1825/00001", "Unmatched_Content": "Parrish and Commissioner of Taxation [2012] AATA 909 (2012) 89 ATR 209 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Professional Administration Service Centres Pty Limited v Commissioner of Taxation", "Venue_Reference_No": "NSD 461 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "13 December 2012", "Date_Published": "7 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "The substantive proceeding was an application by Professional Administration Service Centres Pty Limited (PASC) under Part IVC of the Taxation Administration Act 1953 to appeal to the Federal Court against the ATO's objection decision concerning the disallowance of claims made by PASC for input tax credits. | In mid-2011, PASC filed its evidence in reply which included for the first time a number of tax invoices which appeared to have been altered in some way. | On 12 October 2011, the ATO issued a notice to produce the originals, or any other versions, of a number of those invoices. This notice was not complied with. On 2 November 2011, the Federal Court, amongst other things, gave leave to the ATO to file and serve an application for discovery which the ATO did later that day. | On 9 November 2011, the ATO sought an order for production of certain documents. | PASC initially consented to an order for discovery, subject to minor amendments. However, PASC did not respond to attempts to agree to short minutes reflecting this and on 14 November 2011 contended for the first time that no orders should be made. | On 14 November 2011, the Federal Court ordered both discovery and production. | PASC did not comply with either order and, on 19 January 2012, the ATO applied to have the matter dismissed. | On 2 March 2012, the Federal Court allowed the ATO's application and dismissed the matter. This order was stayed until 9 March 2012 and the Federal Court made further orders directing PASC to take certain steps as a pre-condition to a grant of leave to apply to the Federal Court on 9 March 2012 for the orders to be rescinded. | The Full Court observed at [21] that while PASC had not strictly complied with these orders within the stipulated timeframes, PASC had substantially complied with the orders. | On 9 March 2012, PASC failed to convince the Federal Court to rescind the orders to dismiss the matter. | PASC appealed to the Full Federal Court. | Issues decided by the Full Federal Court | The Full Court held that exercise of the primary judge's discretion to dismiss the proceedings had miscarried and that the orders made were 'unreasonable or unjust' (at [55]). Although the task of showing appealable error from discretionary orders in matters of practice and procedure is 'formidable' (at [36]), the primary judge in this case failed to refer to a number of factors relevant to the exercise of the discretion - Lenijamar Pty Ltd v AGC (Advances) Ltd (1990) 27 FCR 388 applied. This was 'unfortunate' because it left the Full Court at [45] to infer that there had been a failure by the primary judge to properly exercise the discretion - House v The King (1936) 55 CLR 499. | The Full Court outlined a non-exhaustive list of matters to be considered in the exercise of the discretion to dismiss a matter for non-compliance, including the nature and duration of the default and whether that default is continuing. | The Full Court raised a concern over whether the discovery order made on 14 November 2012 should have been made in the circumstances. The Full Court further observed that: • there was no evidence of deliberate conduct by PASC to delay the hearing; • there was no evidence of expense, prejudice or unacceptable burden to the ATO because of the default; • there was nothing to indicate that PASC did not wish the matter to go to trial within a reasonable period; • the proceeding was in a very advanced state; • the ability for an interlocutory order to be set aside is not a relevant consideration; and • there was a substantial amount of tax in dispute. | • there was no evidence of deliberate conduct by PASC to delay the hearing; • there was no evidence of expense, prejudice or unacceptable burden to the ATO because of the default; • there was nothing to indicate that PASC did not wish the matter to go to trial within a reasonable period; • the proceeding was in a very advanced state; • the ability for an interlocutory order to be set aside is not a relevant consideration; and • there was a substantial amount of tax in dispute. | The Full Court concluded that the exercise by the primary Judge of his discretion miscarried and allowed the appeal.", "Issues_Decided": "The Full Court held that exercise of the primary judge's discretion to dismiss the proceedings had miscarried and that the orders made were 'unreasonable or unjust' (at [55]). Although the task of showing appealable error from discretionary orders in matters of practice and procedure is 'formidable' (at [36]), the primary judge in this case failed to refer to a number of factors relevant to the exercise of the discretion - Lenijamar Pty Ltd v AGC (Advances) Ltd (1990) 27 FCR 388 applied. This was 'unfortunate' because it left the Full Court at [45] to infer that there had been a failure by the primary judge to properly exercise the discretion - House v The King (1936) 55 CLR 499. The Full Court outlined a non-exhaustive list of matters to be considered in the exercise of the discretion to dismiss a matter for non-compliance, including the nature and duration of the default and whether that default is continuing. The Full Court raised a concern over whether the discovery order made on 14 November 2012 should have been made in the circumstances. The Full Court further observed that: • there was no evidence of deliberate conduct by PASC to delay the hearing; • there was no evidence of expense, prejudice or unacceptable burden to the ATO because of the default; • there was nothing to indicate that PASC did not wish the matter to go to trial within a reasonable period; • the proceeding was in a very advanced state; • the ability for an interlocutory order to be set aside is not a relevant consideration; and • there was a substantial amount of tax in dispute. • there was no evidence of deliberate conduct by PASC to delay the hearing; • there was no evidence of expense, prejudice or unacceptable burden to the ATO because of the default; • there was nothing to indicate that PASC did not wish the matter to go to trial within a reasonable period; • the proceeding was in a very advanced state; • the ability for an interlocutory order to be set aside is not a relevant consideration; and • there was a substantial amount of tax in dispute. The Full Court concluded that the exercise by the primary Judge of his discretion miscarried and allowed the appeal.", "ATO_View_of_Decision": "On the facts of this matter, it was open to the Full Court to draw the conclusion that the exercise by the primary judge of his discretion miscarried. The decision by the Full Court has clarified factors to be considered in the exercise of the discretion to dismiss a matter for non-compliance.", "Administrative_Treatment": "Nil | Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "Nil | [2012] FCAFC 180 | 5.23 | 20.31(3) | 20.35 | 36.10 | (1936) 55 CLR 499", "Legislative_References": "Federal Court Rules 2011 5.23 20.31(3) 20.35 36.10", "Case_References": "House v The King (1936) 55 CLR 499 Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388", "Subject_References": "Court practice & procedure Discretion to dismiss proceedings", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD461of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Re Montgomery Wools Pty Ltd as trustee for Montgomery Wools Pty Ltd Super Fund and Federal Commissioner of Taxation", "Venue_Reference_No": "2009/3486", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "6 February 2012", "Date_Published": "17 August 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether a notice of non-compliance issued to the trustee of a self managed superannuation fund should be confirmed, revoked or varied.", "Overview_of_Facts": "1. Montgomery Wools Pty Ltd (Montgomery Wools) is the trustee for the Montgomery Wools Pty Ltd Super Fund (the MWS Fund). The MWS Fund was established in 1993 and is a self managed superannuation fund for the purposes of the Superannuation Industry (Supervision) Act 1993 (SIS Act). Mr and Mrs Montgomery are directors of Montgomery Wools. | 2. Montgomery Wools is also trustee of the Montgomery Wools Family Trust (MFT). The MFT is a discretionary trust and operates the family wool trading business. At all relevant times, the beneficiaries of the MFT were Mr and Mrs Montgomery. | 3. Warwick Wools Pty Ltd (Warwick Wools) is the trustee of the Montgomery Property Trust (MPT). The MPT is a unit trust. Mr and Mrs Montgomery are directors of Warwick Wools. | 4. In 1997, the MWS Fund acquired 100% of the units in the MPT. In the same year, the MPT purchased a property from the MFT and then leased the property back to the MFT. The property was mortgaged to the Commonwealth Bank of Australia (CBA) as security over MFT loans from CBA. From 2001 onwards, no rent was actually paid by the MFT. Instead, the unpaid rent was recorded as a loan from the MPT to the MFT. Although no rent was actually paid to the MPT, the MPT recorded distributions of net income to the MWS Fund in its income tax returns and financial statements. | 5. The MPT asset (the property) was sold in 2004. The proceeds from the sale were deposited into the CBA account of Montgomery Wools as trustee for the MFT and were used to repay debts owed by the MFT. The payment of the proceeds of sale of the property was recorded in the financial statements of the MPT as a loan to Montgomery Wools as trustee of the MFT. There was a corresponding liability recorded in the financial statements for the MFT. After the sale of the property, the most significant asset of the MPT was a loan to the MFT, which it could not repay. Interest was not being charged on the loan and the MPT derived no additional income during the years from 2004 until 2009. | 6. The profit made on the sale of the property by the MPT was recorded as fully distributed to the MWS Fund in income tax returns and financial statements. The profit recorded as having been distributed to the MWS Fund was also included in the amount recorded in the financial statements of the MWS Fund as a loan back to the MPT. | 7. The MWS Fund was audited by the Commissioner, and as a result, on 10 September 2008, the Commissioner issued a notice of non-compliance for the year ended 30 June 2004. | 8. Montgomery Wools applied for a review of the decision on 5 May 2009. By letter dated 6 July 2009, the Commissioner confirmed the original decision that a notice of non-compliance should be issued. | 9. Montgomery Wools applied to the Tribunal for review of the Commissioner's decision. By consent, the Tribunal remitted the decision back to the Commissioner for reconsideration. | 10. On 13 September 2010, the Commissioner made a decision, on remittal, confirming the decision to issue the notice of non-compliance but varying the reasons. The Commissioner contended that Montgomery Wools contravened section 62 (sole purpose test), section 84 (in-house assets rule) and section 109(1A) (investments to be at arm's length) of the SIS Act. | Issues decided by the court or tribunal | The decision under review was affirmed. | Role of Tribunal | The Tribunal decided that its role in reviewing the decision to issue a notice of non-compliance is to stand in the shoes of the Commissioner and consider all relevant matters to make the correct or preferable decision about whether or not the notice of non-compliance should have been issued. In doing so, the Tribunal must form a view about whether there were contraventions of the regulatory provisions. If there were contraventions, the Tribunal must then consider whether the discretion should be exercised to nevertheless give a notice that the fund was complying. [Paragraph 60] | In-house asset rule - related party loan | A key issue considered by the Tribunal was whether there had been a loan made from the MWS Fund to the MPT in the 2004 year. The Tribunal was satisfied based on the evidence that there was an unpaid distribution of the profit made on the sale of the property from the MPT to the MWS Fund and a loan back of that amount from the MWS Fund to the MPT [Paragraph 81]. | In the alternative, the Tribunal was satisfied that the unpaid trust distribution formed part of the provision of financial accommodation (which was a loan within the extended meaning set out in subsection 10(1) of the SIS Act) from the MWS Fund to the MPT. Specifically, the Tribunal found that there was a consensual arrangement between the trustees of the MWS Fund, the MPT and the MFT that the MWS Fund would not call for payment of the profits it was distributed, and that those profits would instead be applied for the benefit of the MFT. That consensual arrangement amounted to the provision of financial accommodation by the MWS Fund to the MPT. \"Montgomery Wools has made an investment in a related unit trust and the unit trust has dealt with its assets in such a way as to transfer the value of retirement savings to a related family trust for its use.\" [Paragraphs 83 - 87]. | Even if there had not been a distribution, the Tribunal would have found that the MWS Fund had provided financial accommodation to the MPT, by reason of the fact that: • the MWS Fund actively chose not to take steps to prevent the proceeds of sale being paid to CBA [the Tribunal finding that the positive act required for there to be a consensual arrangement necessary for the provision of financial accommodation can include an active decision to acquiesce or refrain from enforcing a right or making a demand]; or • Mr Montgomery, as the controlling mind of the trustees of the MWS Fund, the MPT and the MFT, made the decision about the sale and distribution of the proceeds and approved all transactions to give effect to this proposal. [Paragraphs 95 - 97]. | • the MWS Fund actively chose not to take steps to prevent the proceeds of sale being paid to CBA [the Tribunal finding that the positive act required for there to be a consensual arrangement necessary for the provision of financial accommodation can include an active decision to acquiesce or refrain from enforcing a right or making a demand]; or • Mr Montgomery, as the controlling mind of the trustees of the MWS Fund, the MPT and the MFT, made the decision about the sale and distribution of the proceeds and approved all transactions to give effect to this proposal. | [Paragraphs 95 - 97]. | The Tribunal was therefore satisfied that Montgomery Wools, having made a loan to the MPT in its capacity as trustee of the MWS Fund, breached section 84 of the SIS Act in the year ended 30 June 2004 [Paragraph 98]. | Sole purpose test | The Tribunal decided that, properly characterised, the sole purpose of the MWS Fund was not to provide retirement benefits to its members. One of its purposes was to provide support to the family business. The Tribunal found that Montgomery Wools breached section 62 of the SIS Act in 2004 and has continued to do so by failing to call up the loan from the MPT and/or failing to consider terminating the Trust Deed to take control of the assets of the MPT. [Paragraphs 109 and 111] | Arm's length investments | The Tribunal found that, even if 'required to deal' should be given a broad meaning, Montgomery Wools was not required to deal with the units held in the MPT as trustee for the MWS Fund as a result of the events that took place in 2004. Therefore, Montgomery Wools did not breach subsection 109(1A) of the SIS Act in 2004 [Paragraphs 114-116]. | Notice of compliance | The Tribunal was satisfied that the contraventions of the Montgomery Wools were serious and that the impact on the MWS Fund was significant. There has been no attempt to rectify the contraventions. It was the Tribunal's view that it would be inconsistent with the objects of the SIS Act to issue the MWS Fund with a notice of compliance. The Tribunal was therefore not prepared to exercise the discretion under subsection 42A(5) of the SIS Act in favour of the MWS Fund. [Paragraph 146]", "Issues_Decided": "The decision under review was affirmed. | Role of Tribunal: The Tribunal decided that its role in reviewing the decision to issue a notice of non-compliance is to stand in the shoes of the Commissioner and consider all relevant matters to make the correct or preferable decision about whether or not the notice of non-compliance should have been issued. In doing so, the Tribunal must form a view about whether there were contraventions of the regulatory provisions. If there were contraventions, the Tribunal must then consider whether the discretion should be exercised to nevertheless give a notice that the fund was complying. [Paragraph 60] | In-house asset rule - related party loan: A key issue considered by the Tribunal was whether there had been a loan made from the MWS Fund to the MPT in the 2004 year. The Tribunal was satisfied based on the evidence that there was an unpaid distribution of the profit made on the sale of the property from the MPT to the MWS Fund and a loan back of that amount from the MWS Fund to the MPT [Paragraph 81]. In the alternative, the Tribunal was satisfied that the unpaid trust distribution formed part of the provision of financial accommodation (which was a loan within the extended meaning set out in subsection 10(1) of the SIS Act) from the MWS Fund to the MPT. Specifically, the Tribunal found that there was a consensual arrangement between the trustees of the MWS Fund, the MPT and the MFT that the MWS Fund would not call for payment of the profits it was distributed, and that those profits would instead be applied for the benefit of the MFT. That consensual arrangement amounted to the provision of financial accommodation by the MWS Fund to the MPT. \"Montgomery Wools has made an investment in a related unit trust and the unit trust has dealt with its assets in such a way as to transfer the value of retirement savings to a related family trust for its use.\" [Paragraphs 83 - 87]. Even if there had not been a distribution, the Tribunal would have found that the MWS Fund had provided financial accommodation to the MPT, by reason of the fact that: • the MWS Fund actively chose not to take steps to prevent the proceeds of sale being paid to CBA [the Tribunal finding that the positive act required for there to be a consensual arrangement necessary for the provision of financial accommodation can include an active decision to acquiesce or refrain from enforcing a right or making a demand]; or • Mr Montgomery, as the controlling mind of the trustees of the MWS Fund, the MPT and the MFT, made the decision about the sale and distribution of the proceeds and approved all transactions to give effect to this proposal. [Paragraphs 95 - 97]. • the MWS Fund actively chose not to take steps to prevent the proceeds of sale being paid to CBA [the Tribunal finding that the positive act required for there to be a consensual arrangement necessary for the provision of financial accommodation can include an active decision to acquiesce or refrain from enforcing a right or making a demand]; or • Mr Montgomery, as the controlling mind of the trustees of the MWS Fund, the MPT and the MFT, made the decision about the sale and distribution of the proceeds and approved all transactions to give effect to this proposal. [Paragraphs 95 - 97]. The Tribunal was therefore satisfied that Montgomery Wools, having made a loan to the MPT in its capacity as trustee of the MWS Fund, breached section 84 of the SIS Act in the year ended 30 June 2004 [Paragraph 98]. | Sole purpose test: The Tribunal decided that, properly characterised, the sole purpose of the MWS Fund was not to provide retirement benefits to its members. One of its purposes was to provide support to the family business. The Tribunal found that Montgomery Wools breached section 62 of the SIS Act in 2004 and has continued to do so by failing to call up the loan from the MPT and/or failing to consider terminating the Trust Deed to take control of the assets of the MPT. [Paragraphs 109 and 111] | Arm's length investments: The Tribunal found that, even if 'required to deal' should be given a broad meaning, Montgomery Wools was not required to deal with the units held in the MPT as trustee for the MWS Fund as a result of the events that took place in 2004. Therefore, Montgomery Wools did not breach subsection 109(1A) of the SIS Act in 2004 [Paragraphs 114-116]. | Notice of compliance: The Tribunal was satisfied that the contraventions of the Montgomery Wools were serious and that the impact on the MWS Fund was significant. There has been no attempt to rectify the contraventions. It was the Tribunal's view that it would be inconsistent with the objects of the SIS Act to issue the MWS Fund with a notice of compliance. The Tribunal was therefore not prepared to exercise the discretion under subsection 42A(5) of the SIS Act in favour of the MWS Fund. [Paragraph 146]", "ATO_View_of_Decision": "Role of Tribunal | The ATO agrees that the role of the Tribunal is to review the decision to issue the notice of non-compliance rather than the notice itself. | In-house asset rule - related party loan | The ATO agrees that MWS Fund had made a loan to a related party and that there was a breach of the in-house asset rules in the circumstances of this case. | With respect to the unpaid present entitlement issue, the ATO view, consistent with the decision of the Tribunal, (set out in SMSFR 2009/3 in respect of the SIS Act) is that a beneficiary that makes no demand for payment of funds representing its unpaid present entitlement, in circumstances where it knows those funds are being used otherwise than for its benefit, is financially accommodating the relevant trust. Financial accommodation falls within the extended definition of a loan for the purposes of the SIS Act. | The ATO view is also consistent with the decision of the Tribunal that the consensual arrangement required for there to be the provision of financial accommodation can be implied through deliberate acquiescence - see for example the discussion in TR 2010/3 Income tax : Division 7A loans : trust entitlements , in particular at paragraphs 60-63. | Sole purpose test | The ATO view that there was a breach of the sole purpose test in the circumstances of this case is in accordance with the Tribunal's decision. | Arm's length investments | The view of the Tribunal that there was no breach of subsection 109(1A) of the SIS Act because the trustee was not required to deal with the investment in the units during the events that took place in 2004 is not in accordance with the ATO submissions. The ATO view was that Montgomery Wools as trustee of the MWS Fund in permitting the sale of the MPT asset (the property) and permitting the proceeds of the sale to be lent on an unsecured basis to a third party with no agreed interest or capital repayments was a breach of subsection 109(1A) of the SIS Act. Clarification of this issue by way of appeal was not pursued in this case as the findings were otherwise favourable to the Commissioner. However, should a similar issue arise in the future, the ATO may seek to further clarify the application of subsection 109(1A) of the SIS Act. | Notice of compliance | The ATO view that the SIS Act rules are designed to ensure the prudent management of superannuation fund investments and to ensure that superannuation savings are preserved until retirement and not accessed for current use accords with the Tribunal's decision in relation to the issue of a notice of non-compliance. The ATO's approach to the exercise of the discretion to not issue a notice of non-compliance as set out in PS LA 2006/19 is in accordance with the Tribunal's decision.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "SMSFR 2008/2 | SMSFR 2009/3 | PS LA 2006/19 | 2012 ATC 10-233 | 10(1) | 40 | 42A(5) | 62 | 84 | 109(1A) | 344(8) | 95 ATC 374 | 81 ATC 4346 | 97 ATC 4151 | 2005 ATC 4392 | 2006 ATC 4352 | (1991) 91 ATC 4259 | [2009] AATA 522 | 74 ATR 730 | 2009 ATC 1-011 | [2011] AATA 302 | [2008] AATA 981 | [2008] HCA 31 | 2007 ATC 5105", "Legislative_References": "Superannuation Industry (Supervision) Act 1993 (Cth) 10(1) 40 42A(5) 62 84 109(1A) 344(8)", "Case_References": "AAT Case 10,301 (1995) 31 ATR 1067 95 ATC 374 Brookton Co-operative Society Ltd v Commissioner of Taxation (1981) 147 CLR 441 11 ATR 880 81 ATC 4346 Commissioner of Taxation v Radilo Enterprises Pty Ltd (1997) 72 FCR 300 97 ATC 4151 34 ATR 635 Corporate Initiatives Pty Ltd & Ors v Commissioner of Taxation [2005] FCAFC 62 142 FCR 279 2005 ATC 4392 59 ATR 351 East Finchley Pty Ltd v Federal Commissioner of Taxation (1989) 20 ATR 1623 20 ATR 1623 Pearson v Commissioner of Taxation [2006] FCAFC 111 232 ALR 55 2006 ATC 4352 64 ATR 109 Raymor Contractors Pty Ltd v Federal Commissioner of Taxation (1991) 91 ATC 4259 21 ATR 1410 Re JNVQ and Commissioner of Taxation [2009] AATA 522 74 ATR 730 2009 ATC 1-011 Re Triway Superannuation Fund and Commissioner of Taxation [2011] AATA 302 Re XPMX and Commissioner of Taxation [2008] AATA 981 73 ATR 925 Shi v Migration Agents Registration Authority [2008] HCA 31 235 CLR 286 Vivian (Deputy Commissioner of Taxation (Superannuation)) v Fitzgeralds & Anor [2007] FCA 1602 (2007) 69 ATR 834 2007 ATC 5105", "Subject_References": "Complying superannuation fund Self managed superannuation fund Notice of non-compliance", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/3486/00001", "Unmatched_Content": ""}
{"Case_Name": "SDI Group Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2012/0733", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "2 November 2012", "Date_Published": "10 December 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a vendor (supplier) and purchaser (recipient) had agreed in writing on or before settlement that a property was sold as a going concern and thus was a GST-free supply.", "Overview_of_Facts": "When a contract for sale of a property was entered into, the supplier (taxpayer) was leasing it to a tenant on a monthly basis under an expired lease. The particulars of sale did not include the words 'plus GST' nor did the contract make reference to the property being 'the supply of a going concern'. However, the supplier and recipient had intended that the property be sold tenanted and as a going concern. The supplier pointed to the latter by reference to the issue by it of a purported tax invoice on the day of the contract which stated 'No GST (Sold as a going concern)'. Prior to settlement the supplier made the same clear in a Goods Statutory Declaration. | The property settled 12 months after the contract was signed by the recipient. The Commissioner did not accept that the documents evidenced that the supplier and the recipient had 'agreed in writing' that the supply [the sale] was a 'supply of a going concern' for the purpose of paragraph 38-325(1)(c) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and assessed the supplier to GST. | Issues decided by the tribunal | Paragraph 181 of GSTR 2002/5 states the ATO view that: \" The term\" agreed in writing' means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply, being the supply under an arrangement of everything necessary for the continued operation of an enterprise, is a 'supply of a going concern' .\" | Further, paragraph 182 of GSTR 2002/5 states the ATO view that the parties must agree on or before the day of the supply. | In this case, the ATO was of the view that there was insufficient evidence of there being an agreement in writing between the parties that the supply was of a going concern because the contract was silent on the point, there was no other separate document setting out such an agreement, and the contemporaneous correspondence between the parties did not constitute an agreement between the parties that the supply was of a going concern. Further, the ATO took the view that the correspondence in fact showed there to be dissention between the parties about whether the supply was of a going concern, and hence there was no agreement at the date of the supply that the supply was of a going concern. In regard to the purported tax invoice, the ATO took the view that it was a unilateral document prepared by the supplier into which the recipient had no input. | The Tribunal took a different view of the evidence. | In relation to the purported tax invoice, the Tribunal noted, at [31], that while the tax invoice was generated solely by the supplier's accountant, it had been requested by the recipient. and that: ' It is not impossible to infer that the document, requested by one party from the other party, reflected the parties' mutual intentions and was therefore something more than unilateral. The document was ... in the purchaser's possession at the time it executed the contract of sale on 13 December 2009.' | In other words, when the recipient executed the document it had both the contract and the purported tax invoice, which had been issued at its request, with the latter stating the supply to be of a going concern. | The Tribunal held that the correspondence: • '... confirms what the applicant states was the mutual intention of the parties when the contract of sale was entered into in December 2009. It was the mutual intention of the parties that the contract reflects the supply of a going concern' , at [37]. • '... showed the purchaser required the contract reflect that the supply was one of a going concern and that ' any disagreement between the parties at this point in the transaction reflected uncertainty or confusion as to how this objective could be achieved' , at [40]. | • '... confirms what the applicant states was the mutual intention of the parties when the contract of sale was entered into in December 2009. It was the mutual intention of the parties that the contract reflects the supply of a going concern' , at [37]. • '... showed the purchaser required the contract reflect that the supply was one of a going concern and that ' any disagreement between the parties at this point in the transaction reflected uncertainty or confusion as to how this objective could be achieved' , at [40]. | The Tribunal accepted the contract, the invoice, the Goods Statutory Declaration, and the letters exchanged between solicitors for the parties meant the supplier and recipient had 'agreed in writing' that the supply (the sale) was a supply of a going concern for the purpose of the GST Act and was thus GST-free.", "Issues_Decided": "Paragraph 181 of GSTR 2002/5 states the ATO view that: \" The term\" agreed in writing' means that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply, being the supply under an arrangement of everything necessary for the continued operation of an enterprise, is a 'supply of a going concern' .\" Further, paragraph 182 of GSTR 2002/5 states the ATO view that the parties must agree on or before the day of the supply. In this case, the ATO was of the view that there was insufficient evidence of there being an agreement in writing between the parties that the supply was of a going concern because the contract was silent on the point, there was no other separate document setting out such an agreement, and the contemporaneous correspondence between the parties did not constitute an agreement between the parties that the supply was of a going concern. Further, the ATO took the view that the correspondence in fact showed there to be dissention between the parties about whether the supply was of a going concern, and hence there was no agreement at the date of the supply that the supply was of a going concern. In regard to the purported tax invoice, the ATO took the view that it was a unilateral document prepared by the supplier into which the recipient had no input. The Tribunal took a different view of the evidence. In relation to the purported tax invoice, the Tribunal noted, at [31], that while the tax invoice was generated solely by the supplier's accountant, it had been requested by the recipient. and that: ' It is not impossible to infer that the document, requested by one party from the other party, reflected the parties' mutual intentions and was therefore something more than unilateral. The document was ... in the purchaser's possession at the time it executed the contract of sale on 13 December 2009.' In other words, when the recipient executed the document it had both the contract and the purported tax invoice, which had been issued at its request, with the latter stating the supply to be of a going concern. The Tribunal held that the correspondence: • '... confirms what the applicant states was the mutual intention of the parties when the contract of sale was entered into in December 2009. It was the mutual intention of the parties that the contract reflects the supply of a going concern' , at [37]. • '... showed the purchaser required the contract reflect that the supply was one of a going concern and that ' any disagreement between the parties at this point in the transaction reflected uncertainty or confusion as to how this objective could be achieved' , at [40]. • '... confirms what the applicant states was the mutual intention of the parties when the contract of sale was entered into in December 2009. It was the mutual intention of the parties that the contract reflects the supply of a going concern' , at [37]. • '... showed the purchaser required the contract reflect that the supply was one of a going concern and that ' any disagreement between the parties at this point in the transaction reflected uncertainty or confusion as to how this objective could be achieved' , at [40]. The Tribunal accepted the contract, the invoice, the Goods Statutory Declaration, and the letters exchanged between solicitors for the parties meant the supplier and recipient had 'agreed in writing' that the supply (the sale) was a supply of a going concern for the purpose of the GST Act and was thus GST-free.", "ATO_View_of_Decision": "This finding was open to the Tribunal on the evidence in this case and does not differ in principle from the requirements outlined in GSTR 2002/5. | The Tribunal appears to have accepted the evidence of the supplier's General Operations Manager that: • The supplier prepared a document labelled a tax invoice dated 12 December 2009 which stated \"NO GST (SOLD AS A GOING CONCERN)\" at [18]. • The document had been requested by the recipient's representative at [31]. • The document was in the possession of the recipient at the time the recipient executed the contract on 13 December 2009 at [31]. | • The supplier prepared a document labelled a tax invoice dated 12 December 2009 which stated \"NO GST (SOLD AS A GOING CONCERN)\" at [18]. • The document had been requested by the recipient's representative at [31]. • The document was in the possession of the recipient at the time the recipient executed the contract on 13 December 2009 at [31]. | The Tribunal then went on to find at paragraph [31] that it is '... not impossible to infer that the document, requested by one party from the other party, reflected the parties' mutual intentions and was therefore something more than unilateral . | The ATO believes it is the Tribunal's view that, at the time the recipient executed the contract, the parties intended and agreed in writing that the supply was of a GST-free going concern. Further, by the time of settlement, the parties had confirmed, through further correspondence, that intention. | We also believe that the decision does not support a view that unilateral documents are sufficient to constitute an agreement in writing as contemplated by paragraph (c) of subsection 38-325(1) of the GST Act.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "Nil | 2012 ATC 10-282 | s 38-325 | 2009 ATC 1-016 | 2005 ATC 2189 | [2005] FCA 816", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 s 38-325", "Case_References": "Case 12/2009 2009 ATC 1-016 Midford v Deputy Commissioner of Taxation [2005] AATA 623 2005 ATC 2189 (2005) 60 ATR 1009 Ultrarad Pty Ltd v Health Insurance Commission [2005] FCA 816", "Subject_References": "GST exemption Supply of a going concern Requirement for agreement Requirement for the agreement to be in writing", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012-0733/00001", "Unmatched_Content": ""}
{"Case_Name": "Sent v Commissioner of Taxation", "Venue_Reference_No": "VID 363 of 2012", "Venue": "Federal Court of Australia", "Judgment_Date": "19 December 2012", "Date_Published": "3 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether a payment made to the taxpayer's nominee by his employer in substitution for past and future bonus entitlements was derived by the taxpayer as ordinary income when paid to the nominee.", "Overview_of_Facts": "The taxpayer was employed as the CEO of Primelife Corporation (PC) under an agreement that provided for a 5-year term from 1 July 1998, and an entitlement to bonuses based on the financial performance of PC. In a series of meetings leading up to June 2001, PC and the taxpayer agreed that he would waive his past and future bonus entitlements in return for the issue to him of 5 million ordinary shares in PC. | By October 2001, an independent expert had advised PC that: the taxpayer's entitlement to bonuses for the 1999 to 2001 financial years totalled $7,246,572; that he could expect to become entitled to further bonuses for the 2002 and 2003 years of between $5,122,462 and $5,532,500; and that the fair value of 5 million fully paid PC ordinary shares was between $10.3m and $12.5m. | On 2 October 2001, the taxpayer and PC executed a Share Issue Deed which provided that, in consideration for the taxpayer waiving his bonus entitlements, PC would issue to him or his nominee 5 million fully paid PC ordinary shares. These terms were made subject to the approval of PC shareholders at the 2001 annual general meeting on 30 November 2001. Approval was duly provided by the shareholders on that date. | The PC Executive Share Trust was created on 4 December 2001, with the taxpayer as the effective sole beneficiary. On 21 December 2001: PC paid $11.6m to the trustee of the Trust on behalf of the taxpayer; the trustee paid $11.6m back to PC as the price for the issue of 5 million PC shares; and PC then issued 5 million ordinary shares to the trustee. The weighted average trading price of PC ordinary shares at that time was $2.32 per share, which gave the parcel of shares a value of $11.6m. | On 23 January 2002, the trustee issued 5 million units in the Trust to the taxpayer for $11.6m ($2.32 per unit). While it was contemplated that the trustee would lend $11.6m to the taxpayer to purchase the units, no loan was actually made, and the taxpayer remained indebted to the trustee to pay the purchase price. | The taxpayer did not include the amount of $11.6m as assessable income in his return for the 2002 income year. The Commissioner issued an amended assessment to the taxpayer on the basis that the payment of $11.6m made by PC to the trustee is included in his assessable income as either ordinary or statutory income. A penalty assessment (50%) for a tax shortfall that resulted from recklessness was also issued. A further amended assessment was issued, including the amount of $11.6m, in the alternative, under Part IVA of the Income Tax Assessment Act 1936 (ITAA 36). A further penalty assessment of 50% was based on the taxpayer not having a reasonably arguable position (RAP) that Part IVA did not apply. | The AAT [2011] AATA 198 found that, of the payment of $11.6m, $7,246,572 was assessable to the taxpayer as ordinary income, being referrable to services already provided by the taxpayer for the 1999 to 2001 years. The balance of $4,353,428 was not ordinary income of the taxpayer as it was in substitution for bonus entitlements for work yet to be performed, and contingent on the financial performance of PC in the future. The AAT also found that Part IVA did not apply to include the balance in the taxpayer's assessable income. The AAT accepted that the taxpayer's tax shortfall did not result from recklessness or from a failure to take reasonable care, but found that he did not have a RAP on the non-assessability of the amount of $7,246,572. No penalty had been remitted by the Commissioner or should now be remitted | On appeal by both parties, the Federal Court (Murphy J) [2012] FCA 383 found that all of the payment of $11.6m was derived as ordinary income by the taxpayer when paid to the trustee. The payment was made in substitution for amounts which the taxpayer had earned or would earn as a reward for services. Once the Share Issue Deed was executed and then approved by the shareholders, the taxpayer had an unconditional entitlement to be provided with 5 million shares, which he exchanged for the non-contingent payment to the trustee. The amount was derived by the taxpayer when paid by PC on his behalf to the trustee. His Honour also found that the AAT erred in not finding that the taxpayer did not discharge the burden of proving that his tax shortfall did not result from the recklessness of his tax agent. | The Full Federal Court dismissed the taxpayer's appeal from the decision of Murphy J. On 10 May 2013, Kiefel and Keane JJ refused special leave to the taxpayer to appeal to the High Court from the decision of the Full Court. Their Honours noted that the judgments of Murphy J and the Full Court applied settled principles and that they saw no reason to doubt the conclusions reached. | Issues decided by the court | The Full Federal Court (Emmett, Edmonds and Rares JJ) agreed with Murphy J that, by 30 November 2001, the taxpayer's accrued and contingent bonus entitlements had been replaced by an absolute entitlement to be issued with 5 million ordinary shares in PC. The character of that entitlement, if provided, would be income as a reward for services. The payment to the trustee in substutution for that entitlement also had the character of ordinary income, and was derived as such by the taxpayer when paid to the trustee as his nominee. The Court rejected the taxpayer's alternative argument that the payment was capital in nature as in lieu of the right to be issued with a capital asset, being the shares in PC. | The Full Court also found that there was no error in the conclusion of Murphy J that the taxpayer did not discharge the onus of establishing that the taxpayer's tax shortfall did not result from the recklessness of his tax agent.", "Issues_Decided": "The Full Federal Court (Emmett, Edmonds and Rares JJ) agreed with Murphy J that, by 30 November 2001, the taxpayer's accrued and contingent bonus entitlements had been replaced by an absolute entitlement to be issued with 5 million ordinary shares in PC. The character of that entitlement, if provided, would be income as a reward for services. The payment to the trustee in substutution for that entitlement also had the character of ordinary income, and was derived as such by the taxpayer when paid to the trustee as his nominee. The Court rejected the taxpayer's alternative argument that the payment was capital in nature as in lieu of the right to be issued with a capital asset, being the shares in PC. The Full Court also found that there was no error in the conclusion of Murphy J that the taxpayer did not discharge the onus of establishing that the taxpayer's tax shortfall did not result from the recklessness of his tax agent.", "ATO_View_of_Decision": "The ATO notes that the decisions of the Federal Court and the Full Federal Court confirm the Commissioner's view on the nature of what is ordinary income as a reward for services, and on when amounts of ordinary income are taken to be derived under subsection 6-5(4) of the Income Tax Assessment Act 1997.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "None | Federal Court | (2012) 2012 ATC 20-364 | High Court | s 6-5 | s 14ZZK | Schedule 1 s 284-75 | Schedule 1 s 284-90 | (1952) 86 CLR 402 | (1946) 72 CLR 634", "Legislative_References": "Administrative Appeals Tribunal Act 1975 s 44 Income Tax Assessment Act 1997 s 6-5 Tax Administration Act 1953 s 14ZZK Schedule 1 s 284-75 Schedule 1 s 284-90", "Case_References": "Constable v FC of T (1952) 86 CLR 402 Hallstroms Pty Ltd v FC of T (1946) 72 CLR 634", "Subject_References": "Ordinary income Derivation Bonus Entitlements Reward for services Penalty Recklessness", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID363of2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Siddiqi and Commissioner of Taxation", "Venue_Reference_No": "2011/5274, 5648, 5649", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 August 2012", "Date_Published": "15 November 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the taxpayer could satisfy the onus of proving that various cash receipts were not income from a business activity or not consideration for GST taxable supplies.", "Overview_of_Facts": "The taxpayer was a sole trader operating an import, local purchase and export business. An audit of his business affairs revealed that there were a large number of unexplained deposits into the taxpayer's bank accounts during the 2008 and 2009 income years that were in excess of his returned business income for those years, and which did not correlate with the corresponding business activity statements lodged for those periods. | Before the Tribunal, the taxpayer did not produce any proper business records to establish the cash sales and purchases he made in the course of running his business. His largely oral testimony was that the unexplained deposits were not business income or from taxable supplies, but were personal loans from friends/family, repayments of money from returned supplies or redeposits. The taxpayer also relied on oral evidence from a few other witnesses, and some documentary evidence, including money transfer receipts and invoices. | Prior to the hearing, the Commissioner accepted that seven deposits neither evidenced assessable income nor taxable supplies. | Also at issue before the Tribunal was whether any shortfall amounts of the taxpayer for the relevant periods was due to a failure by him or his agent to take reasonable care. | Issues decided by the Administrative Appeals Tribunal | The Tribunal found that, with the exception of the amounts conceded by the Commissioner, the taxpayer had not discharged the onus of proving that the various cash deposits into the his bank accounts were not assessable income from his business and/or consideration from taxable supplies (paragraph 85). | While it is not unlawful to conduct a business in an environment where transactions are not documented, and payment is frequently made by cash, there is a high duty placed upon a taxpayer under the self-assessment system to keep business records to substantiate income and expenditure. For the purposes of the penalty provisions, a failure to keep such records speaks clearly of a failure to take reasonable care (paragraph 79). No remission of penalty was warranted.", "Issues_Decided": "The Tribunal found that, with the exception of the amounts conceded by the Commissioner, the taxpayer had not discharged the onus of proving that the various cash deposits into the his bank accounts were not assessable income from his business and/or consideration from taxable supplies (paragraph 85). While it is not unlawful to conduct a business in an environment where transactions are not documented, and payment is frequently made by cash, there is a high duty placed upon a taxpayer under the self-assessment system to keep business records to substantiate income and expenditure. For the purposes of the penalty provisions, a failure to keep such records speaks clearly of a failure to take reasonable care (paragraph 79). No remission of penalty was warranted.", "ATO_View_of_Decision": "Subject to seven amounts conceded by the Commissioner during the hearing, the taxpayer was not able to discharge the onus of proving that the various cash deposits were not income from his business activities, nor consideration from taxable supplies. The Tribunal was not prepared to accept the largely oral evidence of the taxpayer in the absence of any proper business records.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | [2012] AATA 589 | 14ZZK | 284-75 of Schedule 1 | 284-80 of Schedule 1 | 284-90 of Schedule 1 | 298-20 of Schedule 1 | 2008 ATC 20-015 | 90 ATC 4088 | 2012 ATC 20-321 | 75 ATC 4257 | 91 ATC 4546 | 2010 ATC 10-155 | 50 CLR 228", "Legislative_References": "Taxation Administration Act 1953 14ZZK 284-75 of Schedule 1 284-80 of Schedule 1 284-90 of Schedule 1 298-20 of Schedule 1", "Case_References": "Dixon v FC of T [2008] FCAFC 54 167 FCR 287 2008 ATC 20-015 69 ATR 627 FC of T v Dalco [1990] HCA 3 168 CLR 614 20 ATR 1370 90 ATC 4088 FC of T v Traviati [2012] FCA 546 2012 ATC 20-321 Gauci v FC of T [1975] HCA 54 (1975) 135 CLR 81 5 ATR 672 75 ATC 4257 Imperial Bottleshops Pty Ltd and Egerton v FC of T (1991) 22 ATR 148 91 ATC 4546 Re Optimise Group Pty Ltd and Commissioner of Taxation [2010] AATA 782 2010 ATC 10-155 79 ATR 953 R v The War Pensions Entitlement Appeals Tribunal and another ex parte Bott [1933] HCA 30 50 CLR 228", "Subject_References": "Omitted income GST taxable supplies Onus of proof Cash transactions Lack of business records", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011-5274-5648-5649/00001", "Unmatched_Content": ""}
{"Case_Name": "Sinclair and Commissioner of Taxation", "Venue_Reference_No": "2011/4763", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 September 2012", "Date_Published": "23 November 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case in which the taxpayer was found to have illegally accessed superannuation benefits but where, in the circumstances, the Tribunal ordered that the administrative penalty be remitted in full.", "Overview_of_Facts": "Pursuant to a direction signed by the taxpayer, $40,000 of his superannuation benefits were rolled-out of an APRA regulated superannuation fund in which he was a member (the \"APRA Fund\") to another fund (the \"Other Fund\"), which purported to be a superannuation fund. Subsequently, the taxpayer received $25,517.53 of the superannuation benefits paid from the APRA Fund to the Other Fund. The remainder ($14,482.47) was retained by the Other Fund and subsequently dissipated. | The APRA Fund was a complying, regulated superannuation fund. The Other Fund was neither a complying nor a regulated superannuation fund. Although it had completed the process for registration as a self-managed superannuation fund, there was no evidence that the Other Fund had subsequently undertaken any regulatory or compliance activities. There was also no evidence that there was a trust deed establishing the Other Fund, nor was there evidence that the Other Fund was established or received monies for superannuation purposes. | The taxpayer gave evidence that, among other things, at the time his superannuation benefits were paid out of the APRA Fund he was in financial distress. Further to this, there was evidence that the taxpayer was an undischarged bankrupt over the period 18 April 2008 to 19 April 2011. However, the evidence available did not establish that the taxpayer met any condition of release provided for under the Superannuation Industry ( Supervision ) Regulations 1994 (SISR94), most relevantly, the condition of release known as 'severe financial hardship'. Further, there was no evidence that the taxpayer had made any particular effort to discover what requirements there were to enable him to access his superannuation benefits. | Similarly, there was no evidence of discussions with his tax agent regarding whether or not the amount of superannuation benefits he received should be included in his income tax return for the relevant year. Nor did the taxpayer include the receipt of these benefits in his tax return for the relevant year. The taxpayer gave evidence that it was his understanding that the remainder of his benefit - $14,482.47 - represented the tax and fees on the amount of benefit he actually received and that this, to his knowledge had been paid to the Commissioner. The taxpayer did not however adduce any documentation that supported this claim. | Issues decided by the tribunal | The Tribunal determined that the Other Fund was not a superannuation fund as defined in section 10 of the Superannuation Industry ( Supervision ) Act 1993 (SISA). Further, it was not a regulated superannuation fund as defined in section 19 of the same Act. | The payment out of the APRA Fund was not a payment within the superannuation system by way of a roll-over or a transfer (defined in subregulation 5.01(1) of the SISR94) and the taxpayer had not met any of the conditions required by Division 6.3 of the SISR94 to authorise the cashing of any part of his superannuation benefits. | The effect of the payment from the APRA Fund to the Other Fund, being made at the direction of the taxpayer, was the payment of a superannuation benefit from a complying superannuation fund and received by the taxpayer (pursuant to section 307-15 of the Income Tax Assessment Act 1997 (ITAA97)) other than in accordance with the payment standards prescribed in subsection 31(1) of the SISA. | Accordingly, the $40,000 withdrawn from the APRA Fund was to be included in the taxpayer's assessable income for the year ended 30 June 2009 pursuant to subsection 304-10(1) of the ITAA97. | Further, on the facts of the case, it was not appropriate to exercise the discretion in subsection 304-10(4) of the ITAA97 to exclude some or all of the $40,000 from the taxpayer's assessable income. | On the application of penalty, the Tribunal determined that there was no doubt the taxpayer had acted carelessly. It was also noted that the taxpayer did not take reasonable care in completing his income tax return for the 2008/09 income year. In the circumstances, the Tribunal considered that the Commissioner had correctly applied a 25% administrative penalty. | However, the Tribunal considered that when taking into account that the taxpayer had a sound history of compliance; that his particular personal circumstances (including that from 18 April 2008 to 19 April 2011 he was an undischarged bankrupt) suggested he was under financial distress; the amount of superannuation benefit the taxpayer was actually left with; that his conduct was careless rather than reckless or with intentional disregard to the law; and that the taxpayer had suffered adequate financial consequences at the hands of the promoters, it was, on balance, appropriate to remit the penalty in full.", "Issues_Decided": "The Tribunal determined that the Other Fund was not a superannuation fund as defined in section 10 of the Superannuation Industry ( Supervision ) Act 1993 (SISA). Further, it was not a regulated superannuation fund as defined in section 19 of the same Act. The payment out of the APRA Fund was not a payment within the superannuation system by way of a roll-over or a transfer (defined in subregulation 5.01(1) of the SISR94) and the taxpayer had not met any of the conditions required by Division 6.3 of the SISR94 to authorise the cashing of any part of his superannuation benefits. The effect of the payment from the APRA Fund to the Other Fund, being made at the direction of the taxpayer, was the payment of a superannuation benefit from a complying superannuation fund and received by the taxpayer (pursuant to section 307-15 of the Income Tax Assessment Act 1997 (ITAA97)) other than in accordance with the payment standards prescribed in subsection 31(1) of the SISA. Accordingly, the $40,000 withdrawn from the APRA Fund was to be included in the taxpayer's assessable income for the year ended 30 June 2009 pursuant to subsection 304-10(1) of the ITAA97. Further, on the facts of the case, it was not appropriate to exercise the discretion in subsection 304-10(4) of the ITAA97 to exclude some or all of the $40,000 from the taxpayer's assessable income. On the application of penalty, the Tribunal determined that there was no doubt the taxpayer had acted carelessly. It was also noted that the taxpayer did not take reasonable care in completing his income tax return for the 2008/09 income year. In the circumstances, the Tribunal considered that the Commissioner had correctly applied a 25% administrative penalty. However, the Tribunal considered that when taking into account that the taxpayer had a sound history of compliance; that his particular personal circumstances (including that from 18 April 2008 to 19 April 2011 he was an undischarged bankrupt) suggested he was under financial distress; the amount of superannuation benefit the taxpayer was actually left with; that his conduct was careless rather than reckless or with intentional disregard to the law; and that the taxpayer had suffered adequate financial consequences at the hands of the promoters, it was, on balance, appropriate to remit the penalty in full.", "ATO_View_of_Decision": "The Tribunal's findings on the non-penalty related issues, such as whether the Other Fund was a \"superannuation fund\" for section 10 SISA purposes and how benefits accessed in breach of legislative requirements are subsequently taxed, are consistent with the approach taken by the Commissioner. The Tribunal came to a different conclusion in regard to remission of the penalty, which was open to it on the facts of the case.", "Administrative_Treatment": "Implications for ATO precedential documents ( Public Rulings & Determinations etc ) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "MT 2008/1 | PS LA 2006/2 | PS LA 2006/8 | 2012 ATC 10-275 | Superannuation Industry (Supervision) Act 1993 | Superannuation Industry (Supervision) Regulations 1994 | Income Tax Assessment Act 1997 | Tax Administration Act 1953", "Legislative_References": "Superannuation Industry (Supervision) Act 1993 Superannuation Industry (Supervision) Regulations 1994 Income Tax Assessment Act 1997 Tax Administration Act 1953", "Case_References": "", "Subject_References": "Superannuation Superannuation fund Superannuation purpose Complying superannuation fund Regulated superannuation fund Superannuation benefit Illegal early access to superannuation benefits Administrative Penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/4763/00001", "Unmatched_Content": ""}
{"Case_Name": "Sully and Commissioner of Taxation", "Venue_Reference_No": "2011/2747", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 August 2012", "Date_Published": "9 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2012 ATC 10-272", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011-2747/00001", "Unmatched_Content": "Sully and Commissioner of Taxation [2012] AATA 582 2012 ATC 10-272 (2012) 89 ATR 991 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Taxpayer and Commissioner of Taxation", "Venue_Reference_No": "2011/2206-2209", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 December 2012", "Date_Published": "28 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether the taxpayers have discharged the burden of proving that their income tax and penalty assessments were excessive.", "Overview_of_Facts": "In July 2002, Mr X was paid amounts after the sale of real property owned by a related company. In October 2002, a business associate of Mr X deposited amounts into the taxpayers' bank accounts. A further amount was credited to one of Mr X's foreign bank accounts in October 2006. The taxpayers testified that the amounts were loans, or transfers from other accounts which the Commissioner had already assessed. There was no evidence that there had been any repayments of the purported loan principals. | Issues decided by the tribunal | The Tribunal found that there was insufficient evidence to demonstrate that the amounts received during the 2003 income year were not assessable income of the taxpayers (paragraphs 53-5). The evidence established that the deposit in October 2006 originated in balances held in accounts earlier than the start of the 2007 income year, and, if income, was income of an earlier year (paragraphs 68-9). The taxpayers did not demonstrate that penalties for recklessness were excessive (paragraphs 65-6).", "Issues_Decided": "The Tribunal found that there was insufficient evidence to demonstrate that the amounts received during the 2003 income year were not assessable income of the taxpayers (paragraphs 53-5). The evidence established that the deposit in October 2006 originated in balances held in accounts earlier than the start of the 2007 income year, and, if income, was income of an earlier year (paragraphs 68-9). The taxpayers did not demonstrate that penalties for recklessness were excessive (paragraphs 65-6).", "ATO_View_of_Decision": "The ATO accepts that the finding of the Tribunal in relation to the 2007 year was properly open to it on the evidence before it.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None.", "Related_Documents": "None | [2012] AATA 917 | 14ZZK | 284-20 of Schedule 1 | 2011 ATC 20-265 | 2000 ATC 4201 | (1990) 90 ATC 4088 | 90 ATC 5060 | 75 ATC 4257 | (1952) 86 CLR 183 | 91 ATC 4546 | (1956) 98 CLR 263 | [2011] FCAFC 76 | (2011) 193 FCR 260 | (1936) 56 CLR 63 | 2006 ATC 4387", "Legislative_References": "Taxation Administration Act 1953 14ZZK 284-20 of Schedule 1", "Case_References": "FC of T v SNF (Australia) Pty Ltd [2011] FCAFC 74 2011 ATC 20-265 (2011) 82 ATR 680 Davis v FC of T (2000) 171 ALR 654 [2000] FCA 44 (2000) 44 ATR 140 2000 ATC 4201 FC of T v Dalco (1990) 168 CLR 614 (1990) 20 ATR 1370 (1990) 90 ATC 4088 Galea v FC of T 90 ATC 5060 (1990) 21 ATR 1108 Gauci v FC of T (1975) 135 CLR 81 (1975) 5 ATR 672 75 ATC 4257 George v FC of T (1952) 86 CLR 183 [1952] HCA 21 Imperial Bottleshops Pty Ltd & Egerton v FC of T 91 ATC 4546 (1991) 22 ATR 148 McAndrew v FC of T (1956) 98 CLR 263 [1956] HCA 62 Moreau v FC of T (1926) 39 CLR 65 [1926] HCA 28 Pascoe v FC of T (1956) 30 ALJR 402 Tisdall v Webber [2011] FCAFC 76 (2011) 193 FCR 260 Trautwein v FC of T (1936) 56 CLR 63 [1936] HCA 77 Vu v C of T [2006] FCA 889 2006 ATC 4387 (2006) 63 ATR 341", "Subject_References": "Bank deposits Burden of proof Penalty payable", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/2206-2209/00001", "Unmatched_Content": ""}
{"Case_Name": "The Employed Accountant and Commissioner of Taxation", "Venue_Reference_No": "2009/2599-2603", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "6 November 2012", "Date_Published": "18 April 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which primarily concerned whether reasonably regular deposits made into the taxpayer's bank account constituted assessable income of the taxpayer.", "Overview_of_Facts": "During the income years under review, the taxpayer (an accountant) undertook a regular practice of altering clients' cheques which were drawn in favour of the ATO so that they could be deposited into his own bank account. | The taxpayer also altered the client's BAS (without their knowledge) to show a lower liability, and paid the lower amount to the ATO. The taxpayer claimed that he undertook this practice on the instruction of his employer, who asked him to hand over the net difference in cash. There was no evidence to show that the amounts were paid to his employer. | The Commissioner assessed the taxpayer on the basis that the amounts retained were assessable income to him. In doing so, the Commissioner relied on statements from the taxpayer that the amounts were derived in the course of his bookkeeping business. | During the hearing it became clear that the amounts were not derived from performing bookkeeping services but were instead obtained from the practice of altering clients' cheques. | The taxpayer submitted before the Tribunal that on the basis that he was collecting these amounts on behalf of his employer, he was not beneficially entitled to the amounts, and therefore he had derived no assessable income. | During the relevant years the taxpayer owned rental properties. He purchased a property in 2002 and borrowed the entire purchase price. He sold that property in 2004 and used the proceeds towards the purchase of a second property. Both properties have been income producing. | The taxpayer claimed interest deductions in relation to loans used to finance the purchase of rental properties. | The Commissioner imposed penalties of 75% on the resulting shortfall on the basis that there was intentional disregard. | Issues decided by the court/Tribunal | 1. The misappropriated amounts deposited in the taxpayer's bank account did not constitute assessable income of the taxpayer because the taxpayer was not beneficially entitled to those amounts. | 2. The taxpayer was entitled to a deduction for interest payments in respect of loans used to purchase rental properties. | 3. The penalties imposed and not remitted were appropriate in the circumstances.", "Issues_Decided": "1. The misappropriated amounts deposited in the taxpayer's bank account did not constitute assessable income of the taxpayer because the taxpayer was not beneficially entitled to those amounts. 2. The taxpayer was entitled to a deduction for interest payments in respect of loans used to purchase rental properties. 3. The penalties imposed and not remitted were appropriate in the circumstances.", "ATO_View_of_Decision": "The Tribunal's decision will have no impact on other cases.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "Nil | 2012 ATC 1-049 | 8-1 | 25-35 | 32-45 | 14ZZK | 284-75 | 284-90 | 298-20 | (1932) 47 CLR 417 | 90 ATC 4088 | (1952) 86 CLR 183 | 95 ATC 4251", "Legislative_References": "Income Tax Assessment Act 1997 8-1 25-35 32-45 Taxation Administration Act 1953 14ZZK 284-75 284-90 298-20", "Case_References": "A Taxpayer v Commissioner of Inland Revenue [1997] NZCA 135 (1997) 18 NZTC 13,350 Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 Danmark Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333 Federal Commissioner of Taxation v Dalco [1990] HCA 3 (1990) 168 CLR 614 (1990) 20 ATR 1370 90 ATC 4088 George v Federal Commissioner of Taxation [1952] HCA 21 (1952) 86 CLR 183 Zobory v Commissioner of Taxation (1995) 64 FCR 86 30 ATR 412 95 ATC 4251", "Subject_References": "Burden of proof Misappropriated funds Interest deductions in connection with rental properties Deductions in relation to a loan to employer Penalties for intentional disregard", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/2599-2603/00001", "Unmatched_Content": ""}
{"Case_Name": "The Trustee for MH Ghali Superannuation Fund and Commissioner of Taxation", "Venue_Reference_No": "2010/4923-4924", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "10 August 2012", "Date_Published": "15 November 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned a superannuation fund that received distributions of income from a unit trust. The question before the AAT was whether those distributions were special income under s 273(6) or (7) of the ITAA36.", "Overview_of_Facts": "The MH Ghali Superannuation Fund (the Super Fund) held units in the Ghali Unit Trust (the Unit Trust) and derived income as a beneficiary of the Unit Trust. The main question for resolution in the case was whether such income of the Super Fund was 'special income' (otherwise known as non-arm's length income) and so taxable at the rate applicable to the special component of the income of a complying superannuation fund. | There were two bases on which the income could be special income. The first was if the income was derived 'other than by virtue of holding a fixed entitlement to the income' (s 273(6) of the Income Tax Assessment Act 1936 (ITAA36)). | The trust deed relevantly provided at clause 2.7 for: • the Trust Fund initially to be divided into a number of $1 units classified as A Class, B Class, C Class and D Class units; • A Class units [of which the Super Fund was the majority holder] to carry an entitlement to a share in the capital of the Trust Fund upon the termination of the trust; • the distribution of the income of the trust in accordance with the provisions of clause 12; • the right to one vote in respect of each unit held; and • the right to resolve by unanimous agreement with other A Class unit holders the amount of the income to be distributed to the holders of B, C and D Class units. | • the Trust Fund initially to be divided into a number of $1 units classified as A Class, B Class, C Class and D Class units; • A Class units [of which the Super Fund was the majority holder] to carry an entitlement to a share in the capital of the Trust Fund upon the termination of the trust; • the distribution of the income of the trust in accordance with the provisions of clause 12; • the right to one vote in respect of each unit held; and • the right to resolve by unanimous agreement with other A Class unit holders the amount of the income to be distributed to the holders of B, C and D Class units. | The trust deed also provided certain discretions to the Trustee in respect of the income, including: 12.3.1 The Trustee may subject to the provisions in this clause and subject to any special rights or restrictions provided in clause 2.7 in relation to units of any class distribute at any time to any one or more of the classes of Unitholders or to any one or more of the unitholders within a particular class to the exclusion of other unitholders such of the income of the Trust Fund as the Trustee may in its absolute and uncontrolled discretion decide . ... 12.3.11 The Trustee shall in its absolute discretion determine which class of Unitholders shall be presently entitled to such Income of the Trust Fund as is agreed upon in accordance with the requirements of clause 12.3.1 and in default of such determination the Unitholders in the same proportions as they hold units in the Trust Fund shall notwithstanding classification be presently so entitled . | The second basis on which the income would be special income was if a fixed entitlement to the income (or the income itself) was derived under an arrangement some or all of the parties to which were not dealing at arm's length and the amount of income was greater than might have been expected to have been derived if the parties had been dealing at arm's length (s 273(7) of the ITAA36). | The Tribunal made findings of fact concerning the circumstances in which units were acquired and circumstances in which the income was distributed. In broad terms, the Tribunal considered that there was non-arm's length dealing. | There were two further issues in the case that are not discussed in detail in this Decision Impact Statement. One was whether a capital gain was properly taken into account in the 2006 year in calculating the net income of the Unit Trust, and hence assessable income of the Super Fund. The other was the application of shortfall penalties. | Issues decided by the tribunal | The Tribunal decided that: • The Super Fund held a fixed entitlement to income for the purposes of s 273. The Tribunal considered that fixed entitlement was defined in Schedule 2F to the ITAA36, and that relevantly the Super Fund held a vested and indefeasible interest. • The Super Fund did not acquire the fixed entitlement, or derive the income, pursuant to an arrangement where the parties were dealing at arm's length, and the income was more than might have been expected had the parties been dealing at arm's length. Accordingly, the Tribunal concluded that the relevant amounts were 'special income' of the Super Fund. • The capital gain was properly included in the net income of the Unit Trust in the 2006 income year. • The 25% shortfall penalty was not unjust or excessive. | • The Super Fund held a fixed entitlement to income for the purposes of s 273. The Tribunal considered that fixed entitlement was defined in Schedule 2F to the ITAA36, and that relevantly the Super Fund held a vested and indefeasible interest. • The Super Fund did not acquire the fixed entitlement, or derive the income, pursuant to an arrangement where the parties were dealing at arm's length, and the income was more than might have been expected had the parties been dealing at arm's length. Accordingly, the Tribunal concluded that the relevant amounts were 'special income' of the Super Fund. • The capital gain was properly included in the net income of the Unit Trust in the 2006 income year. • The 25% shortfall penalty was not unjust or excessive.", "Issues_Decided": "The Tribunal decided that: • The Super Fund held a fixed entitlement to income for the purposes of s 273. The Tribunal considered that fixed entitlement was defined in Schedule 2F to the ITAA36, and that relevantly the Super Fund held a vested and indefeasible interest. • The Super Fund did not acquire the fixed entitlement, or derive the income, pursuant to an arrangement where the parties were dealing at arm's length, and the income was more than might have been expected had the parties been dealing at arm's length. Accordingly, the Tribunal concluded that the relevant amounts were 'special income' of the Super Fund. • The capital gain was properly included in the net income of the Unit Trust in the 2006 income year. • The 25% shortfall penalty was not unjust or excessive. • The Super Fund held a fixed entitlement to income for the purposes of s 273. The Tribunal considered that fixed entitlement was defined in Schedule 2F to the ITAA36, and that relevantly the Super Fund held a vested and indefeasible interest. • The Super Fund did not acquire the fixed entitlement, or derive the income, pursuant to an arrangement where the parties were dealing at arm's length, and the income was more than might have been expected had the parties been dealing at arm's length. Accordingly, the Tribunal concluded that the relevant amounts were 'special income' of the Super Fund. • The capital gain was properly included in the net income of the Unit Trust in the 2006 income year. • The 25% shortfall penalty was not unjust or excessive.", "ATO_View_of_Decision": "The case concerned the application of the 'special income' rules in s 273 of the ITAA36. That section has now been replaced by the 'non-arm's length income' rules in s 295-550 of the Income Tax Assessment Act 1997 (ITAA97). The new section is relevantly in the same terms. Accordingly, while the comments below concern s 273, they are equally applicable to s 295-550. | The Commissioner was successful in this case because the Tribunal considered that the relevant trust entitlement was acquired, and income derived, through non-arm's length dealing. | However, the Tribunal's reasoning differed from the Commissioner's on one issue, namely whether the income derived by the Super Fund was by virtue of a fixed entitlement to income. | In that regard, there are two aspects of the Tribunal's reasoning that warrant further comment: • The Tribunal considered that 'fixed entitlement' in s 273 takes the meaning provided in s 272-5 in Schedule 2F to the ITAA36. This is contrary to, and would be less favourable to taxpayers than, the Commissioner's existing approach. • Section 272-5 of Schedule 2F provides that if a beneficiary has a vested and indefeasible interest in a share of income of a trust that the trust derives from time to time, the beneficiary has a fixed entitlement to that share of income. The Tribunal made some observations regarding the nature of that test which are discussed further below. Because of the way the case was argued, the Tribunal did not have the benefit of submissions on the way in which the test operates including relevant case law. | • The Tribunal considered that 'fixed entitlement' in s 273 takes the meaning provided in s 272-5 in Schedule 2F to the ITAA36. This is contrary to, and would be less favourable to taxpayers than, the Commissioner's existing approach. • Section 272-5 of Schedule 2F provides that if a beneficiary has a vested and indefeasible interest in a share of income of a trust that the trust derives from time to time, the beneficiary has a fixed entitlement to that share of income. The Tribunal made some observations regarding the nature of that test which are discussed further below. Because of the way the case was argued, the Tribunal did not have the benefit of submissions on the way in which the test operates including relevant case law. | Because the Commissioner's objection decision was affirmed, the Commissioner could not appeal and seek to have these issues considered further by the Federal Court. | The meaning of 'fixed entitlement' in s 273 | The Commissioner's view set out in TR 2006/7 is that a superannuation fund has a fixed entitlement to income 'if the entity's entitlement to the distribution does not depend upon the exercise of the trustee's or any other person's discretion.' (TR 2006/7, paragraph 102) | The Tribunal concluded that 'fixed entitlement' in s 273 took its meaning from the definition in Schedule 2F to the 1936 Act. However, because neither party advanced the view that the Schedule 2F definition was applicable, the Tribunal did not have the benefit of submissions about the elements of the definition of fixed entitlement in Schedule 2F. | Section 272-140 says that 'in this Schedule [2F]' fixed entitlement has the meaning given by Subdivision 272-A. Fixed entitlement is not defined in s 6 of the 1936 Act, and there is nothing in s 273 that suggests that the Schedule 2F definition applies. On that basis, the Commissioner respectfully maintains the view that the definition does not apply for the purposes of s 273. The Commissioner considers that this is a more favourable approach for superannuation funds, because the fixed entitlement test as set out in TR 2006/7 might be expected to be satisfied in more circumstances than the Schedule 2F test. | In light of recent authority, it might be said that the fixed entitlement test in Schedule 2F is relatively difficult to satisfy. See, for example, Colonial First State Investments Ltd v FCT , and the Commissioner's Decision Impact Statement in respect of that case. Having regard to the strictness of that test, the Commissioner perceives that the adoption of the Schedule 2F definition for the purposes of s 273 (or its successor, s 295-550) would give rise to adverse and unintended impacts on superannuation funds that hold arm's length trust investments. | The Commissioner proposes to adhere to his existing view that the Schedule 2F definition is inapplicable for the purposes of s 273. Although not considered by the Tribunal, we note that the Commissioner's view is that the Schedule 2F definition also does not apply for the purposes of s 295-550: see TR 2006/7 and the minutes to NTLG Superannuation Subcommittee meeting of March 2010. | The Tribunal's application of the Schedule 2F definition | In accordance with its decision regarding the Schedule 2F definition, the Tribunal analysed whether the interest in the trust estate was vested and indefeasible as required by the definition. As noted above, the Commissioner considers that that definition does not apply for s 273 purposes. | The Commissioner accepts that the interest of the Super Fund in the income of the Unit Trust could be described as 'vested in interest' on the basis of the default clause in Clause 12.3.11 of the Unit Trust Deed. [See at paragraph 39] | In seeking to resolve the question of whether the interest was 'indefeasible', the Tribunal appears at [41] to [43] to have focussed its enquiry on whether the beneficiary's interest in the trust (i.e. the units themselves) was indefeasible. The Commissioner considers that the definition requires an analysis of whether the interest in a share of the income of the trust is indefeasible (s 272-5 of Schedule 2F; compare with Colonial First State Investments Ltd v FCT [2011] FCA 16 at paragraph [103]). | In relation to the nature of a fund's interest in the income of a trust, the Commissioner notes that there is a body of case law relating to whether the fund's interest in a share of the income is indefeasible. Having regard to the way the matter was argued, that case law was not explored in argument before the Tribunal. | The relevant cases include Colonial First State Investments Ltd v FCT [2011] FCA 16 [see at paragraph 106] , Kent v The Vessel 'Maria Luisa' [2003] FCAFC 93 [see at paragraph 71] and Dwight v FCT (1992) 23 ATR 236. | In Colonial First State Investments Ltd v FCT [2011] FCA 16, Stone J considered whether there was a fixed entitlement to a share of the income and capital of a trust for the purposes of Schedule 2F. Her Honour concluded (at [106]) that the fact members could vote to terminate the present right to a share of income or capital meant that the relevant rights were defeasible. | In Dwight v FCT (1992) 23 ATR 236, Hill J said: An interest is said to be defeasible where it can be brought to an end and indefeasible where it can not. Thus, a beneficiary with an interest which is not contingent but which interest may be brought to an end by the exercise of a power of appointment, would be said to have a vested but defeasible interest... | Accordingly, where a trustee has a discretion to distribute income amongst unitholders in whatever proportion the trustee may in its absolute discretion determine, the Commissioner does not consider that the interest of a default beneficiary in income could be described as 'indefeasible': whatever interest in the income of the trust a default beneficiary would have is liable to be defeated by the trustee exercising its discretion to appoint the income to others. | However, as discussed above, the Commissioner's view is that the s 272-5 test does not apply for the purposes of s 273 and s 295-550. Rather the 'fixed entitlement' test in s 273 and s 295-550 operates in the manner described in TR 2006/7. | Unless or until the meaning of fixed entitlement for the purposes of s 273 or s 295-550 is further tested in the courts or the Tribunal, the Commissioner proposes to adhere to his existing view that the Schedule 2F definition is inapplicable for the purposes of s 273 and s 295-550. The Commissioner will continue to apply the view set out in TR 2006/7 that a superannuation fund has a fixed entitlement to income 'if the entity's entitlement to the distribution does not depend upon the exercise of the trustee's or any other person's discretion'. | The Commissioner does not propose to amend TR 2006/7 as a result of this decision. | The Commissioner does not consider that the decision has an impact on any other rulings.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "Taxation Ruling TR 2006/7: Income tax: special income derived by a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust in relation to the year of income) | 2012 ATC 10-266 | 97 | 273 | 272-5 of Schedule 2F | 295-550 | 995-1 | 2011 ATC 20-277 | 2011 ATC 20-235 | 92 ATC 4192 | (1915) 20 CLR 490 | 91 ATC 5000 | [2003] FCAFC 93 | 130 FCR 12 | 95 ATC 4378", "Legislative_References": "Income Tax Assessment Act 1936 97 273 272-5 of Schedule 2F Income Tax Assessment Act 1997 295-550 995-1", "Case_References": "Allen and Another v Federal Commissioner of Taxation [2011] FCAFC 118 195 FCR 416 2011 ATC 20-277 Colonial First State Investments Ltd v Federal Commissioner of Taxation [2011] FCA 16 2011 ATC 20-235 81 ATR 772 Dwight v Federal Commissioner of Taxation (1992) 23 ATR 236 92 ATC 4192 Glenn and others v The Federal Commissioner of Land Tax (1915) 20 CLR 490 Harmer v Federal Commissioner of Taxation [1991] HCA 51 173 CLR 264 22 ATR 726 91 ATC 5000 Kent v The Vessel 'Maria Luisa' [2003] FCAFC 93 130 FCR 12 Walsh Bay Developments Pty Ltd and Another v Federal Commissioner of Taxation (1995) 31 ATR 15 95 ATC 4378", "Subject_References": "Superannuation fund Unit trust Fixed entitlement Arm's length income Special income Distributions of income", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010-4923-4924/00001", "Unmatched_Content": ""}
{"Case_Name": "Trnka v Commissioner of Taxation", "Venue_Reference_No": "2008/4769; 2011/0872", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "30 July 2012", "Date_Published": "9 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2012 ATC 10-262", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/4769;2011/0872/00001", "Unmatched_Content": "Trnka v Commissioner of Taxation [2012] AATA 492 2012 ATC 10-262 (2012) 87 ATR 977 | The adverse aspects of the decision concern administrative penalties and have no wider ramifications. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Visy Packaging Holdings Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 979-80, 1123-4, 1126, 1131, 1133, 1135, 1137-8 and 1144-5 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "2 November 2012", "Date_Published": "12 March 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether companies in the Pratt Group were entitled to certain deductions and loss transfers for losses incurred in acquiring and disposing of various packaging businesses and assets of Southcorp Ltd.", "Overview_of_Facts": "Until the late 1990s, the Pratt Group was principally involved in manufacturing cardboard cartons (secondary packaging) for supply to customers. In July 2000, the Group began to investigate the purchase of various packaging businesses from Southcorp Ltd, including those producing 'primary packaging', which provided 'synergies' to its existing businesses. However, continuing negotiations with Southcorp made it clear that Southcorp was only prepared to sell a wider range of businesses at a discount to market value. The Group considered it possible to make a profit from selling at market value those businesses which it did not want to keep. Southcorp agreed in August 2000 to sell all of the business assets to the Group for $828m. Final decisions were made in September 2000 about which businesses the Group would retain and which it would sell. | On 20 November 2000, Visy Packaging Holdings P/L (VPH) was incorporated as a wholly owned subsidiary of Visy Industries Australia P/L (VIA) to conclude a procurement agreement with Southcorp, whereby VPH would procure Group entities to purchase the Southcorp businesses for $822m. In December 2000, various Group subsidiaries were incorporated for that purpose, and the Group received financial results for the Southcorp businesses for October and November 2000, showing deterioration in earnings which might affect the market values of the businesses. On 31 January 2001, the new Group subsidiaries acquired the Southcorp businesses, and VPH, VIA and another subsidiary (VPO) acquired shares in those subsidiaries. Based on financial information then available, there was also little prospect of any profit being made on the proposed sales of the businesses to be sold. | In November 2001 and June 2002, the Group incurred losses on the disposal of the shares in the companies that acquired the Southcorp businesses to be sold. The losses were treated as revenue losses by the relevant Group entities involved. Some of the losses were transferred to other Group entities. | Issues decided by the Federal Court | His Honour, Middleton J accepted that the losses on the disposal of the shares were incurred in the course of gaining or producing the assessable income of VPH, VIA and VPO. While the Group acquired the Southcorp businesses in part to expand and strengthen its capital structure, part of the purpose of the overall scheme of acquisition was to divest some of the businesses that were not wanted at a profit. The divestment scheme envisaged the acquisition of the Southcorp businesses by newly incorporated Group subsidiaries, the acquisition of shares in those subsidiaries by VPH, VIA and VPO and the later sale of those shares at a profit. Accordingly, the acquisition of the shares in the subsidiaries is stamped with the same profit making purpose as the acquisition of the Southcorp businesses by the subsidiaries. His Honour was also not prepared to accept an argument that VPH, VIA and VPO abandoned their profit making scheme before realising the loss on disposal of shares in the subsidiaries.", "Issues_Decided": "His Honour, Middleton J accepted that the losses on the disposal of the shares were incurred in the course of gaining or producing the assessable income of VPH, VIA and VPO. While the Group acquired the Southcorp businesses in part to expand and strengthen its capital structure, part of the purpose of the overall scheme of acquisition was to divest some of the businesses that were not wanted at a profit. The divestment scheme envisaged the acquisition of the Southcorp businesses by newly incorporated Group subsidiaries, the acquisition of shares in those subsidiaries by VPH, VIA and VPO and the later sale of those shares at a profit. Accordingly, the acquisition of the shares in the subsidiaries is stamped with the same profit making purpose as the acquisition of the Southcorp businesses by the subsidiaries. His Honour was also not prepared to accept an argument that VPH, VIA and VPO abandoned their profit making scheme before realising the loss on disposal of shares in the subsidiaries.", "ATO_View_of_Decision": "Based on the evidence before the Federal Court, and the facts as found, the ATO accepts that it was open to the Court to find that the losses incurred by VPH, VIA and VPO on the disposal of the shares in the subsidiaries were incurred as part of a scheme to divest some of the acquired Southcorp businesses for a profit.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "Nil | 2012 ATC 20-357 | 8-1 | [2012] HCA 17 | (1965) 112 CLR 386 | (1968) 117 CLR 167 | [2011] HCA 21 | (2011) 243 CLR 588 | (1952) 87 CLR 456 | 2010 ATC 20-169 | 2011 ATC 20-264 | 2006 ATC 4404 | 90 ATC 4472 | 87 ATC 4363 | 2011 ATC 20-265 | 2012 ATC 20-340 | 82 ATC 4031 | 2011 ATC 20-270 | (1946) 72 CLR 634 | 91 ATC 4663 | (1951) 82 CLR 372 | [2011] FCA 1259 | 2005 ATC 4829 | 99 ATC 5229 | 76 ATC 4364 | 2003 ATC 5099 | 2003 ATC 4184 | 73 ATC 4030 | 86 ATC 4979 | (1938) 61 CLR 337 | [1971] 2 All ER 127 | (1942) 180 CLR 1 | 91 ATC 4234", "Legislative_References": "Income Tax Assessment Act 1997 8-1", "Case_References": "ASIC v Hellicar [2012] HCA 17 (2012) 286 ALR 501 BP Australia Ltd v FC of T (1965) 112 CLR 386 Chapman (NT) v FC of T (1968) 117 CLR 167 Dasreef Pty Limited v Hawchar [2011] HCA 21 (2011) 243 CLR 588 FC of T v Becker (1952) 87 CLR 456 FC of T v BHP Billiton Finance Ltd [2010] FCAFC 25 (2010) 182 FCR 526 2010 ATC 20-169 76 ATR 472 FC of T v BHP Billiton Limited [2011] HCA 17 (2011) 244 CLR 325 2011 ATC 20-264 79 ATR 1 FC of T v Citylink Melbourne Limited (2006) 228 CLR 1 [2006] HCA 35 62 ATR 648 2006 ATC 4404 FC of T v Cooling (1990) 22 FCR 42 21 ATR 13 90 ATC 4472 FC of T v Myer Emporium Ltd (1987) 163 CLR 199 18 ATR 693 87 ATC 4363 FC of T v SNF (Australia) Pty Ltd [2011] FCAFC 74 (2011) 193 FCR 149 2011 ATC 20-265 82 ATR 680 FC of T v Visy Industries USA Pty Ltd [2012] FCAFC 106 2012 ATC 20-340 205 FCR 317 FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR 355 12 ATR 692 82 ATC 4031 [1982] HCA 8 GE Capital Finance Australasia Pty Ltd v FC of T [2011] FCA 849 2011 ATC 20-270 Hallstroms Pty Ltd v FC of T (1946) 72 CLR 634 Henry Jones (IXL) Limited v FC of T (1991) 31 FCR 64 22 ATR 328 91 ATC 4663 Hobart Bridge Company Limited v FC of T (1951) 82 CLR 372 King v Jetstar Airways Pty Ltd [2011] FCA 1259 Macquarie Finance Ltd v FC of T (2002) 146 FCR 77 [2005] FCAFC 205 2005 ATC 4829 61 ATR 1 Metal Manufactures Ltd v FC of T [1999] FCA 1712 99 ATC 5229 43 ATR 375 Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475 76 ATC 4364 6 ATR 690 Spassked Pty Ltd v FC of T [2003] FCAFC 282 (2003) 136 FCR 441 2003 ATC 5099 54 ATR 546 Spassked Pty Ltd v FC of T (No 5) [2003] FCA 84 (2003) 197 ALR 553 2003 ATC 4184 52 ATR 337 Steinberg v FC of T [1975] HCA 63 (1975) 134 CLR 640 3 ATR 570 73 ATC 4030 Summons v FC of T (1986) 80 ALR 95 86 ATC 4979 18 ATR 235 Sun Newspapers Ltd v FC of T (1938) 61 CLR 337 Tesco Supermarkets Ltd v Nattrass [1972] AC 153 [1971] 2 All ER 127 Tweddle v FC of T (1942) 180 CLR 1 21 ATR 1398 91 ATC 4234 Westfield Ltd v Commissioner of Taxation (1991) 28 FCR 333 21 ATR 1398 91 ATC 4234 Visy Industries USA Pty Ltd [2012] FCAFC 106 2012 ATC 20-340", "Subject_References": "Losses Loss transfers Profit making scheme Evidence of profit making purpose", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID979-80/00001", "Unmatched_Content": ""}
{"Case_Name": "Vita Hot Bread Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2011/1472", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 August 2012", "Date_Published": "9 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "", "Administrative_Treatment": "", "Related_Documents": "2012 ATC 10-268", "Legislative_References": "", "Case_References": "", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/1472/00001", "Unmatched_Content": "Vita Hot Bread Pty Ltd and Commissioner of Taxation [2012] AATA 570 2012 ATC 10-268 (2012) 87 ATR 678 | The decision concerns the Commissioner making a concession before the AAT which is the only unfavourable part of the decision for the Commissioner. | If you believe a DIS should be published or have any other queries contact TCNLawPublishingandPolicy@ato.gov.au ."}
{"Case_Name": "Waldeck and Commissioner of Taxation", "Venue_Reference_No": "2012/2591; 2012/2592", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "3 December 2012", "Date_Published": "18 January 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether a 25% penalty for failure to take reasonable care should be remitted in part or full.", "Overview_of_Facts": "The taxpayer provided services to a firm during the 2009 and 2010 income years. He was uncertain of whether he was an employee or a contractor for the firm. | The taxpayer sought advice from a legal practitioner as to whether he was an employee or contractor and whether he could claim Pay As You Go (PAYG) credits. | The legal practitioner advised the taxpayer that he was an employee and assisted the taxpayer in preparing income tax returns which included a claim for PAYG credits for the 2009 and 2010 income years. The legal practitioner advised the taxpayer that he was entitled to claim PAYG credits even though the firm had not withheld any amount from his remuneration. | The taxpayer also contacted the ATO Helpline on a number of occasions both before and after the taxpayer lodged his income tax returns for the 2009 and 2010 income years. The taxpayer asked how he could proceed in reporting his income and said, in a round about way, that his employer had not been withholding PAYG amounts. | The advice given by the Helpline was unhelpful, most likely because the Helpline operators did not understand the import of what the taxpayer was asking. | The Commissioner issued amended assessments and levied administrative penalties equal to 25% of the shortfall in each year on the basis that the taxpayer failed to exercise reasonable care in making statements in his returns. | The Tribunal was required to consider whether the penalty was properly imposed and whether it ought to be remitted. | Issues decided by the court or tribunal | The Tribunal affirmed the objection decision to impose an administrative penalty but remitted the penalty in full. | The Tribunal was satisfied that if the taxpayer was liable to the penalty it would be harsh in the circumstances.", "Issues_Decided": "The Tribunal affirmed the objection decision to impose an administrative penalty but remitted the penalty in full. The Tribunal was satisfied that if the taxpayer was liable to the penalty it would be harsh in the circumstances.", "ATO_View_of_Decision": "The Tribunal's decision to remit the penalty is based on the facts and circumstances in this particular case and will have no impact on other cases.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil", "Related_Documents": "Nil | [2012] AATA 848 | 18-15 | 298-20 | 2008 ATC 20-015 | [2005] AATA 1027 | 2005 ATC 2351", "Legislative_References": "Taxation Administration Act 1953 (Cth) 18-15 298-20", "Case_References": "Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 2008 ATC 20-015 69 ATR 627 Hobart Central Childcare Pty Ltd and Federal Commissioner of Taxation [2005] AATA 1027 2005 ATC 2351 60 ATR 1314", "Subject_References": "Employee vs. Independent Contractor Administrative penalty Reasonable care Shortfall interest remission Remission of administrative penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2012/2591/00001", "Unmatched_Content": ""}
{"Case_Name": "Walsh and Commissioner of Taxation; Wilson and Commissioner of Taxation; Bridge and Commissioner of Taxation", "Venue_Reference_No": "2011/1834-1841; 2011/0268-0272; 2012/0726-0729", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "18 July 2012", "Date_Published": "24 September 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether the superannuation contributions tax was constitutionally valid in its application to three taxpayers who held senior positions in the South Australian public service and who were members of Constitutionally Protected Superannuation Funds.", "Overview_of_Facts": "All three taxpayers held senior positions in the South Australian public service and were members of Constitutionally Protected Superannuation Funds (CPSFs) for surcharge purposes. For the periods in dispute, Mr Walsh held various positions primarily in the Government transport & planning and Department of Education portfolios; Mr Wilson was a Managing Solicitor/Barrister in the Attorney General's Department; and Mr Bridge mainly held managerial positions in the Department of Information Industries. | Mr Walsh and Mr Wilson primarily relied on the High Court decision in Clarke v Commissioner of Taxation [2009] HCA 33 and argued that the Superannuation Contributions Tax ( Members of Constitutionally Protected Superannuation Funds ) Imposition Act 1997 and the Superannuation Contributions Tax ( Members of Constitutionally Protected Superannuation Funds ) Assessment And Collection Act 1997 (the Surcharge Acts) were constitutionally invalid in their application to them because they were members of CPSFs and engaged at the \"higher levels of government\" during the relevant financial years. | Mr Bridge, by reference to a passage in Austin v The Commonwealth (2003) 215 CLR 185, argued that all persons subjected to the superannuation contributions surcharge who were employed by the State government should be regarded as employees in offices \"at the higher levels of government\". | Issues decided by the court/Tribunal | In these matters, the Administrative Appeals Tribunal (Tribunal) handed down mostly favourable decisions for the Commissioner. | The Tribual first determined it had jurisdiction to hear the matters. The Tribunal upheld the objection decisions except to the extent of the positions conceded by the ATO to be \"at the higher levels of government\" prior to the hearing. | On analysis of the authorities, [1] the Tribunal identified two important questions requiring consideration in determining whether the various positions were \"at the higher levels of government\": • The first was to consider the significance of each position to the constitutional functioning of the State. • The second was a \"practical question\", that is, evaluating the degree to which the exercise of, or the capacity for the exercise of, the constitutional powers and functions of the State would be impaired, curtailed or weakened by the application of the Surcharge Acts to each taxpayer in relation to each position they held. [2] | • The first was to consider the significance of each position to the constitutional functioning of the State. • The second was a \"practical question\", that is, evaluating the degree to which the exercise of, or the capacity for the exercise of, the constitutional powers and functions of the State would be impaired, curtailed or weakened by the application of the Surcharge Acts to each taxpayer in relation to each position they held. [2] | The Tribunal outlined the following in regards to the words 'at the higher levels of government': • it was an oversimplification to focus on the place of the person in a hierarchy, [3] • other senior people may have significant roles in ensuring the efficient functioning of government, and • the fact they may have specific responsibilities or projects that involve meeting with or advising the Minister does not mean they hold positions critical to the Constitutional functioning of government. [4] | • it was an oversimplification to focus on the place of the person in a hierarchy, [3] • other senior people may have significant roles in ensuring the efficient functioning of government, and • the fact they may have specific responsibilities or projects that involve meeting with or advising the Minister does not mean they hold positions critical to the Constitutional functioning of government. [4]", "Issues_Decided": "In these matters, the Administrative Appeals Tribunal (Tribunal) handed down mostly favourable decisions for the Commissioner. The Tribual first determined it had jurisdiction to hear the matters. The Tribunal upheld the objection decisions except to the extent of the positions conceded by the ATO to be \"at the higher levels of government\" prior to the hearing. On analysis of the authorities, [1] the Tribunal identified two important questions requiring consideration in determining whether the various positions were \"at the higher levels of government\": • The first was to consider the significance of each position to the constitutional functioning of the State. • The second was a \"practical question\", that is, evaluating the degree to which the exercise of, or the capacity for the exercise of, the constitutional powers and functions of the State would be impaired, curtailed or weakened by the application of the Surcharge Acts to each taxpayer in relation to each position they held. [2] • The first was to consider the significance of each position to the constitutional functioning of the State. • The second was a \"practical question\", that is, evaluating the degree to which the exercise of, or the capacity for the exercise of, the constitutional powers and functions of the State would be impaired, curtailed or weakened by the application of the Surcharge Acts to each taxpayer in relation to each position they held. [2] The Tribunal outlined the following in regards to the words 'at the higher levels of government': • it was an oversimplification to focus on the place of the person in a hierarchy, [3] • other senior people may have significant roles in ensuring the efficient functioning of government, and • the fact they may have specific responsibilities or projects that involve meeting with or advising the Minister does not mean they hold positions critical to the Constitutional functioning of government. [4] • it was an oversimplification to focus on the place of the person in a hierarchy, [3] • other senior people may have significant roles in ensuring the efficient functioning of government, and • the fact they may have specific responsibilities or projects that involve meeting with or advising the Minister does not mean they hold positions critical to the Constitutional functioning of government. [4]", "ATO_View_of_Decision": "The ATO view that not all members of CPSFs are at the \"higher levels of government\", but only a relatively restricted range of officials are at this level, is in line with the Tribunal's decisions. The determination of who falls within the class of persons at the \"higher levels of government\" is essentially functional, that is, it turns on an analysis of the relationship between the office held and the exercise of the state's constitutional , as opposed to governmental , power or functions.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | N/A | Implications for Law Administration Practice Statements | N/A | We invite you to advise us if you feel this decision has consequences we have not identified, or if a precedential decision such as a Public Ruling or an ATO ID requires reconsideration or amendment. Please forward your comments to the contact officer by the due date. | [1] Noted under the 'Relevant Case Law' section | [2] Walsh v Commissioner of Taxation [2012] AATA 451 at 69-79 | [3] Ibid at paragraph 70 | [4] Ibid at paragraph 80", "Related_Documents": "N/A | [2012] AATA 451 | [2012] AATA 452 | [2012] AATA 453 | the Act | [2009] HCA 33 | 2003 ATC 4042 | (1992) 177 CLR 106 | (1998) 195 CLR 424 | (1920) 28 CLR 129 | (1947) 74 CLR 31 | (1971) 122 CLR 353 | 2 ATR 249 | (1985) 159 CLR 192 | 87 ATC 4745 | (1999) 199 CLR 462 | (1983) 158 CLR 1", "Legislative_References": "Administration of Acts Act 1910 (SA) (repealed by the Administrative Arrangements Act 1994 (SA)) Administrative Appeals Tribunal Act 1975 43 45 Commonwealth of Australia Constitution 1900 (Imp) 63 and 64 Vic, c 12 Constitution Act 1934 (SA) the Act Public Sector Management Act 1995 (SA) the Act Statutes Amendments (Commutation for Superannuation Surcharge) Act 1999 (SA) the Act Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 the Act Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 the Act", "Case_References": "Clarke v Federal Commissioner of Taxation (2009) 240 CLR 272 [2009] HCA 33 72 ATR 868 Austin v Commonwealth (2003) 215 CLR 185 2003 ATC 4042 51 ATR 654 Re Australian Education Union; ex parte Victoria (1995) 184 CLR 188 Australian Capital Television Pty Ltd v Commonwealth (1992) 177 CLR 106 Egan v Willis (1998) 195 CLR 424 Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129 The Lord Mayor, Councillors and Citizens of the City of Melbourne v The Commonwealth & Anor (1947) 74 CLR 31 State of Victoria v Commonwealth of Australia (1971) 122 CLR 353 2 ATR 249 Queensland Electricity Commission v Commonwealth (1985) 159 CLR 192 State Chamber of Commerce and Industry v Commonwealth (1987) 163 CLR 329 19 ATR 10 87 ATC 4745 Sue v Hill (1999) 199 CLR 462 The Commonwealth v Tasmania (1983) 158 CLR 1", "Subject_References": "Constitutional law Superannuation contributions surcharge Superannuation contributions tax", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/1834-1841/00001", "Unmatched_Content": ""}
{"Case_Name": "White v Commissioner of Taxation", "Venue_Reference_No": "VID 936 of 2011 and VID 937 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "20 February 2012", "Date_Published": "18 April 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether the taxpayers satisfied the maximum net asset value (MNAV) test in section 152-15 of the Income Tax Assessment Act 1997 (ITAA 1997) (as it applied for the 2007 income year).", "Overview_of_Facts": "The applicants are husband and wife. Each was a small business CGT affiliate of the other under the former section 152-25 of the ITAA 1997. | Before 12 December 2006, the husband owned 30%, and the wife 28.2%, of the issued capital in Sixteenth Autex Pty Ltd (the Company). As, together, the applicants owned 58.2% of the Company, it was an entity connected with each applicant under the former section 152-30 of the ITAA 1997. | On 12 December 2006, the applicants sold their shares in the Company and each made a capital gain of nearly $1.9 million. If the applicants satisfied the MNAV test under section 152-15 of the ITAA 1997, they were otherwise entitled to disregard the gains under the 15-year retirement exemption in Subdivision 152-B. | It was common ground: that the applicants satisfied the MNAV test if the net value of the Company's assets was not included in their MNAV calculations; and that the literal operation of paragraph 152-15(b) (which would have otherwise included the net value of the Company's assets in each MNAV calculation) was subject to the operation of paragraph 152-15(c) and the then forms of subsections 152-20(3) and 152-20(4) of the ITAA 1997. | Issues decided by the court | The Court (Gordon J) found that the then form of subsection 152-20(3) operated to include the net value of the Company's assets in the calculation of each applicant's MNAV test. Her Honour accepted that 'another entity connected with' a taxpayer at the end of subsection 152-20(3) could be 'an entity that is connected with (a taxpayer's) small business CGT affiliate' in paragraph (b) of the subsection. In this case, the assets of the Company were used in the carrying on of a business by an entity, the Company, connected with each applicant (paragraph 41). | However, her Honour found that the then form of subsection 152-20(4) operated to exclude the net value of the Company's assets from the calculation of each applicant's MNAV test. Her Honour agreed with the applicants that the Company was connected with each applicant 'only because' of the other applicant. The phrase, 'only because', imports a 'but for' test, such that, but for the circumstance that each applicant was connected with the Company only because both applicants, together, owned more than 40% of it, each applicant would not have been otherwise connected with the Company (paragraph 46). | Given that subsection 152-20(4) operated to exclude the net value of the Company's assets from the calculation of each applicant's MNAV test, they both satisfied the test. Accordingly, they were entitled to apply the 15 year retirement exemption in Subdivision 152-B to the capital gains made on the sale of the shares in the Company.", "Issues_Decided": "The Court (Gordon J) found that the then form of subsection 152-20(3) operated to include the net value of the Company's assets in the calculation of each applicant's MNAV test. Her Honour accepted that 'another entity connected with' a taxpayer at the end of subsection 152-20(3) could be 'an entity that is connected with (a taxpayer's) small business CGT affiliate' in paragraph (b) of the subsection. In this case, the assets of the Company were used in the carrying on of a business by an entity, the Company, connected with each applicant (paragraph 41). However, her Honour found that the then form of subsection 152-20(4) operated to exclude the net value of the Company's assets from the calculation of each applicant's MNAV test. Her Honour agreed with the applicants that the Company was connected with each applicant 'only because' of the other applicant. The phrase, 'only because', imports a 'but for' test, such that, but for the circumstance that each applicant was connected with the Company only because both applicants, together, owned more than 40% of it, each applicant would not have been otherwise connected with the Company (paragraph 46). Given that subsection 152-20(4) operated to exclude the net value of the Company's assets from the calculation of each applicant's MNAV test, they both satisfied the test. Accordingly, they were entitled to apply the 15 year retirement exemption in Subdivision 152-B to the capital gains made on the sale of the shares in the Company.", "ATO_View_of_Decision": "The ATO notes that the Court's findings on subsection 152-20(3) of the ITAA 1997 are consistent with the Commissioner's view of the operation of the subsection. | The Court considered the operation of subsection 152-20(4) because it excludes from subsection 152-20(3) the business assets of an entity that is 'connected with you only because of your affiliate'. The ATO accepts the Court's view that the words 'only because' in subsection 152-20(4) import a 'but for' test, such that the issue is whether, but for the circumstance that an entity is connected with 'you' only because of your affiliate, the entity would not have been connected with 'you'. | The ATO notes that the reference to 'small business CGT affiliate' in subsections 152-20(3) and (4) has been replaced with a reference to 'affiliate'. The definition of 'affiliate' in section 328-130 of the ITAA 1997, and the limited extended definition in section 152-47, is different to the definition of 'small business CGT affiliate' in the former section 152-25. As a result of these amendments, subsections 152-20(3) and (4) may operate in more limited circumstances for the 2008 and later income years.", "Administrative_Treatment": "Implications for ATO precedential documents, Public Rulings & Determinations | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "None | 2012 ATC 20-301 | 152-10 | 152-15 | 152-20(3) | 152-20(4) | Subdivision 152-B | (1998) 194 CLR 355 | [1998] HCA 28", "Legislative_References": "Income Tax Assessment Act 1997 152-10 152-15 152-20(3) 152-20(4) 152-25 152-30 Subdivision 152-B Tax Laws Amendment (2006 Measures No 7) Act 2007 68", "Case_References": "Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28", "Subject_References": "Small business CGT concessions Maximum net asset value test Entity connected with the taxpayer Small business CGT affiliate", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID936of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "Wong and Commissioner of Taxation", "Venue_Reference_No": "2011/3450", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "27 April 2012", "Date_Published": "27 April 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether the applicant was carrying on a business of trading in listed shares and units, and, if so, whether units in a property trust were acquired and held as part of the trading stock of that business.", "Overview_of_Facts": "The applicant is a medical practitioner who purchased and sold various ASX listed shares and units during the 2008 and 2009 income years. The applicant's husband managed her investments. | The applicant's husband also purchased and sold listed shares and units during the 2008 and 2009 income years on behalf of a family trust of which he and the applicant were trustees. This included 1,100,000 $1 units acquired in a registered management investment scheme property trust (PTN). | In February 2008, the applicant purchased the PTN units from her husband for $1,100,000. The closing price for PTN units on the ASX at that time was 69c per unit. The applicant sold 50,000 PTN units in February 2009 for $3860 and still holds the remaining units. As at 30 June 2009, PTN units were being traded on the ASX for approximately 10c per unit. | The losses suffered and gains made by the applicant during the 2008 and 2009 income years from selling shares and units were not included in the calculations of her taxable income in her original tax returns for those years. The applicant later lodged an amended return for the 2008 year, in which the lower calculation of taxable income reflected the relevant losses and gains and the purchase of the PTN units. | The applicant also objected to her assessment for the 2009 year, contending that her taxable income should be reduced to nil because of losses suffered from carrying on a business of share trading, and to reflect the closing value (nil) of the PTN units held as trading stock. | Issues decided by the tribunal | Given the extent and volume of her trading, the Tribunal found that the applicant was carrying on a business of share trading in the 2008 and 2009 income years, and that the PTN units were trading stock of that business, having been acquired and held in those years for profit-making purposes (paragraph 51). | However, the Tribunal found that the loss attributable to the sale and holding of the PTN units during the 2009 year was not the amount of $1,096,140 calculated by the applicant. As the applicant did not acquire the PTN units at arm's length, the opening value of the units for the 2009 year is their market value under section 70-20 of the Income Tax Assessment Act 1997 (ITAA 1997) when acquired (approximately $770,000). The Tribunal also found that the market value of the units at the end of that year was approximately $105,000 (paragraphs 55 to 57).", "Issues_Decided": "Given the extent and volume of her trading, the Tribunal found that the applicant was carrying on a business of share trading in the 2008 and 2009 income years, and that the PTN units were trading stock of that business, having been acquired and held in those years for profit-making purposes (paragraph 51). However, the Tribunal found that the loss attributable to the sale and holding of the PTN units during the 2009 year was not the amount of $1,096,140 calculated by the applicant. As the applicant did not acquire the PTN units at arm's length, the opening value of the units for the 2009 year is their market value under section 70-20 of the Income Tax Assessment Act 1997 (ITAA 1997) when acquired (approximately $770,000). The Tribunal also found that the market value of the units at the end of that year was approximately $105,000 (paragraphs 55 to 57).", "ATO_View_of_Decision": "The ATO accepts that it was reasonably open to the Tribunal on the evidence before it to find that the applicant was carrying on a business of share trading and that the PTN units were trading stock of that business.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "None | [2012] AATA 254 | 2012 ATC 10-247 | Division 70 | s 70-5 | s 70-20 | 90 ATC 296", "Legislative_References": "Income Tax Assessment Act 1997 Division 70 s 70-5 s 70-20", "Case_References": "Case X31 90 ATC 296 Martin v FC of T (1952) 10 ATD 37", "Subject_References": "Carrying on a business Share trading Trading stock", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011-3450/00001", "Unmatched_Content": ""}
{"Case_Name": "Yacoub v Federal Commissioner of Taxation", "Venue_Reference_No": "NSD 1600 & 1601 of 2001", "Venue": "Federal Court of Australia", "Judgment_Date": "29 June 2012", "Date_Published": "27 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether certain agreements had resulted in formation of a partnership for GST purposes.", "Overview_of_Facts": "A husband and wife conducted a construction business through a registered partnership (Yacoub Partnership). Four properties were acquired by Yacoub Partnership and a construction company as tenants-in-common (specified interests: company 75%, Yacoub Partnership 25%) for the construction of 30 villas. | A syndicate agreement entered into by the parties increased Yacoub Partnership's interest to 50%, and provided for the parties to be vested with title to individual villas on completion. This agreement specifically denied creation of any partnership but provided for several liability on loan repayments between the parties. | A later agreement between the parties provided for the properties to be held in equal shares as tenants in common and for the parties \"to share equally all costs, liabilities, mortgages, and proceeds derived from any sale arising from the property\". | Another entity, Myej Lydbrook (ML), was GST registered by the husband as a 'limited partnership' for project purposes. Yacoub Partnership carried out the construction work and the husband (acting on behalf of ML) lodged eight business activity statements (BAS), the first seven of which resulted in refunds totalling $336.260. Villa sale proceeds were paid first to a financier and second to the company. | ML was assessed for GST of $611,203 of which Yacoub partnership met half. The company, however, did not pay the other half and went into administration. The Commissioner sought to recover the balance from Yacoub Partnership on the basis that a partnership had been created between the parties by the later agreement. | Issues decided by the court | The Court held that the later agreement prevailed over the syndicate agreement to make Yacoub Partnership and the company a partnership both at general law and for tax purposes, with the result that Yacoub Partnership was liable for the balance of the GST debt. Denial of partnership by the syndicate agreement was no longer consistent with the objective intention of the parties. The Court also agreed with the Commissioner that no 'non-entity joint venture' had been created.", "Issues_Decided": "The Court held that the later agreement prevailed over the syndicate agreement to make Yacoub Partnership and the company a partnership both at general law and for tax purposes, with the result that Yacoub Partnership was liable for the balance of the GST debt. Denial of partnership by the syndicate agreement was no longer consistent with the objective intention of the parties. The Court also agreed with the Commissioner that no 'non-entity joint venture' had been created.", "ATO_View_of_Decision": "The decision of the Court is consistent with public views of the Commissioner on the issues which were decided, and there is no need to amend GSTR 2004/2.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not applicable.", "Related_Documents": "Not applicable | 2012 ATC 20-328 | Goods and Services Tax Ruling GSTR 2004/2 | s 9-5 | s 23-5 | s 9-20 | s 184-1 | s 195-1 | s 995-1 | s 444-30 | (1998) 81 FCR 149 | [1998] FCA 823 | 87 ATC 4790 | (1929) 42 CLR 384 | [2009] FCAFC 30 | (1985) 157 CLR 1 | [1997] 1 QdR 225", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 s 9-5 s 23-5 s 9-20 s 184-1 s 195-1 Income Tax Assessment Act 1997 s 995-1 Taxation Administration Act 1953 s 444-30", "Case_References": "Amadio Pty Ltd v Henderson (1998) 81 FCR 149 [1998] FCA 823 ARM Constructions Pty Ltd v FCT 87 ATC 4790 19 ATR 337 Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 Fenston v Johnston (1940) 23 TC 29 Momentum Production Pty Ltd v Lewarne (2009) 174 FCR 268 [2009] FCAFC 30 United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 [1985] HCA 49 Whywait Pty Ltd v Davidson [1997] 1 QdR 225", "Subject_References": "Goods and services tax Partnerships GST joint ventures Taxable supply Carrying on an enterprise GST registration Non-entity joint venture", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1600-1601of2001/00001", "Unmatched_Content": ""}
{"Case_Name": "Yrorita and Commissioner of Taxation", "Venue_Reference_No": "2011/1826", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "16 October 2012", "Date_Published": "3 December 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned a taxpayer's illegal access to superannuation benefits but where, in the circumstances, the Tribunal ordered that the administrative penalty be remitted in full.", "Overview_of_Facts": "Pursuant to a direction signed by the taxpayer, $53,000 of his superannuation benefits were rolled-out of an APRA regulated superannuation fund in which he was a member (the \"APRA Fund\") and which was a complying, regulated fund, to another entity (the \"Other Fund\"), which purported to be a superannuation fund but was not, as the Tribunal stated, a 'legitimate superannuation fund' (at [31]). Subsequently, the taxpayer received $38,370 of the superannuation benefits paid from the APRA Fund to the Other Fund. The remainder ($14,630) was retained by the Other Fund and subsequently dissipated. | The taxpayer gave evidence that, among other things, at the time his superannuation benefits were paid out of the APRA Fund he was experiencing financial difficulties. Further to this, there was evidence that the taxpayer had a severely disabled son, and that he moved to the USA to take care of him. However, the evidence available did not establish that the taxpayer met any condition of release provided for under the Superannuation Industry (Supervision) Regulations 1994 (SISR94), most relevantly, the condition of release known as 'compassionate grounds' (because the taxpayer did not make any such application). Further, there was no evidence that the taxpayer had made any particular effort to discover what requirements there were to enable him to access his superannuation benefits. | Similarly, there was no evidence of discussions with his tax agent regarding whether or not the amount of superannuation benefits he received should be included in his income tax return for the relevant year. Nor did the taxpayer include the receipt of these benefits in his tax return for the relevant year. The taxpayer gave evidence that it was his understanding that the remainder of his benefit - $14,630 - represented the tax and fees on the amount of benefit he actually received and that this, to his knowledge, had been paid to the Commissioner. The taxpayer did not, however, adduce any documentation that supported this claim. | Issues decided by the tribunal | The Tribunal found that the payment from the APRA Fund to the Other Fund constituted a withdrawal of funds other than in accordance with the payment standards prescribed for the purposes of subsection 31(1) of the Superannuation Industry (Supervision) Act 1993 (SISA). The funds had not been rolled-over into a legitimate superannuation fund, and the taxpayer had not met any of the conditions required by Division 6.3 of the SISR94 to authorise the cashing of any part of his superannuation benefits. | Accordingly, the $53,000 withdrawn from the APRA Fund was to be included in the taxpayer's assessable income for the year ended 30 June 2007 pursuant to subsection 26AFB(2) of the Income Tax Assessment Act 1936 (ITAA36) and subsection 6-10(3) of the Income Tax Assessment Act 1997 . | Further, on the facts of the case, it was not appropriate to exercise the discretion in subsection 26AFB(4) of the ITAA36 to exclude some or all of the $53,000 from the taxpayer's assessable income, because, although it appeared that the taxpayer had been advised by persons unnamed regarding the Other Fund, he did not make any appropriate inquiries, for example to the APRA Fund, APRA itself or to his tax agent. | The Tribunal also agreed with the Commissioner's opinion that the taxpayer had attempted to evade paying tax, allowing the Commissioner a longer period to amend the taxpayer's income tax assessment under subsection 170(1) of the ITAA36. | In relation to the application of an administrative penalty, the Tribunal determined that the discretion to impose the penalty was correctly exercised, but that it should be remitted in full. The Tribunal noted the circumstances surrounding the withdrawal of the funds and the fact that had the taxpayer followed the correct procedures he may well have been permitted to withdraw some of the benefit. The Tribunal also noted the taxpayer's present circumstances, being ill health and financial hardship.", "Issues_Decided": "The Tribunal found that the payment from the APRA Fund to the Other Fund constituted a withdrawal of funds other than in accordance with the payment standards prescribed for the purposes of subsection 31(1) of the Superannuation Industry (Supervision) Act 1993 (SISA). The funds had not been rolled-over into a legitimate superannuation fund, and the taxpayer had not met any of the conditions required by Division 6.3 of the SISR94 to authorise the cashing of any part of his superannuation benefits. Accordingly, the $53,000 withdrawn from the APRA Fund was to be included in the taxpayer's assessable income for the year ended 30 June 2007 pursuant to subsection 26AFB(2) of the Income Tax Assessment Act 1936 (ITAA36) and subsection 6-10(3) of the Income Tax Assessment Act 1997 . Further, on the facts of the case, it was not appropriate to exercise the discretion in subsection 26AFB(4) of the ITAA36 to exclude some or all of the $53,000 from the taxpayer's assessable income, because, although it appeared that the taxpayer had been advised by persons unnamed regarding the Other Fund, he did not make any appropriate inquiries, for example to the APRA Fund, APRA itself or to his tax agent. The Tribunal also agreed with the Commissioner's opinion that the taxpayer had attempted to evade paying tax, allowing the Commissioner a longer period to amend the taxpayer's income tax assessment under subsection 170(1) of the ITAA36. In relation to the application of an administrative penalty, the Tribunal determined that the discretion to impose the penalty was correctly exercised, but that it should be remitted in full. The Tribunal noted the circumstances surrounding the withdrawal of the funds and the fact that had the taxpayer followed the correct procedures he may well have been permitted to withdraw some of the benefit. The Tribunal also noted the taxpayer's present circumstances, being ill health and financial hardship.", "ATO_View_of_Decision": "The Tribunal's findings on the non-penalty related issues, such as whether the amount withdrawn should have been included as assessable income and whether there was fraud or evasion giving rise to an amendment under subsection 170(1) of the ITAA36, are consistent with the approach taken by the Commissioner. | The Tribunal came to a different conclusion in regard to remission of the penalty, which was open to it on the facts of the case.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "N/A | 2012 ATC 10-278 | Superannuation Industry (Supervision) Act 1993 | Superannuation Industry (Supervision) Regulations 1994 | 170(1) | 6-10(3) | Tax Administration Act 1953", "Legislative_References": "Superannuation Industry (Supervision) Act 1993 Superannuation Industry (Supervision) Regulations 1994 Income Tax Assessment Act 1936 26AFB(2) 26AFB(2) 170(1) Income Tax Assessment Act 1997 6-10(3) Tax Administration Act 1953", "Case_References": "", "Subject_References": "Superannuation Superannuation fund Superannuation purpose Complying superannuation fund Regulated superannuation fund Superannuation benefit Illegal early access to superannuation benefits Administrative Penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/1826/00001", "Unmatched_Content": ""}
{"Case_Name": "A & C Sliwa Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2009/5232", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "", "Date_Published": "1 December 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether income tax and GST had been properly paid in relation to the conduct of the applicant's property development and construction business.", "Overview_of_Facts": "The applicant was engaged in property development and construction. It agreed to sell two lots of land to a related company in mid-2003 for prices based on an appraisal by a real estate agent. Agreed deposits were not paid to the applicant before the transfers of land occurred on 13 August 2004. At issue before the Tribunal was whether the disposal of the lots was outside the ordinary course of the applicant's business, for the purposes of section 70-90 of the Income Tax Assessment Act 1997 (ITAA 1997), and to what tax period was the GST on the sale of the lots attributable under section 29-5 of the ANTS (GST) Act 1999 (GST Act). | The applicant also provided construction services to the related company in relation to a number of properties owned by that company. At issue was when the applicant derived income from the provision of those services in relation to one property, and to what tax period was the GST on the supply of those services attributable. | There was no dispute in relation to the GST attribution issues that the applicant had not made a choice to account for GST on a cash basis under section 29-40 of the GST Act. | The Commissioner also accepted that his decision on the applicant's objection to the income tax assessment for the 2006 year was in error in not excluding from the assessable income for that year the amount of extra GST payable by the applicant on the sale of a property to which the margin scheme under Division 75 of the GST Act could not apply. | Finally, at issue were whether the applicant was liable to pay various tax shortfall penalties, and whether any such penalties should be remitted. | Issues decided by the tribunal | The Tribunal found that the disposal of the two lots of land occurred outside of the ordinary course of the applicant's business, such that the applicant's assessable income included the market value of the land at the time of disposal under section 70-90 of the ITAA 1997. The Tribunal also found that the GST on the sale of the lots was attributable to the tax period in which transfers of land were executed, and in which tax invoices referred to settlement statements, and not to the tax period in which the applicant's books of account inaccurately showed a set-off of cross liabilities. | The Tribunal was not satisfied that the applicant had discharged the onus of proving that the GST payable on the construction services provided to the related company was attributable to tax periods other than those the subject of the GST assessments. The Tribunal also found that the income from the provision of construction services was derived by the applicant when the works were completed and the applicant had a legal right to claim payment for them. | The Tribunal agreed that the Commissioner was correct to accept that he had erred in not excluding from the applicant's assessable income the amount of extra GST payable by it on the sale of the property to which the margin scheme could not apply. | The Tribunal found that the applicant was liable for the tax shortfall penalties assessed by the Commissioner, and that no remission of the penalties was warranted.", "Issues_Decided": "The Tribunal found that the disposal of the two lots of land occurred outside of the ordinary course of the applicant's business, such that the applicant's assessable income included the market value of the land at the time of disposal under section 70-90 of the ITAA 1997. The Tribunal also found that the GST on the sale of the lots was attributable to the tax period in which transfers of land were executed, and in which tax invoices referred to settlement statements, and not to the tax period in which the applicant's books of account inaccurately showed a set-off of cross liabilities. The Tribunal was not satisfied that the applicant had discharged the onus of proving that the GST payable on the construction services provided to the related company was attributable to tax periods other than those the subject of the GST assessments. The Tribunal also found that the income from the provision of construction services was derived by the applicant when the works were completed and the applicant had a legal right to claim payment for them. The Tribunal agreed that the Commissioner was correct to accept that he had erred in not excluding from the applicant's assessable income the amount of extra GST payable by it on the sale of the property to which the margin scheme could not apply. The Tribunal found that the applicant was liable for the tax shortfall penalties assessed by the Commissioner, and that no remission of the penalties was warranted.", "ATO_View_of_Decision": "The Tribunal found in favour of the Commissioner on nearly all of the income tax and GST associated with the conduct of the applicant's property development and construction business. The Commissioner properly conceded at hearing that he had erred in the objection decision in not excluding from the applicant's assessable income the amount of extra GST payable by it on the sale of the property to which the margin scheme could not apply.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "GSTD 2004/4 | 2011 ATC 10-184 | 6-5 | Division 17 | 70-90 | 9-5 | 29-5 | Division 75 | 14ZZK | 284-75(1) | 298-20 | (1965) 114 CLR 314 | 71 ATC 4195 | 81 ATC 4346 | (1938) 63 CLR 108 | (1951) 82 CLR 408 | 97 ATC 4585 | 2003 ATC 4665 | 70 ATC 4016 | (1975) 132 CLR 671 | 71 ATC 4177 | (1907) 5 CLR 418", "Legislative_References": "Income Tax Assessment Act 1997 6-5 Division 17 70-90 A New Tax System (Goods and Services Tax) Act 1999 9-5 29-5 Division 75 Taxation Administration Act 1953 14ZZK 284-75(1) 298-20", "Case_References": "Arthur Murray (NSW) Pty Ltd v FC of T (1965) 114 CLR 314 14 ATD 98 Brent v FC of T (1971) 125 CLR 418 71 ATC 4195 [1971] HCA 48 Brookton Co-Operative Society Ltd v FC of T (1981) 147 CLR 441 11 ATR 880 81 ATC 4346 Commr of Taxes (SA) v The Executor Trustee and Agency Co of SA Ltd (1938) 63 CLR 108 [1938] HCA 69 FC of T v Steeves Agnew and Co. (Vic) Pty Ltd (1951) 82 CLR 408 [1951] HCA 26 Grollo Nominees Pty Ltd and Ors v FC of T 97 ATC 4585 73 FCR 452 36 ATR 424 Hart v FC of T (2003) 131 FCR 203 2003 ATC 4665 53 ATR 371 Henderson v FC of T (1970) 119 CLR 612 1 ATR 596 70 ATC 4016 Manzi and Ors v Smith and Anor (1975) 132 CLR 671 [1975] HCA 35 Pastoral and Development Pty Ltd v FC of T (1971) 124 CLR 453 2 ATR 401 71 ATC 4177 Spencer v Commonwealth (1907) 5 CLR 418 [1907] HCA 82", "Subject_References": "Property development and construction Attribution of GST Sale outside ordinary course of business Market value Derivation of income Tax shortfall penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/5232/00001", "Unmatched_Content": ""}
{"Case_Name": "Allen & Anor v Federal Commissioner of Taxation", "Venue_Reference_No": "QUD 82 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "7 September 2011", "Date_Published": "16 May 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether certain income of a superannuation fund received in its capacity of beneficiary of a trust estate was special income of the fund.", "Overview_of_Facts": "From 1 January 2003, Mr and Mrs Allen were trustees of the Allen's Asphalt Staff Superannuation Fund (the Super Fund) replacing Allen's Asphalt Pty Ltd, the original trustee. The arrangements in issue in the case also involved two other trusts, one referred to as the Hybrid Trust, and the other as the Fixed Trust. | The Hybrid Trust was settled on 28 June 2001. The trustee of the Hybrid Trust was a corporation of which Mr Allen was the sole director. | The declaration of trust which created the Fixed Trust was made on 28 June 2002. The declaration was made by Astonglen Pty Ltd, of which Mr Allen was a director. The schedule to the trust deed nominated Allen's Asphalt Pty Ltd, in its capacity as trustee of the Super Fund, as the \"absolute beneficiary\" of the Fixed Trust with a 100% vested and indefeasible interest in the income of the trust estate of the Fixed Trust. | By deed of variation signed by Mr Allen on 28 June 2002, the deed of the Hybrid Trust was amended to add a new class of \"discretionary beneficiaries\". These discretionary beneficiaries included the Fixed Trust. | During the 2003 income year the Hybrid Trust realised a capital gain on the sale of an asset. The Fixed Trust received a sum of $2,500,005 by way of a distribution from the Hybrid Trust, referable to the capital gain of the Hybrid Trust. The Super Fund received a distribution of $2,500,005 by virtue of the Super Fund's fixed entitlement to 100% of the income of the Fixed Trust. | The establishment of the trust structures and flow of funds through these trusts to the Super Fund occurred pursuant to legal advice obtained by the taxpayers. | Issues decided by the court | The Court decided that within the meaning of section 273(7) of the Income Tax Assessment Act 1936 the Super Fund had derived income that was 'special income' to the extent of $2,500,005. In consequence the trustee was liable to pay tax at the rate of 47% on this amount. | The taxpayer had submitted that the term 'income' as used in section 273 referred to income according to ordinary concepts and as the amount of $2,500,005 was not ordinary income of the Super Fund, but rather included in its assessable income as statutory income, it did not satisfy the description of income derived for section 273 purposes. | The taxpayer also submitted that other conditions of subsection 273(7) were not satisfied. In particular, there was no 'acquisition' of the fixed entitlement, because the entitlement was obtained passively, and there was no 'dealing' between the parties because any arrangement consisted merely of unilateral acts of Mr Allen. | The Commissioner had submitted that having regard to the Parliamentary intent in enacting subsection 273(7) and the statutory context in which the section appears, 'income derived' must be regarded as encompassing assessable income more generally, and not just income according to ordinary concepts. The Commissioner submitted that as a general rule the Act operates to include amounts in the assessable income of a beneficiary of a trust estate as statutory income via the mechanism of Division 6 (combined with the operation of Divisions 102 and 115 in the context of capital gains of a trust) and limiting the operation of section 273 to income according to ordinary concepts would defeat the operation of the section. | The Commissioner further submitted that the reference to 'acquisition' in subsection 273(7) included a passive acquisition, and that on the facts there were dealings between the various parties to the arrangement. | With respect to the meaning of 'income derived' in subsection 273(7), the Court had regard to the context in which the section appears, and the mischief at which the section is aimed. In particular, the Court observed at [52] that it was as statutory income under section 6-10 that an amount was included in the assessable income of the Super Fund as beneficiary of the Fixed Trust by reason of sections 95 and 97. On this basis the court accepted the Commissioner's submissions that the reference to income derived in subsection 273(7) had to be understood as extending to include statutory income. | The Court concluded that 'acquisition' included a passive acquisition, noting at [68] that 'where a beneficiary under a declaration of trust obtains an entitlement in respect of the trust estate, the beneficiary need not, and usually will not, play an active role in that acquisition.' | The Court observed at [72] that it was unnecessary to show that the superannuation fund itself had been dealing on non-arm's length terms. It was sufficient that there was some non-arm's length dealing by other parties to the arrangement. Nevertheless, it was accepted at [73] that the superannuation fund had not been entirely passive, because it had received a distribution it had chosen not to disclaim. | The Court determined that no penalty should be imposed, because, contrary to the conclusion of the primary judge, the taxpayer's position was reasonably arguable. In this respect, the Court distinguished between the taxpayer's position on the 'income derived' issue, and its other arguments. The Court said if the taxpayers' arguments had been confined to the arguments about arrangements, acquisition, dealings and undervalue, it would not have reached the conclusion that its position was reasonably arguable.", "Issues_Decided": "The Court decided that within the meaning of section 273(7) of the Income Tax Assessment Act 1936 the Super Fund had derived income that was 'special income' to the extent of $2,500,005. In consequence the trustee was liable to pay tax at the rate of 47% on this amount. The taxpayer had submitted that the term 'income' as used in section 273 referred to income according to ordinary concepts and as the amount of $2,500,005 was not ordinary income of the Super Fund, but rather included in its assessable income as statutory income, it did not satisfy the description of income derived for section 273 purposes. The taxpayer also submitted that other conditions of subsection 273(7) were not satisfied. In particular, there was no 'acquisition' of the fixed entitlement, because the entitlement was obtained passively, and there was no 'dealing' between the parties because any arrangement consisted merely of unilateral acts of Mr Allen. The Commissioner had submitted that having regard to the Parliamentary intent in enacting subsection 273(7) and the statutory context in which the section appears, 'income derived' must be regarded as encompassing assessable income more generally, and not just income according to ordinary concepts. The Commissioner submitted that as a general rule the Act operates to include amounts in the assessable income of a beneficiary of a trust estate as statutory income via the mechanism of Division 6 (combined with the operation of Divisions 102 and 115 in the context of capital gains of a trust) and limiting the operation of section 273 to income according to ordinary concepts would defeat the operation of the section. The Commissioner further submitted that the reference to 'acquisition' in subsection 273(7) included a passive acquisition, and that on the facts there were dealings between the various parties to the arrangement. With respect to the meaning of 'income derived' in subsection 273(7), the Court had regard to the context in which the section appears, and the mischief at which the section is aimed. In particular, the Court observed at [52] that it was as statutory income under section 6-10 that an amount was included in the assessable income of the Super Fund as beneficiary of the Fixed Trust by reason of sections 95 and 97. On this basis the court accepted the Commissioner's submissions that the reference to income derived in subsection 273(7) had to be understood as extending to include statutory income. The Court concluded that 'acquisition' included a passive acquisition, noting at [68] that 'where a beneficiary under a declaration of trust obtains an entitlement in respect of the trust estate, the beneficiary need not, and usually will not, play an active role in that acquisition.' The Court observed at [72] that it was unnecessary to show that the superannuation fund itself had been dealing on non-arm's length terms. It was sufficient that there was some non-arm's length dealing by other parties to the arrangement. Nevertheless, it was accepted at [73] that the superannuation fund had not been entirely passive, because it had received a distribution it had chosen not to disclaim. The Court determined that no penalty should be imposed, because, contrary to the conclusion of the primary judge, the taxpayer's position was reasonably arguable. In this respect, the Court distinguished between the taxpayer's position on the 'income derived' issue, and its other arguments. The Court said if the taxpayers' arguments had been confined to the arguments about arrangements, acquisition, dealings and undervalue, it would not have reached the conclusion that its position was reasonably arguable.", "ATO_View_of_Decision": "Special income provisions | The Court's reasons for concluding that the relevant amount was special income are consistent with the ATO view set out in TR 2006/7. | The taxpayer's application for special leave to appeal to the High Court was refused. In respect of the question of whether 'income' used in the provision was confined to income according to ordinary concepts, French CJ observed that '[t]he Full Court adopted the construction which it did by reference to both purpose and context. In so doing, in our opinion, it applied correct principle.' | Penalty | The ATO considers that the approach of the Court on the issue of 'reasonably arguable position' is essentially consistent with the position outlined in Miscellaneous Taxation Ruling 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable ('MT 2008/2') and the majority decision of the Full Federal Court in Cameron Brae Pty Ltd v Federal Commissioner of Taxation [2007] FCAFC 135 ('Cameron Brae'). We do not consider that any further changes are required to MT 2008/2, given that it already incorporates guidance from Cameron Brae. | The Full Court in Allen did not depart from nor overturn the fundamental propositions outlined by Hill J in Walstern Pty Ltd v Commissioner of Taxation [2003] FCA 1428 (' Walstern '), which were endorsed by two later Full Federal Courts ( Pridecraft Pty Ltd v Commissioner of Taxation [2004] FCAFC 339 and Cameron Brae). | Rather, the ATO sees the reference in Allen at [75] to the approach taken in Cameron Brae as being 'somewhat less strict than that suggested by Hill J in Walstern ', as being specific to context and distinguishing the Walstern case on its facts. As noted by the Full Court in Allen, at [77]: The present case, like Cameron Brae, and in contrast to Walstern, turns on questions of statutory construction. Walstern was a case where the erroneous position advanced in a taxpayer's return was founded upon an unreasonable view of, or a disregard for, the facts. See Walstern at [113]. | In both Allen and Cameron Brae , the questions of statutory construction were free from authority squarely covering the point. In Allen , in deciding the taxpayer had a reasonably arguable position, the Full Court stated that the 'taxpayers' position in respect of the income derived issue was 'debatable' (at [78]), there was 'the availability of rational grounds' (at [81]), 'there was room for a real and rational difference of opinion...' (at [81]) and that resolution of the issue required 'a close examination of the statutory context in which the provision was to be interpreted' (at [81]). | It may be noted that the reference to 'a real and rational difference of opinion' is also included in the principles outlined in Walstern (at [108]). | Paragraphs 43-4 of MT 2008/2 discuss the position where there is absence of authority for a particular position. Paragraph 42 contains the following sentence, extracted from paragraph 1.26 of the Revised Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (No. 2) 2000: What is required in such cases is that the entity has a well-reasoned construction of the applicable statutory provision which it could be concluded was about as likely as not the correct interpretation. | Paragraph 44 of MT 2008/2 incorporates paragraph 70 from the Full Court decision in Cameron Brae , which is shown below: In our view, the question of construction and interpretation of section 82AAE [Income Tax Assessment Act 1936] was reasonably open and arguable. No authority squarely covered it. The proper interpretation depended upon the construction of section 82AAE informed by a full appreciation of the statutory history. The argument about the applicability or satisfaction of section 82AAE was arguable...If it be necessary to decide, we are also prepared to conclude that the issue as to the characterisation of the outgoing as capital or revenue was arguable. Whilst in our view it is clear that it was payment of a capital nature, the question is open to debate in the sense of being arguable. | Notwithstanding some minor differences in language between the reasoning of the Full Court in Allen and MT 2008/2, the ATO view is that the approach of the Full Court is essentially consistent with MT 2008/2.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "TR 2006/7 | MT 2008/2 | 2011 ATC 20-277 | Former section 273 | Section 284-75 of Schedule 1 | 2003 ATC 5076 | 2005 ATC 4001 | 2007 ATC 4936", "Legislative_References": "Income Tax Assessment Act 1936 Former section 273 Taxation Administration Act 1953 Section 284-75 of Schedule 1", "Case_References": "Walstern v FCT [2003] FCA 1428 2003 ATC 5076 (2003) 54 ATR 423 Pridecraft Pty Ltd v FCT [2004] FCAFC 339 2005 ATC 4001 (2004) 58 ATR 210 Cameron Brae Pty Ltd v FCT [2007] FCAFC 135 2007 ATC 4936 (2007) 67 ATR 178", "Subject_References": "Special income Income derived Reasonably arguable position Shortfall penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD82of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Aurora Developments Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "QUD 251 of 2008; QUD 252 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "18 March 2011", "Date_Published": "25 March 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case as to whether a residential development site is supplied GST-free as a going concern; there was a failure to take reasonable care; and the validity of a penalty assessment if the penalty is subsequently reduced.", "Overview_of_Facts": "The applicant carried on a business of land development. Initially it was the applicant's intention to develop the parcel of land in question as a multi-faceted residential and care facility and later this changed to a comprehensive residential community. This was to be done in conjunction with other related entities similarly developing adjacent land. The applicant marketed and sold various types of housing off the plan. However, in the period between May and July 2003, the applicant elected to withdraw from its development project for the land and notified the purchasers of the termination of their contracts. | The applicant subsequently undertook to prepare the land for sale en globo to a single purchaser. The applicant entered into a contract of sale for the development site with Australand related entities. The settlement date was 2 July 2004. It was agreed in writing that the supply was a GST-free supply of a going concern. | Prior to completion, and pursuant to the contract of sale, the applicant was required to undertake certain works (the Annexure C works) and to supply development material as specified in the contract. The Annexure C works involved among other things: • the demolition and removal of existing construction works including the sales office; • the construction or completion of certain earthworks including pre-loading and filling the land; • the removal of infrastructure services such as sewer, water, electrical and gas. | • the demolition and removal of existing construction works including the sales office; • the construction or completion of certain earthworks including pre-loading and filling the land; • the removal of infrastructure services such as sewer, water, electrical and gas. | The applicant completed its business activity statement for the tax period 1 July to 31 July 2004 on the basis that the sale of the land was GST-free as the supply of a going concern. Therefore, the business activity statement for July 2004 did not include GST of $2,151,851 in relation to that supply. The Commissioner issued an assessment accordingly. | The applicant was assessed to penalty for the July 2004 tax period for failing to take reasonable care. That base penalty amount was increased by an uplift amount. The penalty assessed for that tax period was subsequently reduced by the uplift amount to give effect to the Commissioner's decision to allow, in part, the applicant's objection to the penalty assessment. | Issues decided by the court | The issues decided by the Court were: (i) whether the sale of a residential development site was GST-free as the supply of a going concern under section 38-325 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and (ii) in relation to that supply, whether the applicant failed to take reasonable care in making or formulating its business activity statement for the relevant tax period; and (iii) in relation to the penalty assessment for failing to take reasonable care, whether the Commissioner has the power to vary (reduce) the penalty assessed following the issue of the penalty assessment or whether the assessment must be set aside in its entirety. | (i) whether the sale of a residential development site was GST-free as the supply of a going concern under section 38-325 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and (ii) in relation to that supply, whether the applicant failed to take reasonable care in making or formulating its business activity statement for the relevant tax period; and (iii) in relation to the penalty assessment for failing to take reasonable care, whether the Commissioner has the power to vary (reduce) the penalty assessed following the issue of the penalty assessment or whether the assessment must be set aside in its entirety. | Whether the sale of the residential development site was GST-free as the supply of a going concern under section 38-325 of the GST Act - Aurora Developments Pty Ltd v Commissioner of Taxation [2011] FCA 232 | The Court (paragraphs 253-4) found it was necessary to first identify an enterprise or a project enterprise within the business enterprise (paragraphs 259-60) to determine if the enterprise is or will be carried on until the day of the supply and to determine if all of the things necessary for the continued operation of that enterprise have been supplied. Section 38-325 is not satisfied if the recipient is supplied with only the things that the recipient considers necessary to enable it to undertake its enterprise. | The Court (paragraph 241) determined that the 'proper construction of the contract having regard to its text, the surrounding circumstances known to the parties and the purpose and object of the transaction' was not to 'effect a sale of an enterprise consisting of a development characterised by all of the documentation that had characterised the Aurora enterprise' up until such time as the decision was taken to withdraw from that development. | By the contract date (2 October 2003) the applicant was found (paragraph 261) to no longer be engaged in the development of the land according to the \"Development Material\" as defined in the contract. Instead, the applicant 'was engaged in an en globo sale of the land as part of its general business undertaking and it assumed a contractual obligation to undertake the Annexure C works required to be done by Australand'. The Annexure C works undertaken by the applicant were not a continuation of the applicant's development project. | The Court (paragraph 255) held that the day of supply for the purposes of subsection 38-325(2) was 2 July 2004 (i.e. the settlement date). That there is a contract date and a later supply date was considered entirely consistent with the language of subsection 38-325(2) as it 'contemplates \"an arrangement\" under which a supply date occurs (by which time all things necessary for the continued operation of the enterprise had been supplied) and, that until the supply date, the supplier continues to carry on the enterprise'. | The supply of the land by the applicant was a supply for the purposes of section 9-10 of the GST Act and a taxable supply for the purposes of section 9-5 of the GST Act. It was not a GST-free supply. | The matter was remitted to the Commissioner as the Commissioner had previously accepted that the applicant could rely on the margin scheme provisions if the Court found that it was not a GST-free supply of a going concern. | Whether the applicant failed to take reasonable care in making or formulating its business activity statement for the relevant tax period - Aurora Developments Pty Ltd v Commissioner of Taxation (No. 2) [2011] FCA 1090 | The Court held that the applicant did not take reasonable care in completing its business activity statement. | Although the applicant had relied upon advice from its accountants the applicant failed to take reasonable care to disclose to the accountants material matters concerning its withdrawal from the land development project. The applicant failed to obtain an advice from the accountants 'directed to it specifically which addressed the question of whether the going concern provisions of the GST Act applied to all the acts material to that question, so as to enable a careful formulation' of the business activity statement for the relevant tax period (paragraph 108). | Whether the Commissioner has the power to vary (reduce) the penalty assessed following the issue of the penalty assessment or whether the assessment must be set aside in its entirety - Aurora Developments Pty Ltd v Commissioner of Taxation (No. 2) [2011] FCA 1090 | The Court found that the Commissioner has the power to allow an objection in part which has the effect of varying or reducing the penalty assessment. | In relation to section 14ZY of the Taxation Administration Act 1953 (TAA 1953), the Court stated that the provision 'seems to confer an express power to allow an objection in part which has the effect of varying or reducing the penalty assessment' (paragraph 110). | It was also accepted that the power conferred under Division 284, Schedule 1 of the TAA 1953 'includes a power to make, grant or issue an instrument for the purposes of s 33(3) [of the Acts Interpretation Act 1901 ] and, subject to any contrary intention contained in the Act, s 33(3) has the effect of conferring a power to repeal, rescind, revoke, amend or vary any instrument consisting of a notice of assessment determining the amount of penalty and the due date for penalty (s 298-15 [Schedule 1, TAA 1953])' (paragraph 118).", "Issues_Decided": "The issues decided by the Court were: (i) whether the sale of a residential development site was GST-free as the supply of a going concern under section 38-325 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and (ii) in relation to that supply, whether the applicant failed to take reasonable care in making or formulating its business activity statement for the relevant tax period; and (iii) in relation to the penalty assessment for failing to take reasonable care, whether the Commissioner has the power to vary (reduce) the penalty assessed following the issue of the penalty assessment or whether the assessment must be set aside in its entirety. (i) whether the sale of a residential development site was GST-free as the supply of a going concern under section 38-325 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and (ii) in relation to that supply, whether the applicant failed to take reasonable care in making or formulating its business activity statement for the relevant tax period; and (iii) in relation to the penalty assessment for failing to take reasonable care, whether the Commissioner has the power to vary (reduce) the penalty assessed following the issue of the penalty assessment or whether the assessment must be set aside in its entirety. | Whether the sale of the residential development site was GST-free as the supply of a going concern under section 38-325 of the GST Act - Aurora Developments Pty Ltd v Commissioner of Taxation [2011] FCA 232: The Court (paragraphs 253-4) found it was necessary to first identify an enterprise or a project enterprise within the business enterprise (paragraphs 259-60) to determine if the enterprise is or will be carried on until the day of the supply and to determine if all of the things necessary for the continued operation of that enterprise have been supplied. Section 38-325 is not satisfied if the recipient is supplied with only the things that the recipient considers necessary to enable it to undertake its enterprise. The Court (paragraph 241) determined that the 'proper construction of the contract having regard to its text, the surrounding circumstances known to the parties and the purpose and object of the transaction' was not to 'effect a sale of an enterprise consisting of a development characterised by all of the documentation that had characterised the Aurora enterprise' up until such time as the decision was taken to withdraw from that development. By the contract date (2 October 2003) the applicant was found (paragraph 261) to no longer be engaged in the development of the land according to the \"Development Material\" as defined in the contract. Instead, the applicant 'was engaged in an en globo sale of the land as part of its general business undertaking and it assumed a contractual obligation to undertake the Annexure C works required to be done by Australand'. The Annexure C works undertaken by the applicant were not a continuation of the applicant's development project. The Court (paragraph 255) held that the day of supply for the purposes of subsection 38-325(2) was 2 July 2004 (i.e. the settlement date). That there is a contract date and a later supply date was considered entirely consistent with the language of subsection 38-325(2) as it 'contemplates \"an arrangement\" under which a supply date occurs (by which time all things necessary for the continued operation of the enterprise had been supplied) and, that until the supply date, the supplier continues to carry on the enterprise'. The supply of the land by the applicant was a supply for the purposes of section 9-10 of the GST Act and a taxable supply for the purposes of section 9-5 of the GST Act. It was not a GST-free supply. The matter was remitted to the Commissioner as the Commissioner had previously accepted that the applicant could rely on the margin scheme provisions if the Court found that it was not a GST-free supply of a going concern. | Whether the applicant failed to take reasonable care in making or formulating its business activity statement for the relevant tax period - Aurora Developments Pty Ltd v Commissioner of Taxation (No. 2) [2011] FCA 1090: The Court held that the applicant did not take reasonable care in completing its business activity statement. Although the applicant had relied upon advice from its accountants the applicant failed to take reasonable care to disclose to the accountants material matters concerning its withdrawal from the land development project. The applicant failed to obtain an advice from the accountants 'directed to it specifically which addressed the question of whether the going concern provisions of the GST Act applied to all the acts material to that question, so as to enable a careful formulation' of the business activity statement for the relevant tax period (paragraph 108). | Whether the Commissioner has the power to vary (reduce) the penalty assessed following the issue of the penalty assessment or whether the assessment must be set aside in its entirety - Aurora Developments Pty Ltd v Commissioner of Taxation (No. 2) [2011] FCA 1090: The Court found that the Commissioner has the power to allow an objection in part which has the effect of varying or reducing the penalty assessment. In relation to section 14ZY of the Taxation Administration Act 1953 (TAA 1953), the Court stated that the provision 'seems to confer an express power to allow an objection in part which has the effect of varying or reducing the penalty assessment' (paragraph 110). It was also accepted that the power conferred under Division 284, Schedule 1 of the TAA 1953 'includes a power to make, grant or issue an instrument for the purposes of s 33(3) [of the Acts Interpretation Act 1901 ] and, subject to any contrary intention contained in the Act, s 33(3) has the effect of conferring a power to repeal, rescind, revoke, amend or vary any instrument consisting of a notice of assessment determining the amount of penalty and the due date for penalty (s 298-15 [Schedule 1, TAA 1953])' (paragraph 118).", "ATO_View_of_Decision": "The ATO view in GST Ruling GSTR 2002/5 accords with the Court's decision in relation to the going concern issue. | The ATO's administrative practice concerning the reduction of penalty imposed under Division 284, Schedule 1 of the TAA 1953, to give effect to an objection decision, is also in accordance with the Court's decision.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | GST Rulings GSTR 2002/5 and 2005/5 have been updated to reflect the Court's decision in Aurora Developments Pty Ltd v Commissioner of Taxation [2011] FCA 232. | It was not considered necessary to update Miscellaneous Taxation Ruling MT 2008/1 in relation to Aurora Developments Pty Ltd v Commissioner of Taxation (No.2) [2011] FCA 1090.", "Related_Documents": "GSTR 2002/5 | MT 2008/1 | Aurora Developments Pty Ltd v Commissioner of Taxation | 2011 ATC 20-250 | Aurora Developments Pty Ltd v Commissioner of Taxation (No. 2) | 38-325 | 14ZY | Division 284 of Schedule 1 | subsection 33(3) | 106 ALR 683 | 2008 ATC 20-034 | [2010] FCAFC 67 | [2002] FCA 429 | 2003 ATC 4375 | 2002 ATC 5105 | 2002 ATC 4293 | [2002] VSCA 108 | [2004] HCA 52", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (Cth) 38-325 Taxation Administration Act 1953 14ZY Division 284 of Schedule 1 Acts Interpretation Act 1901 subsection 33(3)", "Case_References": "Azevedo v Secretary Department of Primary Industries and Energy [1992] FCA 106 106 ALR 683 Brady King Pty Ltd v Federal Commissioner of Taxation [2008] FCAFC 118 (2008) 168 FCR 558 2008 ATC 20-034 69 ATR 670 Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd [1979] FCA 21 Flaherty v Secretary, Department of Health and Ageing and Others [2010] FCAFC 67 Heslehurst v Government of New Zealand [2002] FCA 429 Kajewski v Federal Commissioner of Taxation [2003] FCA 258 2003 ATC 4375 52 ATR 455 MLC Ltd v Commissioner of Taxation [2002] FCA 1491 2002 ATC 5105 51 ATR 283 North Ryde RSL v Commissioner of Taxation [2002] FCA 313 2002 ATC 4293 49 ATR 579 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 R v Ng [2002] VSCA 108 Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 [2004] HCA 52", "Subject_References": "GST-free supply of a going concern Land development Penalty assessment Reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD251of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Badaoui & Konig and Commissioner of Taxation", "Venue_Reference_No": "2010/2378", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 September 2011", "Date_Published": "19 December 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to the Tribunal's decision about how the substantiation provisions in relevant legislation affect entitlement to GST input tax credits.", "Overview_of_Facts": "The husband and wife partnership was registered for GST purposes during all relevant tax periods and accounted for GST on a cash basis. | By contract dated 7 August 2006, the previous owners agreed to sell the property known as the Mulgoa Service Station, Regentville in western Sydney to Mulgoa Service Station Pty Ltd, a company of which the applicant's brother was at the time the sole director. Another brother of the applicant considered that the applicant may have been interested in buying the property once development approval had been obtained, as this was an arrangement that had occurred between the three brothers previously. | In the Business Activity Statement (BAS) lodged for the quarter ended 30 September 2008, the Partnership claimed input tax credits amounting to $53,910, in respect of acquisitions purported to be made from Buildwest Constructions Pty Ltd and Kenmick Group Pty Ltd, both of which are associated with the brothers of one of the partners. The Partnership sought to rely on three purported tax invoices to support the claim for these input tax credits. The Partnership also claimed input tax credits of $17,500 for similar acquisitions in the quarter ended 31 December 2008. | The Commissioner issued a notice of amended assessment disallowing the input tax credits claimed by the Partnership because it was the Commissioner's view that there was insufficient documentation to support the Partnership's claim that the purported services were acquired by the Partnership and/or that the Partnership provided consideration for the services. | On objection, the Partnership provided additional documents, some of which were accepted by the Commissioner as supporting the Partnership's entitlement to some of the input tax credits claimed for the quarter ended 31 December 2008. | The Partnership applied for a review of the objection decision to the Administrative Appeals Tribunal. | Issues decided by the tribunal | The Tribunal accepted that the Partnership did acquire and provide consideration for, the professional services supplied by companies associated with the brothers of one of the partners, in relation to the development of the service station site, in the quarter ended 30 September 2008. Accordingly, the Partnership was entitled to claim input tax credits in the amount of $23,910, as described and evidenced in two of the three tax invoices. | However, in relation to the third tax invoice, the Tribunal agreed with the Commissioner that the Partnership was unable to establish that it had provided consideration for the professional services purported to have been supplied. Hence, the Tribunal found that the Partnership was not entitled to claim an input tax credit for the purported acquisition in the amount of $30,000 as described and evidenced in the third tax invoice. | As to the penalty imposed, the Tribunal noted that based on the findings in relation to the substantive issues, the behaviour of the partners at the relevant time could not be said to be reckless as the Partnership claimed the input tax credits knowing it had paid large amounts to the companies involved, had tax invoices issued to them relating to work which they either knew or could reasonably assume had been undertaken and had been asked to provide consideration to cover the work carried out at the service station. | The Tribunal also determined that it did not consider that the partners' behaviour fell within the description of a failure to take reasonable care to comply with a taxation law. Accordingly, the Tribunal reduced the penalty to nil.", "Issues_Decided": "The Tribunal accepted that the Partnership did acquire and provide consideration for, the professional services supplied by companies associated with the brothers of one of the partners, in relation to the development of the service station site, in the quarter ended 30 September 2008. Accordingly, the Partnership was entitled to claim input tax credits in the amount of $23,910, as described and evidenced in two of the three tax invoices. However, in relation to the third tax invoice, the Tribunal agreed with the Commissioner that the Partnership was unable to establish that it had provided consideration for the professional services purported to have been supplied. Hence, the Tribunal found that the Partnership was not entitled to claim an input tax credit for the purported acquisition in the amount of $30,000 as described and evidenced in the third tax invoice. As to the penalty imposed, the Tribunal noted that based on the findings in relation to the substantive issues, the behaviour of the partners at the relevant time could not be said to be reckless as the Partnership claimed the input tax credits knowing it had paid large amounts to the companies involved, had tax invoices issued to them relating to work which they either knew or could reasonably assume had been undertaken and had been asked to provide consideration to cover the work carried out at the service station. The Tribunal also determined that it did not consider that the partners' behaviour fell within the description of a failure to take reasonable care to comply with a taxation law. Accordingly, the Tribunal reduced the penalty to nil.", "ATO_View_of_Decision": "The Tribunal's decision confirms the view of the Commissioner that every claim must be substantiated as required by the legislation. A failure by a taxpayer to substantiate an entitlement to input tax credits claimed will result in claims being disallowed. | The matter decided in this case is largely factual and does not involve a question of law. On the evidence presented before the Tribunal it was open for the Tribunal to determine the issues.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None Identified | Implications for Law Administration Practice Statements | None Identified", "Related_Documents": "N/A | 2011 ATC 10-205 | 11-5 | 11-20 | 29-10 | Division 284 of Schedule 1", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 11-5 11-20 29-10 Taxation Administration Act 1953 Division 284 of Schedule 1", "Case_References": "", "Subject_References": "GST Creditable acquisition input tax credit tax invoices whether acquisition made whether consideration provided penalty recklessness reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/2378/00001", "Unmatched_Content": ""}
{"Case_Name": "Bicycle Victoria v Commissioner of Taxation", "Venue_Reference_No": "2010/1721, 2010/1723", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "24 June 2011", "Date_Published": "22 October 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to the Tribunal's decision about entitlement to endorsement as a charitable institution and as a health promotion charity.", "Overview_of_Facts": "The applicant was an incorporated association. The purposes stated in its original Constitution were to promote the bicycle as a vehicle, to promote all forms of cycling, to facilitate research and technical information about bicycles and bicycling; to develop policies and ensure input of cyclists into government policies, to increase the skills of cyclists and to educate others about the needs of cyclists; to encourage effective planning, design and development of cycling opportunities and facilities in Victoria. | Its activities included behavioural change programs; recreational rides; lobbying government for better facilities for cyclists and providing bicycle- related products and services. | In 2009 the Statement of Purposes was amended to read: \"The purpose of the association is to promote the health of the community through the prevention and control of disease by \"More People Cycling More Often.\" | The applicant established a Medical and Public Health Reference Panel and its \"Health promotion and disease prevention strategy\" stated that it would work to diminish the risks of a sedentary lifestyle by getting more people riding bikes more often. It proposed to bring about change by facilitating and supporting those who wished to ride, encouraging and challenging institutions and individuals to consider that riding a bicycle would help them achieve their goals, to bring influence to bear on government and to act as a catalyst for the growth of public opinion favouring changes to support bicycle riding. | The applicant used the surplus of revenue over expenditure mainly for facilities and behaviour change activities. | The applicant applied to be endorsed as a \"charitable institution\" under s 50-105 of the Income Tax Assessment Act 1997 (the \"ITAA97\"), and s 176-1 of the A New Tax System (Goods and Services Tax) Act 1999 (the \"GST Act\"), and also applied to be endorsed as a \"charitable institution whose principal activity is to promote the prevention or the control of diseases in human beings\" (a \"Health Promotion Charity\") under s 30-120(a) of the ITAA97, or s 123D(1) of the Fringe Benefits Tax Assessment Act 1986 (the \"FBTAA\"). | During the hearing the applicant sought to refer to material relating to another entity endorsed as a charitable institution. | Issues decided by the tribunal | The Tribunal held that the applicant was a charitable institution, as its primary purpose was to benefit the general community by promoting cycling in all its forms for the overall purpose of promoting fitness which is a charitable purpose. | The Tribunal also held that the applicant's principal activity was not to promote the prevention or control of diseases in human beings, as its purpose is to promote physical fitness. Accordingly, it was not entitled to be endorsed as a deductible gift recipient or as a health promotion charity under s123D of the FBTAA. | Material in relation to other entities was not relevant in determining whether an entity is entitled to endorsement.", "Issues_Decided": "The Tribunal held that the applicant was a charitable institution, as its primary purpose was to benefit the general community by promoting cycling in all its forms for the overall purpose of promoting fitness which is a charitable purpose. The Tribunal also held that the applicant's principal activity was not to promote the prevention or control of diseases in human beings, as its purpose is to promote physical fitness. Accordingly, it was not entitled to be endorsed as a deductible gift recipient or as a health promotion charity under s123D of the FBTAA. Material in relation to other entities was not relevant in determining whether an entity is entitled to endorsement.", "ATO_View_of_Decision": "The decision that the applicant's primary activity was not to promote the prevention or the control of diseases in human beings confirms the Commissioner's view. | The finding of the Tribunal that the applicant had a purpose of promoting cycling in all its forms and an overall purpose of promoting fitness, which is a charitable purpose, was open to the Tribunal on the facts. | The ATO will apply the decision to institutions that promote an activity that is sporting or recreational in nature, if the facts indicate that the activity is a means by which a broader charitable purpose is achieved.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc)) | Draft Taxation Ruling TR 2011/D2 was published as a final ruling, Taxation Ruling TR 2011/4. Paragraph 266 of TR 2011/4 provides an explanation of the ATO's view of the decision in Bicycle Victoria . Although a recreational or sporting purpose is not a charitable purpose, an institution that promotes an activity that is sporting or recreational in nature can still be charitable if the activity is simply a means by which a broader charitable purpose is achieved. | Implications for Law Administration Practice Statements | None identified", "Related_Documents": "TR 2011/D2 | TR 2004/8 | 2011 ATC 10-188 | 30-15 | SDiv 30-B | 30-120 | 30-120(a) | 30-125 | 50-5 | 50-105 | 50-110 | 5B(1E) | 123D | 136(1) | 176-1", "Legislative_References": "Income Tax Assessment Act 1997 30-15 SDiv 30-B 30-120 30-120(a) 30-125 50-5 50-105 50-110 Fringe Benefits Tax Assessment Act 1986 5B(1E) 123D 136(1) A New Tax System (Goods and Services Tax) Act 1999 176-1", "Case_References": "", "Subject_References": "Income Tax GST and FBT concessions Deductible gift recipient Charitable institution Health promotion charity", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/1721/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision including any precedential documents and Law Administration Practice Statements."}
{"Case_Name": "British American Tobacco Australia Services Ltd v Federal Commissioner of Taxation", "Venue_Reference_No": "NSD 80 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "10 November 2010", "Date_Published": "8 November 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the ATO response to this case which concerned the application of Part IVA of the Income Tax Assessment Act 1936 to the particular arrangement entered into by the taxpayer.", "Overview_of_Facts": "In 1999, there was a global merger of the British American Tobacco ('BAT') group and the Rothmans International ('RI') group. Before the merger could proceed in Australia, the ACCC required disposal of certain tobacco brands by the taxpayer (a company in the BAT group) to a third party to mitigate the effect of the merger on competition in the Australian market. | In April 1999, the BAT group determined that it would sell 9 brands to the Imperial Tobacco Group and gave relevant undertakings to the ACCC in June 1999. However, the actual sale was not to occur until immediately after the merger of the BAT and RI groups which occurred in September 1999. At this later time, the taxpayer transferred ownership of the brands to a company within the RI group which immediately on-sold the same brands for the same consideration to Imperial Tobacco (the third party). | The taxpayer did not include an amount in its assessable income in respect of the sale of the brand assets to the RI company because of CGT rollover provisions that became available upon the event of the merger. The subsequent capital gains made by the RI company on the sale of the same assets to Imperial Tobacco were reduced to nil through the application of net capital losses that had been made by members of the former RI group. | At first instance in the Federal Court, Emmett J found that Part IVA of the Income Tax Assessment Act 1936 (the 1936 Act) applied to the arrangement. | Issues decided by the court | The appellant submitted that Emmett J had made three errors in applying Part IVA to the arrangement at first instance: | 1) Emmet J erred by accepting an incorrect definition of 'scheme' | The appellant argued that the scheme should have been limited to the step that produced the tax benefit, namely the choice to obtain rollover relief under Subdivision 126-B of the Income Tax Assessment Act 1997. If the scheme were so limited, there would be no tax benefit to which Part IVA could apply by reason of s177C(2A) of the 1936 Act. | Their Honours rejected this submission, holding that the words and operation of s177A and other sections within Part IVA are inconsistent with the taxpayer's submission and that there is also no reason to adopt a narrower meaning of \"scheme\" in the particular context of s 177C(2A). The usual meaning of \"scheme\" allows the section to have its proper and intended application (to exclude from the application of Part IVA, in particular circumstances, certain tax benefits attributable to choices and elections). The particular circumstances were not present in this case because the scheme was wider than the roll-over choice. | 2) Emmett J erred by focussing on the wrong 'tax benefit' in the arrangement | In relation to \"tax benefit\", their Honours rejected the taxpayer's submission that the trial judge focussed on the wrong tax benefit (use of capital losses by another entity rather than the non-inclusion of a capital gain in the assessable income of the taxpayer). The Court said that it was entirely appropriate for the trial judge to have regard to the use of capital losses by another entity in the context of considering the sixth and seventh factors in s 177D(b). It was clear that the trial judge was not confusing the use of capital losses with the actual tax benefit in that context. | 3) In applying the test in s 177D(b), Emmett J employed 'but for' reasoning rather than the correct 'dominant purpose' test. | Their Honours rejected the taxpayer's submission that the trial judge misapplied the \"dominant purpose\" test in s 177D by adopting a \"but for\" test. The taxpayer's submission was largely based upon the fact that the trial judge, in assessing the eight factors, took the approach of comparing the scheme with the counterfactual. However, their Honours confirmed that such an approach is \"not only open but is usually required in assessing the dominant purpose of the scheme\". In this regard, their Honours referred specifically to the factor of the \"manner\" in which the scheme was carried out and stated that a comparison between the scheme and the counterfactual revealed the manner to be explicable only by the tax consequences. As well as generally approving the trial judge's approach and conclusion as correct, the Court specifically approved of the trial judge's analysis of the third, fifth, sixth, and eighth factors in s 177D(b).", "Issues_Decided": "The appellant submitted that Emmett J had made three errors in applying Part IVA to the arrangement at first instance: | 1) Emmet J erred by accepting an incorrect definition of 'scheme': The appellant argued that the scheme should have been limited to the step that produced the tax benefit, namely the choice to obtain rollover relief under Subdivision 126-B of the Income Tax Assessment Act 1997. If the scheme were so limited, there would be no tax benefit to which Part IVA could apply by reason of s177C(2A) of the 1936 Act. Their Honours rejected this submission, holding that the words and operation of s177A and other sections within Part IVA are inconsistent with the taxpayer's submission and that there is also no reason to adopt a narrower meaning of \"scheme\" in the particular context of s 177C(2A). The usual meaning of \"scheme\" allows the section to have its proper and intended application (to exclude from the application of Part IVA, in particular circumstances, certain tax benefits attributable to choices and elections). The particular circumstances were not present in this case because the scheme was wider than the roll-over choice. | 2) Emmett J erred by focussing on the wrong 'tax benefit' in the arrangement: In relation to \"tax benefit\", their Honours rejected the taxpayer's submission that the trial judge focussed on the wrong tax benefit (use of capital losses by another entity rather than the non-inclusion of a capital gain in the assessable income of the taxpayer). The Court said that it was entirely appropriate for the trial judge to have regard to the use of capital losses by another entity in the context of considering the sixth and seventh factors in s 177D(b). It was clear that the trial judge was not confusing the use of capital losses with the actual tax benefit in that context. | 3) In applying the test in s 177D(b), Emmett J employed 'but for' reasoning rather than the correct 'dominant purpose' test.: Their Honours rejected the taxpayer's submission that the trial judge misapplied the \"dominant purpose\" test in s 177D by adopting a \"but for\" test. The taxpayer's submission was largely based upon the fact that the trial judge, in assessing the eight factors, took the approach of comparing the scheme with the counterfactual. However, their Honours confirmed that such an approach is \"not only open but is usually required in assessing the dominant purpose of the scheme\". In this regard, their Honours referred specifically to the factor of the \"manner\" in which the scheme was carried out and stated that a comparison between the scheme and the counterfactual revealed the manner to be explicable only by the tax consequences. As well as generally approving the trial judge's approach and conclusion as correct, the Court specifically approved of the trial judge's analysis of the third, fifth, sixth, and eighth factors in s 177D(b).", "ATO_View_of_Decision": "The decision is consistent with principles established in earlier case authorities relating to Part IVA and the concepts of scheme, tax benefit and dominant purpose.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "PS LA 2005/24 | 2010 ATC 20-222 | Part IVA | 177A | 177C | 177D | Subdivision 126-B | 2004 ATC 4599 | 99 ATC 4945 | 96 ATC 5201 | 94 ATC 4663", "Legislative_References": "Income Tax Assessment Act 1936 Part IVA 177A 177C 177D Income Tax Assessment Act 1997 Subdivision 126-B", "Case_References": "Commissioner of Taxation v Hart [2004] HCA 26 217 CLR 216 55 ATR 712 2004 ATC 4599 Commissioner of Taxation v Consolidated Press Holdings (No 1) [1999] FCA 1199 91 FCR 524 99 ATC 4945 42 ATR 575 Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34 186 CLR 404 34 ATR 183 96 ATC 5201 Commissioner of Taxation v Peabody [1994] HCA 43 181 CLR 359 28 ATR 344 94 ATC 4663", "Subject_References": "Capital Gains Tax Rollover Use of Capital Losses Part IVA Definition of Scheme Dominant Purpose of Entering Scheme Tax Benefit", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD80of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Bruton Holdings Pty Limited (In Liq) v Commissioner of Taxation", "Venue_Reference_No": "NSD 1195 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "17 June 2011", "Date_Published": "26 September 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The case concerned whether a former corporate trustee was entitled to indemnification by exoneration or recoupment from trust assets for particular costs and expenses incurred after it became a bare trustee.", "Overview_of_Facts": "Bruton Holdings Pty Ltd (\"Bruton\") was the trustee of the Bruton Educational Trust. | On 28 February 2007 Bruton appointed Administrators and ceased to be trustee of the Trust (as the office of trustee was vacated automatically upon the trustee appointing Administrators under the Trust Deed). Thereafter Bruton was a bare trustee of the trust assets. | On 30 April 2007 the winding up of Bruton was resolved. | On 8 May 2007 the ATO issued a Notice pursuant to s260-5 of schedule 1 to the Taxation Administration Act 1953 (\"the s260-5 notice\") to Piper Alderman requiring the firm to pay $447,420.20 which it held for Bruton. | Bruton commenced proceedings seeking a declaration that the s260-5 notice was void (\"the primary proceeding\"). Allsop J of the Federal Court granted the declaration sought by Bruton. The ATO's appeal to the Full Court was allowed and the Judgment set aside. Bruton's application for special leave to the High Court was allowed and the High Court subsequently set aside the orders of the Full Court and ordered that the appeal to the Full Court be dismissed (together \"the litigation\"). | After the High Court Decision, a dispute followed between the ATO and Bruton regarding whether various costs, including the shortfall between Bruton's solicitor and client costs and the amount of its party and party costs of the litigation, should be paid from the trust fund. | The ATO considered that the shortfall (and certain other costs) should not be paid from the trust fund as it was no part of Bruton's function as a bare trustee to institute the primary proceeding. | The ATO sought and obtained declarations in further proceedings (\"the recoupment proceedings\") that Bruton did not have a right of exoneration, indemnity or recoupment out of trust assets as it was no part of Bruton's trust obligations as a bare trustee to institute the primary proceeding and therefore the costs were not 'properly incurred' by Bruton in the administration of the trust. | Bruton was subsequently granted leave to appeal to the Full Court. | Issues decided by the court | The issue decided by the Court was limited to a discrete legal point - whether the obligations of Bruton as a bare trustee extended to commencement and conduct of the primary proceeding to challenge issue of the s260-5 notice. | It was not in contention that a bare trustee has an obligation to protect and maintain the trust property and the High Court had recently said so in CGU Insurance Limited v One.Tel Limited (in Liq) (2010) 368 ALR 439. Further, as the Court observed, what a bare trustee must do in discharge of its obligations will vary with the nature of trust property and whatever may threaten it. | The Court decided that while the litigation was not essential to realisation of the trust asset, there appeared to be no other way to protect the asset and the primary proceeding was \"essentially a defensive action\" in response to the ATO's attempt to garnishee the funds. | The Court concluded that the litigation was sufficient to amount to action which was necessary to protect the trust property, and that arguments that the action was unnecessary because the Commissioner of Taxation was the only significant creditor need not be considered because this was not established in the recoupment proceedings themselves. | As the Court came to the view that the primary Judge erred in finding that it was no part of Bruton's functions as bare trustee to institute the primary proceeding, it was also unnecessary for the Court to determine Bruton's alternate ground of appeal that the primary Judge erred in failing to hold that s556(1)(a) of the Corporations Act 2001 entitled it to indemnity for expenses incurred in the proceedings.", "Issues_Decided": "The issue decided by the Court was limited to a discrete legal point - whether the obligations of Bruton as a bare trustee extended to commencement and conduct of the primary proceeding to challenge issue of the s260-5 notice. It was not in contention that a bare trustee has an obligation to protect and maintain the trust property and the High Court had recently said so in CGU Insurance Limited v One.Tel Limited (in Liq) (2010) 368 ALR 439. Further, as the Court observed, what a bare trustee must do in discharge of its obligations will vary with the nature of trust property and whatever may threaten it. The Court decided that while the litigation was not essential to realisation of the trust asset, there appeared to be no other way to protect the asset and the primary proceeding was \"essentially a defensive action\" in response to the ATO's attempt to garnishee the funds. The Court concluded that the litigation was sufficient to amount to action which was necessary to protect the trust property, and that arguments that the action was unnecessary because the Commissioner of Taxation was the only significant creditor need not be considered because this was not established in the recoupment proceedings themselves. As the Court came to the view that the primary Judge erred in finding that it was no part of Bruton's functions as bare trustee to institute the primary proceeding, it was also unnecessary for the Court to determine Bruton's alternate ground of appeal that the primary Judge erred in failing to hold that s556(1)(a) of the Corporations Act 2001 entitled it to indemnity for expenses incurred in the proceedings.", "ATO_View_of_Decision": "", "Administrative_Treatment": "Not Applicable | Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not Applicable | Implications for Law Administration Practice Statements | Not Applicable", "Related_Documents": "Not applicable | [2011] FCAFC 79 | 500 | 510 | 513B(b) | 513C(b) | Schedule 1 260-5 | [1967] 2 AC 46 | [1966] 3 All ER 721 | 2007 ATC 5151 | 2009 ATC 20-125 | [2010] HCA 26 | 99 ATC 4066 | (1991) 24 NSWLR 370 | [2009] NSW SC 424", "Legislative_References": "Corporations Act 2001 (Cth) 500 510 513B(b) 513C(b) Taxation Administration Act 1953 (Cth) Schedule 1 260-5", "Case_References": "Boardman v Phipps [1967] 2 AC 46 [1966] 3 All ER 721 [1966] UKHL 2 Bruton Holdings v Commissioner of Taxation (2007) 244 ALR 177 [2007] FCA 1643 (2007) 67 ATR 618 2007 ATC 5151 Bruton v Commissioner of Taxation [2009] HCA 32 72 ATR 856 2009 ATC 20-125 CGU Insurance Limited v One.Tel Limited (in Liq) (2010) 368 ALR 439 [2010] HCA 26 Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 41 ATR 29 99 ATC 4066 Commissioner of Taxation v Bruton Holdings Pty Limited (in Liquidation) (No 2) [2010] FCA 998 Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 Keech v Sanford (1726) 25 ER 223 (1726) Sel Cas t King 61 Putney Group Pty Ltd v Royal Rehabilitation Centre Sydney [2009] NSW SC 424 Re Suco Gold Pty Ltd (In liq) (1983) 33 SASR 99", "Subject_References": "Trusts and Trustees Indemnification out of trust fund Litigation expenses - Trustee acting for authorised purpose Duties of bare trustee - Powers of trustee", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1195of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Carberry and Commissioner of Taxation", "Venue_Reference_No": "2009/1456", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "10 May 2011", "Date_Published": "15 September 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO view of this case which concerned whether a payment made under a state government program was assessable income as ordinary income, as statutory income as a bounty or subsidy, or as a capital gain from a CGT event.", "Overview_of_Facts": "The applicant, Mr Carberry, and his brother held bore water licences under the Water Act 1912 (NSW) as pre-CGT assets. The licences were used on an irrigation and farming property known as Cardale, located in the lower Namoi Valley in New South Wales. | The property was run by the Stan Carberry & Sons partnership. The applicant, his brother and each of their sons, were partners in that partnership; but the applicant and his brother had been effectively retired since around 1995. The day-to-day running of the partnership business is now conducted by their sons. | On 8 December 2000 the Water Management Act 2000 (NSW) received Royal Assent, with parts of the legislation commencing on 1 January 2001. That Act was to provide a new water licensing and management regime. This effectively included replacement of existing bore water licences with aquifer access and supplementary water access licences, with a gradual reduction in water extraction rights under the latter type of licence. | A program known as the Groundwater Structural Adjustment Program (\" GSAP \") was announced by the New South Wales government in December 2002. It provided a five-step process by which water licence holders that were high level users could receive payments to help them adjust to changes in groundwater access. | Put briefly, the five steps involved: • the relevant New South Wales government department (\" the department \") writing to a licence holder outlining their history of water use (Step 1), • the licence holder confirming or correcting this data and proving other information (Step 2), and • the department, on receipt of this confirmation, writing to the licence holder advising of the level of financial assistance potentially available to them, as calculated via a formula (Step 3). | • the relevant New South Wales government department (\" the department \") writing to a licence holder outlining their history of water use (Step 1), • the licence holder confirming or correcting this data and proving other information (Step 2), and • the department, on receipt of this confirmation, writing to the licence holder advising of the level of financial assistance potentially available to them, as calculated via a formula (Step 3). | On completion of those steps, the licence holder was then to complete an application form identifying the types of on-farm investments for which they sought assistance (Step 4), and forward it to the Rural Assistance Authority. Then, following approval of their application, they were to complete reimbursement forms for such eligible expenditure (Step 5). | Mr Carberry had only completed Steps 1, 2 and 3 at the time of receiving a payment from the department. .The payment followed a decision by the New South Wales government to make upfront payments to 87 identified licence holders in the Namoi Valley. | The Carberrys received a payment for $97,893. The dispute before the Tribunal pertained to approximately half of that payment, being $48,947 (the remainder of the payment being for Mr Carberry's brother). | The applicant's licences (under the Water Act 1912 ) were replaced with licences under the Water Management Act 2000 on 1 November 2006. | Issues decided by the tribunal | 1. Whether the amount received by the applicant under the GSAP was assessable as ordinary income within section 6-5 of the Income Tax Assessment Act 1997 . | No. The Tribunal concluded that the payment was not ordinary income. | 2. Whether the amount received by the applicant was assessable as a bounty or subsidy under section 15-10 of the Income Tax Assessment Act 1997 . | No. The Tribunal found that in this case there was no relevant connection or relationship between the receipt of the payment and the carrying on of any business activities and as a result the payment was not a bounty or subsidy within 15-10 of the Act. | 3. Whether there was a CGT Event C2. | Yes, but not until the year ended 30 June 2007 when the applicant's licences were replaced. | 4. Whether there was a CGT event H2. | As CGT event C2 was taken to have occurred, the Tribunal considered it unnecessary to examine whether a CGT event H2 occurred.", "Issues_Decided": "1. Whether the amount received by the applicant under the GSAP was assessable as ordinary income within section 6-5 of the Income Tax Assessment Act 1997 . No. The Tribunal concluded that the payment was not ordinary income. 2. Whether the amount received by the applicant was assessable as a bounty or subsidy under section 15-10 of the Income Tax Assessment Act 1997 . No. The Tribunal found that in this case there was no relevant connection or relationship between the receipt of the payment and the carrying on of any business activities and as a result the payment was not a bounty or subsidy within 15-10 of the Act. 3. Whether there was a CGT Event C2. Yes, but not until the year ended 30 June 2007 when the applicant's licences were replaced. 4. Whether there was a CGT event H2. As CGT event C2 was taken to have occurred, the Tribunal considered it unnecessary to examine whether a CGT event H2 occurred.", "ATO_View_of_Decision": "The decision provided that, in the applicant's circumstances, a payment under the GSAP was on capital account and, accordingly a CGT Event C2 happened, although in a later year. | The Commissioner contended that the payment under the GSAP was financial assistance, and was therefore ordinary income. This was rejected by the Tribunal on the basis that the removal of steps 4 and 5 of the program made it impossible to characterise the payment in this instance as \"financial assistance to encourage identified high level users to adopt efficiency measures in their water usage activities\". | The Commissioner observes, however, that the Tribunal, in coming to this conclusion, suggested that it may have been accurate to describe the payment as financial assistance of the type contended by the Commissioner, if the applicant had been required to comply with the last two steps of the program (see paragraph 46 of the Tribunal's decision). In this regard, the Commissioner notes that this statement highlights the importance of considering the individual circumstances of recipients of GSAP payments on a case by case basis.", "Administrative_Treatment": "The outcome of this case, as set out above, turned on its specific facts. | A key finding in this case was that the payment under the GSAP was received by the applicant despite only steps 1 to 3 of that program having been completed. Whilst all cases must be considered on their facts, the Commissioner will, consistent with the findings of the Tribunal, treat taxpayers who received payments under the GSAP in the same circumstances of this case as being on capital account. This means that these payments are likely to be capital proceeds for a CGT Event C2 (section 104-25 of the Income Tax Assessment Act 1997 ). However, for each affected taxpayer regard will need to be had to all the facts, including the following matters: a. the relevant CGT asset (the original licence); b. the date of acquisition of that licence (and whether it was a pre-CGT asset); c. the timing of the CGT event; and, d. whether any capital gains tax concessions apply. | a. the relevant CGT asset (the original licence); b. the date of acquisition of that licence (and whether it was a pre-CGT asset); c. the timing of the CGT event; and, d. whether any capital gains tax concessions apply. | As above, all cases must be considered on their facts. Where a taxpayer was not in the same circumstances as Mr Carberry, there may be a range of factors that could be relevant. Some of these may potentially include: a. whether the GSAP applicant (the taxpayer) had also completed step 4, or steps 4 and 5 of the GSAP; b. whether that taxpayer was carrying on a business; and/or, c. whether the licence was used (that is, whether water was extracted) by another entity, such as in relation to a business carried on by that entity. | a. whether the GSAP applicant (the taxpayer) had also completed step 4, or steps 4 and 5 of the GSAP; b. whether that taxpayer was carrying on a business; and/or, c. whether the licence was used (that is, whether water was extracted) by another entity, such as in relation to a business carried on by that entity. | Depending on the particular facts and circumstances, the GSAP payment may be ordinary income, statutory income or the proceeds of a CGT event. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None", "Related_Documents": "N/A | 2011 ATC 10-181 | 6-5 | 6-10 | 15-10 | Part 3-1 | 117A(3) | 401 | regs 29K 29L, 29M, 29N, 29O and Sch 4C | 87 ATC 4363 | 2008 ATC 10-066 | (1966) 117 CLR 514 | 90 ATC 4413 | 95 ATC 4145", "Legislative_References": "Income Tax Assessment Act 1997 6-5 6-10 15-10 Part 3-1 Water Act 1912 (NSW) (repealed) 117A(3) Water Management Act 2000 (NSW) 401 Water Management (General) Regulation 2004 (NSW) regs 29K 29L, 29M, 29N, 29O and Sch 4C", "Case_References": "Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 52 WN (NSW) 44 3 ATD 142 Commissioner of Taxation v The Myer Emporium Ltd [1987] HCA 18 (1987) 163 CLR 199 18 ATR 693 87 ATC 4363 Re Berghofer and Commissioner of Taxation [2008] AATA 1138 (2008) 73 ATR 964 2008 ATC 10-066 Scott v Commissioner of Taxation [1966] HCA 48 (1966) 117 CLR 514 14 ATD 286 GP International Pipecoaters Pty Ltd v Commissioner of Taxation [1990] HCA 25 (1990) 170 CLR 124 90 ATC 4413 21 ATR 1 First Provincial Building Society Limited v Commissioner of Taxation (1995) 56 FCR 320 30 ATR 207 95 ATC 4145", "Subject_References": "Income Tax Government payment Ordinary income, statutory income or capital gain Bounty or Subsidy Capital Gains Tax CGT Events C2 and H2 Ground Water Structural Adjustment Program Achieving Sustainable Groundwater Entitlements Program", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/1456/00001", "Unmatched_Content": ""}
{"Case_Name": "Colonial First State Investments Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 1190 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "18 January 2011", "Date_Published": "14 March 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The ATO's response to this case which concerned the tax treatment of payments made by the trustee of a unit trust on the redemption of units; in particular whether redeeming unitholders would be assessed on trust capital gains apportioned to them.", "Overview_of_Facts": "The taxpayer, Colonial First State Investments Limited (Colonial), is the trustee and Responsible Entity of a retail unit trust (the Retail Fund). The Retail Fund is a managed investment scheme pursuant to Chapter 5C of the Corporations Act 2001 . | In its capacity as trustee of the Retail Fund, Colonial invested in units in a wholesale unit trust (the Wholesale Fund). To comply with the requirement in the Corporations Act 2001 that the property of a managed investment scheme be held separately from property of the Responsible Entity, the units in the Wholesale Fund were held by a Custodian on behalf of Colonial. The units were the only asset held by the Custodian. | The terms on which the Wholesale Fund was administered were set out in its constitution which, for present purposes, may be equated to a trust deed. | Colonial sought a private ruling from the ATO as to the tax consequences of proposed amendments to the constitution of the Wholesale Fund. | Clause 12 of the constitution entitled a redeeming unitholder to a 'redemption amount' on making a redemption application. The proposed amendments sought to confer on the Responsible Entity of the Wholesale Fund an absolute discretion to appropriate the redemption amount from three accounts: • an account representing the corpus of the Wholesale Fund • an account to which has been credited the Wholesale Fund's short term capital gains (ie. those calculated for tax purposes which did not qualify for the CGT discount) • an account to which has been credited the Wholesale Fund's long term capital gains (ie. those calculated for tax purposes which qualified for the CGT discount). | • an account representing the corpus of the Wholesale Fund • an account to which has been credited the Wholesale Fund's short term capital gains (ie. those calculated for tax purposes which did not qualify for the CGT discount) • an account to which has been credited the Wholesale Fund's long term capital gains (ie. those calculated for tax purposes which qualified for the CGT discount). | Relevantly, the proposed amendments also provided: | The Responsible Entity may decide to which accounts of the Trust a Redemption Amount should be debited after the end of the financial year during which the entitlement to that Redemption Amount arises.... | The stated purpose of the amendments was to achieve fairness between long term and short term investors in the Wholesale Fund. That is, through the exercise of its power of appointment, the Responsible Entity would direct short term capital gains to investors who held their investment for less than 12 months and long term capital gains to investors who held their investment for more than 12 months. It was intended that an allocation of capital gains in this manner would constitute a present entitlement to income of the trust estate for the purposes of section 97 of the Income Tax Assessment Act 1936 (ITAA 1936). All references are to the ITAA 1936 unless otherwise indicated. | Specifically, such allocations were intended to result in the tax on capital gains made by the trustee of the Wholesale Fund in disposing of assets for the purposes of paying out redeeming unitholders being borne by those unitholders (rather than the liability being spread amongst the unitholders remaining at the end of the income year). | The private ruling addressed a series of questions raised in the ruling application. Each question was the subject of review in this case. | Issues decided by the court | Whether Colonial was a beneficiary of the Wholesale Fund (the Custodian issue)? | The Court rejected the Commissioner's submission that Colonial (as trustee of the Retail Fund) was not a beneficiary of the Wholesale Fund. | The Court agreed that Colonial did not have 'title' to the units in the Wholesale Fund as they were held by the Custodian on a sub-trust for Colonial. However, the Court concluded that, while the Custodian was the conduit through which payment of the redemption amount must flow, it was Colonial to whom the redemption amount must be paid. The Court further concluded that Colonial was entitled to enforce the obligation of the trustee of the Wholesale Fund to administer the trust according to its terms. [paragraphs 19-20] | Whether Colonial is presently entitled to a share of the income of the Wholesale Fund (the present entitlement issue)? | The Court rejected the Commissioner's submission that the test of present entitlement prescribed in Harmer v Federal Commissioner of Taxation must be satisfied at the time relevant income is received by the trustee. The Court instead held that the test will be satisfied if an entitlement arises by the end of an income year. | However, on the facts before it, the Court concluded that it would be impossible for Colonial to be presently entitled to a particular redemption amount within a relevant tax year, it being only after the end of the relevant financial year that the trustee of the Wholesale Fund would decide the extent to which a redemption amount will be sourced from any particular account. [paragraphs 28-38] | [Note that the Court decided in any event that the capital gains were not income of the Wholesale Fund (see discussion below). It follows that even if Colonial was presently entitled to the funds from which the 'gain part' of a redemption amount was sourced (being that part of the redemption payment that exceeded the amount subscribed), that present entitlement would not be present entitlement to income of the trust estate for the purposes of section 97.] | Whether the short term or long term capital gains ('gain part') form part of the income of the Wholesale Fund trust estate under section 97 (the income of the trust estate issue)? | The Court rejected Colonial's submission that the Wholesale Fund's constitution effectively treated the Fund's capital gains as distributable income. | The Wholesale Fund's constitution at clause 32 provided that each unitholder at midnight on 30 June was presently entitled, in proportion to its unitholding, to a share of so much of the distributable income for the corresponding year as had not previously been distributed. For these purposes distributable income was defined, broadly speaking, to be the amount the trustee had to distribute to ensure the lowest amount of tax payable. Clause 32 further gave the trustee the power to elect to distribute 'any amount (capital or income)' and to decide which part of a redemption amount should be treated as a distribution from, respectively, the capital gains tax and corpus accounts. | Colonial's submission was that the definition of distributable income implied that capital gains had to form part of the distributable income of the trust as this would ensure the lowest amount of tax payable. By contrast, the Commissioner noted that in providing for part of a redemption amount to be treated as a distribution, the deed preserved the distinction between income and capital: the deed did not purport to treat the gain part of a redemption payment as being a distribution of income as opposed to capital. | The Court agreed with the Commissioner that that portion of the deed that provided for the distribution to unitholders of income not previously distributed was not concerned with redemptions or the composition of a redemption amount. Moreover, having emphasised at paragraph [48] the importance of a careful construction of the trust instrument, the Court concluded that a proper construction of the Wholesale Fund's constitution did not reveal any provision that had the effect of treating capital receipts as income of the trust estate. In doing so, the Court contrasted the terms of the Wholesale Fund's constitution with those of the trust deed in Commissioner of Taxation v Bamford (Bamford ) which was held by the High Court to empower the trustee to allocate receipts to capital or income. [paragraph 49] | Whether the 'gain part' should be included in the assessable income of the redeeming unitholder as the redeeming unitholder's 'share' of the section 95 net income of the Wholesale Fund (the share of net income issue)? | The Court rejected Colonial's attempt to distinguish Bamford and confirmed that the meaning of share in 'share of the net income' in section 97 is a proportion not an amount. | Therefore the Court agreed with the Commissioner that what would be included in a redeeming unitholder's assessable income (assuming they were presently entitled to a share of trust income) depends on the ratio which a gain part bears to the total income available for distribution after provision for the trustee's expenses. [paragraphs 50-56] | Put differently, even if the effect of a redemption had been to make a redeeming unitholder presently entitled to income from which the gain part of the redemption payment was sourced, it would not follow that the gain part was the amount that was included in the assessable income of the redeeming unitholder under section 97. | Similarly, the Court rejected Colonial's argument that the amount assessed to remaining unitholders would not include the gain part paid to a redeeming unitholder. | Whether the 'gain part' is treated, by reason of Subdivision 115-C of the Income Tax Assessment Act 1997 (ITAA 1997), as a capital gain to be taken into account in calculating the assessable income of the redeeming unit holder and whether subsection 115-215(6) of the ITAA 1997 gives the redeeming unit holder a corresponding deduction (the 115-C issue)? | Having rejected Colonial's contention that the gain part of a redemption amount payable to a redeeming unitholder would be assessable to the unitholder as a share of the net income of the Wholesale Fund, the Court likewise rejected the next step in Colonial's analysis, namely that Subdivision 115-C of the ITAA 1997 would operate to characterise the share of net income so brought to account as a capital gain. | In this context the Court emphasised that even if a share of the net income of the Wholesale Fund had been included in the assessable income of a redeeming unitholder under section 97 (which was not the case), the amount of deemed capital gain recognised under Subdivision 115-C of the ITAA 1997 would not equal the gain part. Rather, Subdivsion 115-C of the ITAA 1997 would require an enquiry into how much of the proportionate share of the net income of the fund assessed to the unitholder was attributable to a capital gain made by the fund. [paragraphs 58-64]. | To the extent that a redeeming unitholder would be taken to make a capital gain under Subdivision 115-C of the ITAA 1997, they would be entitled to a deduction under subsection 115-215(6) of the ITAA 1997 to offset the corresponding amount assessed under section 97. [paragraphs 91-93] | Whether a redeeming unitholder makes a capital gain from CGT event C2 happening upon redemption of the units (the C2 issue)? | The Court rejected Colonial's argument that the capital proceeds from the redemption of a unit was limited to that part of the redemption payment representing the initial subscription price paid for the unit. | The consequence of Colonial's argument would have been that no capital gain arose on redemption as the capital proceeds paid did not exceed the initial subscription price. However, the Court found that the entire redemption payment in respect of a unit (that is, including the gain part) represented capital proceeds from the ending of that unit. [paragraph 68] | As the Court had found that no amount received in respect of a redemption was included in the assessable income of unitholder under section 97, it considered that section 118-20 of the ITAA 1997 would not operate to reduce any capital gain arising by reason of CGT event C2 happening on that redemption. [paragraph 70] | Whether remaining unitholders were entitled to that part of the net income of the Wholesale Fund not distributed to redeeming unitholders (the distributable income issue)? | The Court adopted the Commissioner's reasoning in finding that in working out the distributable income of the Wholesale Fund (that is, the income of the trust estate for section 97 purposes), a range of amounts may be included in section 95 net income which 'are not capable of being recognised for accounting purposes, let alone founding an entitlement: eg franking credits, attributed foreign investment income, amounts included by operation of Pt IVA of the 1936 Act or deemed capital gains included by operation of the market substitution rule'. [paragraph 88] | Whether the Wholesale Fund is a fixed trust for the purposes of section 272-65 in Schedule 2F (the fixed entitlement issue)? | The Court found that the Wholesale Fund was not a 'fixed trust' for the purposes of section 272-65 of Schedule 2F as the interests of unitholders in income and capital of the trust were defeasible. | The Commissioner submitted that clause 43 of the constitution (which permitted the Responsible Entity to make any modification, addition or deletion to the constitution) was capable of being used to defeat any interests in the income and capital of the Wholesale Fund which the unitholders may enjoy. | The Court noted that the Commissioner's position failed to take account of paragraph 601GC(1)(b) of the Corporations Act 2001 which permits a Responsible Entity to change its constitution only if they consider the change will not adversely affect members' rights. However, the Court left open the question of whether there was any circumstance in which the Responsible Entity could terminate, invalidate or annul Colonial's entitlement to a share of the income or capital of the Wholesale Fund and reasonably consider that the change would not affect members' rights. [paragraphs 99-100] | Ultimately the Court held that the interests of unitholders in income and capital of the Wholesale Fund could be defeated by the unitholders exercising the powers granted to them under paragraph 601GC(1)(a) of the Corporations Act 2001 to modify, replace or repeal the constitution by special resolution. [paragraphs 103-106]", "Issues_Decided": "Whether Colonial was a beneficiary of the Wholesale Fund (the Custodian issue)?: The Court rejected the Commissioner's submission that Colonial (as trustee of the Retail Fund) was not a beneficiary of the Wholesale Fund. The Court agreed that Colonial did not have 'title' to the units in the Wholesale Fund as they were held by the Custodian on a sub-trust for Colonial. However, the Court concluded that, while the Custodian was the conduit through which payment of the redemption amount must flow, it was Colonial to whom the redemption amount must be paid. The Court further concluded that Colonial was entitled to enforce the obligation of the trustee of the Wholesale Fund to administer the trust according to its terms. [paragraphs 19-20] | Whether Colonial is presently entitled to a share of the income of the Wholesale Fund (the present entitlement issue)?: The Court rejected the Commissioner's submission that the test of present entitlement prescribed in Harmer v Federal Commissioner of Taxation must be satisfied at the time relevant income is received by the trustee. The Court instead held that the test will be satisfied if an entitlement arises by the end of an income year. However, on the facts before it, the Court concluded that it would be impossible for Colonial to be presently entitled to a particular redemption amount within a relevant tax year, it being only after the end of the relevant financial year that the trustee of the Wholesale Fund would decide the extent to which a redemption amount will be sourced from any particular account. [paragraphs 28-38] [Note that the Court decided in any event that the capital gains were not income of the Wholesale Fund (see discussion below). It follows that even if Colonial was presently entitled to the funds from which the 'gain part' of a redemption amount was sourced (being that part of the redemption payment that exceeded the amount subscribed), that present entitlement would not be present entitlement to income of the trust estate for the purposes of section 97.] | Whether the short term or long term capital gains ('gain part') form part of the income of the Wholesale Fund trust estate under section 97 (the income of the trust estate issue)?: The Court rejected Colonial's submission that the Wholesale Fund's constitution effectively treated the Fund's capital gains as distributable income. The Wholesale Fund's constitution at clause 32 provided that each unitholder at midnight on 30 June was presently entitled, in proportion to its unitholding, to a share of so much of the distributable income for the corresponding year as had not previously been distributed. For these purposes distributable income was defined, broadly speaking, to be the amount the trustee had to distribute to ensure the lowest amount of tax payable. Clause 32 further gave the trustee the power to elect to distribute 'any amount (capital or income)' and to decide which part of a redemption amount should be treated as a distribution from, respectively, the capital gains tax and corpus accounts. Colonial's submission was that the definition of distributable income implied that capital gains had to form part of the distributable income of the trust as this would ensure the lowest amount of tax payable. By contrast, the Commissioner noted that in providing for part of a redemption amount to be treated as a distribution, the deed preserved the distinction between income and capital: the deed did not purport to treat the gain part of a redemption payment as being a distribution of income as opposed to capital. The Court agreed with the Commissioner that that portion of the deed that provided for the distribution to unitholders of income not previously distributed was not concerned with redemptions or the composition of a redemption amount. Moreover, having emphasised at paragraph [48] the importance of a careful construction of the trust instrument, the Court concluded that a proper construction of the Wholesale Fund's constitution did not reveal any provision that had the effect of treating capital receipts as income of the trust estate. In doing so, the Court contrasted the terms of the Wholesale Fund's constitution with those of the trust deed in Commissioner of Taxation v Bamford (Bamford ) which was held by the High Court to empower the trustee to allocate receipts to capital or income. [paragraph 49] | Whether the 'gain part' should be included in the assessable income of the redeeming unitholder as the redeeming unitholder's 'share' of the section 95 net income of the Wholesale Fund (the share of net income issue)?: The Court rejected Colonial's attempt to distinguish Bamford and confirmed that the meaning of share in 'share of the net income' in section 97 is a proportion not an amount. Therefore the Court agreed with the Commissioner that what would be included in a redeeming unitholder's assessable income (assuming they were presently entitled to a share of trust income) depends on the ratio which a gain part bears to the total income available for distribution after provision for the trustee's expenses. [paragraphs 50-56] Put differently, even if the effect of a redemption had been to make a redeeming unitholder presently entitled to income from which the gain part of the redemption payment was sourced, it would not follow that the gain part was the amount that was included in the assessable income of the redeeming unitholder under section 97. Similarly, the Court rejected Colonial's argument that the amount assessed to remaining unitholders would not include the gain part paid to a redeeming unitholder. Whether the 'gain part' is treated, by reason of Subdivision 115-C of the Income Tax Assessment Act 1997 (ITAA 1997), as a capital gain to be taken into account in calculating the assessable income of the redeeming unit holder and whether subsection 115-215(6) of the ITAA 1997 gives the redeeming unit holder a corresponding deduction (the 115-C issue)? Having rejected Colonial's contention that the gain part of a redemption amount payable to a redeeming unitholder would be assessable to the unitholder as a share of the net income of the Wholesale Fund, the Court likewise rejected the next step in Colonial's analysis, namely that Subdivision 115-C of the ITAA 1997 would operate to characterise the share of net income so brought to account as a capital gain. In this context the Court emphasised that even if a share of the net income of the Wholesale Fund had been included in the assessable income of a redeeming unitholder under section 97 (which was not the case), the amount of deemed capital gain recognised under Subdivision 115-C of the ITAA 1997 would not equal the gain part. Rather, Subdivsion 115-C of the ITAA 1997 would require an enquiry into how much of the proportionate share of the net income of the fund assessed to the unitholder was attributable to a capital gain made by the fund. [paragraphs 58-64]. To the extent that a redeeming unitholder would be taken to make a capital gain under Subdivision 115-C of the ITAA 1997, they would be entitled to a deduction under subsection 115-215(6) of the ITAA 1997 to offset the corresponding amount assessed under section 97. [paragraphs 91-93] | Whether a redeeming unitholder makes a capital gain from CGT event C2 happening upon redemption of the units (the C2 issue)?: The Court rejected Colonial's argument that the capital proceeds from the redemption of a unit was limited to that part of the redemption payment representing the initial subscription price paid for the unit. The consequence of Colonial's argument would have been that no capital gain arose on redemption as the capital proceeds paid did not exceed the initial subscription price. However, the Court found that the entire redemption payment in respect of a unit (that is, including the gain part) represented capital proceeds from the ending of that unit. [paragraph 68] As the Court had found that no amount received in respect of a redemption was included in the assessable income of unitholder under section 97, it considered that section 118-20 of the ITAA 1997 would not operate to reduce any capital gain arising by reason of CGT event C2 happening on that redemption. [paragraph 70] | Whether remaining unitholders were entitled to that part of the net income of the Wholesale Fund not distributed to redeeming unitholders (the distributable income issue)?: The Court adopted the Commissioner's reasoning in finding that in working out the distributable income of the Wholesale Fund (that is, the income of the trust estate for section 97 purposes), a range of amounts may be included in section 95 net income which 'are not capable of being recognised for accounting purposes, let alone founding an entitlement: eg franking credits, attributed foreign investment income, amounts included by operation of Pt IVA of the 1936 Act or deemed capital gains included by operation of the market substitution rule'. [paragraph 88] Whether the Wholesale Fund is a fixed trust for the purposes of section 272-65 in Schedule 2F (the fixed entitlement issue)? The Court found that the Wholesale Fund was not a 'fixed trust' for the purposes of section 272-65 of Schedule 2F as the interests of unitholders in income and capital of the trust were defeasible. The Commissioner submitted that clause 43 of the constitution (which permitted the Responsible Entity to make any modification, addition or deletion to the constitution) was capable of being used to defeat any interests in the income and capital of the Wholesale Fund which the unitholders may enjoy. The Court noted that the Commissioner's position failed to take account of paragraph 601GC(1)(b) of the Corporations Act 2001 which permits a Responsible Entity to change its constitution only if they consider the change will not adversely affect members' rights. However, the Court left open the question of whether there was any circumstance in which the Responsible Entity could terminate, invalidate or annul Colonial's entitlement to a share of the income or capital of the Wholesale Fund and reasonably consider that the change would not affect members' rights. [paragraphs 99-100] Ultimately the Court held that the interests of unitholders in income and capital of the Wholesale Fund could be defeated by the unitholders exercising the powers granted to them under paragraph 601GC(1)(a) of the Corporations Act 2001 to modify, replace or repeal the constitution by special resolution. [paragraphs 103-106]", "ATO_View_of_Decision": "Custodian issue | Where a CGT asset is held on trust and a beneficiary is absolutely entitled to that asset as against the trustee, the beneficiary will effectively be treated as being the owner of that asset for the purposes of the CGT provisions in Parts 3-1 and 3-3 of the ITAA 1997. | Outside of these CGT provisions, the ATO has consistently been of the view that assets held on trust for beneficiaries form part of the relevant trust estate, the net income of which is subject to Division 6 of Part III. This view is consistent with other authority. For example, in Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 the High Court accepted that Division 6 would apply in respect of money held by the applicants as bare trustees (as discussed by the Federal Court - see Harmer v FC of T 89 ATC 5180 at 5187-5189). Also, in the Federal Court decision of Di Lorenzo Ceramics Pty Ltd & Anor v FC of T 2007 ATC 4662, Lindgren J, in considering a deemed dividend received by a trust in respect of shares accepted as being held on bare trust, noted that the shareholder of those shares would be the trustee and not the beneficiaries of that bare trust, stating (at 4678): 110. If Tile held shares in Ceramics on a bare trust for Ceramics as to three quarters and Fresta as to one quarter, and Ceramics declared a dividend, the applicants would still face the difficulty that they now face. Tile would have received, as trustee, a dividend... Tile would be required to disclose the income as income of the trust estate, although it would not be liable as trustee to pay income tax upon it (s 96 of the Act). However, Ceramics and Fresta would be liable to do so as beneficiaries of the trust estate who were not under any legal disability and were presently entitled to shares of the income of the trust estate (s 97 of the Act). 111. It would not be to the point for Ceramics and Fresta to complain that the substance of the matter was that they were shareholders receiving the dividend declared. By reason of the structure adopted, they would have made it impossible for themselves to be regarded as the shareholders. | However, the ATO now accepts that, in situations with facts materially the same as those in Colonial First State , a retail fund is a beneficiary of a wholesale fund in respect of units in the wholesale fund that a custodian holds as trustee of a sub-trust for the retail fund. This means that in these situations the net income of the wholesale fund in respect of the relevant units is dealt with on the basis that the retail fund, not the custodian sub-trust, is the beneficiary in respect of those units. | Relevantly, the enquiry in Colonial First State was whether the retail fund could be considered a beneficiary of the wholesale fund despite the interposition of the Custodian between the two funds. This enquiry arose only because the property held by the Custodian was an equitable interest in another trust (namely, units in the Wholesale Fund). Further, there was no practical problem in finding a direct relationship between the Retail Fund and the Wholesale Fund in that the Wholesale Fund was aware of the fact that the Retail Fund was the beneficiary of the Custodian. It is also noted that the trust estate of which the Custodian was trustee was a resident trust estate, as was the Retail Fund. In the Commissioner's view, at a minimum, all of these factors are material. | Present entitlement issue | The ATO accepts that the test of present entitlement in Division 6 is not one that must be satisfied at the time income is derived by a trustee. However, for all trusts, the test is one that must be satisfied by the end of the relevant income year. | Income of the trust estate and share of net income issues | The decision in respect of these issues is in accordance with the ATO's understanding, following the High Court decision in Bamford , of the way in which the trust assessing provisions apply. | 115-C issue | The decision in respect of this issue is consistent with the ATO's understanding of the operation of Subdivision 115-C of the ITAA 1997. | That is, under the proportionate approach confirmed in Bamford , the amount included in a beneficiary's assessable income under section 97 consists of an un-dissected proportionate share of the entirety of the trust's net income (that is a blended amount). | Accordingly, the part of a beneficiary's share of the trust's net income that is attributable to a particular capital gain made by the trustee of a trust estate is simply the beneficiary's proportionate share of so much of that gain as is reflected in the trust's net income. Stone J's decision that, to determine the amount included in a beneficiary's assessable income under subsection 97(1), the proportion of the income of the trust to which a beneficiary is presently entitled must be applied to 'the whole of the net income' of the trust supports this view. [See at paragraphs 54 to 56]. | C2 issue | The decision confirms the ATO view on this issue. | Distributable income issue | Stone J's observations in respect of this issue support the Commissioner's view that notional amounts, to the extent they are not represented by any net accretion to the trust estate, such as franking credits, cannot form part of the distributable income of a trust estate. The consequence of this is that such amounts do not form part of the 'income of the trust estate' for Division 6 purposes. | Fixed entitlement issue | The decision confirms the ATO view that very few trusts satisfy the definition of 'fixed trust' in section 272-65 of Schedule 2F in the absence of the exercise of the Commissioner's discretion (essentially because beneficiary entitlements to income or capital are generally liable to be defeated by the exercise of a power in the deed or by a statutory power).", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | Custodian issue | As set out above, the Commissioner's view is that so-called 'bare trusts' (including those referred to as nominee or custodian arrangements) are recognised for all income tax purposes (except pursuant to relevant CGT provisions and in cases materially the same as those in Colonial First State). Contrary to this view, the Commissioner understands that there is a current practice of essentially ignoring bare trusts for most income tax purposes, except in situations where the trustee has an obligation to withhold tax or is otherwise liable to pay tax in respect of a beneficiary (for example, pursuant to section 98 of the ITAA 1936). | Reform options to address this issue are currently being considered by Government (see the options paper released by the then Assistant Treasurer on 21 November 2011 Modernising the taxation of trust income - options for reform, in particular at sections 3.1 and 7.1). | Accordingly, and notwithstanding his view on this issue, the Commissioner will not generally seek to disturb the current practice (as described above) while these reform options are being considered. However, if the Commissioner is asked or required to state his view formally, then he will do so as he understands the law to operate (namely that Division 6 of Part III of the ITAA 1936 applies in determining who is taxed on the income of all bare trusts and in what amount - aside from cases with facts materially the same as those in Colonial First State). Examples of circumstances in which the Commissioner would be obliged to state and apply his view of the law as he understands it to operate include: the provision of a private or public ruling; putting arguments and submissions to the Tribunal or a Court in a litigation matter; and responding to issues raised at an ATO consultation forum, such as the National Tax Liaison Group (NTLG) or one of its Sub-groups. | The Commissioner will review this approach in the event that amendments have not been made to the law (addressing whether Division 6 applies to bare trusts) by 1 July 2014, which is the proposed date for enactment of the reforms referred to in the previous paragraph (see Modernising the taxation of trust income - consultation strategy). | Present entitlement issue | Taxation Rulings IT 328 and 329 indicate that the Commissioner accepts that a payment or application of income within two months of the close of an income year can give rise to a present entitlement to income as at year end. | The practice was introduced because of difficulties trustees encountered in calculating, by year end, the amount of business income [1] available for distribution to beneficiaries. This was in an environment when resolutions generally quantified the amount of each beneficiary's entitlement rather than allocating a proportion of that income to them. | These Rulings were also published at a time before 'default beneficiary' clauses were in common usage. [2] Those clauses are now commonly used in trust deeds in an attempt to ensure that beneficiaries are presently entitled to all of the income of a trust as at the end of the income year, with the result that no amount of the trust's net income is assessable to the trustee under section 99A. | For practical purposes the rulings can only ever have relevance in the case of a trust that does not require the trustee to appoint income by 30 June. For all trusts, a payment or application must be made in accordance with the trust deed and it is not and cannot be the practice of the Commissioner to advocate or sanction a breach of trust by accepting a distribution of income pursuant to a resolution made after the time prescribed by a deed. | Nevertheless, the decision in this case now makes it clear that the administrative practice is unsustainable in any case. If a beneficiary were to take the point that a resolution made after the end of the income year could not operate to confer a present entitlement by the end of an income year, the Commissioner might be obliged to concede any assessment based on it. | Accordingly the Commissioner has withdrawn these rulings. In recognition that this advice came so late in the 2010-11 income year, the rulings were only withdrawn with effect from 1 September 2011. | Income of the trust estate, share of net income, 115-C and distributable income issues | Amendments to the law to enable the streaming of capital gains and franked distributions in appropriate cases were made by Tax Laws Amendment (2011 Measures No. 5) Act 2011, with effect from the 2010-11 income year. | The Government has also announced [3] changes will be made to the law to better align the concept of 'income of the trust estate' with 'net income of the trust estate' as part of the broader process of updating the trust income tax provisions and rewriting them into the ITAA 1997. | The ATO, in consultation with the NTLG Trust Consultation Sub-group, will continue to monitor the need for rulings on the current law (and their content), including in respect of any amendments to the law. | Fixed entitlement issue | The ATO has previously considered issuing a public ruling about the fixed entitlement test in the trust loss provisions in Schedule 2F. The ATO has previously concluded that, even on a purposive and contextual interpretation of the actual words used in the legislation, an interpretative position could not be reached that aligned with industry expectations. The indefeasibility requirement was significant in that respect. [4] | The issue was also considered by the Board of Taxation as part of its review of the taxation arrangements applying to Managed Investment Trusts (MIT). The ATO does not propose to prioritise the fixed entitlement matter as a ruling topic while work on the MIT reforms is being undertaken. | In that regard the Government response [5] to that review indicated: | Recommendation 43 | The Board recommends that a trust which qualifies as a Regime MIT will be deemed to be a fixed trust for all other provisions of the taxation law. | The Government agrees to this recommendation in principle in respect of MITs that have clearly defined entitlements. The design details, including appropriate integrity rules, will be developed in the context of developing the new MIT regime. | Recommendation 47 | The Board recommends that a general review of the fixed trust rules be undertaken with the aim of increasing certainty and reducing compliance costs for other unit trusts. | The Government agrees to this recommendation. | Implications for Law Administration Practice Statements | Law Administration Practice Statement PS LA 2000/2 - this Practice Statement relieves certain trustees from the obligation to lodge income tax returns (including the trustee of a 'transparent trust' which, for the purposes of the Practice Statement, is described as 'a trust in which the beneficiary of the trust estate has an absolute, indefeasible entitlement to the capital and the income of the trust'). | However, this lodgment exemption does not relieve trustees or beneficiaries of their obligations under Division 6 of Part III of the ITAA 1936 (or under the new rules in Subdivisions 115-C and 207-B of the ITAA 1997) or other obligations relating to withholding or reporting. In particular, the lodgment exemption provided for by the Practice Statement does not relieve trustees of any liability they may have to pay tax under section 98, 99 or 99A. | Read in context, the lodgment exemption provided for by the Practice Statement only applies to income years in which a trustee is not liable for tax on a share of the net income of the trust estate (see paragraph 11 of the Practice Statement). The Commissioner understands that this is also the approach generally taken by trustees. That is, trustees have been complying with their withholding and other obligations (including the obligation to pay tax in appropriate circumstances under section 98, 99 or 99A); and they have not viewed the Practice Statement as in any way absolving them from such obligations. | Nonetheless, the Practice Statement has been amended to make it clear that the lodgment exemption does not exempt trustees or beneficiaries from their responsibilities under Division 6 of Part III; and that a trustee will be obliged to lodge an income tax return for any income year in which the application of Division 6 resulted in the trustee having a liability under section 98, 99 or 99A. Put another way, the lodgment exemption applies only for an income year in which the whole of the trust's net income is assessed to beneficiaries - noting that a determination as to whether the whole of the trust's net income is assessed to beneficiaries, and as to the share of the trust's net income to be assessed to a particular beneficiary, can of course only be made by applying the rules in Division 6 and those in Subdivision 115-C and 207-B of the ITAA 1997. | Law Administration Practice Statement PS LA 2002/11 - our administrative practice which requires each request for the Commissioner's discretion to treat a trust as a 'fixed trust' to be escalated to the Losses and Capital Gains Tax Centre of Expertise will be maintained. | [1] Although the two month concession was for discretionary trusts with business income, it has been applied to all trusts. | [2] IT 328 was published in May 1966 and its two month administrative practice was endorsed in IT 329 in 1980. | [3] See Assistant Treasurer Media release No. 025 (16 December 2010) 'Farmers benefit with changes to Trust Laws' and Media release No. 052 (13 April 2011) 'Improving the taxation of trust income'; and the options paper released on 21 November 2011 Modernising the taxation of trust income - options for reform. | [4] See Issues Register for NTLG Trust Consultation Sub-group. | [5] See Assistant Treasurer Media Release No. 086 (7 May 2010) 'New Tax System for Managed Investment Trusts'.", "Related_Documents": "Income Tax Ruling IT 328 | Income Tax Ruling IT 329 | PS LA 2000/2 | PS LA 2002/11 | 2011 ATC 20-235 | 601FC(1)(i) | 601GC | 601GC(1)(a) | 601GC(1)(b) | Division 6 of Part III | 95 | 95A(2) | 97 | 97(1) | 97(1)(a) | 98 | 99 | 99A | 101 | Subdivision 272-A of Schedule 2F | 272-5 of Schedule 2F | 272-5(1) of Schedule 2F | 272-5(2) of Schedule 2F | 272-65 of Schedule 2F | Division 102 | 102-5 | 102-5(1) | 104-25(1)(a) | 104-25(3) | 106-50 | Subdivision 115-C | 115-200 | 115-210 | 115-215 | 118-20 | Subdivision 207-B | 359-10 | 359-60 | 2009 ATC 20-105 | 2006 ATC 4752 | 2010 ATC 20-170 | 2007 ATC 4236 | (1990) 92 ALR 1 | 89 ATC 4377 | 91 ATC 5000 | [2009] NSWSC 243 | 2008 ATC 20-048 | (1992) 10 ACLC 906 | 98 ATC 4681", "Legislative_References": "Corporations Act 2001 (Cth) 601FC(1)(i) 601GC 601GC(1)(a) 601GC(1)(b) Income Tax Assessment Act 1936 (Cth) Division 6 of Part III 95 95A(2) 97 97(1) 97(1)(a) 98 99 99A 101 Subdivision 272-A of Schedule 2F 272-5 of Schedule 2F 272-5(1) of Schedule 2F 272-5(2) of Schedule 2F 272-65 of Schedule 2F Income Tax Assessment Act 1997 (Cth) Division 102 102-5 102-5(1) 104-25(1)(a) 104-25(3) 106-50 Subdivision 115-C 115-200 115-210 115-215 115-215(6) 118-20 118-20 Subdivision 207-B Taxation Administration Act 1953 (Cth) 359-10 359-60", "Case_References": "Bamford v Federal Commissioner of Taxation (2009) 176 FCR 250 2009 ATC 20-105 (2009) 73 ATR 49 Cajkusic v Federal Commissioner of Taxation (2006) 155 FCR 430 2006 ATC 4752 (2006) 64 ATR 676 Commissioner of Taxation v Bamford (2010) 240 CLR 481 2010 ATC 20-170 75 ATR 1 Commissioner of Taxation v Indooroopilly Children Services (Qld) Pty Ltd (2007) 158 FCR 325 2007 ATC 4236 (2007) 65 ATR 369 Corin v Patton (1990) 169 CLR 540 (1990) 92 ALR 1 Davis v Federal Commissioner of Taxation (1989) 86 ALR 195 89 ATC 4377 (1989) 20 ATR 548 Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 91 ATC 5000 (1991) 22 ATR 726 ING Funds Management Ltd v ANZ Nominees Ltd [2009] NSWSC 243 Kafataris v Deputy Commissioner of Taxation (2008) 172 FCR 242 2008 ATC 20-048 (2008) 73 ATR 531 Smith v Permanent Trustee Australia Ltd (1992) 10 ACLC 906 Zeta Force Pty Ltd v Commissioner of Taxation (1998) 84 FCR 70 98 ATC 4681 (1998) 39 ATR 277", "Subject_References": "unit trust redemption of units managed investment fund fixed trust present entitlement capital gains proportionate approach retail and wholesale funds custodians bare trusts", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1190of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Administrative Appeals Tribunal", "Venue_Reference_No": "VID 738 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "17 March 2011", "Date_Published": "17 June 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse decision.", "Summary_of_Decision": "Review rights where the Commissioner refuses to make a determination in relation to contributions under s 292-465 of the Income Tax Assessment Act 1997(Cth ) (prior to amendments made by the Superannuation Legislation Amendment Act 2010 ) ( Cth )", "Overview_of_Facts": "• This was an appeal by the Commissioner against a decision of the Administrative Appeals Tribunal ('AAT') that it did not have jurisdiction to review certain excess contributions tax ('ECT') assessments on the basis of the Commissioner's refusal to exercise his discretion in relation to excess superannuation contributions. • The taxpayers in the case before the AAT sought review of certain objection decisions purportedly made under Part IVC of the Taxation Administration Act 1953 ('TAA 1953') in relation to their ECT assessments. The taxpayers argued that the Commissioner should have made a determination in their favour under s 292-465 of the Income Tax Assessment Act 1997 ('ITAA 1997') to disregard excess contributions they had made, or to allocate them to another financial year. • On 3 August 2010, the AAT held that it did not have jurisdiction to review the taxation objections on this basis: McMennemin & Anor v Federal Commissioner of Taxation [2010] AATA 573; 2010 ATC 10-145. • The Commissioner appealed to the Federal Court under s 44 of the Administrative Appeals Tribunal Act 1975 and, in the alternative, sought relief under s 39B of the Judiciary Act 1903 in relation to the AAT's decision. • On 16 November 2010, the Superannuation Legislation Amendment Act 2010 received the Royal Assent. The legislation clarifies that an ECT assessment is reviewable under Part IVC of the TAA 1953 on the basis of the Commissioner's discretion in s 292-465 of the ITAA 1997. However, the legislation only applies where the taxpayer applied for the determination on or after 17 November 2010. | • This was an appeal by the Commissioner against a decision of the Administrative Appeals Tribunal ('AAT') that it did not have jurisdiction to review certain excess contributions tax ('ECT') assessments on the basis of the Commissioner's refusal to exercise his discretion in relation to excess superannuation contributions. • The taxpayers in the case before the AAT sought review of certain objection decisions purportedly made under Part IVC of the Taxation Administration Act 1953 ('TAA 1953') in relation to their ECT assessments. The taxpayers argued that the Commissioner should have made a determination in their favour under s 292-465 of the Income Tax Assessment Act 1997 ('ITAA 1997') to disregard excess contributions they had made, or to allocate them to another financial year. • On 3 August 2010, the AAT held that it did not have jurisdiction to review the taxation objections on this basis: McMennemin & Anor v Federal Commissioner of Taxation [2010] AATA 573; 2010 ATC 10-145. • The Commissioner appealed to the Federal Court under s 44 of the Administrative Appeals Tribunal Act 1975 and, in the alternative, sought relief under s 39B of the Judiciary Act 1903 in relation to the AAT's decision. • On 16 November 2010, the Superannuation Legislation Amendment Act 2010 received the Royal Assent. The legislation clarifies that an ECT assessment is reviewable under Part IVC of the TAA 1953 on the basis of the Commissioner's discretion in s 292-465 of the ITAA 1997. However, the legislation only applies where the taxpayer applied for the determination on or after 17 November 2010. | Issues decided by the court | • By majority, the Full Federal Court held that the AAT was correct to conclude that the assessments could not be reviewed under Part IVC of the TAA 1953 on the basis of the Commissioner's refusal to make a determination under s 292-465 of the ITAA 1997. • The Commissioner argued that his refusal to make the determinations was 'integral' to the process of assessment, or was 'sufficiently connected' to that process to be reviewable as part of the assessment. The majority held that the Commissioner's submission was inconsistent with the scheme established by Part IVC of the TAA 1953, which was designed to avoid uncertainties surrounding the question of what decisions are or are not connected or integral to the process of assessment. The majority found particular difficulty in the fact that a determination could only be made after an assessment had issued, and would not necessarily lead to the making of an amended assessment. Their Honours also found that the legislative amendments made in 2010 suggested, if anything, that prior to those amendments the legislation did not have the effect argued for by the Commissioner. • Downes J's dissenting view was that the assessments could be reviewed under Part IVC of the TAA 1953 on the basis of the Commissioner's decision not to make a determination. His Honour held that an objection to an assessment which challenged that decision was simply an objection to the assessment. His Honour also found that the legislative amendments made in 2010 appeared to reflect an intention that the relevant provisions were always to have the operation which his Honour found them to have had. | • By majority, the Full Federal Court held that the AAT was correct to conclude that the assessments could not be reviewed under Part IVC of the TAA 1953 on the basis of the Commissioner's refusal to make a determination under s 292-465 of the ITAA 1997. • The Commissioner argued that his refusal to make the determinations was 'integral' to the process of assessment, or was 'sufficiently connected' to that process to be reviewable as part of the assessment. The majority held that the Commissioner's submission was inconsistent with the scheme established by Part IVC of the TAA 1953, which was designed to avoid uncertainties surrounding the question of what decisions are or are not connected or integral to the process of assessment. The majority found particular difficulty in the fact that a determination could only be made after an assessment had issued, and would not necessarily lead to the making of an amended assessment. Their Honours also found that the legislative amendments made in 2010 suggested, if anything, that prior to those amendments the legislation did not have the effect argued for by the Commissioner. • Downes J's dissenting view was that the assessments could be reviewed under Part IVC of the TAA 1953 on the basis of the Commissioner's decision not to make a determination. His Honour held that an objection to an assessment which challenged that decision was simply an objection to the assessment. His Honour also found that the legislative amendments made in 2010 appeared to reflect an intention that the relevant provisions were always to have the operation which his Honour found them to have had.", "Issues_Decided": "• By majority, the Full Federal Court held that the AAT was correct to conclude that the assessments could not be reviewed under Part IVC of the TAA 1953 on the basis of the Commissioner's refusal to make a determination under s 292-465 of the ITAA 1997. • The Commissioner argued that his refusal to make the determinations was 'integral' to the process of assessment, or was 'sufficiently connected' to that process to be reviewable as part of the assessment. The majority held that the Commissioner's submission was inconsistent with the scheme established by Part IVC of the TAA 1953, which was designed to avoid uncertainties surrounding the question of what decisions are or are not connected or integral to the process of assessment. The majority found particular difficulty in the fact that a determination could only be made after an assessment had issued, and would not necessarily lead to the making of an amended assessment. Their Honours also found that the legislative amendments made in 2010 suggested, if anything, that prior to those amendments the legislation did not have the effect argued for by the Commissioner. • Downes J's dissenting view was that the assessments could be reviewed under Part IVC of the TAA 1953 on the basis of the Commissioner's decision not to make a determination. His Honour held that an objection to an assessment which challenged that decision was simply an objection to the assessment. His Honour also found that the legislative amendments made in 2010 appeared to reflect an intention that the relevant provisions were always to have the operation which his Honour found them to have had. • By majority, the Full Federal Court held that the AAT was correct to conclude that the assessments could not be reviewed under Part IVC of the TAA 1953 on the basis of the Commissioner's refusal to make a determination under s 292-465 of the ITAA 1997. • The Commissioner argued that his refusal to make the determinations was 'integral' to the process of assessment, or was 'sufficiently connected' to that process to be reviewable as part of the assessment. The majority held that the Commissioner's submission was inconsistent with the scheme established by Part IVC of the TAA 1953, which was designed to avoid uncertainties surrounding the question of what decisions are or are not connected or integral to the process of assessment. The majority found particular difficulty in the fact that a determination could only be made after an assessment had issued, and would not necessarily lead to the making of an amended assessment. Their Honours also found that the legislative amendments made in 2010 suggested, if anything, that prior to those amendments the legislation did not have the effect argued for by the Commissioner. • Downes J's dissenting view was that the assessments could be reviewed under Part IVC of the TAA 1953 on the basis of the Commissioner's decision not to make a determination. His Honour held that an objection to an assessment which challenged that decision was simply an objection to the assessment. His Honour also found that the legislative amendments made in 2010 appeared to reflect an intention that the relevant provisions were always to have the operation which his Honour found them to have had.", "ATO_View_of_Decision": "The effect of the Court's ruling is that taxpayers will not be able to use the process in Part IVC of the TAA 1953 to seek review of certain assessments made under Division 292 of the ITAA 1997. | Specifically, an ECT assessment will not be reviewable under Part IVC of the TAA 1953 to the extent that: • the basis for review is a determination, or refusal to make a determination under s 292-465 of the ITAA 1997 (for convenience, 'a s 292-465 decision'); and • the taxpayer applied for the determination before 17 November 2010. | • the basis for review is a determination, or refusal to make a determination under s 292-465 of the ITAA 1997 (for convenience, 'a s 292-465 decision'); and • the taxpayer applied for the determination before 17 November 2010. | In such cases, the s 292-465 decision ('affected decision') is not part of the process of assessment. | Conversely, the Court's ruling is not considered to affect the ability of a taxpayer to obtain review under Part IVC of the TAA 1953 of an ECT assessment: • on the basis of a s 292-465 decision where the taxpayer applied for the determination on or after 17 November 2010; or • on a basis other than a s 292-465 decision | • on the basis of a s 292-465 decision where the taxpayer applied for the determination on or after 17 November 2010; or • on a basis other than a s 292-465 decision | Although the Court was concerned with the effect of the Commissioner's refusal to make a determination under s 292-465, its conclusion is considered to apply equally where the Commissioner makes such a determination. The Commissioner's inability to make that determination prior to the original assessment indicates that the determination is outside of the assessment process. While a taxpayer may be dissatisfied with the determination, Part IVC review only applies to an ECT assessment; and an amended assessment issued to give effect to a determination could only reduce the taxpayer's liability relative to their liability under the original assessment. | Conversely, the Federal Court appeared to accept that the legislative amendments made in 2010 enabled the review of an ECT assessment on the basis of a refusal to make a determination which the taxpayer applied for on or after 17 November 2010. This conclusion is considered to apply whether the refusal occurs before or after the issue of the original assessment.", "Administrative_Treatment": "The Commissioner will decline to formally consider a taxation objection to the extent that it purports to be made under Part IVC of the TAA 1953 but is based upon a s 292-465 decision which the taxpayer applied for before 17 November 2010. | The Commissioner also expects that the AAT would dismiss, for want of jurisdiction, any application for review of a purported objection decision or ECT assessment to the extent that it purports to be made under Part IVC of the TAA 1953 but is based upon a s 292-465 decision which the taxpayer applied for before 17 November 2010. If any such applications are received, the Commissioner will draw this decision to the attention of the AAT and seek dismissal of the application. | The Commissioner will not formally consider a subsequent application to disregard or reallocate contributions which are already covered by a valid s 292-465 decision. Once such a decision has been made, the Commissioner's statutory power to make or refuse to make a determination is considered to have been exhausted. | While the law does not allow taxpayers to formally object to an affected decision under Part IVC of the TAA 1953, taxpayers can still talk to the ATO about the decision in order to ensure that there has not been any misunderstanding. If a taxpayer asks, in most cases the ATO will review the decision, consistent with good administrative practice. | Depending on the circumstances, a taxpayer who is dissatisfied with an affected decision may be able to seek review of that decision outside of Part IVC of the TAA 1953; for example under the Administrative Decisions ( Judicial Review ) Act 1977 . Taxpayers requiring information on alternative avenues of review should seek independent advice. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "N/A | 2011 ATC 20-248 | Administrative Decisions (Judicial Review) Act 1977 (Cth) | Administrative Appeals Act 1975 (Cth) | Income Tax Assessment Act 1936 (Cth) | Income Tax Assessment Act 1997 (Cth) | Taxation Administration Act 1953 (Cth) | Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth) | 91 ATC 4195 | 85 ATC 4592 | 84 ATC 4273 | 2003 ATC 5179 | 2008 ATC 20-039 | 86 ATC 4329 | 95 ATC 4067 | 85 ATC 4465 | 90 ATC 4342 | 86 CLR 183 | 88 ATC 4300 | 2001 ATC 4572 | 92 ATC 4013 | 2008 ATC 20-037 | 2005 ATC 4537 | 84 ATC 4744 | [2006] HCA 45 | 63 ATR 409 | 85 ATC 4544 | 2002 ATC 4730 | 42 ALR 260 | [2008] AATA 619 | 83 ATC 4534 | [2008] HCA 31 | [2010] HCA 28 | 36 ALR 64", "Legislative_References": "Administrative Decisions (Judicial Review) Act 1977 (Cth) Administrative Appeals Act 1975 (Cth) Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Judiciary Act 1903 (Cth) Superannuation Legislation Amendment Act 2010 (Cth) Taxation Administration Act 1953 (Cth) Taxation Laws Amendment Act (No. 3) 1991 (Cth) Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth)", "Case_References": "Allina Pty Limited v Commissioner of Taxation (1991) 28 FCR 203 21 ATR 1320 91 ATC 4195 Balnaves v Commissioner of Taxation (1985) 8 FCR 589 16 ATR 892 85 ATC 4592 Deputy Commissioner of Taxation v Clarke and Kann (1984) 1 FCR 322 15 ATR 483 84 ATC 4273 Commissioner of Taxation v Energy Resources of Australia Ltd [2003] FCAFC 314 135 FCR 346 2003 ATC 5179 54 ATR 608 Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32 237 CLR 146 69 ATR 41 2008 ATC 20-039 Constable Holdings Pty Ltd v Commissioner of Taxation (1986) 11 FCR 136 17 ATR 640 86 ATC 4329 Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 95 ATC 4067 29 ATR 644 Domaine Finance Pty Ltd v Commissioner of Taxation (Cth) (1985) 8 FCR 538 16 ATR 778 85 ATC 4465 Grain Elevators Board (Victoria) v President, Councillors and Ratepayers of the Shire of Dunmunkle [1946] VLR 372 73 CLR 70 [1946] ALR 273 Federal Commissioner of Taxation v Administrative Appeals Tribunal and AC Goode & Co Ltd (1990) 21 ATR 250 90 ATC 4342 George v Federal Commissioner of Taxation [1952] HCA 21 86 CLR 183 Hadfield Finance Pty Ltd v Federal Commissioner of Taxation (1988) 19 ATR 1083 88 ATC 4300 Harts Australia Ltd v Federal Commissioner of Taxation [2001] FCA 1188 48 ATR 37 2001 ATC 4572 Hepples v Federal Commissioner of Taxation [1992] HCA 3 173 CLR 492 22 ATR 852 92 ATC 4013 Interlego AG v Croner Trading Pty Ltd (1992) 39 FCR 348 Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124 168 FCR 566 2008 ATC 20-037 73 ATR 276 Isaacs v Commissioner of Taxation [2005] FCA 832 144 FCR 194 2005 ATC 4537 59 ATR 693 Intervest Corporation Pty Ltd v Commissioner of Taxation (1984) 3 FCR 591 15 ATR 1204 84 ATC 4744 McKinnon v Department of Treasury [2006] HCA 45 228 CLR 423 63 ATR 409 Mercantile Credits Ltd v Commissioner of Taxation (No 1) (1985) 8 FCR 510 16 ATR 855 85 ATC 4544 Meredith v Commissioner of Taxation [2002] FCAFC 271 125 FCR 308 2002 ATC 4730 50 ATR 528 Minister for Industry and Commerce v Tooheys (1982) 60 FLR 325 42 ALR 260 Re Command Recruitment Group (Qld) Pty Ltd v Commissioner of Taxation [2008] AATA 619 108 ALD 177 73 ATR 388 Re O'Reilly; Ex parte Bayford Wholesale Pty Ltd [1983] HCA 27 151 CLR 557 83 ATC 4534 14 ATR 610 Shi v Migration Agents Regulation Authority [2008] HCA 31 235 CLR 286 Spencer v The Commonwealth [2010] HCA 28 241 CLR 118 Tooheys Ltd v Minister for Business and Consumer Affairs (1981) 54 FLR 421 36 ALR 64", "Subject_References": "TAXATION superannuation non-concessional contributions cap and excess contributions tax the nature of the rights of review available to a taxpayer, if the Commissioner refuses to make a determination under s 292-465 of the Income Tax Assessment Act 1997 (Cth) (as it stood prior to the amendments provided by the Superannuation Legislation Amendment Act 2010 (Cth)) whether the rights of revielude an application to the Administrative Appeals Tribunal under Pt IVC of the Taxation Administration Act 1953 (Ctw include an application to the Administrative Appeals Tribunal under Pt IVC of the Taxation Administration Act 1953 (Cth)", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID738of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v American Express International Inc; Commissioner of Taxation v American Express Wholesale Currency Services Pty Limited", "Venue_Reference_No": "S 238-239 of 2010(High Court);NSD 698-699 of 2009 (Full Federal Court)", "Venue": "Federal Court of Australia", "Judgment_Date": "4 May 2011", "Date_Published": "7 February 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this matter which concerns the GST treatment of fees incurred for late payment under charge card and credit card facilities. The issue is whether the fees are consideration for an input taxed financial supply.", "Overview_of_Facts": "In calculating the amount of input tax credits to which it was entitled, American Express International Inc and American Express Wholesale Currency Services Pty Limited (together, \"Amex\") adopted a revenue-based apportionment methodology to determine their Extent of Creditable Purpose (ECP) under subsection 11-30(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as follows: [1-(revenue derived from input taxed supplies) / total revenue] x 100. In this formula, Amex excluded the following fees from the numerator while including them in the denominator: a) late payment fees received in respect of the credit card facility; and b) amounts described as \"liquidated damages\" received in respect of the charge card facility. The fees referred to in a) and b) above are collectively referred to as the \"Fee Payments\". Amex did not treat the Fee Payments as consideration for input taxed financial supplies. Accordingly, the calculation of the ECP resulted in a larger input tax credit entitlement than would otherwise be available and a corresponding reduction in net amount. | [1-(revenue derived from input taxed supplies) / total revenue] x 100. In this formula, Amex excluded the following fees from the numerator while including them in the denominator: a) late payment fees received in respect of the credit card facility; and b) amounts described as \"liquidated damages\" received in respect of the charge card facility. The fees referred to in a) and b) above are collectively referred to as the \"Fee Payments\". Amex did not treat the Fee Payments as consideration for input taxed financial supplies. Accordingly, the calculation of the ECP resulted in a larger input tax credit entitlement than would otherwise be available and a corresponding reduction in net amount. | In this formula, Amex excluded the following fees from the numerator while including them in the denominator: a) late payment fees received in respect of the credit card facility; and b) amounts described as \"liquidated damages\" received in respect of the charge card facility. | a) late payment fees received in respect of the credit card facility; and b) amounts described as \"liquidated damages\" received in respect of the charge card facility. | The fees referred to in a) and b) above are collectively referred to as the \"Fee Payments\". | Amex did not treat the Fee Payments as consideration for input taxed financial supplies. Accordingly, the calculation of the ECP resulted in a larger input tax credit entitlement than would otherwise be available and a corresponding reduction in net amount. | Issues decided by the court | Before the Full Federal Court, the Commissioner sought and was granted leave to amend his appeal statement to argue that the Fee Payments were revenue derived from the making of input taxed supplies for the purposes of the revenue formula as set out above. The Commissioner's argument at first instance was limited to whether the Fee Payments were consideration for input taxed supplies made by Amex. | The majority of the Full Federal Court found at [136] and [186] that: a) Amex provided an 'interest' for the purposes of regulation 40-5.02 of the GST Regulations being the right to present the charge card or credit card as payment without having immediately to part with money; b) that interest was an interest in or under a credit arrangement or right to credit under item 2 of the table in subregulation 40-5.09(3) of the GST Regulations; c) that interest was not a supply of an interest in or under a payment system for the purposes of item 4 of the table in regulation 40-5.12 of the GST Regulations; and d) the Fee Payments were revenue derived from the input taxed supplies of the interest in or under a credit arrangement or right to credit. | a) Amex provided an 'interest' for the purposes of regulation 40-5.02 of the GST Regulations being the right to present the charge card or credit card as payment without having immediately to part with money; b) that interest was an interest in or under a credit arrangement or right to credit under item 2 of the table in subregulation 40-5.09(3) of the GST Regulations; c) that interest was not a supply of an interest in or under a payment system for the purposes of item 4 of the table in regulation 40-5.12 of the GST Regulations; and d) the Fee Payments were revenue derived from the input taxed supplies of the interest in or under a credit arrangement or right to credit. | The issue before the High Court was whether to grant special leave to Amex to appeal the decision of the Full Federal Court. On 4 May 2011 a full bench of the High Court refused Amex's application.", "Issues_Decided": "Before the Full Federal Court, the Commissioner sought and was granted leave to amend his appeal statement to argue that the Fee Payments were revenue derived from the making of input taxed supplies for the purposes of the revenue formula as set out above. The Commissioner's argument at first instance was limited to whether the Fee Payments were consideration for input taxed supplies made by Amex. The majority of the Full Federal Court found at [136] and [186] that: a) Amex provided an 'interest' for the purposes of regulation 40-5.02 of the GST Regulations being the right to present the charge card or credit card as payment without having immediately to part with money; b) that interest was an interest in or under a credit arrangement or right to credit under item 2 of the table in subregulation 40-5.09(3) of the GST Regulations; c) that interest was not a supply of an interest in or under a payment system for the purposes of item 4 of the table in regulation 40-5.12 of the GST Regulations; and d) the Fee Payments were revenue derived from the input taxed supplies of the interest in or under a credit arrangement or right to credit. a) Amex provided an 'interest' for the purposes of regulation 40-5.02 of the GST Regulations being the right to present the charge card or credit card as payment without having immediately to part with money; b) that interest was an interest in or under a credit arrangement or right to credit under item 2 of the table in subregulation 40-5.09(3) of the GST Regulations; c) that interest was not a supply of an interest in or under a payment system for the purposes of item 4 of the table in regulation 40-5.12 of the GST Regulations; and d) the Fee Payments were revenue derived from the input taxed supplies of the interest in or under a credit arrangement or right to credit. The issue before the High Court was whether to grant special leave to Amex to appeal the decision of the Full Federal Court. On 4 May 2011 a full bench of the High Court refused Amex's application.", "ATO_View_of_Decision": "The Commissioner has expressed a view on the meaning of 'interest' under regulation 40-5.02 of the GST Regulations in paragraphs 78-81 of GSTR 2002/2. This view is consistent with the view of the majority of the Full Court that the right of the cardholder to present the charge card or credit card as payment without having immediately to part with money is an 'interest' for the purposes of sub regulation 40-5.02. | The decision that the 'interest' provided by Amex to a cardholder was an interest in or under a credit arrangement or right to credit under item 2 of the table in sub regulation 40-5.09(3) is consistent with the Commissioner's submissions to the Court. | The decision of the full bench of the High Court to refuse Amex's application for special leave means that the decision of the Full Federal Court remains undisturbed. The majority of the Full Court was not required to determine whether the Fee Payments were consideration for input taxed supplies made by Amex. The majority did decide, for the purposes of the formula used by Amex, that the Fee Payments were revenue derived from an input taxed supply. | The Commissioner's views expressed in GSTR 2002/2 and GSTR 2000/19 are consistent with Dowsett J's observations at [52] - [53] that a cardholder is effectively authorised to pledge Amex's \"credit\" and that, to the extent that any relevant interest was supplied by Amex, the promise to pay liquidated damages or late payment fees was consideration for such a supply. Dowsett J. also observed that there seems little justification for treating a promise to pay as consideration, but the actual payment as not being consideration. This may be contrasted to the decision of Emmett J. at first instance in which he found that the Fee Payments were not consideration in connection with a financial supply: ([2009] FCA 683 at [55] to [59]). Taking into account that the judgement at first instance was reversed on appeal, and the only member of the Full Court who addressed the issue considered that the Fee Payments were consideration for a financial supply, the Commissioner respectfully maintains the view expressed in GSTR 2002/2 and GSTR 2000/19 that such payments are consideration for financial supplies. | The Commissioner's view that, in the context of regulation 40-5.12 of the GST Regulations, a cardholder is not a participant in a payment system (see Line No A100 of Schedule to GSTR 2002/2 and paragraphs 249 and 255 of GSTR 2004/1) is consistent with the majority decision that Amex does not supply an interest in or under the payment system to a cardholder (at [136] and [180] - [181]). However, the majority observed at [181] that a merchant can be described as a participant in the payment system operated by Amex. The Commissioner's view had been that merchants were third parties in a payment system rather than participants in the system.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | The Commissioner has reviewed the view expressed in GSTR 2004/1 concerning the meaning of a participant in a payment system for the purposes of regulation 40-5.12 of the GST Regulations. The Commissioner's view has been updated to reflect the reasoning of the majority of the Court through Addendum GSTR 2004/1A3 which issued on 18 January 2012.", "Related_Documents": "GSTR 2000/19 | GSTR 2002/2 | GSTR 2004/1 | GSTR 2006/3 | [2010] FCAFC 122 | 2010 ATC 20-212 | A New Tax System (Goods and Services Tax) Act 1999 (Cth) | A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) | Taxation Administration Act 1953 (Cth) | (1905) 2 CLR 684 | (1999) 201 CLR 351 | [1965] AC 1175 | (1982) 158 CLR 327 | 98 ATC 4494 | (1954) 91 CLR 540 | (2003) 131 FCR 300 | 57 ATR 483 | [2000] FCA 1677 | 97 ATC 5015 | 4 ATR 60", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (Cth) A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) Payment Systems (Regulation) Act 1998 (Cth) Taxation Administration Act 1953 (Cth)", "Case_References": "Jack v Smail (1905) 2 CLR 684 [1905] HCA 25 Commissioner of Stamp Duties (NSW) v Yeend (1929) 43 CLR 235 [1929] HCA 39 Yanner v Eaton (1999) 201 CLR 351 [1999] HCA 69 National Provincial Bank Ltd v Ainsworth [1965] AC 1175 The Queen v Toohey; ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 [1982] HCA 69 Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 39 ATR 66 98 ATC 4494 [1998] HCA 33 National Trustees Executors and Agency co of Australasia Ltd v Federal Commissioner of Taxation (1954) 91 CLR 540 [1954] HCA 71 Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249 [2005] HCA 28 Xu v Council of the Law Society of New South Wales (2009) 236 FLR 480 [2009] NSWCA 430 Visa International Service Association & Anor v Reserve Bank of Australia (2003) 131 FCR 300 [2003] FCA 977 Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256 2006 ATC 4001 61 ATR 384 American Express International Inc v Commissioner of State Revenue [2004] VSCA 193 10 VR 145 57 ATR 483 Fitz-Gibbon v Inspector General in Bankruptcy (2000) 180 ALR 475 [2000] FCA 1677 Prime Wheat Association Limited v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505 37 ATR 479 97 ATC 5015 UG Insurances Pty Ltd v Commissioner of Stamp Duties for the State of New South Wales [1973] HCA 31 128 CLR 353 4 ATR 60", "Subject_References": "Goods and Services Tax Late payments and liquidated damages under charge card Credit card facilities Supply of an interest Interest in or under a debt Credit arrangement or right to credit Charges formed revenue Input taxed supplies Consideration for a financial supply", "Other_References": "GSTR 2000/19 GSTR 2002/2 GSTR 2006/3", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S238-239of010/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Ashwick (Qld) No 127 Pty Ltd & Ors", "Venue_Reference_No": "VID 034-047 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "8 April 2011", "Date_Published": "14 April 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO approach to this case which concerned whether multiple layers of deductions are allowable for bad debts, interest on borrowings and transferred tax losses, in relation to chains of loans between related companies within the Foster's Group.", "Overview_of_Facts": "The taxpayers were members of the Foster's Group, which was headed by Foster's Group Ltd (FGL). Among the group's diverse range of business activities was a financial services business conducted by subsidiaries collectively known as the Finance Group, which included EFGA (the holding company), ELFIC and EFGS. From late 1984, the funding of the Finance Group was organised through EFGA, which in turn lent to its subsidiaries, including ELFIC and EFGS. | The fortunes of the Finance Group deteriorated dramatically as a result of the stock market crash in 1987 and the introduction of capital adequacy guidelines by the Reserve Bank of Australia. While the Finance Group continued to grow during the financial year ended 30 June 1988, ELFIC and EFGS suffered operating losses that year and in subsequent years and in June 1989 required additional capital from EFGA in order to report positive net assets and retain the licences necessary to operate their businesses. | FGL's own fortunes also deteriorated dramatically when Harlin Holdings Pty Ltd launched a takeover bid for the Fosters' Group in 1989. | In March 1990, FGL announced that it would focus solely on its brewing business and divest itself of all its other businesses, including those conducted by the Finance Group. From that point on, EFGA focused on selling its assets and recovering loans which it had made to external borrowers. | After June 1990, following a downgrade in Foster's and EFGA's credit ratings, external lenders increasingly withdrew their funding from EFGA and replacement funding was provided by the Foster's Group through two chains of loans. The first chain began with a loan to EFGA from Amayana, which in turn borrowed from FBG Treasury (Aust), which conducted the Foster's Group's treasury activities and was the vehicle through which the banks lent to the Foster's Group. The second chain began with a loan to EFGA from EFG Treasury, which in turn borrowed from Foster's Group Limited (FGL). | From 1 September 1990, EFGA lent to ELFIC and EFGS and charged them the same rate it was charged by internal lenders, including FGL, EFGT and Amayana. The continued debt funding was intended to allow an orderly realisation of the residual assets of the Finance Group. As their assets declined so did the capacity of ELFIC, EFGS and EFGA to satisfy their internal loan obligations. | Another reason for the debt funding was the need to address potential claims by litigation creditors. In early 1991, EFGT was introduced into the funding structure as part of a security arrangement that was intended to ensure FGL would have priority over litigation creditors. However, the Amayana loan to EFGA was not included in the security arrangement. | In April 1991, the Finance Group made a request to the Foster's Group for $400 million in interest free funding to eliminate a budgeted loss for the 1992 financial year and prevent external auditors from requiring additional provisioning of $60 million in the Finance Group accounts. The proposal was rejected by the board of FGL. | As at 30 June 1991, the Finance Group on a consolidated basis had a deficiency in shareholders' funds of around $194 million. | In early 1998, a review was conducted to assess the prospects of recovering debts owed within the group which resulted in a recommendation that substantial amounts be written off as bad debts. Various members of the group (EFGA, Amayana, EFGT and FGL) subsequently claimed deductions of approximately $2.4 billion for unpaid principal and/or interest on loans made to other members of the group which were written off as bad debts. Deductions of almost $450 million were also claimed by certain members (EFGA, EFGT, EFGS, ELFIC and Amayana) in respect of interest on borrowings from other members of the group. Other members of the group (Ashwick, Nexday and EFGI) claimed deductions for losses transferred to them by the members who had claimed the bad debt and interest deductions. | The Commissioner issued amended assessments to the various members of the group denying the deductions claimed under s.8-1 or s.25-35 of the ITAA 1997. Alternatively, he determined that Part IVA applied to deny the deductions. | The taxpayers objected to the assessments, the Commissioner disallowed the objections and the taxpayers appealed to the Federal Court. At first instance, Ryan J held that EFGA and EFGT operated businesses of lending money and therefore deductions were available under s.25-35 for the whole of the amounts they had written off, but as FGL and Amayana had not been carrying on businesses of lending money the bad debts were only deductible to the extent that they contained a component representing unpaid interest. The interest deductions claimed were allowed and the bad debts, when written off, were allowable as transferable tax losses. Ryan J also held that Part IVA did not apply to cancel the deductions in respect of the continued charging of interest. (See [2009] FCA 1388) | The Full Federal Court held that the primary judge did not err in respect of any of the major issues and dismissed the Commissioner's appeals. | Issues decided by the court or tribunal | The primary questions at issue before the Full Federal Court were: | 1. Whether bad debts of $1,202,441,116 and $100,009,232 written off by EFGA in the 1998 income year in respect of loans to ELFIC and EFGS were deductible under s.25-35(1)(b) of the ITAA 1997; and in particular: (i) whether, after January 1990, it conducted a business of lending money; (ii) alternatively, whether money lent by it after January 1990 was money lent in the ordinary course of its business of lending money. | (i) whether, after January 1990, it conducted a business of lending money; (ii) alternatively, whether money lent by it after January 1990 was money lent in the ordinary course of its business of lending money. | 2. Whether bad debts of $525,260,163 and $133,165,341 written off by EFGT and Amayana (in respect of unpaid interest on loans to EFGA) and of $401,058,393 by FGL (in respect of unpaid interest on loans to EFGT) in the 1998 income year were deductible under s.25-35(1)(a) of the ITAA 1997; | 3. Whether interest expenses incurred by EFGT ($47,514,675), Amayana ($16,875,354), EFGA ($82,681,730), ELFIC ($294,850,133) and EFGS ($6,804,054)were deductible under s.8-1 of the ITAA 1997; and | 4. Whether the Commissioner was entitled to make the determinations he did under Part IVA of the ITAA 1936 in respect of the continued charging of interest. | Edmonds J, with whom Bennett and Middleton JJ agreed, held that unpaid principal and interest written off as bad were allowable deductions, and that Part IVA did not apply. | 1. Deductibility of bad debts under s.25-35(1)(b) | Edmonds J agreed with the primary judge that EFGA was entitled to a deduction under s.25-35(1) (b) of the ITAA 1997 for the amounts of the debts owing by ELFIC and EFGS that were written off by EFGA as bad in the 1998 year of income. Edmonds J held that EFGA continued to carry on a business of lending money after 1990, and that the loans made by EFGA to each of ELFIC and EFGA after 1990 were made in the ordinary course of that business, notwithstanding that its object in doing so was to wind up or discontinue that business. His Honour found that Ryan J had correctly considered the nature of EFGA's business activities after 1990 in the context of the economic and other external difficulties which adversely impacted upon the business it had conducted since 1985. Edmonds J rejected at [40] the contention that the internal financier activities were confined to serving the purposes of its parent company. | 2. Deductibility of bad debts under s.25-35(1)(a) | Edmonds J agreed with the primary judge that FGL, Amayana and EFGT were entitled to the deductions claimed. His Honour concluded that there was no evidence to support the Commissioner's submission that the taxpayers had no real expectation that interest would be paid on the loans they made. His Honour also rejected the Commissioner's argument that as the taxpayers did not carry on a business of lending money, they should have accounted for the interest on a cash basis. Edmonds J held that there was no dispute that the taxpayers carried on a business and that the loans were made in the course of those businesses. Further, having regard to basic accounting principles, the interest was correctly returnable on an accruals basis. | 3. Deductibility of interest expenses under s.8-1(1) | Edmonds J agreed with the primary judge's conclusion that the interest expenses claimed by EFGA, EFGT, ELFIC, EFGS and Amayana were incurred in carrying on a business for the purposes of gaining or producing assessable income and therefore deductible under s.8-1(1). His Honour found that there is no 'dichotomy in point of principle' between intra-group arrangements with no external aspect and transactions by parties dealing with each other at arm's length. The Court decided that the cases of Ure, Fletcher and Spassked, which were relied upon by the Commissioner, bear no correlation to the facts in this case. Further, there was no need to go beyond \"the obvious commercial explanation\" for incurring the interest by having regard to indirect objects or motives or subjective purposes. Edmonds J found that the explanation as to why the interest expense exceeded income derived arose due to the adverse economic factors affecting their business at the relevant time and not the independent pursuit of some objective other than producing assessable income. | His Honour also rejected the Commissioner's submission that, like the loans in Macquarie Finance, the loans in this case had features of permanent capital, rather than debt. In addition, the loans in relation to the post-1990 activities could be characterised in the same way as the loans in relation to the pre-1990 activities. Edmonds J stated that it \"will be a rare case where interest incurred by a company in raising money which it uses as capital or working capital in the course of its business is found to be of a capital nature\". | It followed that the losses were available to be transferred to Ashwick, Nexday and EFGI and were allowable deductions to those taxpayers. | 4. Part IVA | Edmonds J disagreed with the primary judge's findings that there was no scheme and that the taxpayers did not obtain any tax benefit in connection with the schemes identified by the Commissioner. His Honour accepted the view that the existence of an activity in the scheme at an earlier point in time to when the taxpayer entered into the scheme may entitle the Commissioner to trigger the application of Part IVA. His Honour found that the counterfactuals relied on by the Commissioner did not constitute a reasonable expectation as to what might have taken place if the scheme had not been entered into. | The Full Court in Ashwick (at para [153] (4) & (6)) expressed the same view as the Court in Trail Bros (at paras [44] & [52]) and AXA (at paras 131-133) that an element of the scheme may form part of an alternative postulate. On the other hand, there are a number of passages in Lenzo that suggest a different view, that is, that an element of the scheme may not form part of an alternative postulate: see, for example, paragraphs [121], [130] and [136]. | Although Edmonds J identified a scheme in Ashwick, his Honour held that, having regard to the matters in s.177D (b), it could not be concluded that any person who entered into or carried out the scheme did so for the sole or dominant purpose of enabling any of the taxpayers to obtain a tax benefit. Rather, Edmonds J found that the dominant purpose was re-financing for the purpose of asset protection, not tax minimisation.", "Issues_Decided": "The primary questions at issue before the Full Federal Court were: 1. Whether bad debts of $1,202,441,116 and $100,009,232 written off by EFGA in the 1998 income year in respect of loans to ELFIC and EFGS were deductible under s.25-35(1)(b) of the ITAA 1997; and in particular: (i) whether, after January 1990, it conducted a business of lending money; (ii) alternatively, whether money lent by it after January 1990 was money lent in the ordinary course of its business of lending money. (i) whether, after January 1990, it conducted a business of lending money; (ii) alternatively, whether money lent by it after January 1990 was money lent in the ordinary course of its business of lending money. 2. Whether bad debts of $525,260,163 and $133,165,341 written off by EFGT and Amayana (in respect of unpaid interest on loans to EFGA) and of $401,058,393 by FGL (in respect of unpaid interest on loans to EFGT) in the 1998 income year were deductible under s.25-35(1)(a) of the ITAA 1997; 3. Whether interest expenses incurred by EFGT ($47,514,675), Amayana ($16,875,354), EFGA ($82,681,730), ELFIC ($294,850,133) and EFGS ($6,804,054)were deductible under s.8-1 of the ITAA 1997; and 4. Whether the Commissioner was entitled to make the determinations he did under Part IVA of the ITAA 1936 in respect of the continued charging of interest. Edmonds J, with whom Bennett and Middleton JJ agreed, held that unpaid principal and interest written off as bad were allowable deductions, and that Part IVA did not apply. | 1. Deductibility of bad debts under s.25-35(1)(b): Edmonds J agreed with the primary judge that EFGA was entitled to a deduction under s.25-35(1) (b) of the ITAA 1997 for the amounts of the debts owing by ELFIC and EFGS that were written off by EFGA as bad in the 1998 year of income. Edmonds J held that EFGA continued to carry on a business of lending money after 1990, and that the loans made by EFGA to each of ELFIC and EFGA after 1990 were made in the ordinary course of that business, notwithstanding that its object in doing so was to wind up or discontinue that business. His Honour found that Ryan J had correctly considered the nature of EFGA's business activities after 1990 in the context of the economic and other external difficulties which adversely impacted upon the business it had conducted since 1985. Edmonds J rejected at [40] the contention that the internal financier activities were confined to serving the purposes of its parent company. | 2. Deductibility of bad debts under s.25-35(1)(a): Edmonds J agreed with the primary judge that FGL, Amayana and EFGT were entitled to the deductions claimed. His Honour concluded that there was no evidence to support the Commissioner's submission that the taxpayers had no real expectation that interest would be paid on the loans they made. His Honour also rejected the Commissioner's argument that as the taxpayers did not carry on a business of lending money, they should have accounted for the interest on a cash basis. Edmonds J held that there was no dispute that the taxpayers carried on a business and that the loans were made in the course of those businesses. Further, having regard to basic accounting principles, the interest was correctly returnable on an accruals basis. | 3. Deductibility of interest expenses under s.8-1(1): Edmonds J agreed with the primary judge's conclusion that the interest expenses claimed by EFGA, EFGT, ELFIC, EFGS and Amayana were incurred in carrying on a business for the purposes of gaining or producing assessable income and therefore deductible under s.8-1(1). His Honour found that there is no 'dichotomy in point of principle' between intra-group arrangements with no external aspect and transactions by parties dealing with each other at arm's length. The Court decided that the cases of Ure, Fletcher and Spassked, which were relied upon by the Commissioner, bear no correlation to the facts in this case. Further, there was no need to go beyond \"the obvious commercial explanation\" for incurring the interest by having regard to indirect objects or motives or subjective purposes. Edmonds J found that the explanation as to why the interest expense exceeded income derived arose due to the adverse economic factors affecting their business at the relevant time and not the independent pursuit of some objective other than producing assessable income. His Honour also rejected the Commissioner's submission that, like the loans in Macquarie Finance, the loans in this case had features of permanent capital, rather than debt. In addition, the loans in relation to the post-1990 activities could be characterised in the same way as the loans in relation to the pre-1990 activities. Edmonds J stated that it \"will be a rare case where interest incurred by a company in raising money which it uses as capital or working capital in the course of its business is found to be of a capital nature\". It followed that the losses were available to be transferred to Ashwick, Nexday and EFGI and were allowable deductions to those taxpayers. | 4. Part IVA: Edmonds J disagreed with the primary judge's findings that there was no scheme and that the taxpayers did not obtain any tax benefit in connection with the schemes identified by the Commissioner. His Honour accepted the view that the existence of an activity in the scheme at an earlier point in time to when the taxpayer entered into the scheme may entitle the Commissioner to trigger the application of Part IVA. His Honour found that the counterfactuals relied on by the Commissioner did not constitute a reasonable expectation as to what might have taken place if the scheme had not been entered into. The Full Court in Ashwick (at para [153] (4) & (6)) expressed the same view as the Court in Trail Bros (at paras [44] & [52]) and AXA (at paras 131-133) that an element of the scheme may form part of an alternative postulate. On the other hand, there are a number of passages in Lenzo that suggest a different view, that is, that an element of the scheme may not form part of an alternative postulate: see, for example, paragraphs [121], [130] and [136]. Although Edmonds J identified a scheme in Ashwick, his Honour held that, having regard to the matters in s.177D (b), it could not be concluded that any person who entered into or carried out the scheme did so for the sole or dominant purpose of enabling any of the taxpayers to obtain a tax benefit. Rather, Edmonds J found that the dominant purpose was re-financing for the purpose of asset protection, not tax minimisation.", "ATO_View_of_Decision": "The ATO has not appealed against the Full Federal Court's decision. | This case turns very much on its own facts and the findings made by the Federal Court. The ATO accepts the view that what is or is not in the ordinary course of a taxpayer's business of lending money must be determined by reference to the context in which the business was carried on by the taxpayer. | It is noted that the tax consolidation company group provisions disregard transactions, including loans, between entities within the company group. Although the case is in respect of related party financing prior to the introduction of the tax consolidation company group regime, the policy implications of the decision on post tax consolidation choices by both domestic and foreign based groups are being examined. | In relation to the application of Part IVA, the possible inconsistency in the Full Federal Court between Lenzo on the one hand and Trail Bros and Ashwick on the other as to whether the allowable deduction (if any) identified in the alternative postulate has to be of the same kind or character as that allowable (but for Part IVA) under the scheme, creates some uncertainty for both taxpayers and the Commissioner. | The Commissioner will take all decisions of the High Court and Federal Court into account in applying Part IVA to the particular facts of cases. The Commissioner notes however the weight of authority now provided by the judgments in Trail Bros , AXA and Ashwick on the interpretation of s.177C (1).", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None.", "Related_Documents": "TR 92/18 | 2011 ATC 20-255 | Part IVA | 88 ATC 4627 | 2010 ATC 20-222 | 2010 ATC 20-224 | 90 ATC 4168 | 84 ATC 4580 | 2004 ATC 4599 | 2010 ATC 20-198 | 95 ATC 4117 | (1938) 63 CLR 108 | 92 ATC 4380 | 98 ATC 4983 | 96 ATC 4975 | 2010 ATC 20-169 | 2008 ATC 20-014 | 72 FLR 116 | 83 ATC 4715 | 2009 ATC 20-138 | 91 ATC 4950 | 90 ATC 4413 | (1946) 72 CLR 634 | 91 ATC 4538 | 2004 ATC 4866 | 2005 ATC 4829 | 80 ATC 4542 | 2003 ATC 5099 | 2009 ATC 20-103 | 2008 ATC 20-018 | 99 ATC 4242 | (1940) 63 CLR 382 | 81 ATC 4100", "Legislative_References": "Income Tax Assessment Act 1997 8-1 25-35 Income Tax Assessment Act 1936 Part IVA", "Case_References": "Australian National Hotels Ltd v Federal Commissioner of Taxation (1988) 19 FCR 234 19 ATR 1575 88 ATC 4627 British American Tobacco Services Limited v Federal Commissioner of Taxation (2010) 189 FCR 151 [2010] FCAFC 130 2010 ATC 20-222 Commissioner of Inland Revenue v The National Bank of New Zealand (1976) 2 NZTC 61,150 Commissioner of Taxation v AXA Asia Pacific Holdings Ltd [2010] FCAFC 134 2010 ATC 20-224 Commissioner of Taxation v Bivona Pty Ltd (1990) 21 FCR 562 90 ATC 4168 21 ATR 151 Commissioner of Taxation v EA Marr & Sons (Sales) Ltd (1984) 2 FCR 326 84 ATC 4580 15 ATR 879 Commissioner of Taxation v Hart (2004) 217 CLR 216 55 ATR 712 2004 ATC 4599 Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd [2010] FCAFC 94 2010 ATC 20-198 79 ATR 780 Commissioner of Taxation v Unilever Australia Securities Limited (1995) 56 FCR 152 30 ATR 134 95 ATC 4117 Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd (1938) 63 CLR 108 Commonwealth of Taxation v Roberts and Smith (1992) 37 FCR 246 23 ATR 494 92 ATC 4380 CPH Property Pty Ltd v Federal Commissioner of Taxation (1998) 88 FCR 21 40 ATR 151 98 ATC 4983 Favaro v Federal Commissioner of Taxation (1996) 34 ATR 1 96 ATC 4975 Federal Commissioner of Taxation v BHP Billiton Finance Ltd (2010) 182 FCR 526 [2010] FCAFC 25 2010 ATC 20-169 76 ATR 472 Federal Commissioner of Taxation v Lenzo (2008) 167 FCR 255 2008 ATC 20-014 71 ATR 511 Federal Commissioner of Taxation v National Commercial Banking Corporation of Australia Ltd (1983) 50 ALR 322 72 FLR 116 15 ATR 21 83 ATC 4715 Federal Commissioner of Taxation v Tasman Group Services Pty Ltd (2009) 180 FCR 128 [2009] FCAC 148 2009 ATC 20-138 74 ATR 739 Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1 22 ATR 613 91 ATC 4950 [1991] HCA 42 GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124 21 ATR 1 90 ATC 4413 [1990] HCA 25 Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634 Kidston Goldmines Limited v Commissioner of Taxation (1991) 30 FCR 77 22 ATR 168 91 ATC 4538 Levin & Co Ltd v Commissioner of Inland Revenue [1963] NZLR 801 Macquarie Finance Ltd v Commissioner of Taxation (2004) 210 ALR 508 [2004] FCA 1170 57 ATR 115 2004 ATC 4866 Macquarie Finance Ltd v Commissioner of Taxation (2005) 146 FCR 77 [2005] FCAFC 20 2005 ATC 4829 61 ATR 1 Magna Alloys & Research Pty Ltd v Federal Commissioner of Taxation (1980) 33 ALR 213 11 ATR 276 80 ATC 4542 [1980] FCA 150 Spassked Pty Ltd v Commissioner of Taxation (2004) 136 FCR 441 2003 ATC 5099 54 ATR 546 St George Bank Ltd v Federal Commissioner of Taxation (2009) 176 FCR 424 [2009] FCAFC 62 2009 ATC 20-103 73 ATR 148 St George Bank v Commissioner of Taxation (2008) 69 ATR 634 2008 ATC 20-018 Steele v Deputy Commissioner of Taxation (1999) 197 CLR 459 41 ATR 139 99 ATC 4242 [1999] HCA 7 Texas Company (Australasia) Ltd v Federal Commissioner of Taxation (1940) 63 CLR 382 Ure v Federal Commissioner of Taxation (1981) 50 FLR 219 11 ATR 484 81 ATC 4100 [1981] FCA 9", "Subject_References": "Income tax Intra-grouploans Bad debts Interest expense Incurred in carrying on a business Part IVA Scheme Tax benefit Purpose", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID034-047of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v BHP Billiton Finance Limited; Commissioner of Taxation v BHP Billiton Limited", "Venue_Reference_No": "VID 270, 271, 274, 289 & 290 of 2009 (FC); M117-M125 of 2010 (HC)", "Venue": "Federal Court of Australia", "Judgment_Date": "17 March 2010", "Date_Published": "14 April 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether bad debt deductions are allowable for loans made by an in-house finance company and whether debt funding from the finance company to a special purpose group subsidiary was limited recourse debt so capital allowances could be adjusted.", "Overview_of_Facts": "The taxpayers are members of the BHP Billiton Ltd ( BHPB ) group of companies. BHP Billiton Finance Ltd ( Finance ) is the internal financier of the BHPB group. It raised large sums of money from external financial institutions and lent amounts rolled over every 5 months to other BHPB group companies. Finance based its lending decisions on the BHPB board approval of capital expenditure on the group's projects. Finance did not have its own staff and instead utilised the services of BHPB for which it paid management fees. The interest rate charged on loans from Finance to BHPB group companies was higher than the interest rate at which it borrowed those funds. As a result, it earned substantial interest income and generated substantial taxable income. | HBI project and BHPDRI | In June 1995, the BHPB board approved capital expenditure of $1,550 million for the design, construction and commissioning costs of a Hot Briquetted Iron ( HBI ) project at Port Hedland, WA. BHPB established a wholly owned subsidiary, BHP Billiton Direct Reduced Iron Pty Ltd ( BHPDRI ), to own the HBI plant itself. Whilst a positive net present value ( NPV ) was recorded in the capital expenditures submission for the project as a whole (evaluated on an ungeared basis in accordance with a Capital Procedures Manual), a large negative NPV recorded for BHPDRI was attributable to the fact that a large part of the cashflow to be generated by the project would flow to group entities other than BHPDRI. It financed its expenditure on the HBI plant from shareholder funds contributed by another BHPB subsidiary (BHPB Minerals Holdings Pty Ltd) and by borrowing money from Finance. Finance provided loans to BHPDRI at the direction of BHPB. Under Finance's standard loan terms, the loan to BHPDRI was limited to a term of 5 months, but was renewed at the expiry of each 5 month term. Finance enjoyed all the rights of an unsecured creditor. | The costs of the HBI project exceeded the initial capital expenditure approval and on 29 November 1996, the BHPB board approved additional capital expenditure of $123.6 million that was again funded by shareholder funds and by borrowing from Finance. In August 1997, a review of the HBI project was conducted and a decision was made to continue the project. The BHPB board approved further capital expenditure of $730 million. Further loans were made by Finance to BHPDRI. On 31 May 1998, the carrying value of BHPDRI's non-current assets was written down by $590 million. After a further review in November 1998, a decision was made to continue the HBI project to a testing phase. On 30 June 1999, the carrying value of BHPDRI's non-current assets was written down by a further $531 million. On 20 July 1999, the directors of BHPDRI were provided with an undertaking that BHPB would provide sufficient funds to pay company debt if BHPDRI was called upon to pay those debts. The undertaking did not include the debts owed by BHPDRI to Finance. Finance subsequently confirmed that it did not intend to seek repayment of the loan to BHPDRI for a period of 12 months. Additional capital expenditure was approved on 23 March 2000, to enable trials to be carried out. | On 30 March 2000, the BHPB board resolved to engage Ernst & Young to review the carrying value of the loan to BHPDRI. Pending that report, Finance made provision for a doubtful debt in respect of the loan of $2,174 million. This left Finance with negative net assets and BHPB injected $950 million by subscribing for shares in Finance. Ernst & Young provided its valuation report on 3 May 2000, valuing Finance's loan to BHPDRI at $364 million. On the basis of the Ernst & Young report and without issuing a demand for payment, the directors of Finance resolved on 3 May 2000 that an amount of $1,845,833,281 (being the difference between the loan balance of $2,191,833,281 at that date and the Ernst & Young valuation) was irrecoverable and should be written off as bad. The amount of $1,845,833,281 was written off in the books of Finance on 3 May 2000 and the directors of BHPDRI were informed in a letter dated 10 May 2000. The balance of $346 million continued to be accounted for as a doubtful debt and all parties understood they were compromising the debt. Finance claimed the $1,845 million write-off as a bad debt deduction in its return for the year ended 30 June 2000. The BHPB group also applied the Commercial Debt Forgiveness provisions in Division 245 of Schedule 2C of the ITAA 1936 to adjust BHPB's tax attributes that existed within the group at the time of the write-off. | The HBI project continued until 2004, when BHPB terminated the project following an explosion at the plant. | In the 2000, 2001 and 2002 years capital allowance deductions were claimed by BHPDRI (resulting losses were transferred out to other BHPB group entities in the 2001 and 2002 years). In the 2003, 2004, 2005 and 2006 years the deductions were claimed by BHPB as head entity of the consolidated group. | The Commissioner disallowed the $1,845 million bad debt deduction claimed by Finance and made adjustments to capital allowance deductions in respect of the assets of BHPDRI on the basis that the loan by Finance to BHPDRI was limited recourse debt pursuant to Division 243 of the ITAA 1997. | Beenup Project and BHPTM | On 15 November 1994, approval from the BHPB board was sought for capital expenditure of $222.6 million for the purpose of developing mining and processing facilities at Beenup, WA and the purchase of an interest in an existing smelting facility in Norway. The mine and associated processing facilities were to be conducted by BHP Titanium Minerals Pty Ltd (BHPTM). The capital expenditure submission recorded the nominal internal rate of return of the proposal as 19.1% (15.2% real) with a payback period of 6.7 years. The BHPB board approved the submission on 24 November 1994. A loan facility was established for BHPTM in accordance with Finance's standard terms. | On 5 July 1995, a two year letter of comfort was provided by BHPB to the directors of BHPTM in which BHPB undertook to ensure that BHPTM was provided with sufficient funds to pay existing and future debts. A second letter of comfort was provided on 17 July 1997 on essentially the same terms as the first, other than it was to apply for one year. A third letter of comfort was provided on 9 July 1998. | The loan funds provided by Finance were used to fund the continuing development of the Beenup mine from 1995. Production at the mine commenced on 13 January 1997. By late 1997, the mine had experienced significant operational difficulties. These difficulties continued to affect the mine and, in February 1999, a decision was made to close the plant and write off the balance of the carrying value of the investment. Operations at the plant ceased on 16 April 1999. After the mine closed, BHPTM conducted a review of options available and considered the means by which it could service its loan with Finance. On 31 May 1999, Finance provided approximately $62 million to BHPTM to enable it to repay an overdraft it had with the ANZ bank. | On 8 July 1999, a fourth letter of comfort was provided. It was in the same terms as the previous letters except it also stated that it was \"not intended to impose any contractual or legal obligations on [BHPB] in respect of any other person nor bind it to any particular requirement or course of action\" . | BHPTM completed its review of options in early August 1999. Following a meeting of directors on 18 August 1999, BHPTM wrote to Finance stating inter alia that \"the prospects of expanding the company's activities to assist with the servicing and repayment of its debt to [Finance] are now, in all likelihood, non-existent\" . | In accordance with actions recommended in a BHPB memorandum dated 20 August 1999, to write down the majority of the loan to BHPTM, the following steps were taken on 23 August 1999: | 1. BHPB wrote to BHPTM stating that the Letter of Comfort was to be revoked and proposed entry into a limited Deed of Support. | 2. At 11.15 am, the Directors of BHPTM met and resolved to enter into the Deed of Support, which was said to provide the directors of BHPTM with greater security, as it would be legally enforceable, but limited BHPB support to BHPTM's external debt only. | 3. At 12 noon the directors of Finance met and resolved to call for payment of the BHPTM loan of $339,216,146.22 set off against the deposit of $11,593,237.88 and, in the event that there was a failure to repay the balance, to write off as bad the balance outstanding of $310,881,702.40. | 4. A letter was sent by Finance to BHPTM advising that the loan facility had been cancelled and demanding immediate payment of the amount outstanding. | 5. BHPTM subsequently informed Finance that it could not pay. | 6. Finance told BHPTM of the write-off and the set off against the amount on deposit. | 7. The directors of BHPTM resolved to record both the write-off and the set off in the accounts of BHPTM. | Finance claimed a $310.8 million deduction for the bad debt in the year ended 30 June 2000. The Commissioner disallowed the deduction and in the alternative applied Part IVA to cancel the deduction. | Issues decided by the court | Full Federal Court - Bad Debt Deductions | The bad debt deduction issues before the Full Federal Court were as follows: | 1. Whether Finance was entitled to deductions of: (a) $1,845,833,281 for the loan to BHPDRI written off as bad in the 2000 year of income; and (b) $310,881,703 for the loan to BHPTM also written off as bad in the 2000 year of income; pursuant to s 25-35(1) (b) of the ITAA 1997. The central question in that case was whether Finance was in the business of lending money and, if so, whether each loan was made by Finance in the ordinary course of that business. | (a) $1,845,833,281 for the loan to BHPDRI written off as bad in the 2000 year of income; and (b) $310,881,703 for the loan to BHPTM also written off as bad in the 2000 year of income; pursuant to s 25-35(1) (b) of the ITAA 1997. The central question in that case was whether Finance was in the business of lending money and, if so, whether each loan was made by Finance in the ordinary course of that business. | 2. Alternatively, whether Finance was entitled to a deduction in respect of each amount written off as bad pursuant to s 8-1 of the ITAA 1997. The central question in that case is whether the amounts written off were losses of capital, or of a capital nature. | 3. If Finance was entitled to a deduction in relation to the loan to BHPTM written off as bad, whether: (a) the Commissioner was entitled to rely on s 163A(3) of the ITAA 1936 in making a determination under s 177F(1)(b); and (b) if so, whether Part IVA applied to cancel the bad debt deduction claimed by Finance in respect of the loan to BHPTM. Edmonds J, with whom Sundberg and Stone JJ agreed, held that the loans written off as bad were allowable deductions to Finance and that Part IVA did not apply. | (a) the Commissioner was entitled to rely on s 163A(3) of the ITAA 1936 in making a determination under s 177F(1)(b); and (b) if so, whether Part IVA applied to cancel the bad debt deduction claimed by Finance in respect of the loan to BHPTM. Edmonds J, with whom Sundberg and Stone JJ agreed, held that the loans written off as bad were allowable deductions to Finance and that Part IVA did not apply. | 1. Deductibility of bad debts under s 25-35(1)(b) | At first instance, the primary judge noted that the Commissioner conceded that the evidence established that Finance borrowed monies from third parties at commercial rates of interest, it on lent those monies to related entities at a higher rate of interest to fund group operational activities and new projects, and in so doing it earned substantial profit. Edmonds J rejected the Commissioner's submission that this alone did not establish that Finance was in the business of lending money and that what was required was an analysis by Finance of the risks in making the specific loans that it made. His Honour did not find anything in the relevant authorities to support this submission and held in the face of the undisputed evidence that Finance was carrying on a business of lending. | Edmonds J also held that the loans to BHPDRI and BHPTM were made in the ordinary course of that business. According to his Honour, what is in the ordinary course of Finance's business is to be determined by reference to the context in which Finance carries on that business, not by reference to the way in which a major banking organisation might do so. | Contrary to the submissions advanced by the Commissioner that Finance had not discharged its onus and the loans were not in the ordinary course of a business of lending because they were made at the behest of BHPB and were no more than the means selected for providing funds for capital investment, his Honour found that Finance established what was the ordinary course of its business and that the loans in issue were consistent with the ordinary course of that business. Accordingly, his Honour noted in this context that: • the loans were made to BHPB group entities to fund projects and operations approved by the BHPB board; • the loans were made in accordance with the standard terms for inter-company loans; • the loans were recorded in the books and records of Finance in the same way as other intra-group loans; and • the loans were made using a practice and procedure consistent with other loans that had generated large profits for Finance. His Honour also rejected the Commissioner's submissions that there was no expectation on the part of Finance that BHPDRI would be able to repay the loans because the submission relied on discounted rather then actual cashflows. Further, his Honour found that later advances to BHPDRI and BHPTM (after operations at the Beenup plant ceased) were also made in the ordinary course of Finance's business of lending money. | • the loans were made to BHPB group entities to fund projects and operations approved by the BHPB board; • the loans were made in accordance with the standard terms for inter-company loans; • the loans were recorded in the books and records of Finance in the same way as other intra-group loans; and • the loans were made using a practice and procedure consistent with other loans that had generated large profits for Finance. | 2. Deductibility under s 8-1 | In view of the above findings, Edmonds J held that the write-off of the debts as bad were losses incurred in carrying on a business for the purposes of gaining or producing assessable income. As they were not losses of capital, or of a capital nature, they were, alternatively, allowable deductions under s 8-1. | 3. Part IVA | Edmonds J held that the Commissioner was entitled to rely upon s 169A (3) of the ITAA 1936 in making the determination under s 177F (1) (b). Consequently, it was not necessary to issue an assessment to give effect to a Part IVA determination where there was no change to taxable income or tax payable and the Part IVA determination is made in the course of considering an objection. | However, his Honour held that Part IVA did not apply to otherwise disallow the allowable deduction in respect of the amount of the BHPTM loan written off as bad pursuant to s 25-35(1) (b). His Honour agreed with the finding of the primary judge that because the debt was 'conjecturally bad' before the revocation of a letter of comfort dated 8 July 1999, Finance did not obtain a tax benefit by reason of the scheme identified by the Commissioner (which included revocation of the letter of comfort and replacing it with a limited Deed of Support). | His Honour went on to observe that the matters in s 177D(b) which regard must be had to did not point to a sole or dominant purpose of obtaining the bad debt deduction because the writing off of the loan to BHPTM was the most obvious and simple commercial solution. | French CJ, Crennan and Bell JJ refused the Commissioner special leave to appeal from the decision of the Full Federal Court in relation to the Part IVA issue. | High Court - Limited Recourse Debt | The issue before the High Court was whether Division 243 of the ITAA 1997 applies to adjust capital allowance deductions claimed by BHPB as head entity of a tax consolidated group in respect of assets of BHPDRI. The central question was whether the BHPDRI loan was limited recourse debt pursuant to s 243-20(2). | Under s 243-20(1) limited recourse debt exits where the rights of the creditor as against the debtor in the event of default in payment of the debt are limited wholly or predominantly to the property financed by the debt (the debt property ). A debt is also a limited recourse debt if, having regard to certain circumstances, it is reasonable to conclude that the creditor's rights in the event of default are capable of being limited in that way: s 243-20(2). | In a joint judgement French CJ, Heydon, Crennan and Bell JJ accepted as correct the Full Federal Court's construction of s 243-20 - that it is '...confined to situations where, at the time of borrowing, the debtor is not fully at risk in relation to expenditure because of contractual limitations on the lender's rights of recourse on a relevant event of default (s 243-20(1)) or where, at the time of borrowing, the debtor, or someone else, has the capacity to bring about that state of affairs subsequently (s 243-20(2)) ' [36]. Insofar as s 243-20(1) is concerned the Commissioner accepted that construction. | Their Honours referred to the Explanatory Memorandum to the Bill which introduced the limited recourse debt provisions, and they referred, in particular, to an example that was given of the mischief that occurs ' where the balance of an outstanding debt that has financed the expenditure is not paid and the financier can only recover a specific asset on the termination of the financial arrangement' . They also referred to the statement in the EM that 'a debt is also limited recourse if, notwithstanding that there may be no specific conditions to that effect, it is reasonable to conclude that the creditor's rights against the debtor are able to be limited, directly or indirectly, to those property rights specified ... in relation to the financed property' . [46]. They then said that, 'while such statements illuminate, they do not overcome the need to consider the words of the section ' [47]. | The High Court rejected the Commissioner's submission that s 243-20(2) is concerned with a practical capacity or ability to bring about limitations on legal rights. In particular, their Honours held that capable of being limited is a reference to a power of a person to limit or bring about a limitation of a creditor's rights of recourse and that such a power must exist at the inception of the loan [53]. Hence, the existence at the inception of the loan of a possibility of a person acquiring a capacity to limit the creditor's rights of recourse would be insufficient. Otherwise, according to their Honours at [54], all loans used by a debtor to acquire property, including through special purpose entities, would be limited recourse debt within s 243-20(2) (echoing the concerns raised by Edmonds J in the Full Federal Court below). | According to their Honours at [55] such an interpretation of s 243-20(2) '... aligns closely with the language of the Act, which supports the clear legislative purpose of allowing an adjustment of the taxpayer's income if the taxpayer has not been fully at risk in respect of an amount of expenditure .' Moreover, it excludes the conjectural approach which otherwise would arise were the Commissioner's contentions correct and enables taxpayers to determine whether a debt is commercial debt (for the purposes of the commercial debt forgiveness provisions), or limited recourse debt. | The Commissioner argued that the rights of Finance as against BHPDRI were capable of being so limited, having regard to the fact that: | 1. BHPDRI's assets were overwhelmingly comprised of the debt property: s 243-20(2)(a) and (c); and | 2. Finance and BHPDRI were not dealing with each other at arm's length: s 243-20(2) (d). | Having regard to the construction of s 243-20(2) (i.e. that it does not concern possibilities for a limitation of a creditor's rights) it was not necessary for their Honours to consider the particular factual circumstances raised by the Commissioner. | In a separate judgment Gummow J came to similar conclusions to those reached by their Honours in the joint judgment. His Honour also rejected the Commissioner's assertion that the parties were not dealing with each other at arm's length.", "Issues_Decided": "Full Federal Court - Bad Debt Deductions: The bad debt deduction issues before the Full Federal Court were as follows: 1. Whether Finance was entitled to deductions of: (a) $1,845,833,281 for the loan to BHPDRI written off as bad in the 2000 year of income; and (b) $310,881,703 for the loan to BHPTM also written off as bad in the 2000 year of income; pursuant to s 25-35(1) (b) of the ITAA 1997. The central question in that case was whether Finance was in the business of lending money and, if so, whether each loan was made by Finance in the ordinary course of that business. (a) $1,845,833,281 for the loan to BHPDRI written off as bad in the 2000 year of income; and (b) $310,881,703 for the loan to BHPTM also written off as bad in the 2000 year of income; pursuant to s 25-35(1) (b) of the ITAA 1997. The central question in that case was whether Finance was in the business of lending money and, if so, whether each loan was made by Finance in the ordinary course of that business. 2. Alternatively, whether Finance was entitled to a deduction in respect of each amount written off as bad pursuant to s 8-1 of the ITAA 1997. The central question in that case is whether the amounts written off were losses of capital, or of a capital nature. 3. If Finance was entitled to a deduction in relation to the loan to BHPTM written off as bad, whether: (a) the Commissioner was entitled to rely on s 163A(3) of the ITAA 1936 in making a determination under s 177F(1)(b); and (b) if so, whether Part IVA applied to cancel the bad debt deduction claimed by Finance in respect of the loan to BHPTM. Edmonds J, with whom Sundberg and Stone JJ agreed, held that the loans written off as bad were allowable deductions to Finance and that Part IVA did not apply. (a) the Commissioner was entitled to rely on s 163A(3) of the ITAA 1936 in making a determination under s 177F(1)(b); and (b) if so, whether Part IVA applied to cancel the bad debt deduction claimed by Finance in respect of the loan to BHPTM. Edmonds J, with whom Sundberg and Stone JJ agreed, held that the loans written off as bad were allowable deductions to Finance and that Part IVA did not apply. | 1. Deductibility of bad debts under s 25-35(1)(b): At first instance, the primary judge noted that the Commissioner conceded that the evidence established that Finance borrowed monies from third parties at commercial rates of interest, it on lent those monies to related entities at a higher rate of interest to fund group operational activities and new projects, and in so doing it earned substantial profit. Edmonds J rejected the Commissioner's submission that this alone did not establish that Finance was in the business of lending money and that what was required was an analysis by Finance of the risks in making the specific loans that it made. His Honour did not find anything in the relevant authorities to support this submission and held in the face of the undisputed evidence that Finance was carrying on a business of lending. Edmonds J also held that the loans to BHPDRI and BHPTM were made in the ordinary course of that business. According to his Honour, what is in the ordinary course of Finance's business is to be determined by reference to the context in which Finance carries on that business, not by reference to the way in which a major banking organisation might do so. Contrary to the submissions advanced by the Commissioner that Finance had not discharged its onus and the loans were not in the ordinary course of a business of lending because they were made at the behest of BHPB and were no more than the means selected for providing funds for capital investment, his Honour found that Finance established what was the ordinary course of its business and that the loans in issue were consistent with the ordinary course of that business. Accordingly, his Honour noted in this context that: • the loans were made to BHPB group entities to fund projects and operations approved by the BHPB board; • the loans were made in accordance with the standard terms for inter-company loans; • the loans were recorded in the books and records of Finance in the same way as other intra-group loans; and • the loans were made using a practice and procedure consistent with other loans that had generated large profits for Finance. His Honour also rejected the Commissioner's submissions that there was no expectation on the part of Finance that BHPDRI would be able to repay the loans because the submission relied on discounted rather then actual cashflows. Further, his Honour found that later advances to BHPDRI and BHPTM (after operations at the Beenup plant ceased) were also made in the ordinary course of Finance's business of lending money. • the loans were made to BHPB group entities to fund projects and operations approved by the BHPB board; • the loans were made in accordance with the standard terms for inter-company loans; • the loans were recorded in the books and records of Finance in the same way as other intra-group loans; and • the loans were made using a practice and procedure consistent with other loans that had generated large profits for Finance. | 2. Deductibility under s 8-1: In view of the above findings, Edmonds J held that the write-off of the debts as bad were losses incurred in carrying on a business for the purposes of gaining or producing assessable income. As they were not losses of capital, or of a capital nature, they were, alternatively, allowable deductions under s 8-1. | 3. Part IVA: Edmonds J held that the Commissioner was entitled to rely upon s 169A (3) of the ITAA 1936 in making the determination under s 177F (1) (b). Consequently, it was not necessary to issue an assessment to give effect to a Part IVA determination where there was no change to taxable income or tax payable and the Part IVA determination is made in the course of considering an objection. However, his Honour held that Part IVA did not apply to otherwise disallow the allowable deduction in respect of the amount of the BHPTM loan written off as bad pursuant to s 25-35(1) (b). His Honour agreed with the finding of the primary judge that because the debt was 'conjecturally bad' before the revocation of a letter of comfort dated 8 July 1999, Finance did not obtain a tax benefit by reason of the scheme identified by the Commissioner (which included revocation of the letter of comfort and replacing it with a limited Deed of Support). His Honour went on to observe that the matters in s 177D(b) which regard must be had to did not point to a sole or dominant purpose of obtaining the bad debt deduction because the writing off of the loan to BHPTM was the most obvious and simple commercial solution. French CJ, Crennan and Bell JJ refused the Commissioner special leave to appeal from the decision of the Full Federal Court in relation to the Part IVA issue. | High Court - Limited Recourse Debt: The issue before the High Court was whether Division 243 of the ITAA 1997 applies to adjust capital allowance deductions claimed by BHPB as head entity of a tax consolidated group in respect of assets of BHPDRI. The central question was whether the BHPDRI loan was limited recourse debt pursuant to s 243-20(2). Under s 243-20(1) limited recourse debt exits where the rights of the creditor as against the debtor in the event of default in payment of the debt are limited wholly or predominantly to the property financed by the debt (the debt property ). A debt is also a limited recourse debt if, having regard to certain circumstances, it is reasonable to conclude that the creditor's rights in the event of default are capable of being limited in that way: s 243-20(2). In a joint judgement French CJ, Heydon, Crennan and Bell JJ accepted as correct the Full Federal Court's construction of s 243-20 - that it is '...confined to situations where, at the time of borrowing, the debtor is not fully at risk in relation to expenditure because of contractual limitations on the lender's rights of recourse on a relevant event of default (s 243-20(1)) or where, at the time of borrowing, the debtor, or someone else, has the capacity to bring about that state of affairs subsequently (s 243-20(2)) ' [36]. Insofar as s 243-20(1) is concerned the Commissioner accepted that construction. Their Honours referred to the Explanatory Memorandum to the Bill which introduced the limited recourse debt provisions, and they referred, in particular, to an example that was given of the mischief that occurs ' where the balance of an outstanding debt that has financed the expenditure is not paid and the financier can only recover a specific asset on the termination of the financial arrangement' . They also referred to the statement in the EM that 'a debt is also limited recourse if, notwithstanding that there may be no specific conditions to that effect, it is reasonable to conclude that the creditor's rights against the debtor are able to be limited, directly or indirectly, to those property rights specified ... in relation to the financed property' . [46]. They then said that, 'while such statements illuminate, they do not overcome the need to consider the words of the section ' [47]. The High Court rejected the Commissioner's submission that s 243-20(2) is concerned with a practical capacity or ability to bring about limitations on legal rights. In particular, their Honours held that capable of being limited is a reference to a power of a person to limit or bring about a limitation of a creditor's rights of recourse and that such a power must exist at the inception of the loan [53]. Hence, the existence at the inception of the loan of a possibility of a person acquiring a capacity to limit the creditor's rights of recourse would be insufficient. Otherwise, according to their Honours at [54], all loans used by a debtor to acquire property, including through special purpose entities, would be limited recourse debt within s 243-20(2) (echoing the concerns raised by Edmonds J in the Full Federal Court below). According to their Honours at [55] such an interpretation of s 243-20(2) '... aligns closely with the language of the Act, which supports the clear legislative purpose of allowing an adjustment of the taxpayer's income if the taxpayer has not been fully at risk in respect of an amount of expenditure .' Moreover, it excludes the conjectural approach which otherwise would arise were the Commissioner's contentions correct and enables taxpayers to determine whether a debt is commercial debt (for the purposes of the commercial debt forgiveness provisions), or limited recourse debt. The Commissioner argued that the rights of Finance as against BHPDRI were capable of being so limited, having regard to the fact that: 1. BHPDRI's assets were overwhelmingly comprised of the debt property: s 243-20(2)(a) and (c); and 2. Finance and BHPDRI were not dealing with each other at arm's length: s 243-20(2) (d). Having regard to the construction of s 243-20(2) (i.e. that it does not concern possibilities for a limitation of a creditor's rights) it was not necessary for their Honours to consider the particular factual circumstances raised by the Commissioner. In a separate judgment Gummow J came to similar conclusions to those reached by their Honours in the joint judgment. His Honour also rejected the Commissioner's assertion that the parties were not dealing with each other at arm's length.", "ATO_View_of_Decision": "The ATO did not seek special leave to appeal from the decision of the Full Federal Court in relation to the bad debt deductions, save for the application of Part IVA to the writing off of the loan by Finance to BHPTM. | The bad debt case turns on its own facts and the findings made by the Federal Court. The ATO accepts the view that what is or is not in the ordinary course of a taxpayer's business of lending money must be determined by reference to the context in which that business was carried on by the taxpayer. | In addition, it is well settled that the application of Part IVA will be sensitive to the facts of each case and the Commissioner will take all decisions of the High Court and Federal Court into account in applying Part IVA to the particular facts of cases. | In relation to the application of Division 243, the legislation is directed at a debtor taxpayer who has not been fully at risk in relation to an amount of expenditure. However, the words ' capable of being limited' are a reference to a power of a person to limit or bring about a limitation of a creditor's rights of recourse and such a power must exist at the inception of the loan. | It is noted that the tax consolidation company group provisions disregard transactions, including loans, between entities within the company group. Although the case is in respect of related party financing prior to the introduction of the tax consolidation company group regime, the policy implications of the decision on post tax consolidation choices by both domestic and foreign based groups are being examined in relation to bad debt deductions and limited recourse debt.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None.", "Related_Documents": "Taxation Ruling TR 92/18 | Federal Court | 2010 ATC 20-169 | High Court | [2011] HCA 17 | 2011 ATC 20-264 | 25-35 | 8-1 | Division 243 | Part IVA | 82 ATC 4246 | 153 ALR 47 | (1997) 187 CLR 384 | 2011 ATC 20-255 | 90 ATC 4168 | 2009 ATC 20-138 | [1987] VR 485 | (1993) 32 NSWLR 50 | 70 ATC 4061 | 77 ATC 4255 | (1957) 100 CLR 95 | 2005 ATC 4234 | 79 ATC 4279 | 71 ATC 4268 | (1951) 82 CLR 372 | 2005 ATC 4571 | (1971) 125 CLR 249 | 71 ATC 4140 | 2 ATR 361 | 80 ATC 4542 | (1938) 60 CLR 150 | 70 ATC 4021 | (1949) 78 CLR 47 | (1942) 180 CLR 1 | (1957) 100 CLR 66", "Legislative_References": "Income Tax Assessment Act 1997 25-35 8-1 Division 243 Income Tax Assessment Act 1936 Part IVA Schedule 2C, Division 245", "Case_References": "Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd [2009] 25 VR 411 [2009] VSCA 238 AVCO Financial Services Ltd v Federal Commissioner of Taxation (1982) 150 CLR 510 13 ATR 63 82 ATC 4246 Canwest Global Communications Corporation v Australian Broadcasting Authority (1998) 82 FCR 46 153 ALR 47 Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] Ch 62 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Commissioner of Taxation v Ashwick (Qld) No 127 Pty Ltd & Ors [2011] FCAFC 49 2011 ATC 20-255 Commissioner of Taxation v Bivona Pty Ltd (1990) 21 FCR 562 21 ATR 151 90 ATC 4168 Commissioner of Taxation v Tasman Group Services Pty Ltd (2009) 180 FCR 128 2009 ATC 20-138 74 ATR 739 Elder Smith & Co Ltd v Commissioner of Taxation (NSW) (1931) 31 SR (NSW) 639 Equiticorp Industries Ltd v ACI International Ltd [1987] VR 485 Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 Fairway Estates Pty Ltd v Federal Commissioner of Taxation (1970) 123 CLR 153 1 ATR 726 70 ATC 4061 Federal Coke & Co Pty Ltd v Federal Commissioner of Taxation (1977) 15 ALR 449 7 ATR 519 77 ATC 4255 Federal Commissioner of Taxation v Sidney Williams (Holdings) Ltd (1957) 100 CLR 95 [1957] HCA 1 Federal Commissioner of Taxation v Stone (2005) 222 CLR 289 2005 ATC 4234 59 ATR 50 Federal Commissioner of Taxation v Total Holdings (Australia) Pty Ltd (1979) 43 FLR 217 79 ATC 4279 9 ATR 885 GE Crane Sales Pty Ltd v Federal Commissioner of Taxation (1971) 126 CLR 177 71 ATC 4268 2 ATR 692 Hobart Bridge Co Ltd v Federal Commissioner of Taxation (1951) 82 CLR 372 [1951] HCA 33 HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 60 ATR 106 Investment and Merchant Finance Corporation Ltd v Federal Commissioner of Taxation (1971) 125 CLR 249 71 ATC 4140 2 ATR 361 Magna Alloys & Research Pty Ltd v Federal Commissioner of Taxation (1980) 33 ALR 213 80 ATC 4542 (1980) 11 ATR 276 Mills v Mills (1938) 60 CLR 150 NEAT Domestic Trading Pty Ltd v AWB Ltd (2003) 216 CLR 277 Newtronics Pty Ltd v Atco Controls Pty Ltd (in liq) (2008) 69 ACSR 317 Orrong Strategies Pty Ltd v Village Roadshow Ltd (2007) 207 FLR 245 Point v Federal Commissioner of Taxation (1970) 119 CLR 453 1 ATR 577 70 ATC 4021 Ronpibon Tin NL & Anor v Federal Commissioner of Taxation (1949) 78 CLR 47 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 Tweddle v Federal Commissioner of Taxation (1942) 180 CLR 1 Walker v Wimborne (1976) 137 CLR 1 WP Keighery Pty Ltd v Federal Commissioner of Taxation (1957) 100 CLR 66", "Subject_References": "Bad debt claims Business of lending money Ordinary course of your business of lending money Part IVA Giving effect to a Part IVA determination Tax benefit Limited Recourse Debt Debt Property Capable of being limited", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M117-M125of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Byrne Hotels Qld Pty Ltd", "Venue_Reference_No": "QUD 280 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "11 October 2011", "Date_Published": "9 May 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a real estate agent commission and legal fees are liabilities 'just before' a capital gains tax (CGT) event for the taxpayer to obtain a small business relief concession.", "Overview_of_Facts": "1. At some time between July 2003 and October 2003, the taxpayer retained a real estate agent and lawyers in relation to the proposed sale of its hotel business. | 2. On 24 October 2003, the taxpayer contracted to sell its business. Settlement of the contract occurred on 19 January 2004. | 3. By an invoice dated 28 October 2003, the lawyers issued the first of three accounts to the taxpayer. | 4. By an invoice dated 28 November 2003, the lawyers issued the second of three accounts to the taxpayer. | 5. By an invoice dated 17 December 2003, the lawyers issued the third of three accounts to the taxpayer. | 6. On 15 January 2004, the real estate agent issued an invoice to the taxpayer. The commission payable to the real estate agent was payable under the real estate agent's contract upon completion of the contract of sale. Accordingly, the commission was paid by the taxpayer on 19 January 2004 on settlement of the contract. | 7. When the taxpayer lodged its income tax return for the year ended 30 June 2004 it did not return the capital gain arising from the disposal of the business. The taxpayer considered that the maximum net asset value test ('MNAV') in the former section 152-15 of the Income Tax Assessment Act 1997 ('the Act') was satisfied because the net asset value of its CGT assets was reduced by the inclusion of the real estate agent commission and legal fees as \"liabilities\" under subsection 152-20(1) 'just before' the CGT event (24 October 2003). | 8. Subsequently, the Commissioner concluded that the real estate agent commission and legal fees, as they were contingent liabilities just before the CGT event, were not to be included as \"liabilities\" and the taxpayer did not satisfy the MNAV.", "Issues_Decided": "", "ATO_View_of_Decision": "1. The Full Federal Court determined that in the context of Division 152, \"liabilities\" should be treated symmetrically with \"assets\". Section 108-5 of the ITAA 1997 defines CGT assets as \"any kind of property\" or \"legal or equitable obligations that are not property\", which the Court stated would include obligations existing at the relevant time under a contract which can be enforced by the other party or parties to a contract. | 2. The Court found that as contingent assets can be included in the net CGT asset value calculation in subsection 152-20(1), on the basis of the definition of CGT assets in section 108-5, then liabilities should be matched to assets and contingent liabilities included as liabilities. | 3. The Court emphasised that what is required under the MNAV test in section 152-15 is the calculation of liabilities (including contingent liabilities) 'just before' the CGT event. | 4. Accordingly, the ATO view in TD 2007/14 that the term 'liabilities' in the context of subsection 152-20(1) extends to legally enforceable debts due for payment and to presently existing obligations to pay either a sum certain or ascertainable sums and does not extend to contingent liabilities, future obligations or expectancies, does not fully accord with the Court's judgment. | 5. It is noted that subsection 152-20(1) was amended in 2007, but those amendments did not affect the meaning of the term 'liabilities' as discussed in TD 2007/14.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | The Commissioner has updated the TD 2007/14 in light of the Full Federal Court decision. | Implications for Law Administration Practice Statements | None. | Date of amendment Part Comment 9 May 2014 Administrative treatment Updated to reflect that TD 2007/14 has been amended (to remove references to unbilled expenses or expenses not yet due).", "Related_Documents": "TD 2007/14 | 2011 ATC 20-286 | 104-10 | 108-5 | 152-1 | 152-10 | 152-15 | 152-20 | 152-20(1) | 152-205 | 152-410", "Legislative_References": "Income Tax Assessment Act 1997 104-10 108-5 152-1 152-10 152-15 152-20 152-20(1) 152-205 152-410", "Case_References": "Crimmins v Stevedoring Industry Finance Committee [1999] HCA 59 (1999) 200 CLR 1 Walters v Babergh District Council (1983) 82 LGR (Eng) 235 McDowell v Baker [1979] HCA 44 (1979) 144 CLR 413 Legal Services Commissioner v Baker (No 2) [2006] QCA 145 [2006] 2 Qd R 249 Keppel v Wheeler [1927] 1 KB 577 Georgieff v Athans (1981) 26 SASR 412 Havas v Cornish & Co Pty Ltd [1985] 2 Qd R 353 Fitzgerald v Metcalfe [1917] NZLR 486 Wardley Australia Ltd and Anor v State of Western Australia [1992] HCA 55 (1992) 175 CLR 514", "Subject_References": "Capital gains tax Small business concessions Maximum net asset value test Liabilities of the entity CGT event", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD280of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Clark (No 2)", "Venue_Reference_No": "QUD 1 of 2010, QUD 2 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "10 November 2011", "Date_Published": "10 July 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns offers of compromise under Order 23 of the Federal Court Rules and Calderbank offers.", "Overview_of_Facts": "On 30 November 2009, Greenwood J, in Clark v Commissioner of Taxation [2009] FCA 1401, delivered judgment in relation to the taxation appeals in favour of the taxpayers. | On 4 January 2010, the Commissioner lodged an appeal to the Full Federal Court against his Honour's decision. | On 12 February 2010, prior to the hearing of the appeal, the taxpayers made offers of compromise pursuant to Order 23 of the Federal Court Rules (FCR). The offers were to settle the appeal proceedings on the basis that each taxpayer would pay the Commissioner $5,000 within 7 days of acceptance of the offers, that the appeals would be dismissed and that the taxpayers would pay the Commissioner's costs of the appeal. | On 26 February 2010, the Commissioner rejected the offers. | On 10 April 2010, the taxpayers made further offers pursuant to Order 23 of the FCR on the same terms as the offers made on 12 February 2010 except that each taxpayer offered to pay the Commissioner the sum of $30,000 within 7 days of acceptance of the offers. | On 13 April 2010, the taxpayers also made offers upon the principles associated with Calderbank v Calderbank [1976] Fam 93 ( Calderbank ). The terms of the Calderbank offers were the same as the Order 23 offers made on 10 April 2010. A Calderbank offer is an offer made to settle the dispute which is without prejudice save as to costs. | On 23 April 2010, the Commissioner rejected the Order 23 offers made on 10 April 2010. | On 27 April 2010, the Commissioner rejected the Calderbank offers. | On 11 May 2010, the Full Federal Court, comprising of Dowsett, Edmonds and Gordon JJ, heard the appeal. | On 21 January 2011, the Full Federal Court (with Dowsett J dissenting), in Commissioner of Taxation v Clark [ 2011 ] FCAFC 5 , delivered judgment in relation to the appeal in favour of the taxpayers. | The taxpayers then sought costs orders against the Commissioner in relation to the appeal with such costs to be taxed on an indemnity basis. | The Commissioner filed submissions acknowledging that the Commissioner should pay the taxpayers' costs on a party and party basis and submitting, inter alia, that: • a tax appeal may invoke questions of consistency and fairness of treatment of all taxpayers in like circumstances. As a general proposition, the successful offeror's presumptive entitlement to indemnity costs will be rebutted and the Court should \"otherwise order\" when the Commissioner rejects an Order 23 offer in circumstances where principles of administration of the tax Acts are in dispute and the Commissioner, as a party, properly exercises his general powers of administration in pursuing the Court resolution of those principles for the very purpose of administering those Acts; • the offers made on 12 February 2010 and 10 April 2010 were not in this case \"offers to compromise\" because the taxpayers did not seek to negotiate. The offers were more a procedural move to trigger costs consequences than a genuine attempt to reach a negotiated settlement; and • the Commissioner's refusal of the Calderbank offer dated 13 April 2010 was not unreasonable. | • a tax appeal may invoke questions of consistency and fairness of treatment of all taxpayers in like circumstances. As a general proposition, the successful offeror's presumptive entitlement to indemnity costs will be rebutted and the Court should \"otherwise order\" when the Commissioner rejects an Order 23 offer in circumstances where principles of administration of the tax Acts are in dispute and the Commissioner, as a party, properly exercises his general powers of administration in pursuing the Court resolution of those principles for the very purpose of administering those Acts; • the offers made on 12 February 2010 and 10 April 2010 were not in this case \"offers to compromise\" because the taxpayers did not seek to negotiate. The offers were more a procedural move to trigger costs consequences than a genuine attempt to reach a negotiated settlement; and • the Commissioner's refusal of the Calderbank offer dated 13 April 2010 was not unreasonable. | On 10 November 2011, the Full Court ordered that: • the Commissioner pay the taxpayers' costs of the appeal, incurred up to 11.00am on 13 February 2010, to be taxed on a party and party basis; and • the appellant pay the Commissioner's costs of the appeal, incurred after that time, to be taxed on an indemnity basis. | • the Commissioner pay the taxpayers' costs of the appeal, incurred up to 11.00am on 13 February 2010, to be taxed on a party and party basis; and • the appellant pay the Commissioner's costs of the appeal, incurred after that time, to be taxed on an indemnity basis. | Issues decided by the court | 1. Is the Commissioner able to refuse to accept the Order 23 offers simply on the basis of the Commissioner's policies and procedures? | No. The Court observed that it was beyond doubt that the Commissioner must discharge his duties in accordance with law and do so in a way which is transparent and consistent. The Court did not reject out of hand the proposition that policies and procedures prescribed for use in the ATO may, in an appropriate case, inform any exercise by the Court of its discretion as to costs, whether that be the general discretion under section 43 of the Federal Court Act or that conferred by Order 23 of the FCR. | The Court observed that, it does not follow, the Commissioner may, simply by referring to such policies and procedures, escape the Court's scrutiny of his conduct of litigation, including his conduct in refusing to accept offers of settlement. The Court also observed that, once the Court's jurisdiction is engaged, the Commissioner becomes a litigant, subject to s64 of the Judiciary Act 1903 [1] , the provisions of the Federal Court Act and the FCR. The Commissioner's conduct as a litigant is to be judged by reference to all relevant circumstances, including, in an appropriate case, his policies and procedures. | Further, the Court observed that the Commissioner did not identify any particular aspect of his policies and procedures as relevant for present purposes. Rather, the Commissioner impliedly asserted that the Court should simply accept that he properly decided that it was inappropriate to accept the offers, on the basis of his policies and procedures, without any real explanation as to why that was the case. | 2. In considering the Order 23 offers, is the Commissioner permitted or obliged to take into account the outcome at first instance and the reason for that outcome? | Yes. The Court accepted that the Commissioner was obliged to deal with appeals transparently and in accordance with general practice. However, it did not follow that the Commissioner was entitled to persevere with appeals in the face of reasonable offers of settlement. The decision, at first instance, involved substantial questions of fact, the resolution of which involved the credibility of witnesses. In those circumstances, the Commissioner faced substantial problems in any appeal and he should have taken those problems into account in the course of considering the taxpayers' offers. | 3. Does an Order 23 offer need to involve the offer of a substantial amount having regard to the amounts of the assessment in question? | No. The Court referred to the Commissioner's submission that any offer had to be \"substantial\" and held that the submission lacked foundation. The real question is whether the offer turns out to be more favourable to the offeree than is the eventual litigated outcome. | 4. Were the taxpayers' offers of 12 February 2010 and 10 April 2010 genuine \"offers of compromise\"? | Yes. The Court held that Courts expect that parties will make realistic assessments of their prospects and act accordingly. If one party makes an assessment which turns out to be accurate, that party should generally have the benefit of Order 23 of the FCR, unless some factor points to a contrary outcome. The Court stated that it inferred from the fact that the ultimate outcome of the appeals was less favourable to the Commissioner than was any of the offers, that it was unreasonable for him to reject them, at least in the absence of any countervailing consideration. | 5. Whether in the exercise of the Court's general discretion, the applicants demonstrated that the respondent's refusal to accept the offer of 13 April 2010 (that is the Calderbank offer) was unreasonable by reference to the circumstances at the time. | The Court held that it was not necessary to make any orders in relation to the Calderbank offers. | As a result, indemnity costs were awarded under Order 23 Rule 11(6) of the FCR from 11.00am on 13 February 2010, being the day after the first offer under Order 23.", "Issues_Decided": "1. Is the Commissioner able to refuse to accept the Order 23 offers simply on the basis of the Commissioner's policies and procedures?: No. The Court observed that it was beyond doubt that the Commissioner must discharge his duties in accordance with law and do so in a way which is transparent and consistent. The Court did not reject out of hand the proposition that policies and procedures prescribed for use in the ATO may, in an appropriate case, inform any exercise by the Court of its discretion as to costs, whether that be the general discretion under section 43 of the Federal Court Act or that conferred by Order 23 of the FCR. The Court observed that, it does not follow, the Commissioner may, simply by referring to such policies and procedures, escape the Court's scrutiny of his conduct of litigation, including his conduct in refusing to accept offers of settlement. The Court also observed that, once the Court's jurisdiction is engaged, the Commissioner becomes a litigant, subject to s64 of the Judiciary Act 1903 [1] , the provisions of the Federal Court Act and the FCR. The Commissioner's conduct as a litigant is to be judged by reference to all relevant circumstances, including, in an appropriate case, his policies and procedures. Further, the Court observed that the Commissioner did not identify any particular aspect of his policies and procedures as relevant for present purposes. Rather, the Commissioner impliedly asserted that the Court should simply accept that he properly decided that it was inappropriate to accept the offers, on the basis of his policies and procedures, without any real explanation as to why that was the case. | 2. In considering the Order 23 offers, is the Commissioner permitted or obliged to take into account the outcome at first instance and the reason for that outcome?: Yes. The Court accepted that the Commissioner was obliged to deal with appeals transparently and in accordance with general practice. However, it did not follow that the Commissioner was entitled to persevere with appeals in the face of reasonable offers of settlement. The decision, at first instance, involved substantial questions of fact, the resolution of which involved the credibility of witnesses. In those circumstances, the Commissioner faced substantial problems in any appeal and he should have taken those problems into account in the course of considering the taxpayers' offers. | 3. Does an Order 23 offer need to involve the offer of a substantial amount having regard to the amounts of the assessment in question?: No. The Court referred to the Commissioner's submission that any offer had to be \"substantial\" and held that the submission lacked foundation. The real question is whether the offer turns out to be more favourable to the offeree than is the eventual litigated outcome. | 4. Were the taxpayers' offers of 12 February 2010 and 10 April 2010 genuine \"offers of compromise\"?: Yes. The Court held that Courts expect that parties will make realistic assessments of their prospects and act accordingly. If one party makes an assessment which turns out to be accurate, that party should generally have the benefit of Order 23 of the FCR, unless some factor points to a contrary outcome. The Court stated that it inferred from the fact that the ultimate outcome of the appeals was less favourable to the Commissioner than was any of the offers, that it was unreasonable for him to reject them, at least in the absence of any countervailing consideration. | 5. Whether in the exercise of the Court's general discretion, the applicants demonstrated that the respondent's refusal to accept the offer of 13 April 2010 (that is the Calderbank offer) was unreasonable by reference to the circumstances at the time.: The Court held that it was not necessary to make any orders in relation to the Calderbank offers. As a result, indemnity costs were awarded under Order 23 Rule 11(6) of the FCR from 11.00am on 13 February 2010, being the day after the first offer under Order 23.", "ATO_View_of_Decision": "The Commissioner notes the Court's finding that the Commissioner's conduct as a litigant is to be judged by reference to all relevant circumstances, including, in an appropriate case, his policies and procedures. The Commissioner maintains that each offer of compromise made under Order 23 of the FCR (or Rule 25 of the Federal Court Rules 2011, as the case may be) must be dealt with on its own merits and having regard to the particular facts and circumstances of each offer. For example, the question of whether a matter raises issues of public interest and importance may be a relevant consideration. [2]", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None identified | Implications for Law Administration Practice Statements | No changes to be made to PSLA 2009/9. | [1] S64 of the Judiciary Act provides that \"In any suit to which the Commonwealth or a State is a party, the rights of parties shall as nearly as possible be the same, and judgment may be given and costs awarded on either side, as in a suit between subject and subject.\" | [2] See, for example, Australian Competition and Consumer Commission v Metcash Trading Limited (No 2) [2012] FCAFC 55, which considered sub-rule 25.14(2) of the Federal Court Rules 2011.", "Related_Documents": "PSLA 2009/9 -Conduct of Tax Office litigation | [2011] FCAFC 140 | 85 ATR 735 | 2003 ATC 4894", "Legislative_References": "Federal Court Rules (as in operation immediately prior to 1 August 2011) Federal Court Rules", "Case_References": "Clark v Commissioner of Taxation [2009] FCA 1401 Commissioner of Taxation v Clark [2011] FCAFC 5 Calderbank v Calderbank [1976] Fam 93 Australian Communication Exchange Ltd v Deputy Commissioner of Taxation [2003] HCA 55 201 ALR 271 53 ATR 834 2003 ATC 4894 Australian Competition and Consumer Commission v Metcash Trading Limited (No 2) [2012] FCAFC 55", "Subject_References": "Costs Offer of compromise Indemnity Costs Party and Party Basis Quantum Federal Court Rules (as in operation immediately prior to 1 August 2011)", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD1of2010_2/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v David Clark; Commissioner of Taxation v Helen Clark", "Venue_Reference_No": "QUD 1 of 2010; QUD 2 of 2010 (FC) / B10 2011 (HC)", "Venue": "Federal Court of Australia", "Judgment_Date": "21 January 2011", "Date_Published": "28 October 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO view of this case which concerns whether for tax purposes capital gains made in the 2001 income year could be reduced by prior year capital losses, where a number of significant changes were made to the trust in the intervening period.", "Overview_of_Facts": "In working out whether the Carringbush Unit Trust (CUT), a closely held unit trust, had made a net capital gain in the 2001 income year in connection with the sale of properties acquired in 1997, an issue arose as to whether capital losses made by the CUT originating from the 1991, 1992 and 1993 income years could be applied against the gains made from those sales. | The relevant capital losses were made by the CUT whilst the CUT was under the control of the Denoon family and its units were held by members of the Denoon family and entities associated with that family (the Denoons). | In June 1993, various instruments were entered into that provided for control in the CUT to pass from the Denoon family to the Clark family, and entities associated with the Clark family received units in the CUT. Until then, as reflected in its most recent balance sheet, the CUT had a deficiency of liabilities over assets of approximately $3.9 million. | In particular, these instruments resulted in: • a change in the trustee of the CUT from a Denoon controlled entity to a Clark controlled entity; • the Denoon controlled trustee writing off all but $10 of the CUT's assets (i.e. loans owing to it from associates), securing the release of the liabilities it owed to associates and third parties, and purportedly waiving its right to indemnity from the trust fund in respect of liabilities properly incurred by it in discharging its powers and duties as trustee; • the Clark controlled trustee injecting $1.8 million into the CUT; • Denoon controlled entities transferring five of the 10 issued units in the CUT to Clark controlled entities on the understanding and provision that the remaining 5 units (still held by the Denoons) would receive no further benefits from the CUT unless and until the Denoons had made a matching contribution of $1.8 million to the CUT, and nonetheless would be transferred to Clark controlled entities if this contribution was not made within two years. | • a change in the trustee of the CUT from a Denoon controlled entity to a Clark controlled entity; • the Denoon controlled trustee writing off all but $10 of the CUT's assets (i.e. loans owing to it from associates), securing the release of the liabilities it owed to associates and third parties, and purportedly waiving its right to indemnity from the trust fund in respect of liabilities properly incurred by it in discharging its powers and duties as trustee; • the Clark controlled trustee injecting $1.8 million into the CUT; • Denoon controlled entities transferring five of the 10 issued units in the CUT to Clark controlled entities on the understanding and provision that the remaining 5 units (still held by the Denoons) would receive no further benefits from the CUT unless and until the Denoons had made a matching contribution of $1.8 million to the CUT, and nonetheless would be transferred to Clark controlled entities if this contribution was not made within two years. | The Denoons received a fee of $60,000 for passing control of the trust to the Clarks. | In the event, the Denoons did not make the matching contribution of $1.8 million to the CUT. As a result, in April 1996, the remaining 5 units in the CUT were transferred to the Clark controlled entities. | The CUT made capital gains in the 2001 income year from property development activities that were funded by capital contributions (including the $1.8 million) from the Clark controlled entities, namely from the sale of two properties. | The Commissioner proceeded on the basis that the capital losses made in respect of the earlier years of income were not available to be recouped against the gains made in the 2001 income year in calculating the net income of the trust for that year on the basis that the trust estate that made those capital losses was not, for tax purposes, the same trust estate that made the gains. In proceeding on this basis, the Commissioner looked to whether continuity of the trust estate had been maintained and in this context focussed on the three main indicia of continuity identified by the High Court in Federal Commissioner of Taxation v Commercial Nominees (2001) 75 ALJR 1172. These indicia are continuity of the constitution of the trusts under which the fund operated, of the trust property and of its membership. | Issues decided by the courts | Full Federal Court - majority decision in taxpayer's favour | Edmonds & Gordon JJ rejected the Commissioner's contention that there was a lack of continuity of the trust estate. | Their Honours acknowledged [at para 77] that a similar issue arose in Commercial Nominees in respect of the former taxing regime for superannuation funds, and quoted the High Court as finding in that case that: [t]he three main indicia of continuity [for the purposes the former taxing regime for superannuation funds] are the constitution of the trusts under which the fund (if a trust fund) operated, the trust property , and membership . Changes in one or more of those matters must be such as to terminate the existence of the eligible entity, or to produce the result that it does not derive the income in question , to destroy the necessary continuity. [emphasis added by Edmonds and Gordon JJ] | However, their Honours were of the view [at paras 78 and 79] that the High Court had also endorsed the reasoning of the Full Federal Court in Commercial Nominees (1999) 167 ALR 147 that so long as any amendment to the trust obligations is made in accordance with a power conferred by the trust instrument creating the obligations, and continuity of the property that is the subject of the trust obligation is established, then there will be 'identity' of the taxpayer notwithstanding any amendment of the trust obligation and any change in the property itself. | Finally, their Honours concluded [at para 87] that: [w]hen the High Court in Commercial Nominees spoke about trust property and membership as providing two of the indicia for the continued existence of the ... trust estate, the Court was not suggesting that there had to be a strict or even partial identity of property for the first and objects for the second. It was speaking more generally: that there had to be a continuum of property and membership, which could be identified at any time, even if different from time to time; and without severance of one or both leading to the termination of the trust in question... | On this basis, their Honours rejected the Commissioner's contention that there was a 'substantial discontinuity' with respect to each of the three main indicia identified by the High Court in Commercial Nominees . Their Honours also made some specific observations in respect of each of the indicia. | Constitution of the trust | Their Honours observed [at para 76] that it was not without significance that all of the arrangements were effected without making any alteration to the terms of the [deed of the CUT]. In other words, there was no alteration to the terms of the trusts embodied in that document even if a beneficial interest in the trust fund was affected, even extinguished, by virtue of the arrangements ... | Their Honours then referred by way of example to the Denoon controlled trustee's waiver of its right to be indemnified out of the assets of the trust fund, later observing [at para 82] that this 'no more created a new trust than it terminated an existing one. At the most it may have extinguished a 'beneficial interest' in the trust assets .... but even that is not clear'. | Their Honours also found that the arrangements under which the Denoons agreed they would obtain no further benefits from the CUT unless and until they made a capital contribution to the trust equal to that made by the Clarks 'did not vary the trusts [of the CUT] let alone terminate them or bring a new trust into existence' [at para 83]. | Trust property and membership | Their Honours observed that it was significant in their view that the Commissioner had never contended that 'there was a cessation in the continuum of trust property such as to leave it open to find that the trust estate as originally constituted had come to an end', adding that at most 'it was put that only a money amount of $10, being the amount of the original settlement, remained', but it was not disputed that this amount continued to exist [at para 53]. | Their Honours also noted that under the terms of the CUT, it would be expected that trust property would change as units were subscribed for and redeemed, and its membership would change as new units were issued and existing units transferred or redeemed [at paras 85-86]. | Their Honours found [at para 87] that whilst the identity of the trust property and objects of the CUT changed over time, there had not been any severance in their continuum. | By way of final remark, their Honours stated [at para 88] that the approach they had taken was 'consistent with the position at general law in relation to the four essential indicia of the existence of a trust: the trustee, trust property, the beneficiary and an equitable obligation annexed to the trust property' and that: [i]n Commercial Nominees both the Full Court, at [49] of its reasons, and the High Court, at [35] of its reasons, pointed out that there was nothing in Pt IX [the then statutory taxation regime for superannuation funds], nor in the 1936 Act generally, which imposed some statutory requirement of continuity for determining when there is a sufficient identity of the trusts involved. With respect, the same applies in the case of Div 6 of Pt III of the 1936 Act. | Full Federal Court - dissent | Dowsett J dissented and found that the trust estate that made the capital gains was not the same trust estate as made the capital losses [at paras 44 and 45]. In so doing, his Honour commented [at para 44] that: it cannot seriously be contemplated that [the 2001 net capital gain] was the product of any part of the trust estate held prior to, or at 18 June 1993, nor can it sensibly be argued that any part of the capital gain was produced by the $10 settlement amount. It cannot be said that there was continuity of the trust estate from any time prior to 18 June 1993 until the date of acquisition [of the properties in 1997] or the date of their sale in the 2001 year of income. | Earlier his Honour had observed [at para 39] that by 18 June 1993, the CUT had 'in effect, been wound up ... as at 18 June 1993 the relevant trust estate was of only nominal value'. | His Honour concluded [at para 45] that while changes in the ownership of the units were clearly contemplated by the trust deed, and while changes in the terms of the trust were also contemplated, as was augmentation of the fund, 'where a trust has been effectively deprived of all assets and re-endowed, I see no way in which it can be said that the original trust estate has continued'. | Application for special leave to appeal to the High Court rejected | The Commissioner sought special leave to appeal against the decision of the Full Federal Court to the High Court. In support of his application, the Commissioner argued that in proceeding on the assumption that the Commissioner could only succeed if there was a complete absence of trust property with the result that the trust estate had come to an end, the Federal Court's approach was difficult to reconcile with that of the High Court in Commercial Nominees . The Commissioner argued that: - in Commercial Nominees the High Court had rejected the proposition that the test to be applied looks simply to whether there has been a resettlement of trust property at general law; - the High Court, contrary to the apparent approach of the Full Federal Court in Clark, expressly stated in Commercial Nominees [at para 36] that the test to be applied was instead one of continuity, a point also made by the Full Federal Court in that case [at para 55]; - the test of continuity set out by the High Court in Commercial Nominees has two limbs, namely, whether changes in one or more of the trust constitution, property and membership are such to: (a) terminate the existence of the trust, or (b) produce the result that it does not derive the income in question. Expressed in terms of the facts in Clark, the relevant enquiry is therefore not complete simply by asking whether changes in one or more of the constitution of the CUT, the trust property, and membership were such as to terminate the existence of the trust. Rather one must go further and also ask whether the changes were nonetheless such as to produce the result that the trust estate that made the earlier capital losses is not the trust estate that made the later capital gains from the sale of trust property acquired after the recapitalisation; - such a two limb approach to the test of continuity necessarily contemplates the existence of situations in which the existence of a trust was not terminated but changes to the constitution, trust property and / or membership nevertheless produce a situation in which the requirement of continuity is not satisfied. | - in Commercial Nominees the High Court had rejected the proposition that the test to be applied looks simply to whether there has been a resettlement of trust property at general law; - the High Court, contrary to the apparent approach of the Full Federal Court in Clark, expressly stated in Commercial Nominees [at para 36] that the test to be applied was instead one of continuity, a point also made by the Full Federal Court in that case [at para 55]; - the test of continuity set out by the High Court in Commercial Nominees has two limbs, namely, whether changes in one or more of the trust constitution, property and membership are such to: (a) terminate the existence of the trust, or (b) produce the result that it does not derive the income in question. Expressed in terms of the facts in Clark, the relevant enquiry is therefore not complete simply by asking whether changes in one or more of the constitution of the CUT, the trust property, and membership were such as to terminate the existence of the trust. Rather one must go further and also ask whether the changes were nonetheless such as to produce the result that the trust estate that made the earlier capital losses is not the trust estate that made the later capital gains from the sale of trust property acquired after the recapitalisation; - such a two limb approach to the test of continuity necessarily contemplates the existence of situations in which the existence of a trust was not terminated but changes to the constitution, trust property and / or membership nevertheless produce a situation in which the requirement of continuity is not satisfied. | (a) terminate the existence of the trust, or (b) produce the result that it does not derive the income in question. Expressed in terms of the facts in Clark, the relevant enquiry is therefore not complete simply by asking whether changes in one or more of the constitution of the CUT, the trust property, and membership were such as to terminate the existence of the trust. Rather one must go further and also ask whether the changes were nonetheless such as to produce the result that the trust estate that made the earlier capital losses is not the trust estate that made the later capital gains from the sale of trust property acquired after the recapitalisation; | In refusing the Commissioner's application for special leave, the High Court stated that the decision of the Full Federal Court 'involved characterisation and evaluation of the continuity of the trust estate' and it was not attended with sufficient doubt to warrant the grant of special leave.", "Issues_Decided": "Full Federal Court - majority decision in taxpayer's favour: Edmonds & Gordon JJ rejected the Commissioner's contention that there was a lack of continuity of the trust estate. Their Honours acknowledged [at para 77] that a similar issue arose in Commercial Nominees in respect of the former taxing regime for superannuation funds, and quoted the High Court as finding in that case that: [t]he three main indicia of continuity [for the purposes the former taxing regime for superannuation funds] are the constitution of the trusts under which the fund (if a trust fund) operated, the trust property , and membership . Changes in one or more of those matters must be such as to terminate the existence of the eligible entity, or to produce the result that it does not derive the income in question , to destroy the necessary continuity. [emphasis added by Edmonds and Gordon JJ] However, their Honours were of the view [at paras 78 and 79] that the High Court had also endorsed the reasoning of the Full Federal Court in Commercial Nominees (1999) 167 ALR 147 that so long as any amendment to the trust obligations is made in accordance with a power conferred by the trust instrument creating the obligations, and continuity of the property that is the subject of the trust obligation is established, then there will be 'identity' of the taxpayer notwithstanding any amendment of the trust obligation and any change in the property itself. Finally, their Honours concluded [at para 87] that: [w]hen the High Court in Commercial Nominees spoke about trust property and membership as providing two of the indicia for the continued existence of the ... trust estate, the Court was not suggesting that there had to be a strict or even partial identity of property for the first and objects for the second. It was speaking more generally: that there had to be a continuum of property and membership, which could be identified at any time, even if different from time to time; and without severance of one or both leading to the termination of the trust in question... On this basis, their Honours rejected the Commissioner's contention that there was a 'substantial discontinuity' with respect to each of the three main indicia identified by the High Court in Commercial Nominees . Their Honours also made some specific observations in respect of each of the indicia. Constitution of the trust Their Honours observed [at para 76] that it was not without significance that all of the arrangements were effected without making any alteration to the terms of the [deed of the CUT]. In other words, there was no alteration to the terms of the trusts embodied in that document even if a beneficial interest in the trust fund was affected, even extinguished, by virtue of the arrangements ... Their Honours then referred by way of example to the Denoon controlled trustee's waiver of its right to be indemnified out of the assets of the trust fund, later observing [at para 82] that this 'no more created a new trust than it terminated an existing one. At the most it may have extinguished a 'beneficial interest' in the trust assets .... but even that is not clear'. Their Honours also found that the arrangements under which the Denoons agreed they would obtain no further benefits from the CUT unless and until they made a capital contribution to the trust equal to that made by the Clarks 'did not vary the trusts [of the CUT] let alone terminate them or bring a new trust into existence' [at para 83]. Trust property and membership Their Honours observed that it was significant in their view that the Commissioner had never contended that 'there was a cessation in the continuum of trust property such as to leave it open to find that the trust estate as originally constituted had come to an end', adding that at most 'it was put that only a money amount of $10, being the amount of the original settlement, remained', but it was not disputed that this amount continued to exist [at para 53]. Their Honours also noted that under the terms of the CUT, it would be expected that trust property would change as units were subscribed for and redeemed, and its membership would change as new units were issued and existing units transferred or redeemed [at paras 85-86]. Their Honours found [at para 87] that whilst the identity of the trust property and objects of the CUT changed over time, there had not been any severance in their continuum. By way of final remark, their Honours stated [at para 88] that the approach they had taken was 'consistent with the position at general law in relation to the four essential indicia of the existence of a trust: the trustee, trust property, the beneficiary and an equitable obligation annexed to the trust property' and that: [i]n Commercial Nominees both the Full Court, at [49] of its reasons, and the High Court, at [35] of its reasons, pointed out that there was nothing in Pt IX [the then statutory taxation regime for superannuation funds], nor in the 1936 Act generally, which imposed some statutory requirement of continuity for determining when there is a sufficient identity of the trusts involved. With respect, the same applies in the case of Div 6 of Pt III of the 1936 Act. | Full Federal Court - dissent: Dowsett J dissented and found that the trust estate that made the capital gains was not the same trust estate as made the capital losses [at paras 44 and 45]. In so doing, his Honour commented [at para 44] that: it cannot seriously be contemplated that [the 2001 net capital gain] was the product of any part of the trust estate held prior to, or at 18 June 1993, nor can it sensibly be argued that any part of the capital gain was produced by the $10 settlement amount. It cannot be said that there was continuity of the trust estate from any time prior to 18 June 1993 until the date of acquisition [of the properties in 1997] or the date of their sale in the 2001 year of income. Earlier his Honour had observed [at para 39] that by 18 June 1993, the CUT had 'in effect, been wound up ... as at 18 June 1993 the relevant trust estate was of only nominal value'. His Honour concluded [at para 45] that while changes in the ownership of the units were clearly contemplated by the trust deed, and while changes in the terms of the trust were also contemplated, as was augmentation of the fund, 'where a trust has been effectively deprived of all assets and re-endowed, I see no way in which it can be said that the original trust estate has continued'. | Application for special leave to appeal to the High Court rejected: The Commissioner sought special leave to appeal against the decision of the Full Federal Court to the High Court. In support of his application, the Commissioner argued that in proceeding on the assumption that the Commissioner could only succeed if there was a complete absence of trust property with the result that the trust estate had come to an end, the Federal Court's approach was difficult to reconcile with that of the High Court in Commercial Nominees . The Commissioner argued that: - in Commercial Nominees the High Court had rejected the proposition that the test to be applied looks simply to whether there has been a resettlement of trust property at general law; - the High Court, contrary to the apparent approach of the Full Federal Court in Clark, expressly stated in Commercial Nominees [at para 36] that the test to be applied was instead one of continuity, a point also made by the Full Federal Court in that case [at para 55]; - the test of continuity set out by the High Court in Commercial Nominees has two limbs, namely, whether changes in one or more of the trust constitution, property and membership are such to: (a) terminate the existence of the trust, or (b) produce the result that it does not derive the income in question. Expressed in terms of the facts in Clark, the relevant enquiry is therefore not complete simply by asking whether changes in one or more of the constitution of the CUT, the trust property, and membership were such as to terminate the existence of the trust. Rather one must go further and also ask whether the changes were nonetheless such as to produce the result that the trust estate that made the earlier capital losses is not the trust estate that made the later capital gains from the sale of trust property acquired after the recapitalisation; - such a two limb approach to the test of continuity necessarily contemplates the existence of situations in which the existence of a trust was not terminated but changes to the constitution, trust property and / or membership nevertheless produce a situation in which the requirement of continuity is not satisfied. - in Commercial Nominees the High Court had rejected the proposition that the test to be applied looks simply to whether there has been a resettlement of trust property at general law; - the High Court, contrary to the apparent approach of the Full Federal Court in Clark, expressly stated in Commercial Nominees [at para 36] that the test to be applied was instead one of continuity, a point also made by the Full Federal Court in that case [at para 55]; - the test of continuity set out by the High Court in Commercial Nominees has two limbs, namely, whether changes in one or more of the trust constitution, property and membership are such to: (a) terminate the existence of the trust, or (b) produce the result that it does not derive the income in question. Expressed in terms of the facts in Clark, the relevant enquiry is therefore not complete simply by asking whether changes in one or more of the constitution of the CUT, the trust property, and membership were such as to terminate the existence of the trust. Rather one must go further and also ask whether the changes were nonetheless such as to produce the result that the trust estate that made the earlier capital losses is not the trust estate that made the later capital gains from the sale of trust property acquired after the recapitalisation; - such a two limb approach to the test of continuity necessarily contemplates the existence of situations in which the existence of a trust was not terminated but changes to the constitution, trust property and / or membership nevertheless produce a situation in which the requirement of continuity is not satisfied. (a) terminate the existence of the trust, or (b) produce the result that it does not derive the income in question. Expressed in terms of the facts in Clark, the relevant enquiry is therefore not complete simply by asking whether changes in one or more of the constitution of the CUT, the trust property, and membership were such as to terminate the existence of the trust. Rather one must go further and also ask whether the changes were nonetheless such as to produce the result that the trust estate that made the earlier capital losses is not the trust estate that made the later capital gains from the sale of trust property acquired after the recapitalisation; In refusing the Commissioner's application for special leave, the High Court stated that the decision of the Full Federal Court 'involved characterisation and evaluation of the continuity of the trust estate' and it was not attended with sufficient doubt to warrant the grant of special leave.", "ATO_View_of_Decision": "The Commissioner considers that the decision of the Full Federal Court in Clark does not change the basic proposition that, based on the authority in Commercial Nominees , the relevant focus is on whether continuity of the trust estate has been maintained. That this is so is confirmed by the High Court's language in disposing of the Commissioner's application for special leave where the High Court noted that the decision of the Full Federal Court involved 'characterisation and evaluation of the continuity of the trust estate '. | The statute does not contain a statement of the applicable criteria against which continuity is to be assessed. As was recognised by the Full Federal Court in Commercial Nominees [at para 49], the consequence is that criteria must be established for these purposes. As decided by the High Court in Commercial Nominees , the Commissioner considers that the test to be applied looks to whether changes to one or more of the trust's constituent documents, the trust property, and the identity of those with a beneficial interest in the trust property are such as to terminate the existence of the trust. | To the extent that the High Court in Commercial Nominees left open the possibility that there might be a loss of continuity in circumstances short of the existence of the trust having come to an end, the Commissioner acknowledges that in Clark there were significant changes to the property, membership and operation of the CUT without any finding by the courts that there was a loss of continuity such as to deny the trust access to the losses being carried forward. Relevantly, in disposing of the Commissioner's special leave application, the High Court noted that the application raised the question: [w]hether a trustee of a unit trust could set-off, against capital gains, capital losses incurred some years before under a different trustee with different unit holders, with an intervening excess of liabilities over assets, subsequent recapitalisation of the trust and a waiver by the original trustee of its right to be indemnified from the assets of the trust. | Accordingly, following Clark, there will not be a loss of continuity sufficient to deny a trustee access to any capital losses being carried forward without a termination of the existence of the trust estate. | Not being central to the matter in dispute, the Commissioner does not view this case as deciding the issue of whether or not an attempt by a trustee to waive its right of indemnity may be effective at law.", "Administrative_Treatment": "Even though this case considered whether changes in a continuing trust were sufficient to treat that trust as a different taxpayer for the purpose of applying a net capital loss, the ATO accepts the principles set out in this case have broader application. In particular, the case is relevant to the question of the circumstances in which CGT Event E1 may happen by reason of a new trust coming into existence consequent on changes being made to an existing trust. In that context the ATO accepts that the reasoning of the court has the effect that a valid amendment to a trust, not resulting in a termination of the trust will not of itself result in the happening of CGT event E1. On this basis the 'Creation of a new trust - Statement of Principles August 2001' was withdrawn on 20 April 2012. | Consequently the ATO has withdrawn Creation of a new trust - Statement of Principles August 2001 . The ATO view in relation to this matter is now set out in Taxation Determination TD 2012/21 which addresses the question: does CGT event E1 or E2 in sections 104-55 or 104-60 of the Income Tax Assessment Act 1997 happen if the terms of a trust are changed pursuant to a valid exercise of a power contained within the trust's constituent document, or varied with the approval of a relevant court? | Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | Full Federal Court | 2011 ATC 20-236 | High Court | [2011] HCATrans 236 | (2011) 80 ATR 20 | 6(1) | 95(1) | 96 | 97 | 6-5 | 6-10 | 102-5(1) | 102-15 | [2009] NSWSC 1229 | 2006 ATC 4752 | 98 ATC 4097 | 80 ATC 4076 | 2010 ATC 20-170 | 99 ATC 5115 | [1930] HCA 45 | (1979) 144 CLR 360", "Legislative_References": "Income Tax Assessment Act 1936 6(1) 95(1) 96 97 Income Tax Assessment Act 1997 6-5 6-10 102-5(1) 102-15", "Case_References": "Australian Securities Investments Commission v Rich (2009) 75 ACSR 1 [2009] NSWSC 1229 Cajkusic v Federal Commissioner of Taxation (2006) 155 FCR 430 2006 ATC 4752 64 ATR 676 Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 98 ATC 4097 37 ATR 393 Commissioner of Taxation v Everett (1980) 143 CLR 440 10 ATR 608 80 ATC 4076 Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481 2010 ATC 20-170 [2010] HCA 10 75 ATR 1 Federal Commissioner of Taxation v Commercial Nominees of Australia Ltd (2000) 43 ATR 42 [1999] FCA 1455 99 ATC 5115 Federal Commissioner of Taxation v Commercial Nominees of Australia Ltd (2001) 75 ALJR 1172 [2001] HCA 33 47 ATR 220 Howey v Federal Commissioner of Taxation (1930) 44 CLR 289 [1930] HCA 45 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 Salt v Marquess of Northampton [1892] 2 AC 1 Stewart Dawson Holdings Pty Ltd v Commissioner of Taxation (1965) 39 ALJR 300", "Subject_References": "Continuity of trust estate Net capital gain Net capital loss Net income in relation to a trust estate Share of the net income of a trust estate", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD1of2010/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision including any precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Commissioner of Taxation v Luxottica Retail Australia Pty Ltd", "Venue_Reference_No": "2007/3489, 3490 and 2009/4027 (AAT) NSD 134 of 2010 (Federal Court) 2008/3923", "Venue": "Federal Court of Australia", "Judgment_Date": "23 February 2011", "Date_Published": "22 May 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "The Commissioner's appeal to the Full Federal Court from the decision of the AAT was dismissed.", "Summary_of_Decision": "Outlines the ATO response to the decision of the Full Federal Court in respect of the calculation of the taxable value of spectacle frames when sold at a discounted price conditional upon the purchase of a complete pair of prescription spectacles.", "Overview_of_Facts": "Luxottica Retail Australia Pty Ltd (Luxottica) is the GST group representative for a number of spectacle retailers. | The retailers offered various discounts on the supply of frames for prescription spectacles, for example 50%, or $100, off the normal selling price of the frames. | The common feature of these discounts was that they only applied to customers who also purchased a pair of prescription lenses to be fitted into the frames. The discounts were not available if frames only were purchased. | It was held out to the customer that the frames were being sold to the customer at a discount, the lenses were sold without any discount, and the price of the complete pair of spectacles was the aggregate of these two amounts. There was no additional charge for fitting the lenses into the frame. | The dispute concerned the GST treatment of the discounts. Luxottica submitted that the taxable value of the frames should be based on their normal selling price less the whole of the discount. The Commissioner submitted that the discounted selling price for the spectacles should be apportioned according to the relative values of the frames and the lenses represented by their undiscounted prices. | The Administrative Appeals Tribunal decided the matter in favour of Luxottica. The Commissioner appealed to the Federal Court. The appeal was heard by a Full Court which dismissed the Commissioner's appeal. | Issues decided by the court | The issues decided by the Full Federal Court were: (i) whether the supply of spectacles (comprising a frame fitted with lenses) is a single supply, as the Commissioner contended, or two supplies, being a supply of the frame and a supply of the lenses; (ii) how to calculate the value of the taxable supply upon which GST is payable. | (i) whether the supply of spectacles (comprising a frame fitted with lenses) is a single supply, as the Commissioner contended, or two supplies, being a supply of the frame and a supply of the lenses; (ii) how to calculate the value of the taxable supply upon which GST is payable. | One supply or two supplies | The Court held that the sale of spectacles was a single supply. | Calculation of the value of taxable supply of frames | The Court held that the value of the taxable supply of frames must be determined under section 9-80, not section 9-75. | However, their Honours held that an element of the formula in section 9-80, the taxable proportion, used to work out the value of a taxable supply for supplies that are partly taxable and partly either GST-free or input taxed, is circular and therefore does not work. | Further, as that proportion cannot be determined by application of the formula in subsection 9-80(2), the apportionment must be undertaken as a matter of practical commonsense. The decision maker must take into account the relevant circumstances of the particular case and reach a conclusion as to value and the relationship it has to the price of the supply in question. | The Court noted that the Tribunal, in the absence of any other measure of value, regarded value as commensurate with the price of the frames and that the fact that the discounted price was conditional on the purchase of the lenses \"does not undermine the reasonableness of the calculation of the taxable proportion in this way\". | The Court concluded that the Tribunal made a \"considered decision as to the value of the taxable supply based on the findings of fact that it was entitled to make. Any error made by the Tribunal in determining the value would be an error of fact, not of law, and as such does not give rise to a question of law enlivening the jurisdiction of this Court\".", "Issues_Decided": "The issues decided by the Full Federal Court were: (i) whether the supply of spectacles (comprising a frame fitted with lenses) is a single supply, as the Commissioner contended, or two supplies, being a supply of the frame and a supply of the lenses; (ii) how to calculate the value of the taxable supply upon which GST is payable. (i) whether the supply of spectacles (comprising a frame fitted with lenses) is a single supply, as the Commissioner contended, or two supplies, being a supply of the frame and a supply of the lenses; (ii) how to calculate the value of the taxable supply upon which GST is payable. | One supply or two supplies: The Court held that the sale of spectacles was a single supply. | Calculation of the value of taxable supply of frames: The Court held that the value of the taxable supply of frames must be determined under section 9-80, not section 9-75. However, their Honours held that an element of the formula in section 9-80, the taxable proportion, used to work out the value of a taxable supply for supplies that are partly taxable and partly either GST-free or input taxed, is circular and therefore does not work. Further, as that proportion cannot be determined by application of the formula in subsection 9-80(2), the apportionment must be undertaken as a matter of practical commonsense. The decision maker must take into account the relevant circumstances of the particular case and reach a conclusion as to value and the relationship it has to the price of the supply in question. The Court noted that the Tribunal, in the absence of any other measure of value, regarded value as commensurate with the price of the frames and that the fact that the discounted price was conditional on the purchase of the lenses \"does not undermine the reasonableness of the calculation of the taxable proportion in this way\". The Court concluded that the Tribunal made a \"considered decision as to the value of the taxable supply based on the findings of fact that it was entitled to make. Any error made by the Tribunal in determining the value would be an error of fact, not of law, and as such does not give rise to a question of law enlivening the jurisdiction of this Court\".", "ATO_View_of_Decision": "One or two supplies | The Court's conclusion that there was a single supply is consistent with the Commissioner's submissions. | Calculation of the taxable value of the supply | The Court's conclusions that section 9-80 is the relevant provision to calculate the value of the taxable component of a supply that is also partly GST-free or input taxed and section 9-75 applies to supplies that are wholly taxable are also consistent with the Commissioner's submissions. | In GSTR 2001/8 the Commissioner stated that you may use any reasonable method of apportionment which can be supported by the facts in the particular circumstances. The Commissioner respectfully accepts that it was open to their Honours to conclude that the apportionment adopted by the taxpayers was a reasonable basis of apportionment in the circumstances as found by the Tribunal. | Accordingly, the Commissioner will not seek special leave to appeal to the High Court against the decision of the Full Federal Court.", "Administrative_Treatment": "GST refund requests | Some optical suppliers may seek refunds of overpaid GST on the basis of the decision of the Court. | Supplies of spectacles are typically made to customers that are not registered for GST. In that circumstance, the supplier must satisfy the Commissioner that an amount corresponding to the GST refund has been passed on to the customer. | In limited circumstances, the Commissioner may exercise his discretion to pay a refund even though the reimbursement requirement has not been satisfied. (This is discussed in MT 2010/1 Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 ('the TAA')). | However, the Commissioner will not generally exercise the discretion in cases where the supplier has not reimbursed the unregistered recipient a corresponding amount of the overpaid GST, unless there are other countervailing reasons for doing so. For example, the Commissioner may exercise the discretion if the supplier did not intend to charge or pay an amount of GST, but did so as a result of making an arithmetic or recording error. In that circumstance, the supplier bears the cost of the GST, not the customer. | Suppliers cannot self-assess the exercise of the discretion and would need to make a request, in writing, to the Commissioner seeking the exercise of that discretion. The request can be lodged via the GSTmail@ato.gov.au mailbox. If you have an Indirect Tax Client Relationship Manager, you may wish to let them know that you have lodged that request. | A GST refund claim must also be made within the four-year time limit for GST refunds (section 105-55 of Schedule 1 to the TAA). Taxpayers may preserve their entitlement to a possible refund by lodging a Notification of entitlement to GST refund (NAT 11719) form within the time limits for recovery of refunds. | Notifications should be sent to the ATO via the email address - GSTmail@ato.gov.au or to the address or fax number shown on the notification form. If you have an Indirect Tax Client Relationship Manager, you may wish to let them know that you have lodged a notification. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | The ATO has released an addendum to GSTR 2001/8 on 11 April 2012 to reflect the decisions of the Full Federal Court in Luxottica and the AAT in the Food Supplier case. | In particular, the addendum makes it clear that discounts need not necessarily be apportioned in proportion to the relative amounts of the undiscounted prices for components of a supply comprised of taxable and GST-free or input taxed components. The apportionment must be undertaken as a matter of practical, commonsense having regard to the circumstances of the particular case. In doing so, a conclusion must be reached as to value of each component and the relationship it has to the price of the supply. | In Luxottica , the following circumstances supported the allocation of the discount to the taxable frames only: • the vendor offered to sell and the purchaser agreed to buy the frames at a discounted price and the lenses at full price without discount; and the price of the pair of spectacles is the aggregate of the two amounts; • there were sound commercial reasons for the discounting of frames; • there was no commercial imperative for the discounting of lenses; and • there was nothing contrived or artificial about the pricing methodology adopted in the promotional arrangements. | • the vendor offered to sell and the purchaser agreed to buy the frames at a discounted price and the lenses at full price without discount; and the price of the pair of spectacles is the aggregate of the two amounts; • there were sound commercial reasons for the discounting of frames; • there was no commercial imperative for the discounting of lenses; and • there was nothing contrived or artificial about the pricing methodology adopted in the promotional arrangements. | The Tribunal found the fact that the discounted price was conditional on the purchase of the lenses did not undermine the reasonableness of the apportionment.", "Related_Documents": "GSTR 2001/8 | Land product supplied to non-residents (as principal) | 2011 ATC 20-243 | 9-5 | 9-10(2) | 9-40 | 9-70 | 9-80 | Schedule 11, item 4A | (1963) 110 CLR 550 | 2001 ATC 4675 | 2007 ATC 157", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-5 9-10(2) 9-40 9-70 9-80 Indirect Tax Legislation Amendment Act 2000 Schedule 11, item 4A", "Case_References": "IAC (Finance) Pty limited v Courtenay (1963) 110 CLR 550 Kmart Australia Ltd v Commissioner of Taxation of the Commonwealth of Australia [2001] FCA 1540 (2001) 114 FCR 353 2001 ATC 4675 (2001) 48 ATR 302 Re Food Supplier and Commissioner of Taxation [2007] AATA 1550 2007 ATC 157 66 ATR 938", "Subject_References": "apportionment calculation of taxable value conditional discount GST GST-free GST payable sale of prescription spectacles supply of taxable frames at a discounted price conditional upon purchase of complete spectacles supply of GST-free lenses taxable proportion value of taxable supply", "Other_References": "Notification of entitlement to GST refund (NAT 11719) form", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/3489/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Multiflex Pty Ltd", "Venue_Reference_No": "VID 1082 of 2011 (FC); M159 of 2011 (HC)", "Venue": "Federal Court of Australia", "Judgment_Date": "11 November 2011", "Date_Published": "12 March 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether the Commissioner has an implied reasonable time to refund amounts payable to an entity under section 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 and, if so, the extent of that reasonable time.", "Overview_of_Facts": "Multiflex's business consisted of purchasing mobile phones and similar goods from suppliers in Australia and exporting them to an associated Singapore resident company. In its GST returns for the periods January to May 2011, Multiflex claimed negative net amounts totalling $931,821. | The Commissioner decided not to refund the claimed amounts to Multiflex while he conducted an audit of Multiflex's entitlement to the refunds. The Commissioner had reasonable grounds to suspect that the input tax credits claimed in Multiflex's GST returns are not legitimate claims and could be fraudulent. | Multiflex sought remedies in the Federal Court under s.39B of the Judiciary Act 1903 and relief in debt and damages. The matter was expedited on the basis that Multiflex faced cash flow issues if the matter was not heard and determined and the GST refunds paid to it as a matter of urgency. | The matter was heard by Jessup J at first instance who gave judgment on 30 September 2011. The Court ordered mandamus directing the Commissioner to pay the GST refunds to Multiflex 'forthwith'. | The Commissioner appealed to the Full Federal Court. | Issues decided by the Full Court | - The Court held that the reasonable time in which the Commissioner must perform the duty under section 35-5 of the GST Act was a period not longer than required for administrative processing of a GST return. - The Court indicated that if the Commissioner knows the amount stated in the GST return is wrong, he can raise an assessment which would supersede the net amount stated in the return. - The Court took the view that an analogous provision in the United Kingdom VAT legislation (s.14(5) of the Value Added tax Act 1983 (UK)) is in a different statutory context to that of s.35-5 of the GST Act and therefore the United Kingdom line of authorities beginning with the decision in R v Commissioners of Customs and Excise; ex parte Strangewood Ltd (1987) 3 BVC 60; [1987] STC 502 was not followed. - The Court drew attention to s.46 of the Goods and Services Tax Act 1985 (NZ) as an approach which our Parliament could have taken to retention of GST refunds. The Court also said that the GST legislation must operate in a business environment and that the 'importance of a prompt refund' was consistent with 'cascading' of tax being avoided. - The Court recognised that the Commissioner may retain an amount if he has not received from the entity a required notification that affects or may affect the amount refundable to that entity (under s.8AAZLG of the Taxation Administration Act 1953 ). - The Court held that the Commissioner must perform the duty under section 35-5 of the GST Act by refunding the amounts in Multiflex's business activity statement. The Court refused to exercise its discretion to decline the order of mandamus stating that to do so would be antagonistic to the terms, object or purposes of section 35-5 of the GST Act. The Commissioner's appeal was dismissed and the trial judge's order that the Commissioner pay Multiflex the GST refunds forthwith was upheld. - After the Full Federal Court dismissed the appeal, the Commissioner sought special leave to appeal to the High Court, which refused to grant special leave on 9 December 2011. | - The Court held that the reasonable time in which the Commissioner must perform the duty under section 35-5 of the GST Act was a period not longer than required for administrative processing of a GST return. - The Court indicated that if the Commissioner knows the amount stated in the GST return is wrong, he can raise an assessment which would supersede the net amount stated in the return. - The Court took the view that an analogous provision in the United Kingdom VAT legislation (s.14(5) of the Value Added tax Act 1983 (UK)) is in a different statutory context to that of s.35-5 of the GST Act and therefore the United Kingdom line of authorities beginning with the decision in R v Commissioners of Customs and Excise; ex parte Strangewood Ltd (1987) 3 BVC 60; [1987] STC 502 was not followed. - The Court drew attention to s.46 of the Goods and Services Tax Act 1985 (NZ) as an approach which our Parliament could have taken to retention of GST refunds. The Court also said that the GST legislation must operate in a business environment and that the 'importance of a prompt refund' was consistent with 'cascading' of tax being avoided. - The Court recognised that the Commissioner may retain an amount if he has not received from the entity a required notification that affects or may affect the amount refundable to that entity (under s.8AAZLG of the Taxation Administration Act 1953 ). - The Court held that the Commissioner must perform the duty under section 35-5 of the GST Act by refunding the amounts in Multiflex's business activity statement. The Court refused to exercise its discretion to decline the order of mandamus stating that to do so would be antagonistic to the terms, object or purposes of section 35-5 of the GST Act. The Commissioner's appeal was dismissed and the trial judge's order that the Commissioner pay Multiflex the GST refunds forthwith was upheld. - After the Full Federal Court dismissed the appeal, the Commissioner sought special leave to appeal to the High Court, which refused to grant special leave on 9 December 2011.", "Issues_Decided": "- The Court held that the reasonable time in which the Commissioner must perform the duty under section 35-5 of the GST Act was a period not longer than required for administrative processing of a GST return. - The Court indicated that if the Commissioner knows the amount stated in the GST return is wrong, he can raise an assessment which would supersede the net amount stated in the return. - The Court took the view that an analogous provision in the United Kingdom VAT legislation (s.14(5) of the Value Added tax Act 1983 (UK)) is in a different statutory context to that of s.35-5 of the GST Act and therefore the United Kingdom line of authorities beginning with the decision in R v Commissioners of Customs and Excise; ex parte Strangewood Ltd (1987) 3 BVC 60; [1987] STC 502 was not followed. - The Court drew attention to s.46 of the Goods and Services Tax Act 1985 (NZ) as an approach which our Parliament could have taken to retention of GST refunds. The Court also said that the GST legislation must operate in a business environment and that the 'importance of a prompt refund' was consistent with 'cascading' of tax being avoided. - The Court recognised that the Commissioner may retain an amount if he has not received from the entity a required notification that affects or may affect the amount refundable to that entity (under s.8AAZLG of the Taxation Administration Act 1953 ). - The Court held that the Commissioner must perform the duty under section 35-5 of the GST Act by refunding the amounts in Multiflex's business activity statement. The Court refused to exercise its discretion to decline the order of mandamus stating that to do so would be antagonistic to the terms, object or purposes of section 35-5 of the GST Act. The Commissioner's appeal was dismissed and the trial judge's order that the Commissioner pay Multiflex the GST refunds forthwith was upheld. - After the Full Federal Court dismissed the appeal, the Commissioner sought special leave to appeal to the High Court, which refused to grant special leave on 9 December 2011. - The Court held that the reasonable time in which the Commissioner must perform the duty under section 35-5 of the GST Act was a period not longer than required for administrative processing of a GST return. - The Court indicated that if the Commissioner knows the amount stated in the GST return is wrong, he can raise an assessment which would supersede the net amount stated in the return. - The Court took the view that an analogous provision in the United Kingdom VAT legislation (s.14(5) of the Value Added tax Act 1983 (UK)) is in a different statutory context to that of s.35-5 of the GST Act and therefore the United Kingdom line of authorities beginning with the decision in R v Commissioners of Customs and Excise; ex parte Strangewood Ltd (1987) 3 BVC 60; [1987] STC 502 was not followed. - The Court drew attention to s.46 of the Goods and Services Tax Act 1985 (NZ) as an approach which our Parliament could have taken to retention of GST refunds. The Court also said that the GST legislation must operate in a business environment and that the 'importance of a prompt refund' was consistent with 'cascading' of tax being avoided. - The Court recognised that the Commissioner may retain an amount if he has not received from the entity a required notification that affects or may affect the amount refundable to that entity (under s.8AAZLG of the Taxation Administration Act 1953 ). - The Court held that the Commissioner must perform the duty under section 35-5 of the GST Act by refunding the amounts in Multiflex's business activity statement. The Court refused to exercise its discretion to decline the order of mandamus stating that to do so would be antagonistic to the terms, object or purposes of section 35-5 of the GST Act. The Commissioner's appeal was dismissed and the trial judge's order that the Commissioner pay Multiflex the GST refunds forthwith was upheld. - After the Full Federal Court dismissed the appeal, the Commissioner sought special leave to appeal to the High Court, which refused to grant special leave on 9 December 2011.", "ATO_View_of_Decision": "It follows from the Full Court's decision that the Commissioner must perform duties under section 35-5 of the GST Act within the reasonable time for administrative processing of a refund or credit. The Commissioner accepts the finding that, if he considers that an amount stated in a GST return is not correct, he can raise an assessment to which conclusive evidence provisions would then apply. | Further, the Commissioner accepts the finding that the duties under section 35-5 of the GST Act do not need to be performed if the Commissioner has not received from the taxpayer a required notification that affects or may affect the amount refundable to that taxpayer (under s.8AAZLG of the Taxation Administration Act 1953 (TAA)) or s.105-65 of Schedule 1 to the TAA otherwise applies. | The Commissioner will continue to apply Law Administration Practice Statement PS LA 2008/11 to situations coming within its terms. | The ATO will continue to conduct analysis, profiling, reviews and audits of GST and Business Activity Statements to ensure entities are compliant with their tax obligations. | The ATO is strongly committed to deterring, detecting and dealing with serious tax evasion and fraud. Firm action will be taken against taxpayers, intermediaries or others who engage in evasion or fraud, including applying penalties and prosecution.", "Administrative_Treatment": "The ATO has considered what administrative practices may require to be reviewed as a result of the decision. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | No. | Implications for Law Administration Practice Statements | No.", "Related_Documents": "N/A | Full Federal Court | 2011 ATC 20-292 | High Court | 2-5 | 2-30 | 5-5 | 7-1 | 7-5 | 7-10 | 7-15 | 9-20 | 17-5 | 23-15 | 31-15 | 35-5 | 182-10 | Div 195 | 8AAZLF | 8AAZLG | 46 | 14, 16 | 94 ATC 4960 | 2005 ATC 4571 | 2011 ATC 20-284 | [2000] HCA 57 | 2009 ATC 20-133", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (Cth) 2-5 2-30 5-5 7-1 7-5 7-10 7-15 9-20 17-5 17-15 23-15 31-15 35-5 182-10 Div 195 Taxation Administration Act 1953 (Cth) 8AAZLF 8AAZLG 105-15 of Sch1 Goods and Services Tax Act 1985 (NZ) 46 Value Added Tax Act 1983 (UK) 14, 16", "Case_References": "Commissioner of Inland Revenue v Sea Hunter Fishing Ltd (2002) 20 NZTC 17-478 Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd (1994) 182 CLR 51 94 ATC 4960 29 ATR 173 Contract Pacific Ltd v Commissioner of Inland Revenue [2011] 1 NZLR 302 HP Mercantile Pty Ltd v Federal Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 60 ATR 106 Multiflex Pty Ltd v Commissioner of Taxation [2011] FCA 1112 2011 ATC 20-284 R v Commissioners of Customs and Excise; Ex parte Strangewood Ltd [1987] STC 502 Re Refugee Review Tribunal; Ex Parte Aala (2000) 204 CLR 82 [2000] HCA 57 Travelex Ltd v Federal Commissioner of Taxation (2009) 178 FCR 434 2009 ATC 20-133 73 ATR 463", "Subject_References": "Goods and Services Tax Administration Negative Net Amount Obligation to Pay Refund Entitlement to a Refund Mandamus", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M159of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Newton; Natalie Newton (trading as Combined Care for the Elderly) and Commissioner of Taxation", "Venue_Reference_No": "2008/3923", "Venue": "Federal Court of Australia", "Judgment_Date": "16 December 2011", "Date_Published": "17 June 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Upon the matter being remitted to the AAT from the Federal Court, the objection decision was affirmed, subject to some variations which the Commissioner agreed to prior to the hearing.", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the workers engaged by the Applicant were employees for the purposes of the Superannuation Guarantee (Administration) Act 1992 .", "Overview_of_Facts": "1. The Applicant, from July to December 2000, operated a business that principally provided community support services to the elderly. The services provided to them included amongst other things cooking, cleaning, shopping, showering, dressing and general household duties. The services were not physically or personally provided by the Applicant but by workers on whom the Applicant could call when a client placed a request for assistance. | 2. The services were provided at the client's premises, except when the worker went shopping for the client. The equipment and materials required to perform the tasks (such as cleaning materials, brooms, vacuum cleaners, cooking equipment) were generally provided by the client rather than the worker. | 3. The Commissioner made an assessment of Superannuation Guarantee Charge (\"SGC\") for the year ended 30 June 2001 on the basis that the Applicant had failed to make superannuation contributions on behalf of 21 of the Applicant's workers. | 4. The Applicant lodged an objection against the SGC assessment. The Commissioner disallowed the objection in full. The objection decision was referred to the Administrative Appeals Tribunal for review. | 5. At the hearing on 14 August 2009 and 24 February 2010, the Applicant argued that the workers were not \"employees\" of the Applicant (within the common law meaning under subsection 12(1) or the extended definition provided by subsection 12(3) of the Act). | 6. After the hearing, Senior Member Frost decided that there was merit in the Applicant's original objection which pertained to whether the employees were paid to do work that was entirely \"domestic\" within a \"domestic home situation\" and as such were excluded from the definition of \"employees\" for the purposes of the Act where they have worked for less than 30 hours per week. | 7. The Applicant and the Respondent were asked by Senior Member Frost to provide written submissions in respect of sections 11(2) and 12(11) of the Act. The Tribunal decided in favour of the Applicant: [2010] AATA 475. | 8. The Commissioner appealed the decision of the AAT and the Federal Court of Australia constituted by Emmett J held that the AAT had committed an error of law in its construction of s 12(11): [2010] FCA 1440. | 9. In particular, Emmett J preferred the Commissioner's construction that the exemption in s 12(11) was intended to be for the benefit of the householder for whom the relevant work was done. Where the work was done pursuant to a direct arrangement between the householder and the worker, s 12(11) would be attracted. It does not apply to workers engaged by labour hire entities to provide services to clients. | 10. The Applicant appealed the decision to the Full Federal Court but the appeal was discontinued. | 11. The matter was remitted to the AAT for further consideration and determination in accordance with the law. | Issues decided by the court or tribunal | 1. The assessments are not excessive, subject to some agreed variations. | 2. The workers were employees pursuant to subsection 12(3) and probably also pursuant to subsection 12(1) of the SGAA based on the following: • The materials and tools were provided by the client. • The workers were not free to delegate work to others because if the circumstance ever arose that an appointed worker became unavailable to provide agreed services, then the allocation of the work to an alternative worker was subject to the Applicant's approval. • Although it was argued that the workers were free to carry out work with the permission of the clients, this means nothing more than the actual detailed work to be undertaken in a given assignment would be determined by the client. It has nothing to say about the relationship between the Applicant (who allocated the assignment) and the worker. • The workers provided services under the Labour Hire Agreement and the signing of a Labour Hire Agreement pointed strongly in favour of a finding that the workers are employees - if not under s12(1) of the SGAA then certainly under s12(3). • There is no evidence that the workers were obliged to produce a result; the strong indications are that what the Applicant required of the workers was that they devote to the Applicant their labour during the period of any given assignment. There was never any requirement that they produce any 'result' (other than, perhaps, and only inferentially, a satisfied client). • Despite the contractual description being that of an independent contractor, that of itself establishes nothing. | • The materials and tools were provided by the client. • The workers were not free to delegate work to others because if the circumstance ever arose that an appointed worker became unavailable to provide agreed services, then the allocation of the work to an alternative worker was subject to the Applicant's approval. • Although it was argued that the workers were free to carry out work with the permission of the clients, this means nothing more than the actual detailed work to be undertaken in a given assignment would be determined by the client. It has nothing to say about the relationship between the Applicant (who allocated the assignment) and the worker. • The workers provided services under the Labour Hire Agreement and the signing of a Labour Hire Agreement pointed strongly in favour of a finding that the workers are employees - if not under s12(1) of the SGAA then certainly under s12(3). • There is no evidence that the workers were obliged to produce a result; the strong indications are that what the Applicant required of the workers was that they devote to the Applicant their labour during the period of any given assignment. There was never any requirement that they produce any 'result' (other than, perhaps, and only inferentially, a satisfied client). • Despite the contractual description being that of an independent contractor, that of itself establishes nothing.", "Issues_Decided": "1. The assessments are not excessive, subject to some agreed variations. 2. The workers were employees pursuant to subsection 12(3) and probably also pursuant to subsection 12(1) of the SGAA based on the following: • The materials and tools were provided by the client. • The workers were not free to delegate work to others because if the circumstance ever arose that an appointed worker became unavailable to provide agreed services, then the allocation of the work to an alternative worker was subject to the Applicant's approval. • Although it was argued that the workers were free to carry out work with the permission of the clients, this means nothing more than the actual detailed work to be undertaken in a given assignment would be determined by the client. It has nothing to say about the relationship between the Applicant (who allocated the assignment) and the worker. • The workers provided services under the Labour Hire Agreement and the signing of a Labour Hire Agreement pointed strongly in favour of a finding that the workers are employees - if not under s12(1) of the SGAA then certainly under s12(3). • There is no evidence that the workers were obliged to produce a result; the strong indications are that what the Applicant required of the workers was that they devote to the Applicant their labour during the period of any given assignment. There was never any requirement that they produce any 'result' (other than, perhaps, and only inferentially, a satisfied client). • Despite the contractual description being that of an independent contractor, that of itself establishes nothing. • The materials and tools were provided by the client. • The workers were not free to delegate work to others because if the circumstance ever arose that an appointed worker became unavailable to provide agreed services, then the allocation of the work to an alternative worker was subject to the Applicant's approval. • Although it was argued that the workers were free to carry out work with the permission of the clients, this means nothing more than the actual detailed work to be undertaken in a given assignment would be determined by the client. It has nothing to say about the relationship between the Applicant (who allocated the assignment) and the worker. • The workers provided services under the Labour Hire Agreement and the signing of a Labour Hire Agreement pointed strongly in favour of a finding that the workers are employees - if not under s12(1) of the SGAA then certainly under s12(3). • There is no evidence that the workers were obliged to produce a result; the strong indications are that what the Applicant required of the workers was that they devote to the Applicant their labour during the period of any given assignment. There was never any requirement that they produce any 'result' (other than, perhaps, and only inferentially, a satisfied client). • Despite the contractual description being that of an independent contractor, that of itself establishes nothing.", "ATO_View_of_Decision": "At [2010] FCA 1440 Emmett J upheld the Commissioner's view that the exemption in s 12(11) regarding work of a domestic or private nature was intended to be for the benefit of the householder for whom the relevant work was done and does not apply where the workers are paid by a labour hire entity. | Upon the matter being remitted to the AAT, the decision that the workers were employees under the SGAA, was based on the facts of the case and the findings made by the Tribunal. The final AAT decision is consistent with the Commissioner's submissions in the case. This case is the first AAT decision to affirm the Commissioner's view that certain labour hire arrangements whereby labour hire firms supply or provide the services and labour of workers to client organisations come within the scope of subsection 12(3). | The decisions are consistent with the ATO view as expressed in SGR 2005/1: Superannuation guarantee - who is an employee? and SGR 2005/2: Superannuation guarantee - work arranged by intermediaries.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None.", "Related_Documents": "SGR 2005/1 | SGR 2005/2 | Federal Court | 2010 ATC 20-234 | Administrative Appeals Tribunal | 2011 ATC 10-226 | 12 | 14ZZK | [2010] AATA 475 | (1954) 94 CLR 419 | 92 ATC 4327", "Legislative_References": "Superannuation Guarantee (Administration) Act 1992 12 Taxation Administration Act 1953 14ZZK", "Case_References": "Care Provider and Commissioner of Taxation [2010] AATA 475 79 ATR 528 Natalie Newton (trading as Combined Care for the Elderly) and Commissioner of Taxation [2010] AATA 725 80 ATR 739 Neale v Atlas Products (Vic) Pty Ltd (1954) 94 CLR 419 [1955] HCA 18 World Book (Australia) Pty Ltd v Federal Commissioner of Taxation (1992) 27 NSWLR 377 23 ATR 412 92 ATC 4327", "Subject_References": "Superannuation superannuation guarantee charge whether workers 'employees' under Superannuation Guarantee (Administration) Act 1992 decision under review varied remittal from Federal Court", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/3923/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v SNF (Australia) Pty Ltd", "Venue_Reference_No": "VID 731 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "1 June 2011", "Date_Published": "26 October 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "The case concerned whether the taxpayer paid more than the arm's length price for products acquired from overseas related parties so that the Commissioner could apply the transfer pricing rules to adjust the purchase price for income tax purposes.", "Overview_of_Facts": "The taxpayer was a member of a global group whose headquarters are in France. The taxpayer bought certain chemicals from group companies overseas, and sold them to unrelated end-users in various industries in Australia. From its incorporation in 1990 until 2004, the taxpayer consistently returned tax losses. | The taxpayer was subject to a transfer pricing audit. Determinations were made under Division 13 of Part III of the Income Tax Assessment Act 1936 to adjust the consideration for the company's international related party transactions to reflect an arm's length amount. For the income years from 1997 to 2003, the Commissioner made determinations under ss136AD(3) and (4) of the Act as to the arm's length price of the chemicals. | The Commissioner issued notices of assessment in 2007, and subsequently disallowed the taxpayer's objections to those assessments. | The taxpayer produced evidence of sales by the overseas suppliers to third party purchasers, which it submitted established comparable uncontrolled prices (CUP) that were as high as or higher than the prices paid by the taxpayer. | Issues decided by the court | 1. Although the trial judge failed to give full reasons for the conclusions he made on the evidence led by the taxpayer at trial, a review of that evidence demonstrated that the trial judge's conclusion that two of the three sets of transactions relied upon by the taxpayer were comparable and so made out a CUP was correct. The Full Court found that the taxpayer had not established comparability of function between the taxpayer and the companies it used for its second CUP analysis. Whilst the Full Court accepted the third CUP analysis, it determined that certain transactions the taxpayer submitted were comparable were in fact not comparable, as the taxpayer had not established functional comparability. There remained sufficient comparables for the Full Court to determine that a CUP had been established. | 2. There is a global market for polyacrylamides and this was the basis upon which the Full Court agreed comparability between transactions arose. It was not necessary for the taxpayer to demonstrate the existence of a global price and \"price dispersion... did not disprove the existence of that [global] market so long as the dispersion related to competitive rather than local effects.\" | 3. The trial judge did not err in accepting the evidence of the French owner given under cross-examination. The evidence was not contradictory to any documentary or oral evidence led on behalf of the taxpayer. | 4. The trial judge's interpretation of the concept of 'arm's length consideration' in s136AD(3) was correct. The phrase 'between independent parties dealing at arm's length' in s136AA(3)(d) is ambiguous, but should not be interpreted as requiring the examination of purchasers in exactly the same position as the taxpayer. The Full Court rejected the Commissioner's submission that the trial judge substituted the inquiry required by s136AD with an inquiry as to valuation. | 5. The OECD Guidelines in general \"are not a legitimate aid to the construction of the double taxation treaties\" and neither are they permissible materials for interpreting the double tax treaties Australia has entered into with treaty partners or domestic legislation. However, this does not foreclose an attempt to show that they are relevant to the interpretation of a particular treaty because of the practice of the state parties to that treaty. | 6. The Full Court found that it was not necessary for the taxpayer to establish what the arm's length price was; rather, the taxpayer had to demonstrate that it paid less than an arm's length price, which price could be determined by reference to the taxpayer's CUP analyses. | 7. The trial judge failed to deal with the objections on evidence in a manner that left the evidentiary record clear. This necessitated the Full Court reviewing the objections to evidence.", "Issues_Decided": "1. Although the trial judge failed to give full reasons for the conclusions he made on the evidence led by the taxpayer at trial, a review of that evidence demonstrated that the trial judge's conclusion that two of the three sets of transactions relied upon by the taxpayer were comparable and so made out a CUP was correct. The Full Court found that the taxpayer had not established comparability of function between the taxpayer and the companies it used for its second CUP analysis. Whilst the Full Court accepted the third CUP analysis, it determined that certain transactions the taxpayer submitted were comparable were in fact not comparable, as the taxpayer had not established functional comparability. There remained sufficient comparables for the Full Court to determine that a CUP had been established. 2. There is a global market for polyacrylamides and this was the basis upon which the Full Court agreed comparability between transactions arose. It was not necessary for the taxpayer to demonstrate the existence of a global price and \"price dispersion... did not disprove the existence of that [global] market so long as the dispersion related to competitive rather than local effects.\" 3. The trial judge did not err in accepting the evidence of the French owner given under cross-examination. The evidence was not contradictory to any documentary or oral evidence led on behalf of the taxpayer. 4. The trial judge's interpretation of the concept of 'arm's length consideration' in s136AD(3) was correct. The phrase 'between independent parties dealing at arm's length' in s136AA(3)(d) is ambiguous, but should not be interpreted as requiring the examination of purchasers in exactly the same position as the taxpayer. The Full Court rejected the Commissioner's submission that the trial judge substituted the inquiry required by s136AD with an inquiry as to valuation. 5. The OECD Guidelines in general \"are not a legitimate aid to the construction of the double taxation treaties\" and neither are they permissible materials for interpreting the double tax treaties Australia has entered into with treaty partners or domestic legislation. However, this does not foreclose an attempt to show that they are relevant to the interpretation of a particular treaty because of the practice of the state parties to that treaty. 6. The Full Court found that it was not necessary for the taxpayer to establish what the arm's length price was; rather, the taxpayer had to demonstrate that it paid less than an arm's length price, which price could be determined by reference to the taxpayer's CUP analyses. 7. The trial judge failed to deal with the objections on evidence in a manner that left the evidentiary record clear. This necessitated the Full Court reviewing the objections to evidence.", "ATO_View_of_Decision": "Government announcement | The Government has announced that it intends to introduce legislation to reform the transfer pricing rules.1 The following discussion reflects the existing legislation only. Readers should bear in mind that the legal position will probably be materially different if Parliament amends the legislation along the lines proposed. | Interpretation of s 136AA(3)(d) | The Commissioner's submission was that s136AA(3)(d) required one to 'stand in the shoes' of the taxpayer and ask what consideration an entity in the position of the taxpayer would have been prepared to give had it been independent of its supplier and dealing at arm's length with it. The Court however interpreted this provision as requiring no more than that the parties to the hypothetical transaction in question be independent of each other; not that the hypothetical purchaser must share the characteristics and circumstances of the actual taxpayer in particular [98]. | The Court's reasons for rejecting the Commissioner's interpretation of s136AA(3)(d) are based in part on the proposition that, on the Commissioner's interpretation, it would be almost impossible to identify comparable transactions for the purposes of carrying out a CUP analysis because it would be very hard to find purchasers in exactly the same circumstances as the taxpayer, and the Commissioner's interpretation did not allow the possibility of any adjustment to take into account differences between the circumstances of the taxpayer and a proposed CUP party. | With respect, this was not what the Commissioner intended to submit or understood himself to have submitted. It was never the ATO view that Division 13 precludes the possibility of performing a sufficiently reliable adjustment to reflect any material differences between the circumstances of the actual parties to a transaction and those of the parties to a potentially comparable transaction. The ATO view, however, was that a proposed arm's length consideration must ultimately make commercial sense for the actual taxpayer in its actual circumstances, bearing in mind that, in the Commissioner's view, a number of different transfer pricing methods could be used to determine this - not just the CUP method alone. This was consistent with our submission (which the Court rejected) that the taxpayer's proposed CUP evidence had fatal deficiencies. | By implication from the Court's earlier analysis of the argument surrounding the taxpayer's proposed CUP evidence, and from what it said at paragraph [121], the Court does consider the circumstances in which the actual transaction occurred to be relevant to at least some degree. In particular, the five comparability factors which the taxpayer and its expert witness seemed to accept, and which the Commissioner accepted, were relevant relate to some degree to the circumstances of the taxpayer. Thus, the Court proceeded on the basis that any comparable transaction needed, for example, to have occurred in the same market and to have been on the same terms and conditions as the actual sales, unless suitable adjustments could be made to reflect any material differences. | In view of the above, the ATO does not interpret the Court's rejection of the Commissioner's interpretation of s136AA as meaning that an amount may be less than the arm's length consideration merely because it is less than the prices paid by independent parties generally, regardless of their particular circumstances. As the Full Court's reasons indicate, it is still necessary to have regard to such matters as the economic circumstances of the markets in which the transactions occurred and the business strategies of the proposed comparables. | On the other hand, the ATO accepts that the mere fact that the consideration a taxpayer actually paid for property would leave a hypothetical independent party in the exact same circumstances as the actual taxpayer in a commercially unsustainable position does not by itself entail that the consideration actually paid was more than the arm's length consideration. | Difficult questions may arise for other kinds of transaction in this context. For example, the ATO does not accept, on the strength of the SNF decision that the arm's length consideration for a loan of a given amount is necessarily to be determined without regard to the credit rating, and other circumstances, of the actual borrower. | Similarly, how a court would approach the task required by Division 13 if the circumstances had been that, because of its nature, a particular transaction probably would not have taken place at all between unrelated parties remains to be tested in future cases. | Global market | The Court found on the admissible evidence that there was a \"global market\" for the relevant chemicals, which may in effect be understood as a finding that any variations in the prices charged to independent purchasers by the SNF Group were to be explained by non-geographic factors. This was essentially an empirical question. Any similar suggestion in a future case would need to be tested on the evidence available in that case. | Business strategies | The Court was prepared to accept, although there was no evidence as to this, that the taxpayer's proposed comparable parties probably had a business strategy of trying to make profits in the ordinary way. On this basis, these parties could be regarded as sufficiently comparable. But the Commissioner's case was that here the taxpayer was engaged in a market penetration strategy on behalf of the group, which the Commissioner said was relevant to assessing the comparability of any potential CUP transactions. The Court did not address this argument explicitly. It might be suggested that the Court considered the particular strategies actually adopted by the taxpayer to be irrelevant to the enquiry, consistently with its later comments on s136AA(3)(d). But such a suggestion would seem inconsistent with the Court's treatment of some of the other comparability factors, as discussed above. | The basis for the rejection of the Commissioner's argument on this point does not, with respect, emerge clearly from the judgement. If a similar situation arises in a future case, the ATO will seek clarification of the point. | Relevance of OECD Transfer Pricing Guidelines | The Court's finding that the OECD's Transfer Pricing Guidelines are not a legitimate aid to the construction of either Division 13 or the associated enterprises articles of Australia's Double Tax Treaties as domestically enacted was made subject to a potentially significant qualification. | The qualification is that in a future case it may be possible to demonstrate that the state parties to a particular Treaty have adopted the practice of applying the Guidelines to any of the circumstances in which Article 9 of the Model Law might obtain in their jurisdictions: paragraph [117]. The ATO will consider attempting to demonstrate this in a future case if the occasion arises. However it is not clear whether the Full Court was contemplating that Division 13 might have a significantly different meaning from transaction to transaction depending on whether it can be shown that Australia and the relevant foreign state party have adopted this practice in each given case. | More generally, as a practical matter, to the extent that the Guidelines do not conflict with the legislation or with any decided case, and in the absence of any other reason to alter our views, the ATO will continue to apply the principles of transfer pricing as set out in our public rulings on the subject, which we consider to be essentially consistent with the Guidelines. | Single arm's length consideration or a range? | The ATO accepts that, in a given case, a range of amounts might satisfy the definition of \"arm's length consideration\", contrary to what a previous Full Federal Court had arguably suggested in an obiter dictum in WR Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation (2007) 161 FCR 1. | Implicit agreement to provide services | A possible alternative argument the Commissioner might have put in this case but did not was this: instead of seeking lower prices for the goods it bought, the taxpayer, had it been dealing at arm's length, would have sought separate compensation for the special costs and risks it incurred in prosecuting for the chief long-term benefit of the SNF Group the strategy of building market share in Australia. This would have required the Commissioner to make a separate determination under s136AD(2) rather than, or in the alternative to, that made under s136AD(3). | When similar situations arise in future, the Commissioner will consider taking this approach instead of or in the alternative to the approach taken in this litigation. More generally, future cases examining transactions such as the provision of services or intangibles might well by their nature raise more squarely a wider range of transfer pricing considerations than this case. For example, courts may see a need to address in more detail the most appropriate transfer pricing method or combination of methods. Or, a thorough analysis of the relevant functions, assets and risks assumed by the parties to the transactions concerned may be seen as more pertinent in some such cases. | TNMM and other profit-based transfer pricing methods | The appeal did not resolve the question of whether the Transactional Net Margin Method (TNMM), and by extension any other profit-based transfer pricing method such as the profit split method, is relevant to the positive determination of the arm's length consideration under Division 13. At first instance, Middleton J said that he rejected \"the use and applicability of the TNMM as contended for by the Commissioner in the context of applying Div 13\". [129]. Therefore, the ATO must accept that the TNMM is not a valid method of establishing an arm's length consideration for the purpose of s136AA(3). | In cases where it is considered to be not possible or practicable to ascertain the arm's length consideration by other means, the ATO will continue to use profit-based methods in appropriate cases in making determinations under s136AD(4). | Treaties as a separate basis for assessment | This litigation did not resolve the question of whether the Associated Enterprises Articles in Australia's Double Tax Treaties give the Commissioner a basis for making transfer pricing adjustments separately from Division 13. The ATO will maintain its long-held view that they do, and will seek to test this point when a suitable case arises. See paragraphs 39-42 of Taxation Ruling TR 2010/7 (Income tax: the interaction of Division 820 of the Income Tax Assessment Act 1997 and the transfer pricing provisions)", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | The Government has announced substantial reforms of the transfer pricing provisions. The first stage was enacted on 8 September 2012 in the Tax Laws Amendment (Cross-Border Transfer Pricing) Act. This Act has retrospective application from 1 July 2004 and introduces a new Division, being Division 815, into the Income Tax Assessment Act 1997. A second stage of reforms is also in development. This is intended to replace Division 13 with entirely new provisions. | In the circumstances, it would not be efficient to review the ATO's rulings and other documents so as to reflect the SNF decision until the final form of the new legislation is known.", "Related_Documents": "TR 94/14 | TR 97/20 | TR 2010/7 | TR 2011/1 | 2011 ATC 20-265 | 6 | 11S | Sch2 | Sch11 | Sch28 | 14ZZO | 97 ATC 4752 | 88 ATC 4412 | 86 ATC 4171 | [2003] HCA 22 | [2010] FCA 201 | 2011 ATC 20-240 | [2000] NSWCA 29 | 90 ATC 4717 | [1937] HCA 44 | 2007 ATC 4679 | 2008 ATC 20-040", "Legislative_References": "Income Tax Assessment Act 1936 136AA 136AD International Tax Agreements Act 1953 6 9A 11S Sch2 Sch11 Sch28 Taxation Administration Act 1953 14ZZO", "Case_References": "Commissioner of Taxation v Lamesa Holdings BV (1997) 77 FCR 597 36 ATR 589 97 ATC 4752 DSG Retail Limited v Commissioner for Her Majesty's Revenue and Customs (2009) UKFTT 31 (TC) 1 11 ITLR 869 Estee Lauder Pty Ltd v Federal Commissioner of Taxation (1988) 19 ATR 1228 88 ATC 4412 Federal Commissioner of Taxation v Comber (1986) 10 FCR 88 17 ATR 413 86 ATC 4171 Fox v Percy [2003] HCA 22 214 CLR 118 GlaxosmithKline Inc v The Queen [2010] FCA 201 Pascoe v Commissioner of Taxation (1956) 30 ALJ 402 (1956) 6 AITR 315 R v General Electric Capital Canada Inc [2010] FCA 344 Russell v Commissioner of Taxation [2011] FCAFC 10 190 FCR 449 2011 ATC 20-240 79 ATR 315 Seltsam Pty Ltd v McGuinness [2000] NSWCA 29 49 NSWLR 262 Thiel v Federal Commissioner of Taxation (1990) 171 CLR 338 21 ATR 531 90 ATC 4717 Walker v Walker [1937] HCA 44 (1937) 57 CLR 630 WR Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation [2007] FCAFC 103 161 FCR 1 66 ATR 336 2007 ATC 4679 WR Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation [2008] HCA 33 237 CLR 198 2008 ATC 20-040 69 ATR 29", "Subject_References": "Transfer pricing International taxation Arm's length consideration Comparable uncontrolled price Relevance of 'Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations' (Organisation for Economic Co-operation and Development (1995)) (OECD Guidelines) to the construction of double taxation treaties and domestic legislation Probative value of admitted but inadmissible hearsay", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID731of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Denlay v Commissioner of Taxation", "Venue_Reference_No": "QUD 14 and 15 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "11 May 2011", "Date_Published": "15 March 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether amended assessments can be set aside because the Commissioner had used information from a third party who had allegedly stolen it, giving rise to conscious maladministration in making assessments.", "Overview_of_Facts": "The husband and wife applicants made investments in an entity associated with the LGT Bank in Liechtenstein and derived income for the years 2002 to 2007. They concealed this income, enjoying the secrecy provided by Liechtenstein laws consistent with its being a tax haven. | An informant former employee of LGT Group obtained (allegedly stole) account / client information documents (\"the LGT documents\") and made them available to US and other jurisdictions including Australia. | Prior to provision of the documents to tax authorities, that person was convicted of various Liechtenstein Criminal Code offences, including one in relation to the documents but was not convicted of their theft. That person is subject to an international arrest warrant for theft of the documents under Liechtenstein law. | The Commissioner made assessments based on the information disclosed in the LGT documents. | Issues decided by the court | The issue of assessments under s.167 of Income Tax Assessment Acts 1936 (ITAA 36) was not attended by conscious maladministration, and the decision of the Federal Court judge was upheld. The conduct of the ATO officers receiving information in a place outside of Australia was to use the information in the making of assessments. Even if the information had been reasonably suspected of having been illegally obtained, its receipt was within the ambit of s.263 of ITAA 36 and its use was for a legitimate purpose under the taxation laws. Using the information was conscientious administration of the taxation laws. | Whether there was a breach of the Criminal Code | Section 400.9 of the Criminal Code (Cth) requires property to mean physical matter like money or tangible property, not intangible property such as information. The information the ATO officers received from the informant was intangible and was provided on a disk that belonged to the informant, a fact the trial judge had not attended to [45]. The disk being property of the informant was therefore not stolen. No offence under s.400.9 was made out [71-72]. There was no cogent evidence in support of the taxpayer's allegation that any ATO officer had acted improperly. The scope of s.263 ITAA 36 authorised ATO officers to collect information from overseas sources. | Offences under s.400.9 of the Criminal Code are read in conjunction with s.10.5 of the Criminal Code , which provides a complete defence for actions \"justified or excused\" by law. The making of an assessment is authorised by s.166 of ITAA 36, and gathering information to make an assessment is authorised by ss.263 and 264 of the ITAA 36. Section 263 \"makes lawful that which would otherwise be unlawful\": FCT v Australia and New Zealand Banking Group Ltd 79 ATC 4039. As the offence under s.400.9 was not made out, the application of s.10.5 does not arise. However the Full Court's obiter comments indicated the result would be use of the information and would attract the protection of 10.5 in answer to any alleged offence having been committed. | The issue of maladministration | The Full Federal Court affirmed the decision at first instance that the taxpayer has the evidential onus to establish conscious maladministration of the taxation laws by the Commissioner or his officers. That fact was not made out in the taxpayer's evidence. The evidence established the contra fact, that the Commissioner by his officers was acting in accordance with the purposes of the ITAA 36 and ITAA97, in using information to make assessments under s.166 of ITAA 36. | The test set out by the High Court in Futuris required the Commissioner to have made a deliberate and voluntary decision to issue an assessment outside the purposes of the taxation laws. This would require a taxpayer to have evidence of actual bad faith by the Commissioner of his officers [78]. The test did not permit application of a 'constructive' bad faith such as an unwitting involvement in any offence [76]. | The meaning of information for the purposes of interpretation of s.166 of ITAA 36, is not affected by any inadvertent breach of s.400.9. How the information is obtained by the Commissioner's officers is not relevant to the exercise of s.166 as to the use of information in the possession of the Commissioner. What is material is the competence and accuracy of the Commissioner's officers in making the assessment [79]. | The Commissioner's officers were acting within the purposes of s.263 of the ITAA 36 and 10.5 of the Criminal Code in obtaining the information from the informant and bringing it into Australia, for the purpose of administration of the taxation laws. The officers were found to be engaged in the conscientious performance of their duties. | Duty to make an assessment. | Section 166 of ITAA 36 imposes a duty on the Commissioner to make an assessment using information from income tax returns and/or other sources. This obligation is not limited in any way, and would require express statutory provision in order to be read narrowly [81]. The use of information suspected of being tainted with some illegality does not narrow the obligation to make assessments imposed by s.166. | The Full Court made obiter comments that officers of the Commissioner were subject to the law of the land and would suffer if they transgressed it. Those normal sanctions did not operate to limit the operation of s.166, which is concerned with ensuring information used for the purpose of making an assessment is accurate [82].", "Issues_Decided": "The issue of assessments under s.167 of Income Tax Assessment Acts 1936 (ITAA 36) was not attended by conscious maladministration, and the decision of the Federal Court judge was upheld. The conduct of the ATO officers receiving information in a place outside of Australia was to use the information in the making of assessments. Even if the information had been reasonably suspected of having been illegally obtained, its receipt was within the ambit of s.263 of ITAA 36 and its use was for a legitimate purpose under the taxation laws. Using the information was conscientious administration of the taxation laws. | Whether there was a breach of the Criminal Code: Section 400.9 of the Criminal Code (Cth) requires property to mean physical matter like money or tangible property, not intangible property such as information. The information the ATO officers received from the informant was intangible and was provided on a disk that belonged to the informant, a fact the trial judge had not attended to [45]. The disk being property of the informant was therefore not stolen. No offence under s.400.9 was made out [71-72]. There was no cogent evidence in support of the taxpayer's allegation that any ATO officer had acted improperly. The scope of s.263 ITAA 36 authorised ATO officers to collect information from overseas sources. Offences under s.400.9 of the Criminal Code are read in conjunction with s.10.5 of the Criminal Code , which provides a complete defence for actions \"justified or excused\" by law. The making of an assessment is authorised by s.166 of ITAA 36, and gathering information to make an assessment is authorised by ss.263 and 264 of the ITAA 36. Section 263 \"makes lawful that which would otherwise be unlawful\": FCT v Australia and New Zealand Banking Group Ltd 79 ATC 4039. As the offence under s.400.9 was not made out, the application of s.10.5 does not arise. However the Full Court's obiter comments indicated the result would be use of the information and would attract the protection of 10.5 in answer to any alleged offence having been committed. | The issue of maladministration: The Full Federal Court affirmed the decision at first instance that the taxpayer has the evidential onus to establish conscious maladministration of the taxation laws by the Commissioner or his officers. That fact was not made out in the taxpayer's evidence. The evidence established the contra fact, that the Commissioner by his officers was acting in accordance with the purposes of the ITAA 36 and ITAA97, in using information to make assessments under s.166 of ITAA 36. The test set out by the High Court in Futuris required the Commissioner to have made a deliberate and voluntary decision to issue an assessment outside the purposes of the taxation laws. This would require a taxpayer to have evidence of actual bad faith by the Commissioner of his officers [78]. The test did not permit application of a 'constructive' bad faith such as an unwitting involvement in any offence [76]. The meaning of information for the purposes of interpretation of s.166 of ITAA 36, is not affected by any inadvertent breach of s.400.9. How the information is obtained by the Commissioner's officers is not relevant to the exercise of s.166 as to the use of information in the possession of the Commissioner. What is material is the competence and accuracy of the Commissioner's officers in making the assessment [79]. The Commissioner's officers were acting within the purposes of s.263 of the ITAA 36 and 10.5 of the Criminal Code in obtaining the information from the informant and bringing it into Australia, for the purpose of administration of the taxation laws. The officers were found to be engaged in the conscientious performance of their duties. | Duty to make an assessment.: Section 166 of ITAA 36 imposes a duty on the Commissioner to make an assessment using information from income tax returns and/or other sources. This obligation is not limited in any way, and would require express statutory provision in order to be read narrowly [81]. The use of information suspected of being tainted with some illegality does not narrow the obligation to make assessments imposed by s.166. The Full Court made obiter comments that officers of the Commissioner were subject to the law of the land and would suffer if they transgressed it. Those normal sanctions did not operate to limit the operation of s.166, which is concerned with ensuring information used for the purpose of making an assessment is accurate [82].", "ATO_View_of_Decision": "The Full Court's decision confirms that the use of information, however obtained, will not vitiate an assessment for conscious maladministration. The Commissioner's officers have a positive statutory duty, imposed by s.166 of ITAA 36, to make assessments from information in their possession. In discharging their duty, officers must act competently and honestly. The Commissioner and his officers may continue to receive and use information from all sources for this purpose, including offshore sources. Such a purpose is conscientious administration of the taxation laws, and will not amount to conscious maladministration.", "Administrative_Treatment": "n/a | Implications for ATO precedential documents (Public Rulings & Determinations etc) | n/a | Implications for Law Administration Practice Statements | n/a", "Related_Documents": "n/a | [2011] FCAFC 63 | 2011 ATC 20-260 | 10.5 | 400.1 | 400.2 | 400.9 | 477.1 | 308c | 166 | 173 | 175 | 177 | 263 | 264 | The Act | 4A | Part IVC | 2008 ATC 20-039 | (1979) 143 CLR 499 | 79 ATC 4039 | (1959) 101 CLR 298 | [1959] HCA 8 | [1967] 2 AC 46", "Legislative_References": "Judiciary Act 1903 39B Criminal Code Act 1995 10.5 400.1 400.2 400.9 477.1 Crimes Act 1900 (NSW) 308c Income Tax Assessment Act 1936 166 173 175 177 263 264 Income Tax Assessment Act 1997 The Act Taxation Administration Act 1953 4A Part IVC Anti-Money Laundering and Counter-Terrorism Financing (Transitional Provisions and Consequential Amendments) Act 2006 The Act Liechtenstein Criminal Code Evidence Act 1995 60 69(2) 136 140(2) Public Service Act 1999 13", "Case_References": "Kevin Denlay v Commissioner of Taxation [2010] FCA 1434 (2010) 81 ATR 644 Mirja Denlay v Commissioner of Taxation [2010] FCA 1435 (2010) 81 ATR 644 Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 (2008) 69 ATR 41 2008 ATC 20-039 FCT v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 [1979] HCA 67 (1979) 9 ATR 483 79 ATC 4039 Jones v Dunkel (1959) 101 CLR 298 [1959] HCA 8 Boardman v Phipps [1967] 2 AC 46 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 Grain Elevators Board (Victoria) v Dunmunkle Corporation (1946) 73 CLR 70", "Subject_References": "Invalid assessments test for conscious maladministration bad faith good administration of taxation laws scope of 'information'", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD14-15of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "Deputy Commissioner of Taxation v Soong", "Venue_Reference_No": "SC13826/08 (NSWCA); S122 of 2011 (High Court)", "Venue": "Miscellaneous - Australian", "Judgment_Date": "25 February 2011", "Date_Published": "22 August 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this decision which concerned the application of director penalty notices given pursuant to section 222AOE of the Income Tax Assessment Act 1936 and overturned the decision of D C of T v Meredith [2007] NSWCA 354 (\"Meredith\")", "Overview_of_Facts": "The defendant was a director of three companies which withheld amounts (being tax withheld from employees' wages) for purposes of Division 12 of Schedule 1 to the Taxation Administration Act 1953 (\"TAA 1953\"). The former s 222AOB of the Income Tax Assessment Act 1936 (\"ITAA 1936\") was not complied with on or before the due dates for each amount withheld. By virtue of the above and the former s222AOC of the ITAA 1936, the defendant was liable for a penalty equal to the unpaid amount of each amount withheld. | On 29 November 2007, the defendant was given a Director Penalty Notice (\"DPN\") for each company pursuant to sections 222AOE and 222AOF (being the date on which the DPNs were posted) which allowed her a further 14 days in which to potentially trigger remission of her penalty by causing each company to comply with s 222AOB. She did not comply with the DPNs within the requisite 14 days, placing each company into voluntary administration on the 15th day after the notices had been posted. In accordance with the decision in Meredith , the defendant remained liable for each penalty, the total being $1,059,520.67. | Issues decided by the NSW Court of Appeal | At first instance the trial judge followed the decision of Meredith in giving judgment to the Deputy Commissioner. | The NSW Court of Appeal ('NSWCA') constituted a special five member bench, to reconsider its own majority decision of a three member bench in Meredith . The NSWCA unanimously overturned its decision in Meredith , such that a DPN is taken to be 'given' when is delivered in the ordinary course of post, rather than when posted. | Issues decided by the High Court | The High Court subsequently refused the Commissioner's application for special leave as the Court of Appeal's decision in Soong was not attended with sufficient doubt to warrant a grant of special leave. | The High Court's decision affirmed the decision of the NSWCA in Soong .", "Issues_Decided": "At first instance the trial judge followed the decision of Meredith in giving judgment to the Deputy Commissioner. The NSW Court of Appeal ('NSWCA') constituted a special five member bench, to reconsider its own majority decision of a three member bench in Meredith . The NSWCA unanimously overturned its decision in Meredith , such that a DPN is taken to be 'given' when is delivered in the ordinary course of post, rather than when posted. | Issues decided by the High Court: The High Court subsequently refused the Commissioner's application for special leave as the Court of Appeal's decision in Soong was not attended with sufficient doubt to warrant a grant of special leave. The High Court's decision affirmed the decision of the NSWCA in Soong .", "ATO_View_of_Decision": "In accordance with the decision of the NSWCA in Soong , a DPN issued under s222AOE (\"section 222AOE Notice\") is, subject to the considerations below, taken to be given at the time that the DPN would have been delivered in the ordinary course of post. Consequently, the intended recipient would have 14 days after the day of delivery in the ordinary course of post to cause the company to comply with s222AOB and achieve remission of penalties. | However, the ongoing implications of the decision of the NSWCA in Soong need to be considered in light of the following: • Section 222AOE was repealed effective 1 July 2010. Therefore, the impact of the decision is limited to DPNs issued up to 30 June 2010 (inclusive). • Section 269-25 in Schedule 1 to the TAA 1953 applies to DPNs issued by the Commissioner on and after 1 July 2010 and provides that a DPN is taken to be given at the time the Commissioner posts it. • The passage of Schedule 7 to the Tax Laws Amendment (2011 Measures No. 7) Act 2011 (\"TLA 2011\"). TLA 2011 applies in circumstances where the Commissioner gave (or purported to give) a notice under the former section 222AOE on or after 10 December 2007 by sending it by pre-paid post in accordance with section 28A of the Acts Interpretation Act 1901 (\"AIA\"). In those circumstances, and for the purposes of the former section 222AOE, the legislative amendments prescribe that the notice is taken as being given at the time the Commissioner sent it by pre-paid post in accordance with section 28A of the AIA. The effect is that, retrospectively, the precedential view of the law under Meredith is restored. | • Section 222AOE was repealed effective 1 July 2010. Therefore, the impact of the decision is limited to DPNs issued up to 30 June 2010 (inclusive). • Section 269-25 in Schedule 1 to the TAA 1953 applies to DPNs issued by the Commissioner on and after 1 July 2010 and provides that a DPN is taken to be given at the time the Commissioner posts it. • The passage of Schedule 7 to the Tax Laws Amendment (2011 Measures No. 7) Act 2011 (\"TLA 2011\"). TLA 2011 applies in circumstances where the Commissioner gave (or purported to give) a notice under the former section 222AOE on or after 10 December 2007 by sending it by pre-paid post in accordance with section 28A of the Acts Interpretation Act 1901 (\"AIA\"). In those circumstances, and for the purposes of the former section 222AOE, the legislative amendments prescribe that the notice is taken as being given at the time the Commissioner sent it by pre-paid post in accordance with section 28A of the AIA. The effect is that, retrospectively, the precedential view of the law under Meredith is restored. | The decision of the NSWCA in Soong will have limited future impact given: • the repeal of s222AOE ; • the passage of TLA 2011; and • the effect of Division 269 in Schedule 1 to the TAA 1953. | • the repeal of s222AOE ; • the passage of TLA 2011; and • the effect of Division 269 in Schedule 1 to the TAA 1953. | Prior to the passage of the TLA 2011, the Commissioner sought, as an interim measure, to put into abeyance all proceedings for the recovery of director penalty liabilities based on director penalty notices issued in reliance on the decision in Meredith and which were affected by the Soong decision. | As a result of the passage of TLA 2011, the Commissioner will now continue to recover director penalty liabilities that are based upon section 222AOE Notices, subject to ATO policies concerning the recovery of director penalty liabilities.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | Not applicable | Implications for Law Administration Practice Statements | Not applicable", "Related_Documents": "Not applicable | NSW Court of Appeal | 2011 ATC 20-245 | High Court of Australia | 28A | 29 | Division 269 | 2007 ATC 5353", "Legislative_References": "Income Tax Assessment Act 1936 222AOB 222AOC 222AOE 222AOF 222AOG Acts Interpretation Act 1901 28A 29 Taxation Administration Act 1953 Division 269 Evidence Act 1995 (Cth) 160 163", "Case_References": "Deputy Commissioner of Taxation v Meredith (\"Meredith\") [2007] NSWCA 354 2007 ATC 5353 69 ATR 876 Soong v Deputy Commissioner of Taxation (\"Soong\") [2011] NSWCA 26 2011 ATC 20-245", "Subject_References": "Director Penalty Notices Presumption of delivery in course of post Evidence Notice Service by post Liability for failure to remit tax withheld from salary entitlements 'contrary intention' in statute 'give', 'serve', 'send' a notice", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S122of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "Diab and Commissioner of Taxation", "Venue_Reference_No": "2009/4831-4834", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "3 May 2011", "Date_Published": "22 July 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether the taxpayer was reckless in lodging incorrect income tax returns and whether the taxpayer discharged the burden of proving that the amended assessments and penalties imposed due to his recklessness were excessive.", "Overview_of_Facts": "The Applicant is a director of a company which carried on a business. He derived income in the form of salary from the company, rent from an investment property and some dividends and interest. In 2008, an audit conducted by the Commissioner resulted in amendments being made to the Applicant's assessable income for the 2005, 2006, 2007 and 2008 income tax years on the basis that the Applicant's income was significantly higher than declared originally. As a result of this, a significant shortfall penalty was issued for penalties equal to 50% for each income year in dispute. | The Applicant lodged objections against the amended assessments and the assessment of administrative penalties. All objections were disallowed, except the objection concerning the 2006 financial year which was allowed by the Commissioner in part. The Applicant then applied to the Tribunal for review of all the objection decisions. | Issues decided by the tribunal | It was held that the Applicant did not discharge his burden of proving that the assessments are excessive as per section 14ZZK of the Taxation Administration Act 1953 (TAA)) The Applicant did not attend the hearing to give oral evidence about the circumstances of the case, nor did he make a written statement to this effect. | In relation to the administrative penalties, it was held that the taxpayer had failed to discharge his burden of proving that the administrative penalties are excessive in that his circumstances did not amount to being reckless (item 3 in the table in s 284-90(1) in Schedule 1 to the TAA). The finding of recklessness was maintained because, while a number of assertions were made by the Applicant's representative, they were not substantiated by the Applicant's evidence. Further, the Applicant did not comply with the Commissioner's request for further information in relation to various unexplained cash deposits into the Applicant's account. These cash receipts were the basis upon which the amended assessments were issued and no information was provided by the Applicant as to why these deposits were not income receipts.", "Issues_Decided": "It was held that the Applicant did not discharge his burden of proving that the assessments are excessive as per section 14ZZK of the Taxation Administration Act 1953 (TAA)) The Applicant did not attend the hearing to give oral evidence about the circumstances of the case, nor did he make a written statement to this effect. In relation to the administrative penalties, it was held that the taxpayer had failed to discharge his burden of proving that the administrative penalties are excessive in that his circumstances did not amount to being reckless (item 3 in the table in s 284-90(1) in Schedule 1 to the TAA). The finding of recklessness was maintained because, while a number of assertions were made by the Applicant's representative, they were not substantiated by the Applicant's evidence. Further, the Applicant did not comply with the Commissioner's request for further information in relation to various unexplained cash deposits into the Applicant's account. These cash receipts were the basis upon which the amended assessments were issued and no information was provided by the Applicant as to why these deposits were not income receipts.", "ATO_View_of_Decision": "The decision will not result in any change to current ATO practices. The only changes made to the 2007 objection decision are those requested to be made by the Commissioner upon the receipt of further evidence to substantiate amendment by the Tribunal.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "14ZZK | 284-90(1) Schedule 1", "Legislative_References": "Taxation Administration Act 1953 14ZZK 284-90(1) Schedule 1", "Case_References": "", "Subject_References": "Income tax amended assessments administrative penalties recklessness burden of proof", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/4831-4834/00001", "Unmatched_Content": ""}
{"Case_Name": "Esso Australia Resources Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 480-493 of 2011; VID 536-554 of 2011; VID 560-569 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "6 December 2011", "Date_Published": "27 August 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns 'marketable petroleum commodities' that became 'excluded commodities' and whether receipts were 'assessable petroleum receipts' under the Petroleum Resource Rent Tax Assessment Act 1987 ('PRRTA Act').", "Overview_of_Facts": "Esso Australia Resources Pty Ltd ('Esso') and BHP Billiton Petroleum (Bass Strait) Pty Ltd ('BHPBP') (together 'the taxpayers') are co-venturers in off-shore petroleum recovery operations in Bass Strait and associated onshore processing and storage facilities at Longford and Long Island Point. | 'Taxing point' issues | Esso, as operator of the joint venture, recovers petroleum from wells on a series of offshore platforms in the Bass Strait. The platforms are connected by pipelines to the Longford Gas Processing and Crude Stabilisation Plant ('Longford'), which is connected by pipelines to the Long Island Point Fractionation Plant ('LIP'). | Esso produces five commercial products from petroleum recovered from Bass Strait: sales gas, commercial ethane, commercial propane, commercial butane and stabilised crude oil. | In summary, the petroleum project involves an integrated production process as follows: 1. The wells on the Bass Strait platforms are used to recover liquid and gaseous raw petroleum from the petroleum pools; 2. Some separation of the recovered petroleum occurs on the platform into substantially liquid and substantially gaseous streams, which (sometimes in recombined form) is then piped to shore; 3. Further separation and filtering of the substantially gaseous stream occurs at Longford to produce the commercial product 'sales gas' and a raw LPG stream comprised of propane, butane and ethane. The sales gas is sold at the exit of the Longford plant; 4. Further separation and filtering of the substantially liquid petroleum stream occurs at Longford to produce the commercial product 'stabilised crude oil' and to remove the raw LPG and gas that is piped across to the gas plants; 5. The raw LPG and stabilised crude oil is piped to LIP. The stabilised crude oil is stored at the plant for sale while the raw LPG stream is further separated into the commercial products ethane, propane and butane for sale. Propane and butane are sold at LIP. Ethane is not sold at LIP but is piped to Altona where it is sold. | 1. The wells on the Bass Strait platforms are used to recover liquid and gaseous raw petroleum from the petroleum pools; 2. Some separation of the recovered petroleum occurs on the platform into substantially liquid and substantially gaseous streams, which (sometimes in recombined form) is then piped to shore; 3. Further separation and filtering of the substantially gaseous stream occurs at Longford to produce the commercial product 'sales gas' and a raw LPG stream comprised of propane, butane and ethane. The sales gas is sold at the exit of the Longford plant; 4. Further separation and filtering of the substantially liquid petroleum stream occurs at Longford to produce the commercial product 'stabilised crude oil' and to remove the raw LPG and gas that is piped across to the gas plants; 5. The raw LPG and stabilised crude oil is piped to LIP. The stabilised crude oil is stored at the plant for sale while the raw LPG stream is further separated into the commercial products ethane, propane and butane for sale. Propane and butane are sold at LIP. Ethane is not sold at LIP but is piped to Altona where it is sold. | Not all of the sales gas produced at Longford is sold. Some is used by Esso to generate electricity for use at Longford. Surplus electricity is sold into the Victorian power grid. | Take or pay issue | Esso and Hematite Petroleum Proprietary Ltd (which assigned its rights to BHPBP) ('Sellers') entered into a natural gas sales agreement with the State Electricity Commission of Victoria ('SECV') on 1 January 1981 ('SECV agreement'). Under the SECV agreement, the Sellers agreed to supply natural gas to the SECV. | Under the SECV agreement, if the amount otherwise payable by the SECV to the Sellers for gas in any year was less than a Minimum Annual Payment ('MAP'), the SECV was required to pay the difference to the Sellers ('shortfall payment'). | Under the SECV agreement, if the amount of gas taken by the SECV in any year was less than Minimum Annual Quantity ('MAQ') for that year, the SECV had the right to take the difference, being Make Up Gas ('MUG'), over the next four years (provided that in any year in which MUG is taken, the SECV has taken the MAQ for that year). MUG, when taken by the SECV, generally did not require further payment. | Generation Victoria ('GenVic') (the successor to the SECV) made a shortfall payment of $11,753,357.87 to Esso in respect of the 1996 calendar year ('1997 shortfall payment'). Esso did not return the 1997 shortfall payment as an assessable petroleum receipt. The relevant Part of the SECV agreement (allowing MUG) expired on 31 December 1996. As a result, no MUG could be taken by GenVic in the following years. | SECV or GenVic also made shortfall payments in respect of the 1987, 1988, 1991 and 1993 calendar years. Esso returned these shortfall payments as assessable petroleum receipts in the year of tax in which SECV or GenVic took the relevant MUG (i.e. years of tax ended 30 June 1991, 1993, 1995 and 1996). | MLMDQ payments issue | The Sellers entered into a natural gas sales agreement with the Gas and Fuel Corporation of Victoria ('GFC') on 1 January 1975 ('GFC agreement'). The GFC agreement provided for a specified volume of natural gas, sourced from dedicated gas fields, to be sold to GFC. Further, the Sellers were only required to deliver the quantity of gas required by GFC each day up to an agreed amount (the Maximum Daily Quantity ('MDQ')). | Under the GFC agreement, GFC was required to inform the Sellers of the MDQ to be set for the contract year five years in advance. The MDQ had to be less than or equal to the Sellers' maximum daily supply capacity (the Maximum Limit to the Maximum Daily Quantity ('MLMDQ')). The GFC agreement specified the MLMDQ from 1980 to 1989. Thereafter, the Sellers were required to nominate their MLMDQ 10 years in advance. In 1990, the Sellers made their MLMDQ nominations for the years 1990 to 2000. | In August 1990, GFC approached the Sellers about increasing the MLMDQ so that it could access a higher MDQ in the 1995-2000 years if required. The parties reached agreement ('MLMDQ agreement') in mid-1991 and the MLMDQ was actually increased for the 1995-2000 years. | The increased level of MLMDQ did not increase the amount of gas to be sold. It merely increased the range in which GFC could nominate the maximum quantity of gas to be delivered on a given day. | GFC agreed to make monthly payments to the Sellers from July 1991 to December 2000 ('MLMDQ payments'). The payments consisted of a fixed and a variable component. | The terms of the MLMDQ agreement were subsequently incorporated into a new Gas Sales Agreement between the taxpayers and Gascor (the successor to GFC) dated 20 November 1996. | Decision at First Instance (Esso Australia Resources Pty Ltd v Commissioner of Taxation [2011] FCA 360) | The decision addressed thirteen separate questions concerning the taxing point, take or pay, MLMDQ payment and sale of surplus electricity issues. Middleton J found for the Commissioner on the principal taxing point issues, but held that the sale of surplus electricity into the Victorian electricity grid did not give rise to assessable petroleum receipts. His Honour also found for the Commissioner on the take or pay issues, but held that the MLMDQ payments were not assessable petroleum receipts. | The taxpayers appealed from the decision on the principal taxing point and take or pay issues and the Commissioner cross-appealed on the MLMDQ payments issue. The Commissioner did not appeal from the decision on the sale of surplus electricity issue. | Issues decided by the court | The issues decided by the Court must be viewed against the background of the legislative scheme underlying the PRRT. Broadly, under that scheme, tax is imposed at a rate of 40% in respect of the taxable profit of a person of a year of tax in relation to a petroleum project. Taxable profit is defined (in section 22) as assessable receipts derived by a person to the extent they exceed deductible expenditure and certain other amounts. | 'Assessable receipts' are defined in section 23 to mean, inter alia , assessable petroleum receipts. Broadly, in terms of section 24, assessable petroleum receipts comprise the sale consideration less sale expenses of marketable petroleum commodities ('MPCs') which have become 'excluded commodities' by virtue of being sold. In addition, if the MPC becomes an excluded commodity by virtue of some other manner specified under the Act (e.g. if it is moved away from the place of its production before being sold) then notional receipts are used (e.g. the market value of the commodity just before it became an excluded commodity). There is also provision in section 24 to assess the sale of petroleum which has not reached the MPC stage. | An MPC is defined in terms of various products produced from petroleum including stabilised crude oil, sales gas, condensate, and LPG. An excluded commodity is defined in section 2 as an MPC that has been sold or otherwise processed, treated or dealt with in a particular way. | Because of the way the legislation operates, and particularly for the operation of section 24, it is necessary to determine if an MPC exists and, if so, the manner in which it becomes an excluded commodity. This affects, for example, whether actual sale consideration or notional receipts are used. | 'Taxing point' issues | The Court agreed with the conclusions of Middleton J on the taxing point issues: 1. Sales gas, as an MPC, '...was not produced until the point of sale at Longford...' [59]. Middleton J observed that the sales gas product was produced by Esso when the petroleum recovered from the various wellheads on the offshore platforms completed the final processing at Longford [250]. At [249] Middleton J observed that by the act of sale of the sales gas, it became an excluded commodity and that section 24(c) of the PRRTA Act was not applicable. It necessarily follows that Middleton J concluded, and the Full Court agreed, that there was no point prior to the sale at which the sales gas (as an MPC) became an excluded commodity. 2. LPG (propane and butane), as an MPC, was produced by Esso upon completion of the processing at LIP. Propane and butane each became an excluded commodity by way of the sales at LIP [67]. Ethane became an excluded commodity by virtue of its being moved away from its place of production at LIP to Altona [70]. 3. Stabilised crude oil, as an MPC, was produced by Esso following the further separation and filtering at Longford. It became an excluded commodity by virtue of its being moved away from its place of production to the 'tank farm' at LIP [70]. | 1. Sales gas, as an MPC, '...was not produced until the point of sale at Longford...' [59]. Middleton J observed that the sales gas product was produced by Esso when the petroleum recovered from the various wellheads on the offshore platforms completed the final processing at Longford [250]. At [249] Middleton J observed that by the act of sale of the sales gas, it became an excluded commodity and that section 24(c) of the PRRTA Act was not applicable. It necessarily follows that Middleton J concluded, and the Full Court agreed, that there was no point prior to the sale at which the sales gas (as an MPC) became an excluded commodity. 2. LPG (propane and butane), as an MPC, was produced by Esso upon completion of the processing at LIP. Propane and butane each became an excluded commodity by way of the sales at LIP [67]. Ethane became an excluded commodity by virtue of its being moved away from its place of production at LIP to Altona [70]. 3. Stabilised crude oil, as an MPC, was produced by Esso following the further separation and filtering at Longford. It became an excluded commodity by virtue of its being moved away from its place of production to the 'tank farm' at LIP [70]. | In reaching their decision, their Honours had regard to various textual and contextual indications [107]. | Their Honours observed that the language of the PRRTA Act made it clear that the receipts with which the Act is concerned are receipts which have been derived in relation to the petroleum project [97]. | The PRRTA Act contained no suggestion that the relevant relationship between a receipt and the petroleum project is to be sought by imagining the project as if it were segmented into a series of steps - none of which could sensibly be described as 'the project' - and then fixing upon a notional receipt for a 'product' which may, in only a technical sense, answer the description of one of the specified MPC's at that segment of the project. | Their Honours thought that the focus upon the definition of 'excluded commodity' lead to a skewed view of the concept of 'petroleum project' which sees it as consistent with points in the production process rather than a concept which involves the derivation of profit from the indentified products of that process. | While their Honours thought it was impermissible to have regard to the ordinary meaning of 'marketable' in deciding what the definition meant, their Honours noted that the language of the PRRTA Act, considered as a whole, indicated that the expression 'marketable petroleum commodities' did not apply to commodities which are not yet products capable of being marketed [107]. | To become an 'excluded commodity', an MPC must have been separated from the process of production and capable of being sold or moved or stored as a finished product [94]. The PRRTA Act imposes a tax on profits from the project, not upon MPC's which, though discernible as such as a matter of chemical formulae and physical properties, have not emerged from the production process as marketable finished products [99]. The review of the extrinsic material served to confirm this view [111]. | Their Honours noted that the outcome would be the same whether or not the questions were determined in accordance with the amended definition of MPC provided for in Tax Laws Amendment (2011 Measures No. 8) Act 2011 (which received Royal Assent after the hearing but before this decision) [206]. The amendment applied from 1 July 1990. | Take or pay issue | The Court held that in the context of the SECV agreement a shortfall payment was consideration for the gas supplied in that year. The shortfall payment merely complemented what was otherwise the consideration for the gas taken in a particular year. The MAP was a minimum annual payment for the gas supplied in that year [161]. The entitlement to MUG arose not out of making a shortfall payment, but as a result of the SECV failing to take the MAQ for that year [162]. Hence, the shortfall payment in any year could never be consideration for MUG taken in a subsequent year [167]. | Accordingly, the 1997 shortfall payment was an assessable petroleum receipt for the taxpayers in the year of tax ended 30 June 1997. The shortfall payments relating to the 1991 and 1993 calendar years were assessable petroleum receipts in the years of tax ended 30 June 1992 and 1994 respectively. | On the same reasoning, their Honours considered that the shortfall payments relating to the 1987 and 1988 calendar years were not consideration received in respect of petroleum recovered on or after 1 July 1990, as contemplated by subsection 33(4) of the PRRLA Act, and thus were not assessable petroleum receipts [167]. The extrinsic materials leading to the enactment of that Act did not alter this conclusion [169]. | MLMDQ payments issue | The Court held that the MLMDQ payments were not made as consideration for the sale of gas but as consideration for the Sellers agreeing to revise the MLMDQ previously advised to GFC over the period 1991-2000 [194]. The MLMDQ payment was not a quid pro quo for the delivery of gas. Rather it was a payment for an agreement to an enhancement of the buyer's rights as to the timing of the delivery of the same quantity of gas [198]. According to their Honours, the focus of paragraph 24(b) is 'explicitly upon the consideration receivable by the seller in order to entitle the buyer to a transfer of the agreed quantity of the commodity' [200]. | Accordingly, the MLMDQ payments were not assessable petroleum receipts for the taxpayers.", "Issues_Decided": "The issues decided by the Court must be viewed against the background of the legislative scheme underlying the PRRT. Broadly, under that scheme, tax is imposed at a rate of 40% in respect of the taxable profit of a person of a year of tax in relation to a petroleum project. Taxable profit is defined (in section 22) as assessable receipts derived by a person to the extent they exceed deductible expenditure and certain other amounts. 'Assessable receipts' are defined in section 23 to mean, inter alia , assessable petroleum receipts. Broadly, in terms of section 24, assessable petroleum receipts comprise the sale consideration less sale expenses of marketable petroleum commodities ('MPCs') which have become 'excluded commodities' by virtue of being sold. In addition, if the MPC becomes an excluded commodity by virtue of some other manner specified under the Act (e.g. if it is moved away from the place of its production before being sold) then notional receipts are used (e.g. the market value of the commodity just before it became an excluded commodity). There is also provision in section 24 to assess the sale of petroleum which has not reached the MPC stage. An MPC is defined in terms of various products produced from petroleum including stabilised crude oil, sales gas, condensate, and LPG. An excluded commodity is defined in section 2 as an MPC that has been sold or otherwise processed, treated or dealt with in a particular way. Because of the way the legislation operates, and particularly for the operation of section 24, it is necessary to determine if an MPC exists and, if so, the manner in which it becomes an excluded commodity. This affects, for example, whether actual sale consideration or notional receipts are used. | 'Taxing point' issues: The Court agreed with the conclusions of Middleton J on the taxing point issues: 1. Sales gas, as an MPC, '...was not produced until the point of sale at Longford...' [59]. Middleton J observed that the sales gas product was produced by Esso when the petroleum recovered from the various wellheads on the offshore platforms completed the final processing at Longford [250]. At [249] Middleton J observed that by the act of sale of the sales gas, it became an excluded commodity and that section 24(c) of the PRRTA Act was not applicable. It necessarily follows that Middleton J concluded, and the Full Court agreed, that there was no point prior to the sale at which the sales gas (as an MPC) became an excluded commodity. 2. LPG (propane and butane), as an MPC, was produced by Esso upon completion of the processing at LIP. Propane and butane each became an excluded commodity by way of the sales at LIP [67]. Ethane became an excluded commodity by virtue of its being moved away from its place of production at LIP to Altona [70]. 3. Stabilised crude oil, as an MPC, was produced by Esso following the further separation and filtering at Longford. It became an excluded commodity by virtue of its being moved away from its place of production to the 'tank farm' at LIP [70]. 1. Sales gas, as an MPC, '...was not produced until the point of sale at Longford...' [59]. Middleton J observed that the sales gas product was produced by Esso when the petroleum recovered from the various wellheads on the offshore platforms completed the final processing at Longford [250]. At [249] Middleton J observed that by the act of sale of the sales gas, it became an excluded commodity and that section 24(c) of the PRRTA Act was not applicable. It necessarily follows that Middleton J concluded, and the Full Court agreed, that there was no point prior to the sale at which the sales gas (as an MPC) became an excluded commodity. 2. LPG (propane and butane), as an MPC, was produced by Esso upon completion of the processing at LIP. Propane and butane each became an excluded commodity by way of the sales at LIP [67]. Ethane became an excluded commodity by virtue of its being moved away from its place of production at LIP to Altona [70]. 3. Stabilised crude oil, as an MPC, was produced by Esso following the further separation and filtering at Longford. It became an excluded commodity by virtue of its being moved away from its place of production to the 'tank farm' at LIP [70]. In reaching their decision, their Honours had regard to various textual and contextual indications [107]. Their Honours observed that the language of the PRRTA Act made it clear that the receipts with which the Act is concerned are receipts which have been derived in relation to the petroleum project [97]. The PRRTA Act contained no suggestion that the relevant relationship between a receipt and the petroleum project is to be sought by imagining the project as if it were segmented into a series of steps - none of which could sensibly be described as 'the project' - and then fixing upon a notional receipt for a 'product' which may, in only a technical sense, answer the description of one of the specified MPC's at that segment of the project. Their Honours thought that the focus upon the definition of 'excluded commodity' lead to a skewed view of the concept of 'petroleum project' which sees it as consistent with points in the production process rather than a concept which involves the derivation of profit from the indentified products of that process. While their Honours thought it was impermissible to have regard to the ordinary meaning of 'marketable' in deciding what the definition meant, their Honours noted that the language of the PRRTA Act, considered as a whole, indicated that the expression 'marketable petroleum commodities' did not apply to commodities which are not yet products capable of being marketed [107]. To become an 'excluded commodity', an MPC must have been separated from the process of production and capable of being sold or moved or stored as a finished product [94]. The PRRTA Act imposes a tax on profits from the project, not upon MPC's which, though discernible as such as a matter of chemical formulae and physical properties, have not emerged from the production process as marketable finished products [99]. The review of the extrinsic material served to confirm this view [111]. Their Honours noted that the outcome would be the same whether or not the questions were determined in accordance with the amended definition of MPC provided for in Tax Laws Amendment (2011 Measures No. 8) Act 2011 (which received Royal Assent after the hearing but before this decision) [206]. The amendment applied from 1 July 1990. | Take or pay issue: The Court held that in the context of the SECV agreement a shortfall payment was consideration for the gas supplied in that year. The shortfall payment merely complemented what was otherwise the consideration for the gas taken in a particular year. The MAP was a minimum annual payment for the gas supplied in that year [161]. The entitlement to MUG arose not out of making a shortfall payment, but as a result of the SECV failing to take the MAQ for that year [162]. Hence, the shortfall payment in any year could never be consideration for MUG taken in a subsequent year [167]. Accordingly, the 1997 shortfall payment was an assessable petroleum receipt for the taxpayers in the year of tax ended 30 June 1997. The shortfall payments relating to the 1991 and 1993 calendar years were assessable petroleum receipts in the years of tax ended 30 June 1992 and 1994 respectively. On the same reasoning, their Honours considered that the shortfall payments relating to the 1987 and 1988 calendar years were not consideration received in respect of petroleum recovered on or after 1 July 1990, as contemplated by subsection 33(4) of the PRRLA Act, and thus were not assessable petroleum receipts [167]. The extrinsic materials leading to the enactment of that Act did not alter this conclusion [169]. | MLMDQ payments issue: The Court held that the MLMDQ payments were not made as consideration for the sale of gas but as consideration for the Sellers agreeing to revise the MLMDQ previously advised to GFC over the period 1991-2000 [194]. The MLMDQ payment was not a quid pro quo for the delivery of gas. Rather it was a payment for an agreement to an enhancement of the buyer's rights as to the timing of the delivery of the same quantity of gas [198]. According to their Honours, the focus of paragraph 24(b) is 'explicitly upon the consideration receivable by the seller in order to entitle the buyer to a transfer of the agreed quantity of the commodity' [200]. Accordingly, the MLMDQ payments were not assessable petroleum receipts for the taxpayers.", "ATO_View_of_Decision": "'Taxing point' issues | The Court's decision is consistent with the Commissioner's views on the operation of section 24 of the PRRTA Act and the meaning of a 'marketable petroleum commodity'. | The amendment to the definition of 'marketable petroleum commodity' in section 2E of the PRRTA Act with retrospective effect from 1 July 1990, enacted after the hearing, but prior to the publishing of the Court's reasons for judgment, is consistent with the Court's decision. | Take or pay issue | The Court's characterisation of the 1997 shortfall payment is consistent with the Commissioner's contentions both at first instance and on appeal. Similarly, the Commissioner agreed that the shortfall payments for the 1991 and 1993 calendar years were assessable petroleum receipts in the years of tax ended 30 June 1992 and 1994 respectively. | The Commissioner did not seek special leave to appeal from the decision of the Court in relation to the shortfall payments for the 1987 and 1988 calendar years. The Commissioner respectfully agrees with the Court's finding that the language of subsection 33(4) of the PRRLA Act was not apt to modify the operation of the SECV agreement. | The Court's decision on the take or pay issue turned on the particular terms of the SECV agreement (e.g. the Court's finding that the SECV's entitlement to MUG did not arise from making the shortfall payment). Taxation Ruling TR 96/5 discusses the timing of derivation of assessable income under take or pay contracts where the payment gives the buyer the right to receive delivery of the product some time in the future. As such, the decision does not have any implications for the views expressed in Taxation Ruling TR 96/5. | MLMDQ payments issue | The Commissioner did not seek special leave to appeal from the decision of the Court in relation to the characterisation of the MLMDQ payments. The Commissioner respectfully agrees with the Court's finding in the particular circumstances of the case that the MLMDQ payments were for an agreement to enhance the buyer's right as to the timing of the delivery of the same quantity of gas rather than consideration for the sale of gas.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Taxation Ruling TR 96/5 Income tax: take or pay contracts", "Related_Documents": "N/A | Taxation Ruling TR 96/5 Income tax: take or pay contracts | [2011] FCAFC 154 | s 15AB | The Act | s 2 | s 19 | s 21 | s 22 | s 23 | s 24 | s 38 | Schedule 1 | Schedule 2 | (unreported, Supreme Court of South Australia, Lander J, 23 December 1994) | 2009 ATC 20-134 | (1948) 77 CLR 143 | [1992] 1 All ER 944 | [2009] FCA 272 | (2009) 75 ATR 323 | [2011] FCA 360 | (2011) 83 ATR 47 | (1998) 98 ATC 4494 | [2005] 4 All ER 107 | [2006] 2 AC 674 | (1994) 181 CLR 404 | (1995) 184 CLR 301 | [1998] HCA 28 | (1998) 194 CLR 355 | (1911) 12 CLR 463 | [2010] HCA 28 | (1998) 87 FCR 405 | (2003) 131 FCR 300 | (1978) 140 CLR 503 | [2009] FCAFC 12 | (2009) 174 FCR 91 | [2007] FCA 1961", "Legislative_References": "Acts Interpretation Act 1901 s 15AB Petroleum Resource Rent Tax Act 1987 The Act Petroleum Resource Rent Tax Assessment Act 1987 s 2 s 19 s 21 s 22 s 23 s 24 s 38 Petroleum Resource Rent Legislation Amendment Act 1991 s 33(4) Petroleum Revenue Act 1985 The Act Petroleum (Submerged Lands) Act 1967 s 5 Taxation Laws Amendment Act (No 6) 2001 Schedule 1 Tax Laws Amendment (2011 Measures No. 8) Act 2011 Schedule 2 Petroleum Resource Rent Tax Assessment Bill 1986 Petroleum Resource Rent Tax Assessment Bill 1987 Petroleum Resource Rent Legislation Amendment Bill 1991", "Case_References": "Alliance Petroleum Australia NL v Australian Gas Light Co (unreported, Supreme Court of South Australia, Lander J, 23 December 1994) Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41 (2009) 239 CLR 27 (2009) 73 ATR 256 2009 ATC 20-134 Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) [1948] HCA 28 (1948) 77 CLR 143 Australian Communications Network Pty Ltd v Australian Competition and Consumer Commission [2005] FCAFC 221 (2005) 146 FCR 413 Delaney v Staples (trading as De Monfort Recruitment) [1992] 1 All ER 944 Diamond Shamrock Explorations Co v Hodel 853 F2d 1159 (5th Cir 1988) Esso Australia Resources Pty Ltd v Commissioner of Taxation [2009] FCA 272 (2009) 75 ATR 323 Esso Australia Resources Pty Ltd v The Commissioner of Taxation [2011] FCA 360 (2011) 83 ATR 47 Federal Commissioner of Taxation v Orica Ltd [1998] HCA 33 (1998) 194 CLR 500 (1998) 39 ATR 66 (1998) 98 ATC 4494 MacDonald (Inspector of Taxes) v Dextra Accessories Ltd [2005] 4 All ER 107 Oxfordshire County Council v Oxford City Council (2006) 4 All ER 897 [2006] 2 AC 674 Owners of Shin Kobe Maru v Empire Shipping Co Inc (1994) 181 CLR 404 PMT Partners Pty Ltd (In liq) v Australian National Parks and Wildlife Service [1995] HCA 36 (1995) 184 CLR 301 Project Blue Sky Inc & Ors v Australian Broadcasting Authority [1998] HCA 28 (1998) 194 CLR 355 Richardson v Austin (1911) 12 CLR 463 Robshaw Brothers Ltd v Mayer [1957] 1 Ch 125 Simpson v Connelly [1953] 1 WLR 911 Spencer v The Commonwealth [2010] HCA 28 (2010) 241 CLR 118 Sun World International Inc v Registrar, Plant Breeders' Rights (1998) 87 FCR 405 Visa International Service Association v Reserve Bank of Australia [2003] FCA 977 (2003) 131 FCR 300 Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503 Woodside Energy Ltd v Federal Commissioner of Taxation [2009] FCAFC 12 (2009) 174 FCR 91 (2009) 74 ATR 922 Woodside Energy Ltd v Federal Commissioner of Taxation (No 2) [2007] FCA 1961 (2007) 69 ATR 465", "Subject_References": "petroleum resource rent tax assessable petroleum receipts marketable petroleum commodity sales gas liquefied petroleum gas excluded commodity petroleum project taxing point text of provision content and scheme of Act legislative history extrinsic materials importance of definitions in context expert evidence take or pay amounts", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID480-493of2011/00001", "Unmatched_Content": "This decision has no impact for ATO precedential documents and Law Administration Practice Statements"}
{"Case_Name": "Fardell and Commissioner of Taxation", "Venue_Reference_No": "2010/3760-3761", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "19 October 2011", "Date_Published": "14 December 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a linehaul truck driver was entitled to deductions for work related travel expenses in respect of meals.", "Overview_of_Facts": "During the relevant income years, the taxpayer was a truck driver employed by Toll Holdings Limited. | Under the relevant awards, the taxpayer was entitled to an allowance when, in a 24 hour period, the taxpayer travelled more than 500 kilometres and the journey involves a principal place of commencement and a principal place of destination. | The taxpayer was not required to sleep away from home in order to receive the allowance. In his income tax returns, the taxpayer returned allowance income and claimed deductions for \"work related travel expenses\". The taxpayer's claims were based on the Commissioner's reasonable daily rates multiplied by the number of times the taxpayer received the living away from home allowance (LAFHA) in the relevant year. The taxpayer did not provided any written evidence of the deductions said to have been incurred. These deductions were subsequently disallowed by the Commissioner. | Issues decided by the tribunal | 1. Whether the deductions met the requirements of s8-1 ITAA 1997 during the income years? | No, the taxpayer could not demonstrate that he incurred the amounts claimed. | 2. Whether the taxpayer was required to substantiate the deductions with written evidence pursuant to s900-15 ITAA 1997 and Subdivision 900-E ITAA 1997? | Yes, the taxpayer was required to substantiate the deductions. | 3. Whether the requirements for an exception to the substantiation requirements above were satisfied for the purposes of s900-50 for \"domestic travel allowance expenses\"? | No, the taxpayer was not entitled to rely on an exception for substantiation because he did not receive a travel allowance. | 4. Whether there was any other basis for relief from the substantiation requirements? | No, the taxpayer had no other basis for relief from substantiation. | 5. Whether the taxpayer and/or his tax agent failed to take reasonable care in claiming the deductions liable to a penalty of 25% of the shortfall amount pursuant to s.284-75(1) and s.284-90(1) of Schedule 1 of the Taxation Administration Act 1953 (\"TAA\")? | Yes, the taxpayer's agent failed to take reasonable care. | 6. If so, whether there is any basis for remission of the penalty pursuant to s.298-20 of Schedule 1 of the TAA? | Yes, the penalty was remitted in full as the imposition of the penalty produced a harsh result.", "Issues_Decided": "1. Whether the deductions met the requirements of s8-1 ITAA 1997 during the income years? No, the taxpayer could not demonstrate that he incurred the amounts claimed. 2. Whether the taxpayer was required to substantiate the deductions with written evidence pursuant to s900-15 ITAA 1997 and Subdivision 900-E ITAA 1997? Yes, the taxpayer was required to substantiate the deductions. 3. Whether the requirements for an exception to the substantiation requirements above were satisfied for the purposes of s900-50 for \"domestic travel allowance expenses\"? No, the taxpayer was not entitled to rely on an exception for substantiation because he did not receive a travel allowance. 4. Whether there was any other basis for relief from the substantiation requirements? No, the taxpayer had no other basis for relief from substantiation. 5. Whether the taxpayer and/or his tax agent failed to take reasonable care in claiming the deductions liable to a penalty of 25% of the shortfall amount pursuant to s.284-75(1) and s.284-90(1) of Schedule 1 of the Taxation Administration Act 1953 (\"TAA\")? Yes, the taxpayer's agent failed to take reasonable care. 6. If so, whether there is any basis for remission of the penalty pursuant to s.298-20 of Schedule 1 of the TAA? Yes, the penalty was remitted in full as the imposition of the penalty produced a harsh result.", "ATO_View_of_Decision": "The decision reflects the application of settled principles to a particular factual situation. The decision does not present any new principle, and does not impact upon any current rulings or published views of the Commissioner. | In relation to the penalty, the Commissioner's view is that remission is considered on a case by case basis and turns on the facts of each individual case.", "Administrative_Treatment": "Implications for ATO Precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None.", "Related_Documents": "N/A | 2011 ATC 10-208 | s 8-1 | s 900-15 | s 900-50 | Schedule 1 s 284-75 | Schedule 1 s 284-90 | Schedule 1 s 298-20 | 2010 ATC 20-221 | 2008 ATC 20-015 | 91 ATC 4396 | 90 ATC 4088 | (1952) 86 CLR 183 | 2001 ATC 2272 | 93 ATC 4508", "Legislative_References": "Income Tax Assessment Act 1997 (Cth) s 8-1 s 900-15 s 900-50 Taxation Administration Act 1953 (Cth) Schedule 1 s 284-75 Schedule 1 s 284-90 Schedule 1 s 298-20", "Case_References": "Commissioner of Taxation v Anstis (2010) 241 CLR 443 [2010] HCA 40 76 ATR 735 2010 ATC 20-221 Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287 [2008] FCAFC 54 2008 ATC 20-015 69 ATR 627 Federal Commissioner of Taxation v Cooper (1991) 26 FCR 177 (1991) 21 ATR 1616 91 ATC 4396 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 [1990] HCA 3 20 ATR 1370 90 ATC 4088 George v Federal Commissioner of Taxation (1952) 86 CLR 183 [1952] HCA 21 Re McIntosh and Federal Commissioner of Taxation (2001) 47 ATR 1242 [2001] AATA 702 2001 ATC 2272 Roads and Traffic Authority of New South Wales v Commissioner of Taxation (1993) 43 FCR 223 [1993] FCA 314 26 ATR 76 93 ATC 4508", "Subject_References": "Living away from home allowance Connection to employee's earning activities Substantiation requirements Travel allowance or loading Relief from substantiation", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/3760-3761/00001", "Unmatched_Content": ""}
{"Case_Name": "Federal Commissioner of Taxation v Citigroup Pty Ltd", "Venue_Reference_No": "NSD 1016/1117 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "10 May 2011", "Date_Published": "22 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns the application of Part IVA to foreign tax credits (FTC) arising from tax paid in Hong Kong on a bond transaction and whether the taxpayer is liable to pay general interest charge (GIC) on the disallowed FTC.", "Overview_of_Facts": "In essence, the transaction involved a Hong Kong partnership set up by the taxpayer and one of its wholly owned subsidiaries borrowing funds and investing in a 5 year bond issued by Healthcote, a Hong Kong incorporated Citigroup special purpose company. | The partnership then sold the coupons on the bond to the Bank of China (BOC) and returned the gross proceeds on the sale in Hong Kong. Tax was paid in Hong Kong by the partners. | The complex structured transaction enabled BOC to claim a tax deduction in Hong Kong and Citigroup Pty Ltd to return income in Australia against which a foreign tax credit was claimed. | Issues decided by the court | Whether Part IVA applies to cancel the benefit of foreign tax credits claimed by the taxpayer. | If Part IVA does apply, whether the taxpayer is liable to pay the general interest charge (GIC) on the increased tax liability from the date that tax was due and payable. | Part IVA appeal | In NSD 1117 of 2010, the Full Federal Court dismissed the taxpayer's appeal, confirming the decision of the primary judge that Part IVA applies to cancel the benefit of the foreign tax credits claimed by the taxpayer. | The Court concluded that 'obtaining a foreign tax credit ... was more than a condition of the viability of the scheme: it was ultimately the commercial engine which drove the scheme'. The Court was satisfied that the taxpayer's dominant purpose for entering into and carrying out the scheme was to obtain the foreign tax credit generated by the payment of Hong Kong tax on the sale of the interest coupons. | GIC appeal | The Court dismissed the Commissioner's appeal in the s 39B proceedings (NSD 1116 of 2010), confirming the decision of the primary judge that s 204(3) of the Income Tax Assessment Act 1936 (1936 Act) did not impose the general interest charge in the facts of the present case. | The Court accepted the taxpayer's argument that the Commissioner had applied the foreign tax credits to discharge the taxpayer's liability and the taxpayer was deemed to have paid the tax against which the credits were applied. Therefore, there was no tax that 'remained unpaid' within the meaning of s 204(3). The Commissioner's remedy was in section 160AN(5) of the 1936 Act, which entitled him to recover the amount of the excess 'as if it were ... tax due and payable', but did not deem the excess to be tax. | The Court concluded that the statutory scheme is such that, upon the application of a credit to a tax liability, the tax is deemed to have been paid by virtue of section 160AN(3), and the later amendment of the relevant foreign tax credit determination does not undo that. However, the excess credits can be recovered under section 160AN(5).", "Issues_Decided": "Whether Part IVA applies to cancel the benefit of foreign tax credits claimed by the taxpayer. If Part IVA does apply, whether the taxpayer is liable to pay the general interest charge (GIC) on the increased tax liability from the date that tax was due and payable. | Part IVA appeal: In NSD 1117 of 2010, the Full Federal Court dismissed the taxpayer's appeal, confirming the decision of the primary judge that Part IVA applies to cancel the benefit of the foreign tax credits claimed by the taxpayer. The Court concluded that 'obtaining a foreign tax credit ... was more than a condition of the viability of the scheme: it was ultimately the commercial engine which drove the scheme'. The Court was satisfied that the taxpayer's dominant purpose for entering into and carrying out the scheme was to obtain the foreign tax credit generated by the payment of Hong Kong tax on the sale of the interest coupons. | GIC appeal: The Court dismissed the Commissioner's appeal in the s 39B proceedings (NSD 1116 of 2010), confirming the decision of the primary judge that s 204(3) of the Income Tax Assessment Act 1936 (1936 Act) did not impose the general interest charge in the facts of the present case. The Court accepted the taxpayer's argument that the Commissioner had applied the foreign tax credits to discharge the taxpayer's liability and the taxpayer was deemed to have paid the tax against which the credits were applied. Therefore, there was no tax that 'remained unpaid' within the meaning of s 204(3). The Commissioner's remedy was in section 160AN(5) of the 1936 Act, which entitled him to recover the amount of the excess 'as if it were ... tax due and payable', but did not deem the excess to be tax. The Court concluded that the statutory scheme is such that, upon the application of a credit to a tax liability, the tax is deemed to have been paid by virtue of section 160AN(3), and the later amendment of the relevant foreign tax credit determination does not undo that. However, the excess credits can be recovered under section 160AN(5).", "ATO_View_of_Decision": "The Commissioner did not seek special leave to appeal from the decision of the Full Court to the High Court in regards to the GIC. The Court has authoritatively decided that sub-section 204(3) of the 1936 Act did not have operation in the case of an amended foreign tax credits determination.", "Administrative_Treatment": "The foreign tax credits regime under Division 19 of Part III of the 1936 Act, including the procedure of making foreign tax credit determinations, has been repealed from 24 September 2007 (applying to income years commencing on or after 1 July 2008). | It has been replaced by the foreign income tax offset regime, under which a foreign income tax offset directly impacts the amount of income tax payable by an entity. | As such, the decision of the Full Court has no ongoing impact in relation to the imposition of GIC for disallowed foreign income tax offsets. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for Law Administration Practice Statements | Nil", "Related_Documents": "Nil | [2010] FCAFC 61 | 2011 ATC 20-262 | PtIVA | 204(3)", "Legislative_References": "Income Tax Assessment Act 1936 PtIVA 204(3) 160AF(1) 160AI(1) 160AI(2) 160AK 160AIA 160AJA 160AN 160AN(5)", "Case_References": "", "Subject_References": "Income Tax Foreign tax credits Foreign tax credits arising from tax avoidance scheme Part IVA scheme General interest charge GIC payment date GIC liability", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD116of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Federal Commissioner of Taxation v Wentworth District Capital Ltd", "Venue_Reference_No": "NSD 1144 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "28 March 2011", "Date_Published": "19 August 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to the decision of the Full Federal Court in respect of a franchise of Bendigo Bank as an association established for community service purposes.", "Overview_of_Facts": "Wentworth is a small town, where at the relevant time the only bank was a single Westpac Branch which closed in 1996. Prior to the establishment of the Bendigo Bank branch, there had been no full service banking facilities in the town since the closure of the Westpac Bank branch in 1996. As a result of this, members of the Wentworth community set up an association with a view to have a branch of the Bendigo Bank established in their town. | The community pledged a certain amount of money which would be used for the purposes of setting up the branch. Wentworth District Capital, the taxpayer a corporation limited by guarantee, provided the premises, staff and other facilities while the Bendigo Bank provides the banking facilities. | The bank charges customers normal fees for banking services, with some of the income going to the taxpayer. The charter of the bank provided that the members of the taxpayer were not to profit from the bank, and the bank's charter provided that profits may be distributed to various community groups. The taxpayer's claim hinged on the proposal that the bank is a community service for the purposes of s 50-10 of ITAA 1997. The taxpayer lodged tax returns for the financial years ended 30 June 2006 and 30 June 2007 on the basis that it was an income tax exempt entity. | In both years the Commissioner assessed Wentworth District Capital as having an assessable income. On this basis the taxpayer objected to the assessments for both years on the basis that it had a community service purpose because it promotes, provides or carries out activities, facilities or projects for the benefit or welfare of members of the community who benefit and who need the services provided by reason of their youth, age, infirmity, disablement, poverty or social or economic circumstances (including living in a \"remote area\"). | The Commissioner disallowed the objection in full, and accordingly the taxpayer appealed to the Federal Court. In the first instance Perram J found for the taxpayer, which was subsequently confirmed by the Full Court. | Issues decided by the court | The issue on appeal was whether Wentworth District Capital was an association established for community service purposes within the meaning of item 2.1 of s. 50-10 of the ITAA97 during the relevant years in question.", "Issues_Decided": "The issue on appeal was whether Wentworth District Capital was an association established for community service purposes within the meaning of item 2.1 of s. 50-10 of the ITAA97 during the relevant years in question.", "ATO_View_of_Decision": "In the first instance, Perram J (to which the Full Federal Court agreed) found that Wentworth District Capital was an entity that was established for the main or dominant purpose of facilitating face to face banking services in the relevant years in question. | The Full Federal Court, on appeal, agreed with Perram J that on the particular facts of the case and the circumstances of the community of Wentworth, the facilitation of face to face banking services in the relevant years did amount to community service purposes within the meaning of Item 2.1 of section 50-10 of ITAA 1997. | Importantly, however, the court rejected the proposition that the facilitation of the commercial supply of services in a town, that would otherwise not be provided, would always be a community service [2011] FCAFC 42 at paragraph 40; [2010] FCA 862 at paragraph 63. It is the ATO's view that whether or not the facilitation of a particular commercial supply of services in a town that would not otherwise be provided will amount to a community service depending on the facts and circumstances of each case. | The court did not go so far as to hold that every community bank will qualify as providing a community service within Item 2.1 of section 50-10 of ITAA 1997. It will be necessary to examine the purpose for which the relevant entity is established and a consideration of the circumstances of the relevant community to determine if the facilitation of the provision of face to face banking activities provides sufficient real and tangible benefit to the community to qualify as a community service. This is to be determined in a year to year basis and will turn on the facts of each case. | The ATO accepts that the facilitation of certain commercial services in certain circumstances is capable of amounting to community service purposes within the meaning of Item 2.1 of section 50-10 of ITAA 1997 as determined by the Full Federal Court. However, whether that will be so in the particular case is a question of fact and circumstances.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | The Commissioner has withdrawn ATO ID 2002/931.", "Related_Documents": "ATO ID 2002/931 | 2011 ATC 20-253 | 23(g)(iii) | 4-1 | 4-10(1) | 4-10(2) | 4-15 | 50-1 | 50-10 | 50-70 | 90 ATC 4215 | 2007 ATC 4568 | (1943) 68 CLR 436 | [2010] HCA 28 | 2008 ATC 20-035", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) 23(g)(iii) Income Tax Assessment Act 1997 (Cth) 4-1 4-10(1) 4-10(2) 4-15 50-1 50-10 50-70 Taxation Laws Amendment Act (No. 2) 1990 (Cth)", "Case_References": "Cronulla Sutherland Leagues Club Limited v Commissioner of Taxation (1990) 23 FCR 82 21 ATR 300 90 ATC 4215 Navy Health v Federal Commissioner of Taxation (2007) 163 FCR 1 2007 ATC 4568 68 ATR 215 Royal Australasian College of Surgeons v the Federal Commissioner of Taxation (1943) 68 CLR 436 [1943] HCA 34 Spencer v The Commonwealth of Australia (2010) 241 CLR 118 [2010] HCA 28 Victorian Women's Lawyers Association Inc v Federal Commissioner of Taxation (2008) 170 FCR 318 70 ATR 138 2008 ATC 20-035", "Subject_References": "Rural Bank Face to face banking facilities Community Services Purposes Tax Exempt", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1144of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "GE Capital Finance Australasia Pty Limited and Anor v Commissioner of Taxation", "Venue_Reference_No": "VID 1042 of 2010 & VID 309 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "28 July 2011", "Date_Published": "5 June 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "From March 2003 until 26 May 2004, the GE Capital Corporation (GECC) group undertook extensive planning for a potential initial public offering (IPO) of its global lenders' mortgage insurance businesses. In Australia, the businesses were conducted by two wholly owned subsidiaries of GE Capital Australia (GECA), GE Mortgage Insurance Pty Ltd (Old GEMI) and its subsidiary, GE Capital Mortgage Insurance Corporation (Australia) Pty Ltd (Old GEMICO). | The GE Company (GE) decided to aggregate the global businesses under a US company, Genworth Financial Inc (Genworth), the company to be listed in the IPO. As Old GEMI and Old GEMICO were not subsidiaries of Genworth, a decision was taken to incorporate GE Mortgage Insurance Holdings Pty Ltd (GEMIH) and a wholly owned subsidiary, GE Mortgage Insurance Company Pty Ltd (GEMICO) as subsidiaries of Genworth on 10 November 2003, with the intention that Old GEMI and Old GEMICO would later transfer their businesses to GEMICO. | In early 2003, Chris Vanderkley, the CFO and Tax Director of the Australian GE group, established a project to prepare the group for the new income tax consolidation regime as from 1 July 2003. The proposed consolidated groups, and their membership, were constantly being reviewed over the course of the 2004 income year. Mr Vanderkley formed a Steering Committee, with representatives from each of the group's major business units, to monitor the project. Chris Davies, the tax compliance manager of GE Capital Finance Australasia Pty Ltd (GECFAsia), was appointed to lead the project. | As part of that project, a number of proposals were considered about how Old GEMI, Old GEMICO, GEMIH and GEMICO would be treated under the new regime, particularly in the light of what was happening with the Genworth IPO project. In early March 2004, Mr Vanderkley decided that GECA and GECFAsia should form a MEC group as from 1 July 2003, being eligible tier-1 companies (indirectly wholly owned subsidiaries) of GECC as a top company, and that GEMIH and GEMICO would become members of that group. That decision was not formally recorded or noted on relevant project spreadsheets. | Old GEMI and Old GEMICO transferred their insurance businesses to GEMICO on 31 March 2004. The MEC group expected that the capital gain arising on that transfer would be ignored under the single entity rule in the consolidation regime. Genworth ceased to be owned by GECC when its shares were floated on the New York Stock Exchange on 25 May 2004. As such, GEMIH and GEMICO left the GECFAsia MEC group on that date. | Minutes of the project Steering Committee of 26 May 2004, and minutes of resolutions of the directors of GECFAsia, GECA and GEMIH of 12 July 2004, approved the formation of the GECFAsia MEC group as from 1 July 2003. The minutes record GEMIH and GEMICO forming part of the MEC group as from 1 July 2003, when they could only become members when incorporated on 10 November 2003. | The mistakes flowed into the approved form (NAT 7024) that Mr Davies and Mr Vanderkley sent to the Commissioner in August 2004, under the then form of subsection 719-50(1) of the ITAA 97, notifying him of the formation of the GECFAsia MEC group (including GEMIH) as from 1 July 2003, but not notifying, under the then form of subsection 719-5(4), of the choice by GECFAsia that GEMIH became a member of the group after that date, and left on 25 May 2004. The Commissioner acknowledged the incorrect information in the notice on 27 August 2004. | GECFAsia's tax returns for the income years ended 31 December 2003 and 2004 were lodged on the basis that GEMIH and GEMICO were members of its MEC group from 10 November 2003 to 25 May 2004. | Tax Laws Amendment (2010 Measures No 1) Act 2010 retrospectively amended paragraph 719-5(4)(c) to only require GECFAsia to make a choice in writing that GEMIH become a member of its MEC group as from when GEMIH became an eligible tier-1 company of GECC, i.e., from 10 November 2003. The Commissioner contended that no choice was made for GEMIH to join the GECFAsia MEC group and that, if a choice was made, the choice was not made in writing, as required by paragraph 719-5(4)(c). | GECFAsia and GECA sought declarations under section 39B of the Judiciary Act 1903 and section 21 of the Federal Court of Australia Act 1976 that GEMIH and GEMICO became members of the GECFAsia MEC Group with effect from 10 November 2003. Alternatively, they sought an order that the NAT 7024 form be rectified by inserting '10 November 2003' after 'if joined after date of consolidation, give date joined the group' in each section dealing with GEMIH and GEMICO. In related tax appeal proceedings under Part IVC of the Taxation Administration Act 1953 , it was agreed that a similar question be decided about whether GEMIH and GEMICO became members of the MEC Group from 10 November 2003. | Issues decided by the Court | The Federal Court (Gordon J) made the declaration that GEMIH and GEMICO became members of the GECFAsia MEC Group with effect from 10 November 2003. Her Honour also answered the preliminary question in the Part IVC proceedings to similar effect. | Mr Vanderkley was authorised to make the choice | Her Honour accepted that, by reason of his office with the company, Mr Vanderkley had the requisite authority on behalf of GECFAsia to make the choice under paragraph 719-5(4)(c) (paragraph 65) and actually made the choice for GEMIH to become a member of the MEC group as from 10 November 2003 (paragraphs 74 and 76). The project Steering Committee approval was a mere formality, and the purpose of the board resolutions of GEMIH, GECA and GECFAsia was only to communicate finalisation of the project to the boards. Her Honour also found that the approved form was given by GECFAsia through Mr Vanderkley as its public officer under paragraph 252(1)(g) of the Income Tax Assessment Act 1936 (ITAA 36) (paragraph 68). | The choice did not need to specify a date that was fixed by law anyway | While subparagraph 719-5(4)(c)(ii) requires the head company of a MEC group to state in its 'choice in writing' that specified eligible tier-1 companies are to become members of the group 'with effect from' the time that they become eligible tier-1 companies, her Honour found that this does not require the head company to state a day or time in the written choice, because the time is fixed by the ITAA 97, and is not a matter for the head company to have a view about. The head company need do no more than specify the eligible tier-1 companies in the choice (paragraphs 81 to 84). Her Honour then found that the NAT 7024 form constituted the relevant 'choice in writing' for GEMIH to become a member of the MEC group (paragraph 85). | If it had mattered, the date was not in fact specified | Though not necessary to decide, her Honour also found that, if the 'choice in writing' was required to specify the date that GEMIH joined the MEC group, neither the NAT 7024 form on its own, nor other contemporaneous documents of the GE group read together, specified the relevant date of incorporation of GEMIH (paragraphs 95, 101 and 102). | If there were an omission, this was a mistake that the Court could rectify | Finally, if there was a view that no 'choice in writing' was made, her Honour was satisfied that the omission of '10 November 2003' from sections of the NAT 7024 form dealing with GEMIH and GEMICO was a mistake and should be rectified in the way sought by GECFAsia and GECA (paragraph 118). Mr Vanderkley's intention was for the GECFAsia MEC group to form on 1 July 2003, with GEMIH and GEMICO to join the group on 10 November 2003. By mistake, the form provided to the Commissioner did not include the joining date and failed to give effect to Mr Vanderkley's intentions. It was appropriate to rectify that mistake (paragraphs 110 to 117).", "Issues_Decided": "The Federal Court (Gordon J) made the declaration that GEMIH and GEMICO became members of the GECFAsia MEC Group with effect from 10 November 2003. Her Honour also answered the preliminary question in the Part IVC proceedings to similar effect. | Mr Vanderkley was authorised to make the choice: Her Honour accepted that, by reason of his office with the company, Mr Vanderkley had the requisite authority on behalf of GECFAsia to make the choice under paragraph 719-5(4)(c) (paragraph 65) and actually made the choice for GEMIH to become a member of the MEC group as from 10 November 2003 (paragraphs 74 and 76). The project Steering Committee approval was a mere formality, and the purpose of the board resolutions of GEMIH, GECA and GECFAsia was only to communicate finalisation of the project to the boards. Her Honour also found that the approved form was given by GECFAsia through Mr Vanderkley as its public officer under paragraph 252(1)(g) of the Income Tax Assessment Act 1936 (ITAA 36) (paragraph 68). | The choice did not need to specify a date that was fixed by law anyway: While subparagraph 719-5(4)(c)(ii) requires the head company of a MEC group to state in its 'choice in writing' that specified eligible tier-1 companies are to become members of the group 'with effect from' the time that they become eligible tier-1 companies, her Honour found that this does not require the head company to state a day or time in the written choice, because the time is fixed by the ITAA 97, and is not a matter for the head company to have a view about. The head company need do no more than specify the eligible tier-1 companies in the choice (paragraphs 81 to 84). Her Honour then found that the NAT 7024 form constituted the relevant 'choice in writing' for GEMIH to become a member of the MEC group (paragraph 85). | If it had mattered, the date was not in fact specified: Though not necessary to decide, her Honour also found that, if the 'choice in writing' was required to specify the date that GEMIH joined the MEC group, neither the NAT 7024 form on its own, nor other contemporaneous documents of the GE group read together, specified the relevant date of incorporation of GEMIH (paragraphs 95, 101 and 102). | If there were an omission, this was a mistake that the Court could rectify: Finally, if there was a view that no 'choice in writing' was made, her Honour was satisfied that the omission of '10 November 2003' from sections of the NAT 7024 form dealing with GEMIH and GEMICO was a mistake and should be rectified in the way sought by GECFAsia and GECA (paragraph 118). Mr Vanderkley's intention was for the GECFAsia MEC group to form on 1 July 2003, with GEMIH and GEMICO to join the group on 10 November 2003. By mistake, the form provided to the Commissioner did not include the joining date and failed to give effect to Mr Vanderkley's intentions. It was appropriate to rectify that mistake (paragraphs 110 to 117).", "ATO_View_of_Decision": "Actual authority | The ATO accepts that it was open on the evidence before the Court for her Honour to find that Mr Vanderkley had the requisite authority on behalf of GECFAsia to make the choice in writing under paragraph 719-5(4)(c), and actually made the choice for GEMIH to become a member of the MEC group as from 10 November 2003. | Deemed act of the company under section 252 | Her Honour accepted in paragraph 68 that Mr Vanderkley was required in 2004 to give to the Commissioner as a public officer the 'approved form' referred to in the form of paragraph 719-5(4)(c) before the amendments made by the Tax Laws Amendment (2010 Measures No 1) Act 2010 , such that, in doing so, paragraph 252(1)(g) of the ITAA 36 deemed GECFAsia to have given the form. However, the ATO considers that paragraph 252(1)(g) does not apply to deem a 'choice in writing' made by a person acting as a public officer of a company as a choice made by the company under the current form of paragraph 719-5(4)(c) because making that choice is not something which a company, and therefore its public officer, is required to do (see Pearson v FC of T [2001] FCA 171, at [33]). | Further, the reasoning which led to her Honour accepting that, under the previous version of the law, the public officer was required to give a notice in the approved form to the Commissioner, in the sense contemplated by section 252, does not, with respect, clearly appear. The only consequence of not giving such a notice would be that the desired MEC group is not formed. The point at paragraph 68 is not essential to the decision reached in the case (in view of the earlier finding that Mr Vanderkley was in fact authorised to make the choice), was not the subject of detailed submissions by the parties and appears to conflict with the decision in Pearson . | In making the above observations, the ATO is not suggesting that there are any decisions or choices which only a company's board may make, or that a board might need to provide a public officer or any other agent with specific authority to do so every time such a decision is to be made. However, section 252 does not operate to deem a public officer to have the company's authority to do anything that a company may choose to do under the income tax law, as distinct from what it is required to do under the income tax law. | Examples of matters that the company is required to undertake in the course of its normal compliance activity would include lodging tax returns and business activity statements as well as providing notifications of choices once they have been made (in circumstances where such notification is a statutory requirement). However, as noted earlier, the deeming under section 252 does not extend to the making of the relevant choices themselves. | Issues in relation to agency such as implied and actual authority, do not only arise in a tax context. In the normal course it would be expected that a company would know and could identify what sorts of tax decisions its public officer is actually authorised to make on its behalf, even implicitly. | A date that is fixed by law need not be specified in the written choice | The ATO accepts the view of the Court that the current form of paragraph 719-5(4)(c) only requires a head company of a MEC group to state, in its choice in writing, that specified eligible tier-1 companies are to become members of the MEC group, and does not require the head company to state a day or time of joining. However, the ATO would note that, once a valid choice in writing is made under paragraph 719-5(4)(c), the head company is required under subsection 719-77(2) to give the Commissioner a notice in the approved form of information relevant to the choice (although a failure to do so would not affect the validity of the choice itself). A notice given by the public officer of the head company would be deemed to have been given by the company through the operation of paragraph 252(1)(g). | Rectification | It is not clear from the decision whether her Honour's obiter comments about rectification of the NAT 7024 form were embodied in the declarations made in the proceedings under section 39B of the Judiciary Act or in the answer given to the preliminary question in the Part IVC proceeding. However, the ATO would note that, through the operation of sections 175 and 177 of the ITAA 36, the effect that rectification of the form has on whether the amount and all the particulars of an assessment are correct can only be reviewed in the Part IVC proceeding.", "Administrative_Treatment": "For consistency with the view on the section 252 issue expressed by the ATO above, the ATO will amend section C7-1-110 of the Consolidation Reference Manual to remove the current statements that the public officer of the provisional head company (PHC) of a MEC group must sign the written choice. The removal of those statements should not be taken to mean that the ATO considers that choices in writing made under paragraph 719-5(4)(c) that have been signed and dated by the public officer of a PHC are ineffective. Nor does it imply any intention to carry out some broad review in practice of whether public officers have in fact been authorised to make choices on behalf of their companies. | Indeed, if a choice in writing is made by a company's public officer purportedly on behalf of the company, it in practice will usually be safe to infer that the public officer had the company's authority to do so, unless there is some particular reason to think otherwise. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "None | 2011 ATC 20-270 | O 29 r 2 | s 252(1)(g) | Part 3-90 | 701-1 | Division 719 | 719-5(4) | 719-5(4)(c) | 719-10 | 719-15 | 719-20 | 719-50(1) | 719-76 | 719-77 | Part IVC | The Act | 28 ATR 16 | [2009] 4 All ER 677 | (1997) 187 CLR 384 | 95 ATC 4620 | (1956) 95 CLR 420 | [1990] 3 All ER 338 | 39 CLR 302 | [2001] HCA 70 | 2009 ATC 20-119 | (1998) 194 CLR 355 | [2010] HCA 28 | [2008] QSC 123 | [2004] FCA 154 | Consolidation Reference Manual", "Legislative_References": "Federal Court of Australia Act 1976 s 21 Federal Court Rules O 29 r 2 Income Tax Assessment Act 1936 s 252(1)(g) Income Tax Assessment Act 1997 Part 3-90 701-1 Division 719 719-5(4) 719-5(4)(c) 719-10 719-15 719-20 719-50(1) 719-76 719-77 Judiciary Act 1903 39B Taxation Administration Act 1953 Part IVC Tax Laws Amendment (2010 Measures No 1) Act 2010 The Act", "Case_References": "Allnut v Wilding [2006] EWHC 1905 Allnut v Wilding [2007] EWCA Civ 412 Australia & New Zealand Banking Group Ltd v Widin (1990) 26 FCR 21 BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources (1994) 49 FCR 155 28 ATR 16 Butlin's Settlement Trusts In re [1976] Ch 251 Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 [2009] 4 All ER 677 [2009] 3 WLR 267 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 31 ATR 281 95 ATC 4620 Fitzgerald v Masters (1956) 95 CLR 420 Gibbon v Mitchell [1990] 3 All ER 338 Harvey v Edwards, Dunlop & Co Ltd [1927] HCA 13 39 CLR 302 Kent v Brown (1942) 43 SR (NSW) 124 Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70 210 CLR 181 MW McIntosh Pty Limited v Commissioner of Taxation [2009] FCAFC 88 178 FCR 100 2009 ATC 20-119 76 ATR 231 P v Board of Australian Crime Commission & Ors (2006) 151 FCR 114 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Pukallus v Cameron (1982) 180 CLR 447 Racal Group Services v Ashmore [1995] STC 1151 Spencer v The Commonwealth [2010] HCA 28 241 CLR 118 Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290 Telstra Corporation Ltd v Ivory [2008] QSC 123 The Application of GE Mortgage Insurance Pty Ltd [2004] FCA 154 Wills v Gibbs [2007] EWHC 3361 (Ch)", "Subject_References": "MEC group Choice in writing Rectification", "Other_References": "Consolidation Reference Manual", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1042of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Gerard Cassegrain & Co Pty Ltd (ACN 000 342 174) v Commissioner of Taxation; Clos Farming Estates Pty Limited (ACN 003 435 256) v Commissioner of Taxation", "Venue_Reference_No": "NSD 117 of 2010; NSD 118 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "10 February 2011", "Date_Published": "2 June 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this decision, which concerned the issue of how much of an undissected lump sum payment made under a deed of settlement is assessable to the first applicant under the CGT provisions in the ITAA 1936.", "Overview_of_Facts": "1. Gerard Cassegrain & Co Pty Limited (GCC) made an arrangement with the CSIRO to conduct research and development activities in connection with soil improvement technology known as \"slotting\", carried out by the joint venture company, Cassiro Ltd. | 2. The joint venture failed and the differences between the parties were settled through a Deed of Settlement and Release. | 3. Pursuant to that Deed, CSIRO paid $9.5m to the Cassegrain parties, of which $8,835,083 was referable to full and final discharge of all liabilities, as well as for the benefit of covenants, releases, indemnities and warranties. This amount is the subject of the proceedings. | 4. GCC only included $5.25m as its assessable income in the 1994 income year due to a letter setting out an agreement between two of the shareholders of GCC (Claude and Gerard Cassegrain) at an extraordinary meeting. Under that agreement $5.25m was received by GCC in respect of damages and the sale of GCC's shares in Cassiro and $4.25m was received by Claude Cassegrain in respect of personal damages, which was argued to constitute an exempt capital gain under section 160ZB of the ITAA 1936. | 5. The deed of settlement provided that $8,835,083 of the sum paid was referable to the discharge of the compensation claims of any of the parties to the deed and to the restrictive covenants, releases, indemnities and warranties given by the Cassegrain parties. The remaining amount was referable to the transfer of certain technologies, plant and other goods. | 6. The deed did not further apportion the $8,835,083 between the various assets \"disposed of\" by GCC and Claude Cassegrain, namely the discharge of the right to seek compensation (paragraph 160M(3)(b)) and the giving or creation of contractual rights in CSIRO against GCC and Claude Cassegrain, such as the restraints of trade, indemnities, representations, warranties and other undertakings (sections 160M(6) and (6A)). | 7. The decision under appeal and cross-appeal was the second decision of the Tribunal. The first decision was successfully appealed to the Federal Court, and Lindgren J referred it back to the Tribunal for a fresh determination. The second Tribunal proceedings were limited to apportionment of the $8,835,083 under subsection 160ZD(4). | 8. The second Tribunal held that $7,236,753 was attributable to disposals of assets by GCC under subsection 160ZD(4). The remaining $1,598,328 was held to be attributable to disposals of assets by Claude Cassegrain, namely his right to claim damages for defamation (including costs) and his undertaking in restraint of trade. | Issues decided by the court | The taxpayer appealed the second Tribunal decision on a number of grounds, including that the Tribunal had misconstrued the settlement deed, that the Tribunal had not taken account of all of the assets to be valued, and that the Tribunal had erred in the way it approached the valuation of certain undertakings and the right to claim damages. None of these grounds were considered to give rise to an error of law and in any event the Full Court thought the approach taken by the Tribunal to be generally satisfactory. In particular, the Full Court agreed with the Tribunal that the discharge of the Cassegrain parties' rights to damages and the contractual undertakings given by the Cassegrain parties were compensated for under clause 2.2(a) of the Deed and not clause 2.2(b). | The Commissioner's cross-appeal was concerned with aspects of the Tribunal's approach in valuing the defamation claim given up by Claude Cassegrain and the restraint of trade made by him. The Full Court considered that the grounds of cross appeal did not disclose an error of law. In any event the task called for by subsection 160ZD(4) involves judgment in circumstances where precision is impossible; the task involves a degree of estimation and inference at the best of times. The Full Court were of the view that the Tribunal was entitled to use the methodology it did, that the evidence justified the Tribunal's finding and that detailed reasons were not necessary, because the Tribunal does not have to explicitly address every proposition put to it.", "Issues_Decided": "The taxpayer appealed the second Tribunal decision on a number of grounds, including that the Tribunal had misconstrued the settlement deed, that the Tribunal had not taken account of all of the assets to be valued, and that the Tribunal had erred in the way it approached the valuation of certain undertakings and the right to claim damages. None of these grounds were considered to give rise to an error of law and in any event the Full Court thought the approach taken by the Tribunal to be generally satisfactory. In particular, the Full Court agreed with the Tribunal that the discharge of the Cassegrain parties' rights to damages and the contractual undertakings given by the Cassegrain parties were compensated for under clause 2.2(a) of the Deed and not clause 2.2(b). The Commissioner's cross-appeal was concerned with aspects of the Tribunal's approach in valuing the defamation claim given up by Claude Cassegrain and the restraint of trade made by him. The Full Court considered that the grounds of cross appeal did not disclose an error of law. In any event the task called for by subsection 160ZD(4) involves judgment in circumstances where precision is impossible; the task involves a degree of estimation and inference at the best of times. The Full Court were of the view that the Tribunal was entitled to use the methodology it did, that the evidence justified the Tribunal's finding and that detailed reasons were not necessary, because the Tribunal does not have to explicitly address every proposition put to it.", "ATO_View_of_Decision": "The ATO respectfully accepts the Court's decision that there was no error of law in the decision of the Tribunal that $1,598,328 of the settlement proceeds was attributable to disposals of assets by Claude Cassegrain. This decision was based on the specific facts of this case. It is considered that this decision will not have any impact on any existing or future litigation matters. The decision will not result in any change to current Tax Office practices.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | 2011 ATC 20-242 | 44(1) | 2007 ATC 4341", "Legislative_References": "Administrative Appeals Tribunal Act 1975 44(1) Income Tax Assessment Act 1936 160M(6) 160M(6A) 160ZD(4)", "Case_References": "Gerard Cassegrain & Co Pty Ltd v Commissioner of Taxation [2007] FCA 415 2007 ATC 4341 66 ATR 198", "Subject_References": "Capital Gains Tax lump sum payment pursuant to deed interpretation of deed apportionment of sum between payees no error of law by Administrative Appeals Tribunal", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD117of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Groves and Commissioner of Taxation", "Venue_Reference_No": "2011/1248", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "1 September 2011", "Date_Published": "17 November 2001", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerned the residency status of a taxpayer.", "Overview_of_Facts": "The taxpayer arrived in Australia on a working holiday visa on 2 July 2009, spent about one and a half months travelling and then rented accommodation in Coogee from September 2009 to 27 May 2010 when he departed Australia, returning to the UK. While he was in Sydney, the taxpayer had earnings from work as a bar attendant in a Sydney hotel. | The Commissioner accepted, prior to the matter being heard that the taxpayer was a resident of Australia for tax purposes. However, the taxpayer submitted that he was a resident for the entire income year and thus should be entitled to a full year tax-free threshold (even though the taxpayer was only present in Australia for eleven months and not the full income year). | Issues decided by the court | The Tribunal affirmed the Commissioner's view that the taxpayer should be treated as having a part-year residency period of eleven months in accordance with section 18 of the Income Tax Rates Act 1986.", "Issues_Decided": "The Tribunal affirmed the Commissioner's view that the taxpayer should be treated as having a part-year residency period of eleven months in accordance with section 18 of the Income Tax Rates Act 1986.", "ATO_View_of_Decision": "The decision was based on the facts of the case.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A | Implications for Law Administration Practice Statements | N/A", "Related_Documents": "N/A | [2011] AATA 609 | 995-1 | 6 | 14ZZK | 3 | 18 | 20 | 2002 ATC 4001", "Legislative_References": "Income Tax Assessment Act 1997 995-1 Income Tax Assessment Act 1936 6 Taxation Administration Act 1953 14ZZK Income Tax Rates Act 1986 3 18 20", "Case_References": "Commissioner of Taxation v Executors of the Estate of Santha Thevy Subrahmanyam (2001) 116 FCR 180 (2001) 189 ALR 666 2002 ATC 4001 (2001) 49 ATR 29 [2001] FCA 1836 Case 20 (1965) 12 CTBR Case 78 (1968) 11 CTBR 461", "Subject_References": "income tax objection to assessment resident for taxation purposes eligibility for tax-free threshold resident for taxation purposes for whole or part year", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/1248/00001", "Unmatched_Content": ""}
{"Case_Name": "Helbers and Commissioner of Taxation", "Venue_Reference_No": "2009/3384-87", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "23 September 2011", "Date_Published": "5 December 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether administrative penalties were payable for any failure to take reasonable care.", "Overview_of_Facts": "The taxpayer was born in the Netherlands and, prior to his permanent move to Australia in October 2001, had worked in that country and became entitled to special early retirement payments (VUT) when he retired there in 2001. The taxpayer was required to contribute to the VUT during his working life, but did not receive a deduction for his contributions. During the 2003 to 2006 income years, the taxpayer did not pay income tax in the Netherlands on VUT payments into his bank account in that country. | The taxpayer said that he attended the ATO in February 2002 and was advised by a taxation officer that he would only be charged 10% tax on his Australian income as the holder of a '410 class retirement visa. | The taxpayer then wrote to the Commissioner in November 2004, asking whether overseas income was classed as Australian income. The Commissioner treated this as a request for a private binding ruling. The taxpayer included the VUT income received in his 2003 income tax return, lodged in January 2005, and claimed a deduction for the 'undeducted purchase price of a foreign pension or annuity'. | The private ruling issued to the taxpayer in April 2005, stating that the VUT was subject to income tax in Australia, but that amounts contributed to the purchase price of the VUT would be excluded as the undeducted purchase price. At the same time, the applicant lodged his 2004 income tax return, and did not include the VUT income, and lodged an amended 2003 return to delete the VUT and the deduction previously claimed. He did not include the VUT income in either of his 2005 or 2006 returns. | Following an audit, the VUT payments were assessed to the taxpayer in 2008. From the information provided by the taxpayer, it was not possible to fully determine the amounts of undeducted purchase price under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936). | At issue before the Tribunal was whether the taxpayer was liable to pay shortfall penalties for a failure to take reasonable care. | Issues decided by the tribunal | The Tribunal found that the taxpayer's tax shortfalls did not result from any failure to take reasonable care. The taxpayer was confused by the difference between the private ruling and the oral advice he received from the ATO in February 2002, especially as English was not his first language, and he was not familiar with the Australian taxation system (paragraphs 27 and 29).", "Issues_Decided": "The Tribunal found that the taxpayer's tax shortfalls did not result from any failure to take reasonable care. The taxpayer was confused by the difference between the private ruling and the oral advice he received from the ATO in February 2002, especially as English was not his first language, and he was not familiar with the Australian taxation system (paragraphs 27 and 29).", "ATO_View_of_Decision": "It was reasonably open to the Tribunal, based on the particular findings of fact made, to conclude that the taxpayer's tax shortfalls did not result from any failure to take reasonable care.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "MT 2008/1 | 2011 ATC 10-204 | 6-5 | 27H | 284-75(1) | 284-80(1) | 284-90(1) | 2003 ATC 4665", "Legislative_References": "Income Tax Assessment Act 1997 6-5 Income Tax Assessment Act 1936 27H Taxation Administration Act 1953 284-75(1) 284-80(1) 284-90(1)", "Case_References": "Hart v FC of T (2003) 131 FCR 203 2003 ATC 4665 53 ATR 371", "Subject_References": "Administrative penalty Reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/3384-87/00001", "Unmatched_Content": ""}
{"Case_Name": "Inglewood & Districts Community Enterprises Ltd and Commissioner of Taxation", "Venue_Reference_No": "2010/2462", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 August 2011", "Date_Published": "23 November 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether a Franchise Establishment Fee and Franchise Renewal Fees in a Franchise Agreement were deductible under section 8-1 or 40-880 of the Income Tax Assessment Act 1997 (ITAA 1997).", "Overview_of_Facts": "Bendigo Bank Ltd operates a 'Community Bank Model' which involves local communities establishing and operating their own Bendigo Bank Branch. Each branch operates as a corporate franchise of the bank, using the name, logo and various systems of the bank. A franchisee is appointed as an authorised representative of the bank and manages the branch on behalf of the bank in the local community. The bank still carries on the banking business. | A franchise agreement governs the management of the branch and the rights and obligations of the franchisee and the bank. A franchisee is entitled to certain fees and commissions and to a share of the profits from the operations of the branch, and must pay various fees for the right to use the bank's System and other intellectual property. | The applicant was incorporated on 15 February 2007 and entered into a franchise agreement with the bank during the 2008 income year to operate a branch in Inglewood. | The Commissioner made a private ruling that a Franchise Establishment Fee of $100,000 was not immediately deductible under section 8-1 of the ITAA 1997, nor was it deductible in accordance with section 40-880. The Commissioner also ruled that any Franchise Renewal Fees of $10,000 and $50,000 payable on renewal of the franchise agreement were not deductible under section 8-1 and, accordingly, were not deductible over the eligible service period under Subdivision H of Division 3 of Part III of the Income Tax Assessment Act 1936 . | Issues decided by the Administrative Appeals Tribunal | There was no dispute before the Tribunal that the Franchise Establishment Fee was of a capital nature. The Tribunal found that the applicant paid the Fee to secure the right to use the bank's System and other intellectual property, and not for particular services rendered by the bank prior to the opening of the branch (paragraphs 14 to 17). The fee was excluded from deduction under section 40-880, because it was either paid in relation to legal or equitable rights conferred by the franchise agreement under paragraph 40-880(5)(d), or paid in respect of acquiring a CGT asset, and would be taken into account in working out a capital gain or loss under paragraph 40-880(5)(f) (paragraph 22). | In relation to the Renewal Fees, while the Tribunal accepted that the fees would be paid for the renewal of the structure of the applicant's business, it found that they would be on revenue account because the renewal term of 5 years is a relatively short period that would recur, and the applicant would be left with nothing if renewal did not occur (paragraph 31).", "Issues_Decided": "There was no dispute before the Tribunal that the Franchise Establishment Fee was of a capital nature. The Tribunal found that the applicant paid the Fee to secure the right to use the bank's System and other intellectual property, and not for particular services rendered by the bank prior to the opening of the branch (paragraphs 14 to 17). The fee was excluded from deduction under section 40-880, because it was either paid in relation to legal or equitable rights conferred by the franchise agreement under paragraph 40-880(5)(d), or paid in respect of acquiring a CGT asset, and would be taken into account in working out a capital gain or loss under paragraph 40-880(5)(f) (paragraph 22). In relation to the Renewal Fees, while the Tribunal accepted that the fees would be paid for the renewal of the structure of the applicant's business, it found that they would be on revenue account because the renewal term of 5 years is a relatively short period that would recur, and the applicant would be left with nothing if renewal did not occur (paragraph 31).", "ATO_View_of_Decision": "The ATO accepts that it was reasonably open to the Tribunal to find that the Franchise Renewal Fees would be on revenue account, in the context of an expected long-term collaboration between the applicant and the bank in a small town.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "N/A | 2011 ATC 10-202 | Subdivision H of Division 3 of Part III | 8-1 | 40-880 | 108-5(1) | 110-25(2) | (1965) 112 CLR 386 | 44 ATC 312 | [1965] TR 317 | 85 ATC 256 | 2004 ATC 4945 | (1953) 89 CLR 428 | (1991) 91 ATC 4703 | (1989) 89 ATC 4246 | 2006 ATC 4404 | (1953) 87 CLR 524 | 96 ATC 4063 | (1946) 72 CLR 634 | 96 ATC 4303 | 2009 ATC 20-109 | (1938) 61 CLR 337", "Legislative_References": "Income Tax Assessment Act 1936 Subdivision H of Division 3 of Part III Income Tax Assessment Act 1997 8-1 40-880 108-5(1) 110-25(2)", "Case_References": "BP Australia Ltd v FC of T (1965) 112 CLR 386 44 ATC 312 [1965] TR 317 Case S24 (1995) 17 NZTC 7, 169 85 ATC 256 City Link Melbourne Ltd v FC of T (2004) 141 FCR 69 2004 ATC 4945 Colonial Mutual Life Assurance Society Ltd v FC of T (1953) 89 CLR 428 [1953] HCA 68 Fanmac Ltd v FC of T (1991) 91 ATC 4703 22 ATR 413 FC of T v Chapman (1989) 89 ATC 4246 20 ATR 438 FC of T v CityLink Melbourne Ltd (2006) 228 CLR 1 2006 ATC 4404 62 ATR 648 FC of T v Duro Travel Goods Pty Ltd (1953) 87 CLR 524 [1953] HCA 32 FC of T v Krakos Investments Pty Ltd (1995) 61 FCR 489 32 ATR 7 96 ATC 4063 Hallstroms Pty Ltd v FC of T (1946) 72 CLR 634 [1946] HCA 34 Labrilda Pty Ltd v DF C of T (1996) 65 FCR 119 32 ATR 206 96 ATC 4303 Spriggs and Riddell v FC of T (2009) 239 CLR 1 72 ATR 148 2009 ATC 20-109 Sun Newspapers Ltd v FC of T (1938) 61 CLR 337", "Subject_References": "Franchise Fees Franchise Renewal Fees Business Capital Expenditure Cost base of an asset", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/2462/00001", "Unmatched_Content": ""}
{"Case_Name": "International All Sports v Commissioner of Taxation (No 2) Sportsbet Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "962 of 2010, 963 of 2010, 185 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "1 September 2011", "Date_Published": "10 July 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns offers of compromise under Order 23 of the Federal Court Rules and Calderbank offers.", "Overview_of_Facts": "On 15 April 2011, the Applicants had made offers of compromise ostensibly pursuant to Order 23 of the Federal Court Rules (FCR) offering to settle the proceedings on the basis that the Respondent would allow their objections in full and issue refunds, and that the Applicants would pay to the Respondent an amount of $500,000 (in each of proceedings VID 962 of 2010 and VID 963 of 2010) and $20,000 (in proceeding VID 185 of 2011). Under the offers, the proceedings were to be discontinued and each party would bear their own costs of the proceedings. | On 28 April 2011, the Respondent rejected the offers. | On 26 May 2011, the Commissioner proposed to the Applicants that the parties should agree on the quantum of the GST refunds to which the Applicants would be entitled, if they succeeded in the proceeding. The Applicants agreed to the quantum. | On 26 July 2011, the Court delivered judgment in relation to the taxation appeals in favour of the applicants and gave the parties liberty to apply on the question of costs. | As a result, the Applicants then applied to have their costs taxed on an indemnity basis, to the extent that those costs were incurred after 15 April 2011. | In making this application, the Applicants relied upon the offers of compromise made ostensibly pursuant to Order 23 of the FCR, as in operation immediately prior to 1 August 2011, and an offer made upon the principles associated with Calderbank v Calderbank [1976] Fam 93 ( Calderbank ). A Calderbank offer is an offer made to settle the dispute which is without prejudice save as to costs. | On 1 September 2011, Jessup J made orders dated 15 August 2011 that costs incurred up to and including 15 April 2011 be taxed on a party and party basis and costs incurred after 15 April 2011 be taxed on an indemnity basis. | Issues decided by the court | 1. Whether Order 23 of the FCR as a whole, had no application in a proceeding by way of an appeal against an appealable objection decision pursuant to Order 52B of the FCR. | The Court held that Order 23 of the FCR applied to an appeal pursuant to Order 52B of the FCR. The Court noted that the Respondent had made a submission in the matter of Clark v Commissioner of Taxation [2010] FCA 415 ( Clark ) that Order 23 of the FCR as a whole, had no application in a proceeding by way of an appeal against an appealable objection decision pursuant to Order 52B of the FCR and that submission had been rejected. The Court was not persuaded that the judgement by Greenwood J in Clark was clearly wrong and was obliged to follow it. | 2. Whether the Applicants' offers complied with Order 23 of the FCR, even though they did not specify how much of the sums for which the Applicants were prepared to settle constituted interest. | The Court held that, although the Applicants' offers did not specify how much of the sums for which the Applicants were prepared to settle constituted interest, the offers did comply with Order 23 of the FCR. The Applicants made no proposal about interest in their offers and had no cause to specify the amount of those offers that was in respect of interest. | 3. Whether at the time the offers of compromise were made the Respondent was possessed of insufficient information to enable the Respondent to make an informed response to the offers. | The Court held that the principle in Simonovski v Bendigo Bank Ltd (No 2 ) [ 2003 ] VSC 139 applies only when an offeror seems to take advantage of the relevant rules of the court during a period when he was in default of his obligation to take steps in the proceeding. The Court further held the Applicants were not in default under directions given by the Court. | 4. Whether the agreement that the parties ultimately reached as to the amounts of the refunds to which the Applicants would be entitled in the event of a successful outcome to the litigation, superseded, or overtook, the Applicants' offers of compromise. | The Court held that what was agreed between the parties in relation to the quantum of the GST refunds was not a compromise of the proceedings. Moreover, the sums to which the parties agreed were more than those for which the Applicants had offered to compromise the proceedings. | 5. Whether the court should exercise its discretion under Order 23 Rule 11(4) of the FCR not to award indemnity costs on the basis of public interest and the particular position of the Respondent. | The Respondent submitted that due to his particular position and the interpretational issue in the substantive proceedings, the Court should exercise its discretion to \"otherwise order\" against the granting of indemnity costs to the Applicants. The Court held that these were not reasons to exercise its discretion. | 6. Whether the court should order indemnity costs per Calderbank, | His Honour held he did not need to consider the Applicants' cases to the extent they relied on Calderbank . His Honour also noted that the point of construction on which the Commissioner failed was a difficult one and that it was not unreasonable for the Commissioner to insist that the point be resolved by the court.", "Issues_Decided": "1. Whether Order 23 of the FCR as a whole, had no application in a proceeding by way of an appeal against an appealable objection decision pursuant to Order 52B of the FCR.: The Court held that Order 23 of the FCR applied to an appeal pursuant to Order 52B of the FCR. The Court noted that the Respondent had made a submission in the matter of Clark v Commissioner of Taxation [2010] FCA 415 ( Clark ) that Order 23 of the FCR as a whole, had no application in a proceeding by way of an appeal against an appealable objection decision pursuant to Order 52B of the FCR and that submission had been rejected. The Court was not persuaded that the judgement by Greenwood J in Clark was clearly wrong and was obliged to follow it. | 2. Whether the Applicants' offers complied with Order 23 of the FCR, even though they did not specify how much of the sums for which the Applicants were prepared to settle constituted interest.: The Court held that, although the Applicants' offers did not specify how much of the sums for which the Applicants were prepared to settle constituted interest, the offers did comply with Order 23 of the FCR. The Applicants made no proposal about interest in their offers and had no cause to specify the amount of those offers that was in respect of interest. | 3. Whether at the time the offers of compromise were made the Respondent was possessed of insufficient information to enable the Respondent to make an informed response to the offers.: The Court held that the principle in Simonovski v Bendigo Bank Ltd (No 2 ) [ 2003 ] VSC 139 applies only when an offeror seems to take advantage of the relevant rules of the court during a period when he was in default of his obligation to take steps in the proceeding. The Court further held the Applicants were not in default under directions given by the Court. | 4. Whether the agreement that the parties ultimately reached as to the amounts of the refunds to which the Applicants would be entitled in the event of a successful outcome to the litigation, superseded, or overtook, the Applicants' offers of compromise.: The Court held that what was agreed between the parties in relation to the quantum of the GST refunds was not a compromise of the proceedings. Moreover, the sums to which the parties agreed were more than those for which the Applicants had offered to compromise the proceedings. | 5. Whether the court should exercise its discretion under Order 23 Rule 11(4) of the FCR not to award indemnity costs on the basis of public interest and the particular position of the Respondent.: The Respondent submitted that due to his particular position and the interpretational issue in the substantive proceedings, the Court should exercise its discretion to \"otherwise order\" against the granting of indemnity costs to the Applicants. The Court held that these were not reasons to exercise its discretion. | 6. Whether the court should order indemnity costs per Calderbank,: His Honour held he did not need to consider the Applicants' cases to the extent they relied on Calderbank . His Honour also noted that the point of construction on which the Commissioner failed was a difficult one and that it was not unreasonable for the Commissioner to insist that the point be resolved by the court.", "ATO_View_of_Decision": "The Commissioner has not appealed this decision. | The Commissioner accepts that Order 23 of the FCR applies to taxation appeals under order 52B of the FCR as in operation immediately prior to 1 August 2011. Likewise, the Commissioner accepts that Rule 25 [or Part 25] of the Federal Court Rules 2011 applies to taxation appeals under Division 33.1 of the Federal Court Rules 2011. | The Commissioner maintains that each offer of compromise made under Order 23 of the FCR or Rule 25 of the of the Federal Court Rules 2011, as the case may be, must be dealt with on its own merits and having regard to the particular facts and circumstances of each offer. For example, the question of whether a matter raises issues of public interest and importance may be a relevant consideration. [1]", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None identified | Implications for Law Administration Practice Statements | No changes to be made to PSLA 2009/9. | [1] See, for example, Australian Competition and Consumer Commission v Metcash Trading Limited (No 2) [2012] FCAFC 55, which considered sub-rule 25.14(2) of the Federal Court Rules 2011.", "Related_Documents": "PSLA 2009/9 -Conduct of Tax Office litigation | [2011] FCA 1027 | 94 ATC 4815 | [2008] FCAFC 173 | [2010] FCA 415 | [2009] FCA 374 | (2001) 115 FCR 229 | [2003] VSC 139", "Legislative_References": "Federal Court Rules (as in operation immediately prior to 1 August 2011) Federal Court Rules", "Case_References": "Bank of Western Australia Limited and Others v Commissioner of Taxation (1994) 55 FCR 233 29 ATR 432 94 ATC 4815 Calderbank v Calderbank [1976] Fam 93 CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 Clark v Commissioner of Taxation [2010] FCA 415 Crvenkovic v La Trobe University [2009] FCA 374 Ruddock and Others v Vadarlis and Others (No 2) (2001) 115 FCR 229 Simonovski v Bendigo Bank Ltd (No 2) [2003] VSC 139 Australian Competition and Consumer Commission v Metcash Trading Limited (No 2) [2012] FCAFC 55", "Subject_References": "Costs Offer of compromise Indemnity Costs Party and Party Basis Quantum Federal Court Rules (as in operation immediately prior to 1 August 2011)", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/962of2010_2/00001", "Unmatched_Content": ""}
{"Case_Name": "International All Sports v Commissioner of Taxation Sportsbet Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "962 of 2010, 963 of 2010, 185 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "26 July 2011", "Date_Published": "22 May 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns how gambling operators calculate wagers by non-residents, the global GST amount under Division 126 of the GST Act and whether the restriction in section 105-65 of the TAA applied to the overpaid GST.", "Overview_of_Facts": "The taxpayers operate bookmaking services, providing wagering opportunities to customers situated both in Australia and overseas. | Where customers are non-residents who are not in Australia at the time the wagers are placed, the gambling supplies to those customers are GST-free. | The issue which arose concerned how the taxpayers ought to calculate their global GST amount for the purposes of Division 126 of the GST Act. Section 126-10 contains a formula for determining the global GST amount (total amounts wagered - total monetary prizes (x 1/11)). | The taxpayers and the Commissioner agreed that the amount of wagers placed by non-resident customers is to be excluded from total amounts wagered because those wagers are in respect of supplies that are GST-free under section 38-190 of the GST Act. | The taxpayers submitted that they had originally incorrectly calculated their global GST amount and overpaid GST because their calculation of the total monetary prizes did not include monetary prizes paid to non-residents. | Also at issue was whether section 105-65 of Schedule 1 to the TAA would apply such that the Commissioner 'need not' make a refund of any overpaid amounts. | Issues decided by the court | 1. How gambling operators ought to calculate, with respect to wagers by non-residents, their global GST amount for the purposes of Division 126. | The Court held that, when calculating the global GST amount under section 126-10 of the GST Act, 'total monetary prizes' includes monetary prizes paid to non-resident customers. | 2. Whether the Commissioner is entitled to deny refunds pursuant to section 105-65 of Schedule 1 to the TAA on the basis that the taxpayers have not reimbursed any corresponding amount to their gambling customers. | The Court held that section 105-65 did not apply because it could not be said that the overpayments made by the taxpayers arose because supplies were treated as taxable supplies, or arrangements were treated as giving rise to taxable supplies, to any extent.", "Issues_Decided": "1. How gambling operators ought to calculate, with respect to wagers by non-residents, their global GST amount for the purposes of Division 126.: The Court held that, when calculating the global GST amount under section 126-10 of the GST Act, 'total monetary prizes' includes monetary prizes paid to non-resident customers. | 2. Whether the Commissioner is entitled to deny refunds pursuant to section 105-65 of Schedule 1 to the TAA on the basis that the taxpayers have not reimbursed any corresponding amount to their gambling customers.: The Court held that section 105-65 did not apply because it could not be said that the overpayments made by the taxpayers arose because supplies were treated as taxable supplies, or arrangements were treated as giving rise to taxable supplies, to any extent.", "ATO_View_of_Decision": "The Commissioner has not appealed either aspect of the decision. | Construction of section 126-10 | For tax periods commencing before 24 March 2010, the decision means that 'total monetary prizes' in section 126-10 includes prizes paid to non-resident customers. | Legislative amendments which took effect from that date make it clear that, for tax periods commencing on or after 24 March 2010, both wagers made by, and monetary prizes paid to, non-residents are excluded from the calculation of the global GST amount. | Construction of section 105-65 | In accordance with the decision, the ATO will administer section 105-65 on the basis that the restriction on refunds does not apply where, in tax periods which commenced prior to 24 March 2010, gambling operators have miscalculated their global GST amount under Division 126 by failing to include the value of monetary prizes paid to non-resident customers. | Although not before the Court in this case, the ATO has also reviewed the view in MT 2010/1 that the section 105-65 restriction on refunds may apply where a taxpayer overpays GST as a result of failing to apply, or miscalculating their liability under, the margin scheme. The ATO will now administer section 105-65 on the basis that the section does not apply in these circumstances. | The ATO will continue to administer section 105-65 on the basis that the restriction on refunds applies where the overpayment arises from a supply or arrangement being wrongly treated as a taxable supply, such as in mixed supply cases, where the taxpayer overpays GST by treating a supply as taxable to a greater extent than required by the law. | The ATO maintains the view that section 105-65 may apply where an entity overpays GST by mistakenly treating a taxable supply made by another entity as a supply that is a taxable supply made by the taxpayer.", "Administrative_Treatment": "If you believe you have overpaid GST and wish to seek a refund, a GST refund claim must be made within the four-year time limit for GST refunds (section 105-55 of Schedule 1 to the TAA). Taxpayers may preserve their entitlement to a possible refund by lodging a Notification of Entitlement to GST refund (NAT 11719) form within the time limits for seeking refunds. | Notifications should be sent to the ATO via the email address - GSTmail@ato.gov.au or to the address or fax number shown on the notification form. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | An addendum to MT 2010/1 was published on 19 September 2012 reflecting the views expressed in this decision impact statement. The addendum also provides a number of other examples which illustrate the Commissioner's broader view that section105-65 does not apply where a supply is always correctly characterised and treated by the supplier, but an overpayment of GST arises from a mere miscalculation. | An addendum to GSTR 2002/3 was published on 8 May 2013 to correctly reflect what amounts should be taken into account in calculating total monetary prizes for tax periods commencing prior to 24 March 2010 and tax periods commencing on or after 24 March 2010. | Implications for Law Administration Practice Statements | The Tax Office has not identified any implications for current practice statements.", "Related_Documents": "MT 2010/1 | GSTR 2002/3 | 2011 ATC 20-268 | Division 7 | Division 9 | Division 11 | Division 17 | Division 105 | Division 126 | Division 48 | 15AA | 15AB | Tax Laws Amendment Act (2009 GST Administration Measures) Act 2010 (Cth) | 2003 ATC 5179 | 2005 ATC 4571", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (Cth) Division 7 Division 9 Division 11 Division 17 Division 105 Division 126 Division 48 Acts Interpretation Act 1901 (Cth) 15AA 15AB Tax Laws Amendment Act (2009 GST Administration Measures) Act 2010 (Cth) Taxation Administration Act 1953 105-10 105-65", "Case_References": "Commissioner of Taxation v Energy Resources Australia Ltd (2003) 135 FCR 346 [2003] FCAFC 314 2003 ATC 5179 54 ATR 608 Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256 2006 ATC 4001 61 ATR 384 HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 60 ATR 106 Grain Elevators Board (Vic) v Shire of Dunmunkle (1946) 73 CLR 70 HJ Glawe Spiel- und Unterhaltungsgerate Aufstellungsgsellschaft mbH & Co KG v Finanzamt Hamburg-Barmbek-Uhlenhorst [1995] 1 CMLR 70 Hooker v Gilling (2007) 48 MVR 136 IRC v Wolfson [1949] 1 ALL ER 865", "Subject_References": "GST Calculation of Global GST Amount Non-resident gamblers GST-free Prizes paid to non-residents Restriction on refunds Section 105-65 of Schedule 1 to the Taxation Administration Act 1953 Division 126 of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/962of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "International Business Machines Corporation v Commissioner of Taxation", "Venue_Reference_No": "NSD 661 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "12 April 2011", "Date_Published": "22 June 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to the decision of the Federal Court which concerned the extent to which payments made under a software licensing agreement were royalties.", "Overview_of_Facts": "The applicants were two non-resident corporations that received payments from IBM Australia Limited (a group subsidiary) under a Software License Agreement (SLA). | There was no dispute that at least some amount of withholding tax was due and payable in respect of the payments. The applicants accepted that the part of the payment attributable to intellectual property (IP) licences were royalties and therefore subject to withholding tax. The dispute arose over the contention, on the part of the Applicants, that the payments under the SLA were also in respect of rights not related to IP with the consequence that only a portion of the fees paid were royalties. | Issues decided by the court or tribunal | The issue decided by the court was whether the fees payable under the SLA were (as contended by the Commissioner) wholly royalties, or (as contended by the applicants) royalties only in part as per the definition of 'royalty' in Article 12(4) of the US / Australia Double Tax Agreement. | Under the Double Tax Agreement, royalty is defined to mean 'payments ... to the extent to which they are consideration for the use of or the right to use any (a) copyright, patent, design or model, plan, secret formula or process, trademark or other like property or right ...'. | The court held that the entirety of the fees payable under the SLA were royalties and gave rise to a liability to non-resident withholding tax. | The Court noted that the construction of the SLA is fundamental to the characterisation of the payments (para 11) and that to the extent that intellectual property licences were the subject matter of the SLA and the payments were for those licences they could properly be characterised as royalties (para 18). | The court rejected the taxpayers' construction of the agreement (which had been to the effect that it was primarily a distribution rather than software licensing agreement such that the fees paid under the agreement were primarily paid for a right to distribute). The Court held that the fees payable under the SLA had the character of payments for rights to use IP. This was so even if those rights are not exercised and regardless of the basis used to quantify the fees to be paid (para 44). | The Court observed that there was no ambiguity in the construction of the SLA (para 54). Moreover the Court noted that even if the terms of the SLA had been ambiguous, the extrinsic evidence that had been tendered by the taxpayers would not have supported the taxpayers' construction of the agreement (paras 61, 62). | The Court also agreed with the Commissioner's contention that the expression 'for the use of or the right to use' in the definition of 'royalty' means that the definition applies to payments both for the use of IP, that is, the exercise of the right granted, and also for the grant of the right to use the IP (para 14).", "Issues_Decided": "The issue decided by the court was whether the fees payable under the SLA were (as contended by the Commissioner) wholly royalties, or (as contended by the applicants) royalties only in part as per the definition of 'royalty' in Article 12(4) of the US / Australia Double Tax Agreement. Under the Double Tax Agreement, royalty is defined to mean 'payments ... to the extent to which they are consideration for the use of or the right to use any (a) copyright, patent, design or model, plan, secret formula or process, trademark or other like property or right ...'. The court held that the entirety of the fees payable under the SLA were royalties and gave rise to a liability to non-resident withholding tax. The Court noted that the construction of the SLA is fundamental to the characterisation of the payments (para 11) and that to the extent that intellectual property licences were the subject matter of the SLA and the payments were for those licences they could properly be characterised as royalties (para 18). The court rejected the taxpayers' construction of the agreement (which had been to the effect that it was primarily a distribution rather than software licensing agreement such that the fees paid under the agreement were primarily paid for a right to distribute). The Court held that the fees payable under the SLA had the character of payments for rights to use IP. This was so even if those rights are not exercised and regardless of the basis used to quantify the fees to be paid (para 44). The Court observed that there was no ambiguity in the construction of the SLA (para 54). Moreover the Court noted that even if the terms of the SLA had been ambiguous, the extrinsic evidence that had been tendered by the taxpayers would not have supported the taxpayers' construction of the agreement (paras 61, 62). The Court also agreed with the Commissioner's contention that the expression 'for the use of or the right to use' in the definition of 'royalty' means that the definition applies to payments both for the use of IP, that is, the exercise of the right granted, and also for the grant of the right to use the IP (para 14).", "ATO_View_of_Decision": "The decision is largely case specific in that the decision turned on how the SLA entered into by the parties was to be properly construed. The decision does however provide a useful example of how a court goes about the task of construing an agreement which on its face relates to the licensing of software.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Nil", "Related_Documents": "Taxation Ruling TR 93/12 | Relevent Law Administration Practice Statements | 2011 ATC 20-256 | 128B(5A) | 128C", "Legislative_References": "International Tax Agreements Act 1953 Article 12(4) of Schedule 2 (US/Australia DTA) Income Tax Assessment Act 1936 128B(5A) 128C", "Case_References": "", "Subject_References": "Construction of contract Copyright Intellectual property Royalties Royalty Withholding Tax Software licence agreement", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD661of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Johnston and Commissioner of Taxation", "Venue_Reference_No": "2010/2740", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 January 2011", "Date_Published": "11 March 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly adverse", "Summary_of_Decision": "Whether an administrative penalty for failing to provide a valid notice of intent to claim a superannuation contribution deduction was properly imposed and whether remission of the penalty was warranted.", "Overview_of_Facts": "The taxpayer sold investment property and deposited the sale proceeds into his superannuation account with the intent that they would be tax-deductible contributions. The taxpayer failed to notify his superannuation fund of his intent to claim personal superannuation deductions in his income tax returns within the time limits prescribed in section 290-170 of the Income Tax Assessment Act 1997. The Commissioner disallowed the deductions and increased the taxpayer's taxable income applying an administrative penalty at the rate of 25% for 'lack of reasonable care' | This case initially concerned the deductibility of personal superannuation contributions in the income years ended 30 June 2007 and 2008, but was narrowed by consent to a dispute about penalty in relation to the 2008 income year. | Issues decided by the court or tribunal | • Whether an administrative penalty of 25% should be imposed for failure to take reasonable care to comply with a taxation law | The Tribunal considered that there was no failure on the part of the taxpayer to take reasonable care as he had acted in the honest but mistaken belief of entitlement to a tax deduction. However, the failure by the taxpayer's agent to make an enquiry as to whether the administrative requirements to support the claims for a deduction had been complied with by the taxpayer constituted a failure by the agent to take reasonable care to comply with a taxation law. The time limit set by s 290-170(1)(b) of the ITAA had been exceeded, because the paperwork had not been properly attended to by the taxpayer or the superannuation fund. Accordingly, the administrative penalty at the rate of 25% was properly imposed. | • Whether the penalty should be remitted | In the circumstances of this case, where the taxpayer's tax liability had increased by almost $40,000 as a result of the disallowed deduction, and the deduction had been denied due to a shortcoming in the paperwork, the Tribunal considered it would be harsh to impose a penalty of almost $10,000, and decided to remit the penalty in full. | The Tribunal commented that, having regard to the particular circumstances of this taxpayer, the penalty imposed does not achieve the purpose of encouraging compliance with the law and deterring non-compliance. Hence, there was no good purpose to be served by leaving the penalty in place.", "Issues_Decided": "• Whether an administrative penalty of 25% should be imposed for failure to take reasonable care to comply with a taxation law: The Tribunal considered that there was no failure on the part of the taxpayer to take reasonable care as he had acted in the honest but mistaken belief of entitlement to a tax deduction. However, the failure by the taxpayer's agent to make an enquiry as to whether the administrative requirements to support the claims for a deduction had been complied with by the taxpayer constituted a failure by the agent to take reasonable care to comply with a taxation law. The time limit set by s 290-170(1)(b) of the ITAA had been exceeded, because the paperwork had not been properly attended to by the taxpayer or the superannuation fund. Accordingly, the administrative penalty at the rate of 25% was properly imposed. | • Whether the penalty should be remitted: In the circumstances of this case, where the taxpayer's tax liability had increased by almost $40,000 as a result of the disallowed deduction, and the deduction had been denied due to a shortcoming in the paperwork, the Tribunal considered it would be harsh to impose a penalty of almost $10,000, and decided to remit the penalty in full. The Tribunal commented that, having regard to the particular circumstances of this taxpayer, the penalty imposed does not achieve the purpose of encouraging compliance with the law and deterring non-compliance. Hence, there was no good purpose to be served by leaving the penalty in place.", "ATO_View_of_Decision": "Although it was found that the penalty was correctly imposed, it was open to the Tribunal on the facts of the case to remit the penalty in full having regard to particular circumstances of the case.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | [2011] AATA 20 | 290-170 | 290-170(1)(b) | 284-75(1) | 284-90(1) | 298-20 | 2008 ATC 20-015", "Legislative_References": "Income Tax Assessment Act 1997 290-170 290-170(1)(b) Taxation Administration Act 1953 284-75(1) 284-90(1) 298-20", "Case_References": "Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287 [2008] FCAFC 54 2008 ATC 20-015 69 ATR 627", "Subject_References": "Administrative penalty Valid notice of intention to claim deduction for contribution to superannuation fund Lack of reasonable care Remission of penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/2740/00001", "Unmatched_Content": ""}
{"Case_Name": "Kakavas and Commissioner of Taxation", "Venue_Reference_No": "2010/1005", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "2 February 2011", "Date_Published": "11 August 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's approach to this case which concerned whether an administrative penalty was payable and whether any penalty should be remitted in full.", "Overview_of_Facts": "The Commissioner sent a notice to the taxpayer in January 2007, under section 162 of the Income Tax Assessment Act 1936 (ITAA 1936), requesting the taxpayer to lodge his income tax return for the 2006 income year in February 2007. The taxpayer's tax agent lodged the return on 28 February 2007, recording no taxable income for the 2006 year. A nil taxable income notice issued on 7 March 2007. | Following an audit in 2007, the Commissioner issued income tax and shortfall penalty assessments to the taxpayer. After an objection decision in relation to those assessments was referred to the AAT for review, the taxpayer claimed in July 2009 that the return had been lodged by his agent without his authorisation. On 17 August 2009, the Commissioner advised the taxpayer that he accepted that the return lodged was not authorised by the taxpayer, and then withdrew the shortfall penalty assessment, and issued a new penalty assessment on 19 August 2009 for failure to provide a return. The original AAT proceedings were resolved by consent, but an objection decision in relation to the new penalty assessment was referred to the AAT. Prior to the hearing in this case, the Commissioner agreed to reduce the penalty to 25% of the income tax liability. | The taxpayer contended that the penalty imposed by the Commissioner was not authorised by subsection 284-75(3) of Schedule 1 to the Taxation Administration Act 1953 because section 164 of the ITAA 1936 deemed the return lodged by his tax agent to have been lodged on 28 February 2007, and was not proved to be unauthorised before the penalty assessment issued on 17 August 2009. | Issues decided by the tribunal | The AAT held that the penalty imposed was authorised by subsection 284-75(3). The taxpayer had failed to give a return to the Commissioner by the time that it was required to be given, and the Commissioner had determined the taxpayer's income tax liability without the assistance of any return. Section 164 establishes only a rebuttable presumption that a return has been lodged with authority. The Commissioner accepted that the taxpayer had proved that the return of 28 February 2007 had been lodged without his authority before the assessment issued. | The AAT affirmed the Commissioner's remission of the base penalty rate to 25% as correct in the circumstances. While the taxpayer co-operated in the conduct of the audit, neither he nor his agent took any steps to rectify the deficiencies with the return before the audit commenced.", "Issues_Decided": "The AAT held that the penalty imposed was authorised by subsection 284-75(3). The taxpayer had failed to give a return to the Commissioner by the time that it was required to be given, and the Commissioner had determined the taxpayer's income tax liability without the assistance of any return. Section 164 establishes only a rebuttable presumption that a return has been lodged with authority. The Commissioner accepted that the taxpayer had proved that the return of 28 February 2007 had been lodged without his authority before the assessment issued. The AAT affirmed the Commissioner's remission of the base penalty rate to 25% as correct in the circumstances. While the taxpayer co-operated in the conduct of the audit, neither he nor his agent took any steps to rectify the deficiencies with the return before the audit commenced.", "ATO_View_of_Decision": "The AAT accepted that the penalty imposed was authorised by subsection 284-75(3), and recognised that the presumption in section 164 of the ITAA 1936 had been rebutted by the taxpayer's own actions. The AAT also accepted that the reduction of penalty to 25% was correct in all the circumstances.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "N/A | 2011 ATC 10-173 | 162 | 164 | Schedule 1, s 284-75(3)", "Legislative_References": "Income Tax Assessment Act 1936 162 164 Taxation Administration Act 1953 Schedule 1, s 284-75(3)", "Case_References": "", "Subject_References": "Administrative penalty Failure to lodge Tax Return Remission of penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/1005/00001", "Unmatched_Content": ""}
{"Case_Name": "Kaley and Commissioner of Taxation", "Venue_Reference_No": "2010/5064-5065", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "8 July 2011", "Date_Published": "9 December 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned the deductibility of a number of work related and business related expenses by an architect who claimed to be carrying on a business while employed.", "Overview_of_Facts": "The Taxpayer is an architect who, during the 2007 and 2008 income years, was employed on a full time basis. In each of the 2007 and 2008 income years the Taxpayer made claims to deduct expenses said by him to have been incurred by him in connection with his profession. The Commissioner rejected the claims and issued amended assessments for the 2007 and 2008 income years. Penalties were imposed at a rate of 50% on the basis of recklessness. The Taxpayer sought a review of the Commissioner's decision. | Issues decided by the tribunal | 1. Whether the Applicant was entitled to claim work related deductions. Other than the amounts conceded by the Commissioner, the Taxpayer was not entitled to his work related deductions but for one amount for professional registration. 2. Whether the Applicant was carrying on a business to entitle him to claim the 2008 expenses as business deductions. The Tribunal was not satisfied the Taxpayer was carrying on a business during the 2008 income year. 3. Whether an ex gratia payment of $1,000 payment was assessable income. The payment was not assessable income. 4. Whether penalties were correctly imposed. Other than the 2007 income year, where the Commissioner conceded the penalty should not be imposed, no basis was shown for remission of the 2008 penalty. | 1. Whether the Applicant was entitled to claim work related deductions. Other than the amounts conceded by the Commissioner, the Taxpayer was not entitled to his work related deductions but for one amount for professional registration. 2. Whether the Applicant was carrying on a business to entitle him to claim the 2008 expenses as business deductions. The Tribunal was not satisfied the Taxpayer was carrying on a business during the 2008 income year. 3. Whether an ex gratia payment of $1,000 payment was assessable income. The payment was not assessable income. 4. Whether penalties were correctly imposed. Other than the 2007 income year, where the Commissioner conceded the penalty should not be imposed, no basis was shown for remission of the 2008 penalty.", "Issues_Decided": "1. Whether the Applicant was entitled to claim work related deductions. Other than the amounts conceded by the Commissioner, the Taxpayer was not entitled to his work related deductions but for one amount for professional registration. 2. Whether the Applicant was carrying on a business to entitle him to claim the 2008 expenses as business deductions. The Tribunal was not satisfied the Taxpayer was carrying on a business during the 2008 income year. 3. Whether an ex gratia payment of $1,000 payment was assessable income. The payment was not assessable income. 4. Whether penalties were correctly imposed. Other than the 2007 income year, where the Commissioner conceded the penalty should not be imposed, no basis was shown for remission of the 2008 penalty. 1. Whether the Applicant was entitled to claim work related deductions. Other than the amounts conceded by the Commissioner, the Taxpayer was not entitled to his work related deductions but for one amount for professional registration. 2. Whether the Applicant was carrying on a business to entitle him to claim the 2008 expenses as business deductions. The Tribunal was not satisfied the Taxpayer was carrying on a business during the 2008 income year. 3. Whether an ex gratia payment of $1,000 payment was assessable income. The payment was not assessable income. 4. Whether penalties were correctly imposed. Other than the 2007 income year, where the Commissioner conceded the penalty should not be imposed, no basis was shown for remission of the 2008 penalty.", "ATO_View_of_Decision": "In the Commissioner's view, the decision reflects the application of settled principles to the particular factual situation. The decision does not impact upon any current rulings or published views of the Commissioner.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None.", "Related_Documents": "TR 98/9 | TR 93/30 | TR 97/11 | TR 98/5 | TR 94/22 | TR 2005/1 | MT 2008/1 | TR 2007/3 | TR 2003/16 | 2011 ATC 10-193 | 8-1 | 28-12 | 900-115 | 79 ATC 4261", "Legislative_References": "Income Tax Assessment Act 1997 (Cth) 8-1 28-12 900-115", "Case_References": "Ferguson v Federal Commissioner of Taxation [1979] FCA 29 (1979) 37 FLR 310 9 ATR 873 79 ATC 4261", "Subject_References": "income tax allowable deductions applicant claiming deductions for work-related expenses objection decision under review varied in part", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/5064-5065/00001", "Unmatched_Content": ""}
{"Case_Name": "Kocic and Federal Commissioner of Taxation", "Venue_Reference_No": "3191-3208 & 4601-4604 of 2007, 1406-1409 of 2008", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "1 February 2011", "Date_Published": "30 October 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns undisclosed income, penalties and whether the distributable surplus of a company for an income year is reduced by taking into consideration a general interest charge on pre-existing taxation debts.", "Overview_of_Facts": "Steven and Savko Kocic were the directors and shareholders of Ansetat Pty Ltd (Ansetat) which owned and operated cafes in Darlinghurst and Paddington from 1991 to 2007. | In September 2005, the NSW Crime Commission seized handwritten sales books written by Mr Kocic. The sales books revealed income for the cafes far above what was recorded in the income tax returns. | After conducting an audit, the Commissioner concluded that the 'second set of books' more accurately represented gross sales for Ansetat for the income years 1995 to 2006. Amended assessments were issued to Mr and Mrs Kocic for the income years 1995 to 2006. Undisclosed sales above income declared in tax returns appearing in the Ansetat handwritten books were deemed to be dividends to the shareholders (Mr and Mrs Kocic) under Division 7A of the Income Tax Assessment Act 1936 ('The 1936 Act'). In calculating the distributable surplus of Ansetat for the years 1998-2006 as required by s 109Y on the Act, the Commissioner did not take into consideration Ansetat's liability to interest on accumulated unpaid tax as a present legal obligation. In calculating the distributable surplus of Ansetat, the Commissioner also did not take into consideration a loan recorded in the handwritten accounts from Mr Kocic as a present legal obligation. | Administrative penalties of between 75 to 90 percent were imposed for the years 1995 to 2006 on the amended assessments of Mr and Mrs Kocic. A penalty of 25 percent was also imposed on Mr Kocic for an undisclosed capital gain in the 2003 income year. | Mr and Mrs Kocic objected to all of the assessments and penalties. The Commissioner disallowed the objections in full. Proceedings were initiated in the AAT after the objection decision. | Issues decided by the tribunal | 1 ) Do the seized set of books sufficiently record the net income for Ansetat for the income years 1995 to 2006 ? | The Tribunal concluded that the seized books do not accurately reflect the net income for Ansetat for the years in question. Rather, they represented gross takings for Ansetat. The Tribunal rejected the Commissioner's argument that the gross income of Ansetat was in excess of what appeared in the second set of books. Furthermore, the Tribunal concluded that the net income for Ansetat must be calculated after wages paid by cash is deducted from gross income amounts. Wage records were maintained in separate handwritten books which the Commissioner did not to take into consideration when calculating profit/distributable surplus for the company. | 2 ) What were the ' profits' of Ansetat for 1995 to 1997 out of which a dividend could deemed to be paid to the taxpayers pursuant to s 108 of the 1936 Act ? | The Tribunal found that the profits from 1995 to 1997 as calculated by the Commissioner should be reduced to take into account wages paid in cash by Ansetat. The amended assessments were excessive as the deemed dividends calculated by the Commissioner exceeded the adjusted profit. This determination was only relevant for the income years 1995 to 1997, where under s 108(1) of the 1936 Act, deemed dividends can be paid by the company if an amount credited to a shareholder represents a distribution of 'profits.' | 3 ) Should the undisclosed sales be ' added back' when determining the net assets of Ansetat for the purposes of determining distributable surplus, calculated under s 109Y of the 1936 Act, for the income years 1998 to 2006 ? | The Tribunal agreed with this submission. Under s 109Y, the net assets component shall be calculated in accordance with the company's accounting records. Yet this proposition can be displaced if the company's accounting records significantly undervalue or overvalue its assets. This reinforced what the Tribunal had concluded in the case of Re Waffles and anor v Commissioner of Taxation [2010] AATA 78 ('Waffles'). The Tribunal concluded that in the present case, the undisclosed sales of Ansetat less cash payments for wages were assets of the company in the relevant period and were improperly excluded from the accounting records. In such circumstances, the Commissioner may add back such amounts when determining net assets. | 4 ) Was interest on the unpaid tax liability of Ansetat was a ' present legal obligation' of Ansetat, thus requiring it to be taken into consideration when calculating distributable surplus for the income years 1998 to 2006 ? | The Tribunal found that Ansetat's liability for interest on unpaid tax was a 'present legal obligation' for the income years 1998 to 2006 and must be taken into account when calculating distributable surplus for each particular year. The Tribunal noted that this followed the precedent set in Waffles and then affirmed in the full Federal Court in Commissioner of Taxation v H [2010] FCAFC 128 (' Commissioner v H' ). | 5 ) Was a loan from Mr Kocic to Ansetat, recorded in the accounts, considered a ' present legal obligation' for the purposes of calculating distributable surplus for the income years 1998 to 2006 ? | The Tribunal agreed this loan was a 'present legal obligation.' The Commissioner should have included this loan amount when calculating distributable surplus. Specific attention was drawn to the testimony of Mr Tesanovic, the accountant of Mr and Mrs Kocic. Mr Tesanovic prepared financial statements for Ansetat recording loans from \"S Kocic\" that could be substantiated through source documents and loan account ledgers. | 6 ) Can the Commissioner, in the circumstances of the AAT proceedings, claim new grounds for the assessments ? | The Tribunal rejected the submission that the Commissioner should be able to claim new grounds for the assessments in AAT proceedings. The Commissioner submitted that if money paid to Mr and Mrs Kocic is not assessable as deemed dividends as the money is not part of distributable surplus, the monies should still be treated as ordinary dividends under s 44 of the 1936 Act or ordinary income under s 25(1) of the 1936 Act. In rejecting the submission, the Tribunal highlighted the denial of procedural fairness of introducing new grounds during the proceedings. Mr and Mrs Kocic may have run their case differently had they known of the new grounds prior to proceedings. Regardless of this argument, the Tribunal stated the new grounds had not been established. | 7 ) Were any deemed dividends paid made wholly for the benefit of Mr Kocic, rather than shared by Mr Kocic and Mrs Kocic ? | The Tribunal rejected this argument. The taxpayers argued that payments for the purposes of ss 108(1) and 109C(1) of the 1936 Act were only made to Mr Kocic as there was no agreement to split the cash equally while Mrs Kocic was unaware that sales were being made but not declared in the Ansetat tax returns. However, the Tribunal found that the fact that Mrs Kocic was unaware of the separate set of books is irrelevant if the funds were in fact paid into joint accounts or were paid towards any joint assets and expenditure. Evidence suggested funds were used in such a way. | 8 ) Were the penalties imposed on Mr and Mrs Kocic properly applied ? | The Tribunal concluded that in respect of Mr Kocic, the penalties were correctly imposed. The Tribunal agreed that Mr Kocic showed 'intentional disregard' by deliberately keeping a second set of books for 12 years without disclosing them to the accountant for Ansetat, the Commissioner or his wife. The Tribunal also upheld the 25 percent penalty for an undisclosed capital gain in 2003, as Mr Kocic should have realised the gain needed to be disclosed and failed to take reasonable care when lodging his tax return. | The Tribunal concluded in respect of Mrs Kocic that the penalty should be reduced to 25% for carelessness, with the entire additional uplift factor remitted. Mrs Kocic was not aware of the second set of books. While statements about her income for the years 1997 to 2003 were false, albeit not intentionally so, the Tribunal concluded that it would be unjust to penalise Mrs Kocic for the actions of her husband beyond the penalty for failure to take reasonable care.", "Issues_Decided": "1 ) Do the seized set of books sufficiently record the net income for Ansetat for the income years 1995 to 2006 ? The Tribunal concluded that the seized books do not accurately reflect the net income for Ansetat for the years in question. Rather, they represented gross takings for Ansetat. The Tribunal rejected the Commissioner's argument that the gross income of Ansetat was in excess of what appeared in the second set of books. Furthermore, the Tribunal concluded that the net income for Ansetat must be calculated after wages paid by cash is deducted from gross income amounts. Wage records were maintained in separate handwritten books which the Commissioner did not to take into consideration when calculating profit/distributable surplus for the company. 2 ) What were the ' profits' of Ansetat for 1995 to 1997 out of which a dividend could deemed to be paid to the taxpayers pursuant to s 108 of the 1936 Act ? The Tribunal found that the profits from 1995 to 1997 as calculated by the Commissioner should be reduced to take into account wages paid in cash by Ansetat. The amended assessments were excessive as the deemed dividends calculated by the Commissioner exceeded the adjusted profit. This determination was only relevant for the income years 1995 to 1997, where under s 108(1) of the 1936 Act, deemed dividends can be paid by the company if an amount credited to a shareholder represents a distribution of 'profits.' 3 ) Should the undisclosed sales be ' added back' when determining the net assets of Ansetat for the purposes of determining distributable surplus, calculated under s 109Y of the 1936 Act, for the income years 1998 to 2006 ? The Tribunal agreed with this submission. Under s 109Y, the net assets component shall be calculated in accordance with the company's accounting records. Yet this proposition can be displaced if the company's accounting records significantly undervalue or overvalue its assets. This reinforced what the Tribunal had concluded in the case of Re Waffles and anor v Commissioner of Taxation [2010] AATA 78 ('Waffles'). The Tribunal concluded that in the present case, the undisclosed sales of Ansetat less cash payments for wages were assets of the company in the relevant period and were improperly excluded from the accounting records. In such circumstances, the Commissioner may add back such amounts when determining net assets. 4 ) Was interest on the unpaid tax liability of Ansetat was a ' present legal obligation' of Ansetat, thus requiring it to be taken into consideration when calculating distributable surplus for the income years 1998 to 2006 ? The Tribunal found that Ansetat's liability for interest on unpaid tax was a 'present legal obligation' for the income years 1998 to 2006 and must be taken into account when calculating distributable surplus for each particular year. The Tribunal noted that this followed the precedent set in Waffles and then affirmed in the full Federal Court in Commissioner of Taxation v H [2010] FCAFC 128 (' Commissioner v H' ). 5 ) Was a loan from Mr Kocic to Ansetat, recorded in the accounts, considered a ' present legal obligation' for the purposes of calculating distributable surplus for the income years 1998 to 2006 ? The Tribunal agreed this loan was a 'present legal obligation.' The Commissioner should have included this loan amount when calculating distributable surplus. Specific attention was drawn to the testimony of Mr Tesanovic, the accountant of Mr and Mrs Kocic. Mr Tesanovic prepared financial statements for Ansetat recording loans from \"S Kocic\" that could be substantiated through source documents and loan account ledgers. 6 ) Can the Commissioner, in the circumstances of the AAT proceedings, claim new grounds for the assessments ? The Tribunal rejected the submission that the Commissioner should be able to claim new grounds for the assessments in AAT proceedings. The Commissioner submitted that if money paid to Mr and Mrs Kocic is not assessable as deemed dividends as the money is not part of distributable surplus, the monies should still be treated as ordinary dividends under s 44 of the 1936 Act or ordinary income under s 25(1) of the 1936 Act. In rejecting the submission, the Tribunal highlighted the denial of procedural fairness of introducing new grounds during the proceedings. Mr and Mrs Kocic may have run their case differently had they known of the new grounds prior to proceedings. Regardless of this argument, the Tribunal stated the new grounds had not been established. 7 ) Were any deemed dividends paid made wholly for the benefit of Mr Kocic, rather than shared by Mr Kocic and Mrs Kocic ? The Tribunal rejected this argument. The taxpayers argued that payments for the purposes of ss 108(1) and 109C(1) of the 1936 Act were only made to Mr Kocic as there was no agreement to split the cash equally while Mrs Kocic was unaware that sales were being made but not declared in the Ansetat tax returns. However, the Tribunal found that the fact that Mrs Kocic was unaware of the separate set of books is irrelevant if the funds were in fact paid into joint accounts or were paid towards any joint assets and expenditure. Evidence suggested funds were used in such a way. 8 ) Were the penalties imposed on Mr and Mrs Kocic properly applied ? The Tribunal concluded that in respect of Mr Kocic, the penalties were correctly imposed. The Tribunal agreed that Mr Kocic showed 'intentional disregard' by deliberately keeping a second set of books for 12 years without disclosing them to the accountant for Ansetat, the Commissioner or his wife. The Tribunal also upheld the 25 percent penalty for an undisclosed capital gain in 2003, as Mr Kocic should have realised the gain needed to be disclosed and failed to take reasonable care when lodging his tax return. The Tribunal concluded in respect of Mrs Kocic that the penalty should be reduced to 25% for carelessness, with the entire additional uplift factor remitted. Mrs Kocic was not aware of the second set of books. While statements about her income for the years 1997 to 2003 were false, albeit not intentionally so, the Tribunal concluded that it would be unjust to penalise Mrs Kocic for the actions of her husband beyond the penalty for failure to take reasonable care.", "ATO_View_of_Decision": "The decision applied the following principles regarding calculating distributable surplus for the purposes of s 109Y(2) of the 1936 Act. | General Interest Charge | Section 170AA of the 1936 Act provides that a liability for a General Interest Charge ('GIC') arises from the due date of the tax payable under the original assessment. The Tribunal in this matter applied the decision of the Full Federal Court in Commissioner of Taxation v H , when finding that because GIC accrues (daily) as a consequence of a tax debt remaining unpaid past a due date, GIC can be seen as a present legal obligation on each income year it remains unpaid. GIC that becomes payable as a result of an amended assessment is treated as a present legal obligation in the year it accrues, rather than the year in which the amended assessment was made. | Quantum of Distributable Surplus/Penalties | The remaining conclusions of the Tribunal, related to the quantum of distributable surplus and penalties, were based on particular findings of fact. It was open to the Tribunal to make these findings based on the evidence adduced at the hearing. Accordingly these aspects are confined to this case.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | The ATO has reviewed TD 2007/28 and TD 2012/10 (which replaced TD 2008/28) following the decision of the AAT in this matter. The view expressed in the TD's reflected the decision of the Full Federal Court in Commissioner of Taxation v H [2010] FCAFC 128. This matter did not espouse any new principle and simply applied the decision in H. As such no further amendments were required to be made to any ATO precedential documents. | Implications for Law Administration Practice Statements", "Related_Documents": "TD 2007/28 | TD 2012/10 | [2011] ATC 10-174 | 44 | 109C | 109Y | Division 284, Schedule 1 | 2010 ATC 1-020 | 2010 ATC 20-218", "Legislative_References": "Income Tax Assessment Act 1936 (CTH) 25(1) 44 108(1) 109C 109Y 170AA 226G-226H Taxation Administration Act 1953 (CTH) Division 284, Schedule 1", "Case_References": "Re Waffles and anor v Commissioner of Taxation [2010] AATA 78 2010 ATC 1-020 75 ATR 376 Commissioner of Taxation v H [2010] FCAFC 128 2010 ATC 20-218", "Subject_References": "Distributable Surplus Division 7A General Interest Charge Present Legal Obligation", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/1406-1409of2008/00001", "Unmatched_Content": "The ATO has reviewed the impact of this decision including any precedential documents and Law Administration Practice Statements."}
{"Case_Name": "Lansell House Pty Ltd and Perfek Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 312 of 2010 and VID 313 of 2010; M14-15 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "31 January 2011", "Date_Published": "18 November 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned the issue of whether \"Mini Ciabatte\", is, 'food that is, or consists principally of, biscuits, cookies, crackers, pretzels, cones or wafers' and therefore is subject to GST.", "Overview_of_Facts": "The appellants sold a product imported from Italy, known as Mini Ciabatte, which is described on its packaging as 'Italian flat bread'. The appellants treated the sales as GST-free supplies. | The Commissioner issued assessments to both of the appellants on the basis that the supplies of Mini Ciabatte were subject to GST because it is food of a kind specified in item 32 of the table in clause 1 of Schedule 1 to the GST Act (which lists food that is not GST-free). The appellants objected, claiming that Mini Ciabatte is bread and is GST-free. The Commissioner disallowed the objections and the appellants appealed to the Federal Court. | Issues decided by the court | Issues decided at first instance | The primary judge (Sundberg J) dismissed the appeal. Sundberg J acknowledged that although a product can be \"characterised\" in more than one way, for the purposes of the GST Act a product can only have one \"classification\". His Honour therefore took the view that the question to be answered was whether the product falls within item 32 - that is, food that is, or consists principally of, crackers - and that evidence that the product fits within the definition of bread would not be sufficient to establish that it is not a food of a kind listed in item 32. His Honour held that the appellants failed to establish that the product is not food that falls within item 32. | His Honour also held that the words in item 32 are not used in a specialised or trade sense that differs from their ordinary usage, and that it is a matter of overall impression in deciding the proper classification of a product. Finally, his Honour held that a supplier cannot, by a label, govern the classification of a product for the purposes of the GST Act. | Issues decided by the Full Court | On appeal, the Full Federal Court also found that Mini Ciabatte is subject to GST on the basis that the product is food that is, or consists principally of, crackers. | The Court noted that: • The primary judge concluded that the words of item 32 'are ordinary English words in common usage'. • The primary judge considered he was able to form his own view as to the significance of similarities or differences between biscuits, crackers and bread, having regard to the evidence before him. • Various indicia were considered in comparing Mini Ciabatte with crackers and that, with the exception of water and yeast, the ingredients of Mini Ciabatte fell within the ranges of the ingredients for crackers. • The primary judge attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers, on the basis of the appellants' evidence that there may be exceptions with crackers that fall outside those ranges and that the percentages of ingredients of the Mini Ciabatte were 'rough estimates'. • The primary judge concluded that 'classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment'. | • The primary judge concluded that the words of item 32 'are ordinary English words in common usage'. • The primary judge considered he was able to form his own view as to the significance of similarities or differences between biscuits, crackers and bread, having regard to the evidence before him. • Various indicia were considered in comparing Mini Ciabatte with crackers and that, with the exception of water and yeast, the ingredients of Mini Ciabatte fell within the ranges of the ingredients for crackers. • The primary judge attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers, on the basis of the appellants' evidence that there may be exceptions with crackers that fall outside those ranges and that the percentages of ingredients of the Mini Ciabatte were 'rough estimates'. • The primary judge concluded that 'classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment'. | The Court also: • Rejected the appellants' submission that the differences in respect of water and yeast content posed threshold questions which needed to be evaluated before the primary judge, as the finder of fact, could consider an overall impression of the nature of the product. In particular, the Court concluded that the appellants had failed to establish that such threshold requirements exist. • Accepted the Commissioner's submission that what is or what is not a cracker is not a 'bright line' defined by the percentage of its ingredients. • Held, quoting Jacob LJ in Commissioners for Her Majesty's Revenue and Customs v Procter & Gamble UK [2009] STC 1990, that the question of classification 'is not one calling for or justifying over-elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer'. • Rejected the appellants' criticism that the primary judge had formed his overall impression by reference to the fact that the product is displayed in supermarkets together with crackers. In particular, the Court held that the primary judge did not find that the location of the display of the product in supermarkets governed the classification of the product - it was just one of the factors taken into account by his Honour. • Held that a supplier cannot, by a label (in this case, by describing the product on its packaging as 'Italian flat bread'), govern the classification of a product for the purposes of the GST Act. • Held that, although the primary judge did not need to consider whether or not Mini Ciabatte is 'goods of a kind' specified in Schedule 1 as a cracker, the word 'kind' is appropriately used to denote a genus, class or description. Furthermore, the Court said that 'the use of the words 'of a kind'... adds further generality to the description of the items in Schedule 1... Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item ... The question is whether the resulting product comes within the genus, class or description of a cracker.' • Was satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus. | • Rejected the appellants' submission that the differences in respect of water and yeast content posed threshold questions which needed to be evaluated before the primary judge, as the finder of fact, could consider an overall impression of the nature of the product. In particular, the Court concluded that the appellants had failed to establish that such threshold requirements exist. • Accepted the Commissioner's submission that what is or what is not a cracker is not a 'bright line' defined by the percentage of its ingredients. • Held, quoting Jacob LJ in Commissioners for Her Majesty's Revenue and Customs v Procter & Gamble UK [2009] STC 1990, that the question of classification 'is not one calling for or justifying over-elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer'. • Rejected the appellants' criticism that the primary judge had formed his overall impression by reference to the fact that the product is displayed in supermarkets together with crackers. In particular, the Court held that the primary judge did not find that the location of the display of the product in supermarkets governed the classification of the product - it was just one of the factors taken into account by his Honour. • Held that a supplier cannot, by a label (in this case, by describing the product on its packaging as 'Italian flat bread'), govern the classification of a product for the purposes of the GST Act. • Held that, although the primary judge did not need to consider whether or not Mini Ciabatte is 'goods of a kind' specified in Schedule 1 as a cracker, the word 'kind' is appropriately used to denote a genus, class or description. Furthermore, the Court said that 'the use of the words 'of a kind'... adds further generality to the description of the items in Schedule 1... Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item ... The question is whether the resulting product comes within the genus, class or description of a cracker.' • Was satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus. | The Full Court also held that the primary judge did not err in exercising his discretion not to accept a further supplementary affidavit which the appellants first sought to file and rely upon on the second day of the hearing. The Court noted that the appellants had sought leave to file a further affidavit as a result of the cross-examination of one of the witnesses called on behalf of the appellants, and that the primary judge refused leave to file the further affidavit on the basis that it would 'open a can or worms' and would necessarily invite responses from the experts whose earlier opinions were based on an agreed statement of the manufacturing process. | The appellants sought special leave to appeal to the High Court, which the High Court refused, with costs.", "Issues_Decided": "Issues decided at first instance: The primary judge (Sundberg J) dismissed the appeal. Sundberg J acknowledged that although a product can be \"characterised\" in more than one way, for the purposes of the GST Act a product can only have one \"classification\". His Honour therefore took the view that the question to be answered was whether the product falls within item 32 - that is, food that is, or consists principally of, crackers - and that evidence that the product fits within the definition of bread would not be sufficient to establish that it is not a food of a kind listed in item 32. His Honour held that the appellants failed to establish that the product is not food that falls within item 32. His Honour also held that the words in item 32 are not used in a specialised or trade sense that differs from their ordinary usage, and that it is a matter of overall impression in deciding the proper classification of a product. Finally, his Honour held that a supplier cannot, by a label, govern the classification of a product for the purposes of the GST Act. | Issues decided by the Full Court: On appeal, the Full Federal Court also found that Mini Ciabatte is subject to GST on the basis that the product is food that is, or consists principally of, crackers. The Court noted that: • The primary judge concluded that the words of item 32 'are ordinary English words in common usage'. • The primary judge considered he was able to form his own view as to the significance of similarities or differences between biscuits, crackers and bread, having regard to the evidence before him. • Various indicia were considered in comparing Mini Ciabatte with crackers and that, with the exception of water and yeast, the ingredients of Mini Ciabatte fell within the ranges of the ingredients for crackers. • The primary judge attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers, on the basis of the appellants' evidence that there may be exceptions with crackers that fall outside those ranges and that the percentages of ingredients of the Mini Ciabatte were 'rough estimates'. • The primary judge concluded that 'classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment'. • The primary judge concluded that the words of item 32 'are ordinary English words in common usage'. • The primary judge considered he was able to form his own view as to the significance of similarities or differences between biscuits, crackers and bread, having regard to the evidence before him. • Various indicia were considered in comparing Mini Ciabatte with crackers and that, with the exception of water and yeast, the ingredients of Mini Ciabatte fell within the ranges of the ingredients for crackers. • The primary judge attached little significance to the fact that water and yeast were outside the range of those ingredients in crackers, on the basis of the appellants' evidence that there may be exceptions with crackers that fall outside those ranges and that the percentages of ingredients of the Mini Ciabatte were 'rough estimates'. • The primary judge concluded that 'classification decisions for GST tax purposes are often prescribed as questions of fact and degree, a matter of impression and a combination of fact-finding and evaluative judgment'. The Court also: • Rejected the appellants' submission that the differences in respect of water and yeast content posed threshold questions which needed to be evaluated before the primary judge, as the finder of fact, could consider an overall impression of the nature of the product. In particular, the Court concluded that the appellants had failed to establish that such threshold requirements exist. • Accepted the Commissioner's submission that what is or what is not a cracker is not a 'bright line' defined by the percentage of its ingredients. • Held, quoting Jacob LJ in Commissioners for Her Majesty's Revenue and Customs v Procter & Gamble UK [2009] STC 1990, that the question of classification 'is not one calling for or justifying over-elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer'. • Rejected the appellants' criticism that the primary judge had formed his overall impression by reference to the fact that the product is displayed in supermarkets together with crackers. In particular, the Court held that the primary judge did not find that the location of the display of the product in supermarkets governed the classification of the product - it was just one of the factors taken into account by his Honour. • Held that a supplier cannot, by a label (in this case, by describing the product on its packaging as 'Italian flat bread'), govern the classification of a product for the purposes of the GST Act. • Held that, although the primary judge did not need to consider whether or not Mini Ciabatte is 'goods of a kind' specified in Schedule 1 as a cracker, the word 'kind' is appropriately used to denote a genus, class or description. Furthermore, the Court said that 'the use of the words 'of a kind'... adds further generality to the description of the items in Schedule 1... Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item ... The question is whether the resulting product comes within the genus, class or description of a cracker.' • Was satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus. • Rejected the appellants' submission that the differences in respect of water and yeast content posed threshold questions which needed to be evaluated before the primary judge, as the finder of fact, could consider an overall impression of the nature of the product. In particular, the Court concluded that the appellants had failed to establish that such threshold requirements exist. • Accepted the Commissioner's submission that what is or what is not a cracker is not a 'bright line' defined by the percentage of its ingredients. • Held, quoting Jacob LJ in Commissioners for Her Majesty's Revenue and Customs v Procter & Gamble UK [2009] STC 1990, that the question of classification 'is not one calling for or justifying over-elaborate, almost mind-numbing, legal analysis. It is a short practical question calling for a short practical answer'. • Rejected the appellants' criticism that the primary judge had formed his overall impression by reference to the fact that the product is displayed in supermarkets together with crackers. In particular, the Court held that the primary judge did not find that the location of the display of the product in supermarkets governed the classification of the product - it was just one of the factors taken into account by his Honour. • Held that a supplier cannot, by a label (in this case, by describing the product on its packaging as 'Italian flat bread'), govern the classification of a product for the purposes of the GST Act. • Held that, although the primary judge did not need to consider whether or not Mini Ciabatte is 'goods of a kind' specified in Schedule 1 as a cracker, the word 'kind' is appropriately used to denote a genus, class or description. Furthermore, the Court said that 'the use of the words 'of a kind'... adds further generality to the description of the items in Schedule 1... Thus, a new product that does not possess all of the same characteristics of known crackers may nevertheless be within the relevant item ... The question is whether the resulting product comes within the genus, class or description of a cracker.' • Was satisfied that, even accepting that the product is not laminated and contains yeast, it is 'of a kind' of the cracker genus. The Full Court also held that the primary judge did not err in exercising his discretion not to accept a further supplementary affidavit which the appellants first sought to file and rely upon on the second day of the hearing. The Court noted that the appellants had sought leave to file a further affidavit as a result of the cross-examination of one of the witnesses called on behalf of the appellants, and that the primary judge refused leave to file the further affidavit on the basis that it would 'open a can or worms' and would necessarily invite responses from the experts whose earlier opinions were based on an agreed statement of the manufacturing process. The appellants sought special leave to appeal to the High Court, which the High Court refused, with costs.", "ATO_View_of_Decision": "This decision has confirmed the Commissioner's classification of this particular product, and the reasoning of the Court will assist in the classification of other products for GST purposes.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None indentified | Implications for Law Administration Practice Statements | None identified", "Related_Documents": "N/A | Full Federal Court | 2011 ATC 20-239 | High Court | 38-3(l)(c) | Schedule I Clause 1 item 32 | (2002) 121 FCR 149 | [2002] FCA 355 | (1987) 16 FCR 292 | [1997] STC 881 | (1994) 123 ALR 29 | 51 FCR 554 | 97 ATC 4277", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 38-3(l)(c) Schedule I Clause 1 item 32", "Case_References": "Air International Pty Ltd v Chief Executive Officer of Customs (2002) 121 FCR 149 [2002] FCA 355 Commissioners for Her Majesty's Revenue and Customs v Procter & Gamble UK [2009] STC 1990 [2009] BVC 461 Commonwealth of Australia v Spaul (1987) 74 ALR 513 (1987) 16 FCR 292 Customs and Excise Commissioner v Ferrero UK [1997] STC 881 [1997] BTC 5294 Gantry v Parker and Parsley Petroleum Australia Pty Ltd [1994] FCA 1212 (1994) 123 ALR 29 51 FCR 554 Zeroz Pty Ltd v Deputy Commissioner of Taxation (1997) 35 ATR 349 97 ATC 4277", "Subject_References": "Taxation goods and services tax 'Mini Ciabatte' product crackers taxable GST-free item 32 of clause 1 of Schedule 1 to the GST Act whether threshold indicia is required to be met - consideration of the phrase 'of a kind' in paragraph 38-3(1)(c) of the GST Act discretion to refuse to accept further affidavit during trial", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID312of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Leighton v Commissioner of Taxation", "Venue_Reference_No": "VID 918 of 2010; M 121 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "10 August 2011", "Date_Published": "19 March 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case concerned whether the taxpayer, a non-resident, was liable to tax as a trustee under former section 98(3) of the Income Tax Assessment Act 1936 (\"ITAA 1936\") on income from trading Australian shares through stockbrokers in Australia.", "Overview_of_Facts": "Mr Leighton, a non resident of Australia for tax purposes residing in Monaco, was engaged in share trading activities (via Australian stockbrokers) involving the buying and selling of shares in Australian public companies. The share trading was through accounts held by two foreign resident companies of which he was a director (Salina Investments Ltd (\"Salina\") and Kolton Holdings Limited (\"Kolton\")). | The beneficial owners of Salina and of Kolton were unidentified third parties who were Mr Leighton's clients. Mr Leighton entered into a Custodian Agreement, in his own name, with Westpac Custodian Nominees Limited (Westpac Custodian) under which Westpac Custodian agreed to hold and administer relevant securities. When instructed by Mr Leighton to do so, Westpac Custodian released the shares to the stockbrokers to enable sales to be settled. | Funds for share purchases were provided by or on behalf of Salina and Kolton. Moneys were transferred to a bank account in Australia which Mr Leighton opened in his name (the Westpac Bank Account). The proceeds of share sales were deposited into the Westpac Bank Account and then, usually, remitted to the Monaco bank account operated by a company of which Mr Leighton was a director. Occasionally, moneys remained in the Westpac Bank Account to settle future purchases of shares. | During the 2002, 2003 and 2004 income years (the \"relevant years\"), there were approximately 676 share buy and sell transactions in Australian shares that were the subject of dispute in the proceedings. | The hearing at first instance proceeded on the basis of an agreed statement of facts. Gordon J found that Mr Leighton was liable to be assessed as trustee by the Commissioner under the former s98(3) of ITAA 1936 in relation to the share trading activities in respect of each of the relevant years. | The taxpayer appealed to the Full Federal Court. | The Commissioner filed a special leave application in the High Court on 7 September 2011 which he discontinued on 24 January 2012. | Issues decided by the Full Federal Court | The matter concerned whether the income generated by the sale of the Australian shares was net income of a trust estate on which Mr Leighton was liable to be assessed as trustee under former s98(3) of the ITAA 1936. | The Court (Edmonds, Gilmour and Logan JJ) in a joint judgment held that Mr Leighton was not so liable. | The Full Court noted that the proceedings were conducted on the basis of facts that had been agreed between the parties: [2-3]. The Court also stated that it was common ground between the parties that Salina and Kolton were each carrying on a business of trading in shares, which shares were the trading stock of those businesses: [16]. | Having regard to relevant authority, the Full Court observed that \"to be liable as a 'trustee', Mr Leighton must stand in some relation to a proprietary right by virtue of which net income of the trust estate arises\": [9]. | However, the Full Court found on the facts of the case the share proceeds deposited by the brokers into the Westpac Bank account in Mr Leighton's name represented the realisation of income already derived by Salina and Kolton. It was the companies themselves that derived income from the sale of the trading stock represented by the shares irrespective of whether they received payment, or a third party such as Mr Leighton received payment on their behalf: [18]. Accordingly, the Full Court found that while the proceeds, upon being deposited into the Westpac Bank account, were impressed with a trust in favour of Salina and Kolton, those proceeds did not comprise the income of a trust estate: [22].", "Issues_Decided": "The matter concerned whether the income generated by the sale of the Australian shares was net income of a trust estate on which Mr Leighton was liable to be assessed as trustee under former s98(3) of the ITAA 1936. The Court (Edmonds, Gilmour and Logan JJ) in a joint judgment held that Mr Leighton was not so liable. The Full Court noted that the proceedings were conducted on the basis of facts that had been agreed between the parties: [2-3]. The Court also stated that it was common ground between the parties that Salina and Kolton were each carrying on a business of trading in shares, which shares were the trading stock of those businesses: [16]. Having regard to relevant authority, the Full Court observed that \"to be liable as a 'trustee', Mr Leighton must stand in some relation to a proprietary right by virtue of which net income of the trust estate arises\": [9]. However, the Full Court found on the facts of the case the share proceeds deposited by the brokers into the Westpac Bank account in Mr Leighton's name represented the realisation of income already derived by Salina and Kolton. It was the companies themselves that derived income from the sale of the trading stock represented by the shares irrespective of whether they received payment, or a third party such as Mr Leighton received payment on their behalf: [18]. Accordingly, the Full Court found that while the proceeds, upon being deposited into the Westpac Bank account, were impressed with a trust in favour of Salina and Kolton, those proceeds did not comprise the income of a trust estate: [22].", "ATO_View_of_Decision": "In reaching its decision, the Court proceeded on the basis it was common ground between the parties that over the relevant years Salina and Kolton were each carrying on a business of trading in shares, with the shares being trading stock of those businesses. | The ATO accepts that once it was concluded that Salina and Kolton were each carrying on a business of trading in shares, the shares being trading stock of those businesses, and that the companies derived income from the sale of that stock; it followed that the income would not also be income of a trust estate on which former s98(3) would operate. | If instead in a particular case it were to be concluded as a matter of fact, relevant shares were assets held on trust such that the proceeds of any sale of the shares were properly characterised as the income of a trust, in the Commissioner's view the outcome would be different. | Administrative Treatment (Implication on current Public Rulings and Determinations)", "Administrative_Treatment": "", "Related_Documents": "None | 2011 ATC 20-273 | 6 | 95 | 98 | 98A | 6-5 | 8-1 | 70-5 | Taxation Administration Act 1953 | [2007] FCA 1617 | 244 ALR 673 | [1932] HCA 15 | 95 ATC 4067 | 2010 ATC 20-170 | 80 ATC 4076 | 89 ATC 5180 | [1930] HCA 45 | 71 ATC 4001 | 48 CLR 192", "Legislative_References": "Income Tax Assessment Act 1936 6 95 98 98A Income Tax Assessment Act 1997 6-5 8-1 70-5 Income Tax Assessment Act 1922 4 31 Evidence Act 1995 (Cth) 191 Taxation Administration Act 1953", "Case_References": "ACC v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617 244 ALR 673 Deputy Federal Commissioner of Taxation v Trustees of the Wheat Pool of Western Australia [1932] HCA 15 48 CLR 5 Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23 183 CLR 168 29 ATR 644 95 ATC 4067 Federal Commissioner of Taxation v Bamford [2010] HCA 10 240 CLR 481 2010 ATC 20-170 75 ATR 1 Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 10 ATR 608 80 ATC 4076 Harmer v Federal Commissioner of Taxation (1989) 91 ALR 550 20 ATR 1461 89 ATC 5180 Howey v Federal Commissioner of Taxation [1930] HCA 45 44 CLR 289 J Rowe & Son Pty Ltd v Federal Commissioner of Taxation [1971] HCA 80 124 CLR 421 2 ATR 121 71 ATC 4001 Richardson v Federal Commissioner [1932] HCA 67 48 CLR 192", "Subject_References": "Income Tax Definition of 'trustee' Non-resident individual Assessable as trustee Proceeds of sale of shares Income of a trust estate", "Other_References": "Hannan JP, A Treatise on the Principles of Income Taxation (Law Book Company 1946), pp 185 & 187 Parsons RW, Income Taxation in Australia: Income Deductibility Tax Accounting (Law Book Company 1985) p.29", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID918of2010M121of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "Mackay and Commissioner of Taxation", "Venue_Reference_No": "2009/4899-4910, 4921", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "26 August 2011", "Date_Published": "16 February 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case that involves the question of whether exported hunting trophies are GST-free.", "Overview_of_Facts": "The applicant ran a hunting safari business supplying all-inclusive hunting expeditions within Australia to foreign clients. The all-inclusive packages included airport transfers, accommodation on Australian properties, meals, the services of a guide and some incidentals. The package also included the right to stalk and shoot at least one animal. At that point the carcass became the property of the client which he or she could take home as a trophy. The trophies were taken home by the clients as checked or carry on luggage and in some cases were transported by a shipping company at the client's expense. | The applicant accounted for the supplies of the hunting packages on the basis the entirety of the supply was a GST-free supply of goods, namely the trophies, for export under section 38-185 of A New Tax System (Goods and Services) Act 1999 . The Commissioner disagreed and issued notices of net amount on the basis that all of the hunting packages, or at the very least the majority of the packages, comprised the supply of goods and services in Australia on which GST was payable. | During the proceedings fresh information was provided by the applicant's accountants, which established that there may have been an overstatement of the value of the sales taken into account by the Commissioner in issuing the notices of net amount. | Issues decided by the tribunal | The Tribunal found that section 38-185 did not apply to any of the applicant's supplies as the applicant had not satisfied the strict documentation requirements of the provision. | The Commissioner and applicant agreed that the applicant had overstated the quantum of supplies recorded in his activity statements (and, as a consequence, his assessments of net amount and income tax assessments were excessive). | The Tribunal ordered that those parts of the objection decision which related to the overstatement be set aside and remitted to the Commissioner, but otherwise affirmed the Commissioner's objection decision.", "Issues_Decided": "The Tribunal found that section 38-185 did not apply to any of the applicant's supplies as the applicant had not satisfied the strict documentation requirements of the provision. The Commissioner and applicant agreed that the applicant had overstated the quantum of supplies recorded in his activity statements (and, as a consequence, his assessments of net amount and income tax assessments were excessive). The Tribunal ordered that those parts of the objection decision which related to the overstatement be set aside and remitted to the Commissioner, but otherwise affirmed the Commissioner's objection decision.", "ATO_View_of_Decision": "The ATO considers the Tribunal decision in relation to section 38-185 is in accordance with the Commissioner's view of the operation of section 38-185 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) . | The ATO also accepts that it was open to the Tribunal to make its findings in relation to the applicant's overstatement of supplies. This aspect of the decision was based on the specific facts of the case and will not have any impact on any existing or future litigation proceedings.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A | Implications for Law Administration Practice Statements | N/A", "Related_Documents": "GSTR 2002/6 | 2011 ATC 10-201 | 38-185", "Legislative_References": "A New Tax System (Goods and Services) Tax Act 1999 38-185", "Case_References": "", "Subject_References": "GST GST-free Export of hunting trophies", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/4899-4910/00001", "Unmatched_Content": ""}
{"Case_Name": "Mold and Commissioner of Taxation", "Venue_Reference_No": "2008/1691, 2009/0559-60", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "18 November 2011", "Date_Published": "16 February 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case about the use of substantiation evidence and the imposition and reduction of penalties where a taxpayer has made voluntary disclosure after the commencement of an audit", "Overview_of_Facts": "In partnership with his wife, the applicant conducted a cabinet making business. The dispute concerned the period from 1 April 2003 to 31 December 2005, in relation to the goods and services tax (\"GST\") liabilities (\"the GST period in dispute\") and the years ended 30 June 2003 and 2004, for the income tax liabilities (\"the IT period in dispute\"). The Applicant's input tax credit (\"ITC\") claims during the GST period in dispute included ITCs of $35,000 in relation to the acquisition of a factory in the December 2005 quarter BAS. | The ATO contacted the applicant on 12 January 2006 and offered the opportunity to make a voluntary disclosure of any problems with the December 2005 quarter BAS. On 17 January 2006, the applicant made a request to amend his BAS, as payments had come through which should have been attributed to the period ended 31 December 2005. On 23 January 2006, the applicant advised the Commissioner that the BAS amounts should also be changed to reflect the fact that the factory sale had not happened. | Following the audit of the partnership business and the applicant's income tax affairs, the Commissioner assessed GST shortfalls associated with what the Commissioner contended were over claimed ITCs, GST shortfall penalties, income tax shortfalls associated with what the Commissioner contended were claims for deductions for business expenses which were not allowable, and income tax shortfall penalties. | GST Issues The Commissioner disallowed ITCs claimed by the Applicant resulting in a shortfall of $63,060. The Commissioner also imposed penalties of 50% in relation to the ITC claim related to the factory and 25% in relation to the other ITC claims. | IT Issues The Commissioner disallowed deductions claimed by the Applicant resulting in an income tax shortfall of $753 for the year ended 30 June 2003. The Commissioner also disallowed deductions in the 2004 year which resulted in the reduction of carried forward losses to $12,002 for that income year. The Commissioner also imposed penalties of 25% for lack of reasonable care in relation to claiming deductions for business expenses to which he was not entitled. | Reduction of penalty Pursuant to section 284-225 of Schedule 1 to the Taxation Administration Act 1953 the Commissioner granted a 20% reduction of the penalties relating to the factory sale on account of the applicant's voluntary disclosure. | Issues decided by the tribunal | For the GST periods in dispute SM O'Loughlin varied the assessments issued by the Commissioner to allow input tax credits corresponding to 72.87% of GST on sales revenue. This was based on evidence that the Applicant held invoices in previous periods. SM O'Loughlin upheld the income tax assessments and also upheld the penalties that had been imposed subject to one variation. The decision that the assessments should be varied was based on the following: (a) It was clear that the applicant was not entitled to all of the ITCs claimed because at least some acquisitions were for a non-creditable purpose (para 29); (b) While the tax invoices the applicant held for the relevant tax periods were lost while attempting to provide them to the Commissioner by post, documentation, including tax invoices held for earlier periods, indicated that the applicant did hold tax invoices when the relevant BAS were lodged to support at least some of the ITCs claimed (paras 13; 30); (c) Use of an industry range was not an appropriate surrogate in these circumstances as the applicant's serious illness had undoubted impact on his business activities and capabilities - an allowance of more than the industry average was appropriate (para 31); (d) Given that conclusion, a method of determining an appropriate amount of ITCs based on proportion of cost of goods sold to sales revenue in an earlier period was inappropriate, (e) Having regard to the fact that the same business expenditures were in question, it was appropriate for consistency between the income tax deduction allowed and ITCs (paras 32-34). | (a) It was clear that the applicant was not entitled to all of the ITCs claimed because at least some acquisitions were for a non-creditable purpose (para 29); (b) While the tax invoices the applicant held for the relevant tax periods were lost while attempting to provide them to the Commissioner by post, documentation, including tax invoices held for earlier periods, indicated that the applicant did hold tax invoices when the relevant BAS were lodged to support at least some of the ITCs claimed (paras 13; 30); (c) Use of an industry range was not an appropriate surrogate in these circumstances as the applicant's serious illness had undoubted impact on his business activities and capabilities - an allowance of more than the industry average was appropriate (para 31); (d) Given that conclusion, a method of determining an appropriate amount of ITCs based on proportion of cost of goods sold to sales revenue in an earlier period was inappropriate, (e) Having regard to the fact that the same business expenditures were in question, it was appropriate for consistency between the income tax deduction allowed and ITCs (paras 32-34). | In relation to the Applicant's voluntary disclosure regarding the factory sale SM O'Loughlin found that the facts warranted an 80% rather than 20% reduction of the penalty that had been imposed pursuant to subsection 284-225(1). 'An 80% reduction in penalty was allowed because it was appropriate, on balance, for the applicant to be treated as having made a disclosure before being informed that a tax audit was to be conducted (in accordance with Miscellaneous Taxation Ruling MT 2008/3). It is noted that MT 2008/3 has been withdrawn and replaced with MT 2011/D3. | The findings of fact included that the Applicant (1) held invoices at the relevant time corresponding to ITCs greater than those that had been allowed and (2) had attempted to provide these invoices to the ATO however they were lost in transit; and (3) the applicant had suffered serious illness that had had undoubted impact on his business activities and capabilities.", "Issues_Decided": "For the GST periods in dispute SM O'Loughlin varied the assessments issued by the Commissioner to allow input tax credits corresponding to 72.87% of GST on sales revenue. This was based on evidence that the Applicant held invoices in previous periods. SM O'Loughlin upheld the income tax assessments and also upheld the penalties that had been imposed subject to one variation. The decision that the assessments should be varied was based on the following: (a) It was clear that the applicant was not entitled to all of the ITCs claimed because at least some acquisitions were for a non-creditable purpose (para 29); (b) While the tax invoices the applicant held for the relevant tax periods were lost while attempting to provide them to the Commissioner by post, documentation, including tax invoices held for earlier periods, indicated that the applicant did hold tax invoices when the relevant BAS were lodged to support at least some of the ITCs claimed (paras 13; 30); (c) Use of an industry range was not an appropriate surrogate in these circumstances as the applicant's serious illness had undoubted impact on his business activities and capabilities - an allowance of more than the industry average was appropriate (para 31); (d) Given that conclusion, a method of determining an appropriate amount of ITCs based on proportion of cost of goods sold to sales revenue in an earlier period was inappropriate, (e) Having regard to the fact that the same business expenditures were in question, it was appropriate for consistency between the income tax deduction allowed and ITCs (paras 32-34). (a) It was clear that the applicant was not entitled to all of the ITCs claimed because at least some acquisitions were for a non-creditable purpose (para 29); (b) While the tax invoices the applicant held for the relevant tax periods were lost while attempting to provide them to the Commissioner by post, documentation, including tax invoices held for earlier periods, indicated that the applicant did hold tax invoices when the relevant BAS were lodged to support at least some of the ITCs claimed (paras 13; 30); (c) Use of an industry range was not an appropriate surrogate in these circumstances as the applicant's serious illness had undoubted impact on his business activities and capabilities - an allowance of more than the industry average was appropriate (para 31); (d) Given that conclusion, a method of determining an appropriate amount of ITCs based on proportion of cost of goods sold to sales revenue in an earlier period was inappropriate, (e) Having regard to the fact that the same business expenditures were in question, it was appropriate for consistency between the income tax deduction allowed and ITCs (paras 32-34). In relation to the Applicant's voluntary disclosure regarding the factory sale SM O'Loughlin found that the facts warranted an 80% rather than 20% reduction of the penalty that had been imposed pursuant to subsection 284-225(1). 'An 80% reduction in penalty was allowed because it was appropriate, on balance, for the applicant to be treated as having made a disclosure before being informed that a tax audit was to be conducted (in accordance with Miscellaneous Taxation Ruling MT 2008/3). It is noted that MT 2008/3 has been withdrawn and replaced with MT 2011/D3. The findings of fact included that the Applicant (1) held invoices at the relevant time corresponding to ITCs greater than those that had been allowed and (2) had attempted to provide these invoices to the ATO however they were lost in transit; and (3) the applicant had suffered serious illness that had had undoubted impact on his business activities and capabilities.", "ATO_View_of_Decision": "The ATO accepts that this decision was open to the Tribunal due to the particular facts and circumstances of this case and the evidence presented during the hearing. | The ATO does not accept as a general principle that there will always be consistency between deductions and input tax credits due to the different laws applying to the different taxes. The relevant Acts for income tax and GST have a number of different criteria for the allowance of deductions and input tax credits, and each case needs to be looked at individually to determine the allowance of relevant amounts. | The ATO also accepts that the penalty decision was open to the Tribunal on the particular facts and circumstances of the case, and the evidence presented. However, the ATO notes that, in relation to penalty, the Tribunal considered the case marginal and that the voluntary disclosure decision was made \"on balance\".", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) / Implications for Law Administration Practice Statements | None", "Related_Documents": "MT 2008/3 (now replaced by MT 2011/D3 for voluntary disclosures after 4 July 2010) | MT 2011/D3 | 2011 ATC 10-220 | 29-70(1) | 284-225", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 29-70(1) Taxation Administration Act 1953 284-225", "Case_References": "", "Subject_References": "Claim for input tax credits Substitute substantiation evidence when original invoices lost Business expenses Shortfalls Penalty - Reduction for voluntary disclosure", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/1691/00001", "Unmatched_Content": ""}
{"Case_Name": "Mount Pritchard v Commissioner of Taxation", "Venue_Reference_No": "NSD 85 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "17 October 2011", "Date_Published": "5 September 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case challenging the validity of assessments and seeking to require the Commissioner to assess in accordance with a private binding ruling that had been issued to the taxpayer.", "Overview_of_Facts": "In February 2004, the Commissioner issued a private binding ruling to the taxpayer stating that the taxpayer would be exempt from income tax for the years of income ended 30 June 2003 to 30 June 2010. | The Commissioner ruled that the taxpayer was exempt from income tax because the arrangement as defined in the private ruling was a club established for the promotion of sport. Hence, Item 9.1(c) of section 50-54 of the Income Tax Assessment Act 1997 (ITAA 97) applied. | Subsequently, the Commissioner issued assessments to the taxpayer for the years ended 30 June 2006 and 30 June 2007, on the basis that the arrangement as defined in the private ruling was not the same arrangement that was actually carried out by the taxpayer. Accordingly, the Commissioner was not bound by the private ruling. | The taxpayer objected to the assessment for the year ended 30 June 2006 on the ground that the Commissioner was bound by the ruling and thus he did not have the power to make an assessment for the 2006 income year. | The Commissioner decided to disallow the objection in full on 5 March 2010. On 23 April 2010, the taxpayer applied to the Administrative Appeals Tribunal under Part IVC of the Tax Administration Act 1953 (TAA 53) for a review of the Commissioner's objection decision. | In the meantime, the applicant also applied to the Federal Court for judicial review of the Commissioner's decision, on the ground of jurisdictional error. | Issues decided by the court | The Full Court held that no error has been shown in the process of assessment going to jurisdiction. | The Full Court also concluded that in the absence of jurisdictional error, failure by the Commissioner to comply with a provision of the tax legislation does not make an assessment invalid. | Further, where the taxpayer contends that the Commissioner is bound by a private ruling, the taxpayer can proceed to have heard its arguments in Part IVC proceedings, and if successful in arguing that the private ruling should be applied, will demonstrate that the 2006 assessment is excessive.", "Issues_Decided": "The Full Court held that no error has been shown in the process of assessment going to jurisdiction. The Full Court also concluded that in the absence of jurisdictional error, failure by the Commissioner to comply with a provision of the tax legislation does not make an assessment invalid. Further, where the taxpayer contends that the Commissioner is bound by a private ruling, the taxpayer can proceed to have heard its arguments in Part IVC proceedings, and if successful in arguing that the private ruling should be applied, will demonstrate that the 2006 assessment is excessive.", "ATO_View_of_Decision": "The decision supports the proposition that a review or an appeal under Part IVC is the proper avenue for a taxpayer seeking review of an income tax assessment on the basis that it is excessive.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "TR 97/22 | 2011 ATC 20-288 | 6(1) | 175 | 50-45 | PtIVC | Sch1 357-60 | 95 ATC 4067 | 81 ATC 4280 | 2011 ATC 20-248 | 2008 ATC 20-039 | 2008 ATC 20-037 | 98 CLR 263 | (1948) 77 CLR 1 | [2003] HCA 2 | 211 CLR 476 | [1998] HCA 28 | 194 CLR 355 | Decision Impact Statement, Futuris Corporation Limited", "Legislative_References": "Income Tax Assessment Act 1936 6(1) 170BB 175 177(1) Income Tax Assessment Act 1997 50-45 Taxation Administration Act 1953 PtIVC Sch1 357-60", "Case_References": "Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23 183 CLR 168 29 ATR 644 95 ATC 4067 FJ Bloemen Pty Ltd v Federal Commissioner of Taxation [1981] HCA 27 147 CLR 360 11 ATR 914 81 ATC 4280 Federal Commissioner of Taxation v Administrative Appeals Tribunal [2011] FCAFC 37 2011 ATC 20-248 191 FCR 400 Federal Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32 237 CLR 146 69 ATR 41 2008 ATC 20-039 Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124 168 FCR 566 2008 ATC 20-037 73 ATR 276 McAndrew v Federal Commissioner of Taxation [1956] HCA 62 98 CLR 263 McDonald v Commissioner of Business Franchises (1992) 175 CLR 472 Perpetual Executors and Trustees Association of Australia Limited v Federal Commissioner of Taxation (1948) 77 CLR 1 Plaintiff S 157/2002 v Commonwealth of Australia [2003] HCA 2 211 CLR 476 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28 194 CLR 355 R v Metal Trades Employer's Association; Ex parte Amalgamated Engineering Union, Australian Section [1951] HCA 3 82 CLR 208 Refrigerated Express Lines (Australasia) Pty Ltd v Australian Meat and Livestock Corporation (No 20) (1980) 44 FLR 455 X v Australian Prudential Regulation Authority [2007] HCA 4 226 CLR 630", "Subject_References": "Validity of assessments where made contrary to a private binding ruling Declaratory proceedings", "Other_References": "Decision Impact Statement, Futuris Corporation Limited", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD85of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "National Jet Systems Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2010/3764-3765, 1994", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 October 2011", "Date_Published": "22 May 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case regarding entitlement to a refund of GST paid pursuant to a 'wet lease' of certain aircraft. The GST had been passed on by the taxpayer to the recipient of the supply.", "Overview_of_Facts": "National Jet Systems Pty Ltd (\"National Jet\") provided aircraft together with operational and maintenance services by way of lease (known as a 'wet lease') to Airlink Pty Ltd, a wholly owned subsidiary of Qantas Airways Limited.. The lease was restated on 24 June 1999 and its terms amended on a number of occasions between then and 30 June 2005. | The lease expressly allowed some, but not all, of the components of the consideration payable by Airlink to be increased if GST was payable on those components. From 1 July 2000 to 30 June 2005 National Jet increased these components to reflect GST and paid the resulting GST of $48,314,320.35 to the Commissioner. | National Jet subsequently claimed that section 13 of the GST Transition Act 1999 applied so that GST was not payable at all and sought a refund of $40,284,647. The Commissioner refused to pay the refund and National Jet lodged an application for review with the Administrative Appeals Tribunal. | Issues decided by the tribunal | The issues in dispute were: • whether the supplies were GST-free under section 13 of the GST Transition Act ; • whether a notification of entitlement to a refund form lodged by National Jet was valid for the purposes of s 105-55 of Schedule 1 to the TAA ; • whether, if there was an entitlement to a refund, the Commissioner had a discretion not to allow the refund and if so whether that discretion should be exercised; and • whether, in respect of some of the tax periods, an extension of time to object should be allowed. | • whether the supplies were GST-free under section 13 of the GST Transition Act ; • whether a notification of entitlement to a refund form lodged by National Jet was valid for the purposes of s 105-55 of Schedule 1 to the TAA ; • whether, if there was an entitlement to a refund, the Commissioner had a discretion not to allow the refund and if so whether that discretion should be exercised; and • whether, in respect of some of the tax periods, an extension of time to object should be allowed. | The Tribunal handed down a decision favourable to the Commissioner (other than on the section 105-55 notification issue) and held that the supplies were not GST-free under section 13 of the GST Transition Act . | The Tribunal held that the necessary enquiry is whether the consideration paid after 1 July 2000 was for supplies made after that time that were specifically identified for a consideration that can be identified in the terms of a written agreement where those terms were operative before the Royal Assent date. It is those supplies that are the subject of the relief conferred by section 13. The section does not apply to situations where a pre-Royal Assent date agreement does not identify post-Royal Assent date supplies and consideration, whatever be the explanation of the lack of connection between agreement and supply. | In this case, after the Royal Assent date the suite of goods and related services, viewed as a single supply, specifically identified in the lease, was materially different to the supply identified before the Royal Assent date, as was the consideration for it. In these circumstances, supplies made pursuant to the lease were not subject to section 13 of the GST Transition Act and were subject to GST. | The Tribunal found that there was no review opportunity within the meaning of subsection 13(5)(a), and that the requirement for a paragraph 13(5)(b) or (c) \"general review, renegotiation or alteration\" to be of all or nearly all of the consideration, was also applicable to a review opportunity under paragraph 13(5)(a). | The Tribunal also observed that, in the present circumstances, there would be a windfall gain if a refund were to be made. Accordingly, if there was an amount refundable without considering the discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (\"TAA\"), the discretion ought to be exercised and no refund made. The intention of the legislation was to prevent windfall gains. The Tribunal added that a practical business approach to administration of the GST laws is not consistent with allowing windfall gains. And, to the extent that community standards and expectations have a role to play, those standards and expectations would require denial of windfall gains where the real cost of the overpaid GST has been born by the wider community. | The Tribunal agreed with the Commissioner that no extension of time should be granted to the taxpayer to object to the assessments for the periods from February 2001 to September 2004. | The Tribunal also held that National Jet had given the Commissioner a valid notice for the purposes of s105-55 of Schedule 1 to the TAA and item 16(2) of Schedule 2 of the Tax Laws Amendment ( 2008 Measures No 3 ) Act 2008 (Cth).", "Issues_Decided": "The issues in dispute were: • whether the supplies were GST-free under section 13 of the GST Transition Act ; • whether a notification of entitlement to a refund form lodged by National Jet was valid for the purposes of s 105-55 of Schedule 1 to the TAA ; • whether, if there was an entitlement to a refund, the Commissioner had a discretion not to allow the refund and if so whether that discretion should be exercised; and • whether, in respect of some of the tax periods, an extension of time to object should be allowed. • whether the supplies were GST-free under section 13 of the GST Transition Act ; • whether a notification of entitlement to a refund form lodged by National Jet was valid for the purposes of s 105-55 of Schedule 1 to the TAA ; • whether, if there was an entitlement to a refund, the Commissioner had a discretion not to allow the refund and if so whether that discretion should be exercised; and • whether, in respect of some of the tax periods, an extension of time to object should be allowed. The Tribunal handed down a decision favourable to the Commissioner (other than on the section 105-55 notification issue) and held that the supplies were not GST-free under section 13 of the GST Transition Act . The Tribunal held that the necessary enquiry is whether the consideration paid after 1 July 2000 was for supplies made after that time that were specifically identified for a consideration that can be identified in the terms of a written agreement where those terms were operative before the Royal Assent date. It is those supplies that are the subject of the relief conferred by section 13. The section does not apply to situations where a pre-Royal Assent date agreement does not identify post-Royal Assent date supplies and consideration, whatever be the explanation of the lack of connection between agreement and supply. In this case, after the Royal Assent date the suite of goods and related services, viewed as a single supply, specifically identified in the lease, was materially different to the supply identified before the Royal Assent date, as was the consideration for it. In these circumstances, supplies made pursuant to the lease were not subject to section 13 of the GST Transition Act and were subject to GST. The Tribunal found that there was no review opportunity within the meaning of subsection 13(5)(a), and that the requirement for a paragraph 13(5)(b) or (c) \"general review, renegotiation or alteration\" to be of all or nearly all of the consideration, was also applicable to a review opportunity under paragraph 13(5)(a). The Tribunal also observed that, in the present circumstances, there would be a windfall gain if a refund were to be made. Accordingly, if there was an amount refundable without considering the discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (\"TAA\"), the discretion ought to be exercised and no refund made. The intention of the legislation was to prevent windfall gains. The Tribunal added that a practical business approach to administration of the GST laws is not consistent with allowing windfall gains. And, to the extent that community standards and expectations have a role to play, those standards and expectations would require denial of windfall gains where the real cost of the overpaid GST has been born by the wider community. The Tribunal agreed with the Commissioner that no extension of time should be granted to the taxpayer to object to the assessments for the periods from February 2001 to September 2004. The Tribunal also held that National Jet had given the Commissioner a valid notice for the purposes of s105-55 of Schedule 1 to the TAA and item 16(2) of Schedule 2 of the Tax Laws Amendment ( 2008 Measures No 3 ) Act 2008 (Cth).", "ATO_View_of_Decision": "Transitional Contracts | The approach of the Tribunal to the application of section 13, where there is a change in consideration not provided for by the agreement, is similar to the approach taken by the Tribunal in MTAA Superannuation Fund ( R G Casey Building ) Property Pty Ltd v Commissioner of Taxation [2011] AATA 769 ('MTAA'). The Full Federal Court subsequently upheld that decision [2012] FCAFC 89. | In respect of paragraph 13(5)(a), the question of whether there is a review opportunity when some but not all components of the consideration can be grossed-up for GST is not without difficulty. The Commissioner had argued that the use of the word 'general' in paragraphs 13(5)(b) and (c) was the foundation for the requirement [1] that the review be of all or nearly all of the consideration. The word 'general' is not an express qualification to the change in consideration contemplated in paragraph 13(5)(a). We also note the subsequent decision of the Full Federal Court in MTAA , where the court placed some emphasis on the word 'general' in construing what constitutes a review opportunity under paragraph 13(5)(b). | Since the Tribunal found for the Commissioner based on the arguments concerning s 13(1), and the matter did not ultimately go on appeal to the Federal Court, there was no ability in this case to further clarify the application of paragraph 13(5)(a). Given that section 13 has now ceased to operate for some 7 years, there may not be a further occasion to consider the operation of paragraph 13(5)(a) where substantial components of the consideration can be grossed up for GST. | Rather than update GSTR 2000/16 to take account of the Tribunal's reasons for decision in this case, and the decision of the Tribunal and subsequent Full Federal Court decision in MTAA , the Commissioner proposes to withdraw the ruling. | Refund restriction provision | The Tribunal's decision supports the Commissioner's views set out in MT 2010/1 that the prevention of windfall gains is the principal criterion to be taken into account in the exercise of the discretion under section 105-65 of Schedule 1 to the TAA. | It is also noted that the Tribunal approached section 105-65 on the basis that it gives the Commissioner a discretion to decline to pay a refund. | In MT 2010/1, the Commissioner takes the view that the operation of section 105-65 to deny the requirement to pay refunds that would otherwise be payable is not discretionary and that, where the conditions in section 105-65 apply, the Commissioner has no obligation to pay a refund that would otherwise be payable under section 8AAZLF of the TAA. However, the words 'need not' indicate the Commissioner has a residual discretion to pay a refund in appropriate circumstances, | The Commissioner's approach in MT 2010/1 is consistent with the decision of the Tribunal in Luxottica Retail Australia Pty Ltd v FC of T [2010] AATA 22 [2] . | As neither Tribunal decision provides any substantive analysis or reasons for preferring one approach to the other, the Commissioner does not propose to change the view set out in MT 2010/1. | Extension of time to object | In respect of the Tribunal's decision on the extension of time issue and its observation about section 105-65 of Schedule 1 to the TAA curing the prejudice in relation to credit recovery, the Commissioner accepts that this is appropriate. However, in some cases the taxpayer contends that section 105-65 does not apply, or that it would be appropriate nevertheless to refund. In such cases, the Commissioner would consider that it would be appropriate to regard any prejudice to the Commissioner in relation to input tax credits being out of time to recover as a factor weighing against the extension of time to object. The Tribunal's observations about a refund being contrary to community expectations (albeit in the context of section 105-65) might also weigh against a request. | The Commissioner notes that the time limit for objections is independent of the time limit for refunds and credits under section 105-55 of Schedule 1 to the TAA. This means that • where a taxpayer has lodged a notification for the purposes of section 105-55; and • is later assessed and lodges an objection after the period provided by section 14ZW has expired | • where a taxpayer has lodged a notification for the purposes of section 105-55; and • is later assessed and lodges an objection after the period provided by section 14ZW has expired | the Commissioner must consider whether to grant a request to consider the objection out of time. | In such a case, the earlier lodgment of a section 105-55 notification before expiry of the time limit for objection would be one of the circumstances that the Commissioner would take into account in considering the request to consider the objection. See the discussion about the circumstances of the delay in paragraph 14 of PS LA 2003/7. | Tribunal's decision regarding notification of entitlement | The Commissioner accepts the conclusion of the Tribunal on this issue. | There may be some cases where a notification for the purposes of section 105-55 of Schedule 1 to the TAA provides some information about a claimed refund, but is framed in a general way. This may mean there is some doubt as to whether there is a particular refund entitlement that is being identified, or whether the notice is merely seeking to reserve the taxpayer's rights in the event it later identifies refund opportunities. Where a notification is general in nature, if and when a subsequent claim for a refund is made, the Commissioner will consider the circumstances surrounding the notification. The Commissioner will need to determine if the notification in fact sought to cover the later claimed refund, or whether instead the notification was merely speculative in terms of seeking to reserve rights in case a claim can be identified. | The Commissioner considers that, if at the time the notification is made there is no refund entitlement that has been identified, the notification cannot be valid. | This is consistent with the approach in MT 2009/1 at paragraph 14 and paragraphs 48 to 49. The Commissioner will issue an addendum to MT 2009/1 refining the explanation of the requirements of a notification in light of this decision and other recent cases.", "Administrative_Treatment": "Implications for ATO precedential documents ( Public Rulings & Determinations etc ) | The decision had minor impacts on GSTR 2000/16. As section 13 of the GST Transition Act only operates to make supplies GST-free where the supply is made before 1 July 2005, rather than updating the ruling, the Commissioner has withdrawn the ruling with effect from 15 May 2013. | An addendum to MT 2009/1 was published on 27 March 2013 to reflect the Tribunal decision in this case and other recent cases [3] . | The Commissioner does not propose to make any changes to MT 2010/1 in relation to the question of how the discretion under section 105-65 operates. It is also felt that the Tribunal's observations concerning windfall gains in any event reflect the Commissioner's approach to the operation of section 105-65. | Implications for Law Administration Practice Statements | The Tribunal decision in relation to whether the taxpayer should be allowed an extension of time to object is based on principles set out in Brown v Commissioner of Taxation [1999] FCA 563, 42 ATR 118, as applied to the facts of this case. PS LA 2003/7 sets out the Commissioner's administrative policy for dealing with extension of time requests. No change to PS LA 2003/7 is considered to be necessary as a result of this decision. | We invite you to advise us if you feel this decision has consequences we have not identified, or if a precedential decision such as a Public Ruling or an ATO ID requires reconsideration or amendment. Please forward your comments to the contact officer by the due date. | [1] Found in DB Rreef Funds Management Limited v Commissioner of Taxation [2005] FCA 509, (2005) 218 ALR 144 and Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 (2006) 152 FCR 461 | [2] See Luxottica at paragraph 57, where the Tribunal decides that the residual discretion to pay the refund should be exercised. | [3] National Jet Systems Pty Ltd v FCT [2011] AATA 766; 2011 ATC 10-212 Central Equity Ltd v FCT [2011] FCA 908; 2011 ATC 20-274", "Related_Documents": "GSTR 2000/16 | MT 2009/1 | MT 2010/1 | 2011 ATC 10-212 | 13 | Sch 2, item 16(2) | 8AAZLF | 14ZU(c) | 14ZW(2) | 99 ATC 4516 | 2011 ATC 20-274 | 2006 ATC 4282 | 2005 ATC 4302 | 2010 ATC 10-119 | 2011 ATC 10-213 | 2012 ATC 20-323", "Legislative_References": "A New Tax System (Goods and Services Tax Transition) Act 1999 13 A New Tax System (Goods and Services Tax ) Act 1999 Tax Laws Amendment (2008 Measures No 3) Act 2008 (Cth) Sch 2, item 16(2) Taxation Administration Act 1953 8AAZLF 14ZU(c) 14ZW(2) Sch 1 ss105-5 105-10 105-55 105-65", "Case_References": "Brown v Commissioner of Taxation [1999] FCA 563 42 ATR 118 99 ATC 4516 Central Equity Ltd v Commissioner of Taxation [2011] FCA 908 2011 ATC 20-274 82 ATR 550 Commissioner of Taxation v DB Rreef Funds Management Ltd [2006] FCAFC 89 (2006) 152 FCR 437 2006 ATC 4282 62 ATR 699 DB Rreef Funds Management Limited v Commissioner of Taxation [2005] FCA 509 (2005) 218 ALR 144 2005 ATC 4302 59 ATR 388 Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 Luxottica Retail Australia Pty Ltd v FC of T [2010] AATA 22 2010 ATC 10-119 75 ATR 169 MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd v Commissioner of Taxation [2011] AATA 769 2011 ATC 10-213 MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd v Commissioner of Taxation [2012] FCAFC 89 2012 ATC 20-323 Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 (2006) 152 FCR 461", "Subject_References": "Goods and Services Tax Refund claim Lease Refunds Exercise of discretion", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/3764/00001", "Unmatched_Content": ""}
{"Case_Name": "Ng and Commissioner of Taxation", "Venue_Reference_No": "2010/0011 - 0013", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "9 June 2011", "Date_Published": "2 November 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly adverse", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns undisclosed income by the taxpayer from a related company and whether administrative penalties should be remitted or reduced.", "Overview_of_Facts": "Mr Ng was an associate and employee of a company. As a result of an audit by the Commissioner, his assessments were increased for each of the years in dispute by including amounts received from the company which Mr Ng had contended were repayments of loans made to the company. During the hearing, there were adjustments agreed between the parties in relation to the amounts recorded in cash flow spread sheets. | Issues decided by the tribunal | The Tribunal determined that the taxpayer had failed to discharge the onus of proof that required him to demonstrate that the assessments were excessive,other than in respect of the agreed amounts. | The Tribunal found that the taxpayer did not provide a reasonable explanation for the source of the deposits or the existence of any loan arrangement between himself and the company and that the amounts were paid to him (in accordance with the adjusted figures conceded by the Commissioner at the start of the proceedings) and were therefore assessable to him. | Administrative penalty for tax shortfall had been imposed by the Commissioner at 75% since it was considered that the taxpayer had intentionally disregarded his obligations. The Tribunal was not satisfied that the taxpayer had \"consciously disregarded his obligations\" and therefore reconsidered the level of shortfall penalty to be imposed and determined the appropriate level for penalty was 50% for recklessly submitting tax returns which would raise in the mind of a reasonable person a \"real risk\" that the statements were incorrect. Further remission of the penalty was considered and rejected.", "Issues_Decided": "The Tribunal determined that the taxpayer had failed to discharge the onus of proof that required him to demonstrate that the assessments were excessive,other than in respect of the agreed amounts. The Tribunal found that the taxpayer did not provide a reasonable explanation for the source of the deposits or the existence of any loan arrangement between himself and the company and that the amounts were paid to him (in accordance with the adjusted figures conceded by the Commissioner at the start of the proceedings) and were therefore assessable to him. Administrative penalty for tax shortfall had been imposed by the Commissioner at 75% since it was considered that the taxpayer had intentionally disregarded his obligations. The Tribunal was not satisfied that the taxpayer had \"consciously disregarded his obligations\" and therefore reconsidered the level of shortfall penalty to be imposed and determined the appropriate level for penalty was 50% for recklessly submitting tax returns which would raise in the mind of a reasonable person a \"real risk\" that the statements were incorrect. Further remission of the penalty was considered and rejected.", "ATO_View_of_Decision": "The AAT affirmed that the imposition of the penalty on the taxpayer is not unjust in the case or that the circumstances warrant further remission, either in part or whole. The ATO considers that the decision of the AAT was reasonably open to it, on the particular facts which gave rise to a reduction in administrative penalties.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "Practice Statement Law Administration 2006/2 - Administration of shortfall penalty for false or misleading statement | 2011 ATC 10-185 | 170(1) | 173 | 14ZY | 14ZZK(b) | 284-80(1) | 284-75 | 284-90 | 298-20(1) | [1959] HCA 8 | 101 CLR 298 | 79 ATC 4111 | 90 ATC 4088 | (1952) 86 CLR 183 | 92 ATC 4373 | 2007 ATC 4320 | 2003 ATC 4665 | 2001 ATC 4111 | 2009 ATC 20-135", "Legislative_References": "Income Tax Assessment Act 1936 170(1) 173 Taxation Administration Act 1953 175A 14ZY 14ZZ(a)(i) 14ZZK(b) 284-80(1) 284-75 284-90 298-20(1) Administrative Appeals Tribunal Act 1975", "Case_References": "Jones v Dunkel [1959] HCA 8 101 CLR 298 McCormack v FCT [1979] HCA 18 143 CLR 284 9 ATR 610 79 ATC 4111 FCT v Dalco (1990) 168 CLR 614 20 ATR 1370 90 ATC 4088 [1990] HCA 3 Hua-Aus Pty Ltd v Commissioner of Taxation [2010] FCA 341 184 FCR 430 76 ATR 1 George v FCT (1952) 86 CLR 183 [1952] ALR 961 Ma v Commissioner of Taxation (1992) 37 FCR 225 23 ATR 485 92 ATC 4373 Price Street Professional Centre Pty Ltd v Commissioner of Taxation [2007] FCA 345 (2007) 66 ATR 1 2007 ATC 4320 Hart v FCT [2003] FCAFC 105 2003 ATC 4665 53 ATR 371 131 FCR 203 BRK (Bris) Pty Ltd v Cmr of Taxation [2001] FCA 164 2001 ATC 4111 46 ATR 347 Commissioner of Taxation v Paul Andrew Burness (As Trustee for the Property of Bottazzi, A Bankrupt) [2009] FCA 1021 2009 ATC 20-135 77 ATR 61", "Subject_References": "Assessment based on drawings from business onus of proof whether drawings were repayments or advances of income penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/0011-0013/00001", "Unmatched_Content": ""}
{"Case_Name": "O'Brien and Commissioner of Taxation", "Venue_Reference_No": "2010/2110-2113", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "14 March 2011", "Date_Published": "22 July 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to the Tribunal's decision about substantiation of claims for energy grants and fuel tax credits.", "Overview_of_Facts": "A partnership carried on a business in the road transport industry. Its enterprise involves collecting and delivering scrap metal and other scrap material for recycling, as well as transporting livestock. | In respect of the period 1 November 2004 to 30 June 2006, the partnership claimed and was paid \"EGCS benefits\", being energy grants entitlements relevantly governed by the Energy Grants (Credits) Scheme Act 2003 (\"EGCS Act\") and the Products Grants and Benefits Administration Act 2000 (\"PGBA Act\") (the earlier scheme). | For the period 1 July 2006 to 31 December 2008, the partnership claimed and was paid \"Fuel Tax Credits\" under the Fuel Tax Act 2006 (\"Fuel Tax Act\"). Part of this amount was paid to the partnership in the form of early payments of fuel tax credits under the transitional arrangements set out in Part 4A of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (the later scheme). | The Commissioner conducted an audit in July 2009, requesting documentation substantiating the claims for over $100,000 and requested the documentation again on 31 August 2009. Having had no response from the partnership, in November 2009, the relevant Business Activity Statements (BASs) were amended and notices of amended assessment were issued because, given the lack of records, the Commissioner was not satisfied that the partnership was entitled to make the claims it had made. | On objection, the taxpayer provided certain documents, some of which were acceptable as substantiation to the claims made by the partnership. | The taxpayer had stored the missing records in a shed at his home, where they were destroyed by rodents. The taxpayer had also kept a book in which he noted the purchases of fuel. This fuel book was lost when it was left at a service station. | The taxpayer then applied for, and was granted, an extension of time for lodging an application for review of decision to the Administrative Appeals Tribunal. | During the course of the AAT review, the taxpayer provided additional documents, most of them being original tax invoices/receipts for fuel purchases. The Commissioner accepted most of them as sufficient substantiation for the claims made by the partnership to which those records related. However, there were still claims that were unsubstantiated. | Issues decided by the tribunal | In relation to the claims under the earlier scheme, section 28(3) of the PGBA Act allowed entitlement to a grant or benefit to be unaffected by failing to retain or produce the original record if the record had been lost or destroyed and the Commissioner was satisfied that reasonable precautions to prevent the loss or destruction were taken. The Tribunal decided that: ' To store documents in a place where they are vulnerable to destruction by rodents is not to take reasonable precautions to prevent the loss or destruction .' In relation to the fuel book, the Tribunal decided that as it was not a primary record it was not within the category of records covered by section 28(3). | In relation to the claims under the later scheme, after the Commissioner had accepted the further substantiation from the additional documents, the Tribunal agreed with the Commissioner that the taxpayer failed to substantiate the rest of its claims. The Tribunal considered that it \" would be an exercise in guesswork with no evidentiary basis to support it \" if the Tribunal were to allow the claims to any greater extent. | The Tribunal also agreed with the Commissioner that there is no ground to remit any penalty, other than reducing it as a consequence of a reduction in shortfall amount arising from the partial substantiation of the claims from the additional documents. Applying the decision of the Full Court of the Federal Court in Dixon v Federal Commissioner of Taxation [2008] FCAFC 54; (2008) 167 FCR 287, the Tribunal had regard to the particular circumstances of the taxpayer and took the view that the application of the penalty here ' is no harsher for this taxpayer than could be expected of the penalty provisions, operating in a routine fashion, and as intended by the Parliament' .", "Issues_Decided": "In relation to the claims under the earlier scheme, section 28(3) of the PGBA Act allowed entitlement to a grant or benefit to be unaffected by failing to retain or produce the original record if the record had been lost or destroyed and the Commissioner was satisfied that reasonable precautions to prevent the loss or destruction were taken. The Tribunal decided that: ' To store documents in a place where they are vulnerable to destruction by rodents is not to take reasonable precautions to prevent the loss or destruction .' In relation to the fuel book, the Tribunal decided that as it was not a primary record it was not within the category of records covered by section 28(3). In relation to the claims under the later scheme, after the Commissioner had accepted the further substantiation from the additional documents, the Tribunal agreed with the Commissioner that the taxpayer failed to substantiate the rest of its claims. The Tribunal considered that it \" would be an exercise in guesswork with no evidentiary basis to support it \" if the Tribunal were to allow the claims to any greater extent. The Tribunal also agreed with the Commissioner that there is no ground to remit any penalty, other than reducing it as a consequence of a reduction in shortfall amount arising from the partial substantiation of the claims from the additional documents. Applying the decision of the Full Court of the Federal Court in Dixon v Federal Commissioner of Taxation [2008] FCAFC 54; (2008) 167 FCR 287, the Tribunal had regard to the particular circumstances of the taxpayer and took the view that the application of the penalty here ' is no harsher for this taxpayer than could be expected of the penalty provisions, operating in a routine fashion, and as intended by the Parliament' .", "ATO_View_of_Decision": "The Tribunal's decision confirms the view of the Commissioner that every business should have a system appropriately maintained to keep records as required by legislation. | Failure in keeping proper business records will attract penalty which may not be remitted unless harshness can be demonstrated having regard to the particular circumstances of the taxpayer.", "Administrative_Treatment": "The Tribunal's decision confirms the ATO view of the administration of the record keeping provisions and where a failure to comply with the provisions has resulted, penalties may apply. No further action is necessary. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None identified.", "Related_Documents": "N/A | [2011] AATA 164 | 42 | 41-5 | 25 | 26 | 27 | 28(3) | 14ZZK | 298-20 | 382-5 | Div 284 | 2008 ATC 20-015", "Legislative_References": "Energy Grants (Credits) Scheme Act 2003 42 Fuel Tax Act 2006 41-5 Product Grants and Benefits Administration Act 2000 25 26 27 28(3) Taxation Administration Act 1953 14ZZK 298-20 382-5 Div 284", "Case_References": "Dixon v Federal Commissioner of Taxation [2008] FCAFC 54 (2008) 167 FCR 287 2008 ATC 20-015 69 ATR 627", "Subject_References": "grants and benefits fuel tax credits record keeping requirements destruction of records administrative penalties failure to take reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/2110-2113/00001", "Unmatched_Content": ""}
{"Case_Name": "On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 409 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "13 April 2011", "Date_Published": "6 December 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether interpreters and translators engaged by the taxpayer, were employees within the ordinary meaning of the term or were independent contractors.", "Overview_of_Facts": "The taxpayer conducts a business providing interpreting and translating services to its clients. It enters into contractual arrangements with clients who seek interpreter and translation services, and provides these services primarily through its panel of interpreters and/or translators. | The taxpayer did not make superannuation contributions on behalf of the interpreters and translators it engaged. | Following an audit regarding the superannuation obligations of the taxpayer, the Commissioner concluded that the interpreters and translators engaged by the taxpayer were employees under subsections 12(1) and/or 12(3) of the SGAA. | The taxpayer contended that the interpreters and translators it engaged were engaged as independent contractors, and were not employees under subsections 12(1) and/or 12(3) of the SGAA. | Issues decided by the court | Bromberg J held that the taxpayer failed to discharge its burden of proof of establishing that the interpreters and translators it engaged were engaged as independent contractors, and were not employees under subsection 12(1) of the SGAA. Bromberg J also held that, if the interpreters and contractors were not employees under subsection 12(1), they would be employees under the extended definition in subsection 12(3) of the SGAA. | Subsection 12(1) | In relation to the ordinary meaning of who is a common law employee, consistent with authorities on the question, Bromberg J held that in determining whether a person is an employee or an independent contractor it is necessary to make an objective assessment of the nature of the relationship that person has with the entity that takes the benefit of that person's work and to look to the real substance of the relationship in question, taking into account not only the contractual terms agreed to but also the system operated under and the work practices which establish the 'totality of the relationship'. | Following his consideration of the totality of the relationship, Bromberg J found that the interpreters and translators engaged by the taxpayer were employees within the ordinary meaning of the term, and were therefore employees under subsection 12(1) of the SGAA. | Subsection 12(3) | In relation to the expanded meaning, in obiter dicta, Bromberg J considered that subsection 12(3) should be construed in the context of section 12 as a whole and the evident purpose of that section conveyed by the SGAA. Bromberg J's view was that subsection 12(3) is designed to facilitate occupational superannuation being paid in relation to the exchange of work for remuneration when an independent contractor provides personal services \"in an employment-like setting\" which is not of a domestic or private nature. | His Honour considered that the question of whether such employment-like settings exist may be best answered by asking: '[w]hether, in all the circumstances, the labour component of the contract in question could have been provided by the recipient of the labour employing an employee?'. Bromberg J considered that although the context was quite different, the decision in Neale v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 supported the construction of subsection 12(3) that he had arrived at, insofar as he had concluded that subsection 12(3) only applies in relation to contracts for the personal performance of work by the worker who is a party to the contract (at [309]). | Bromberg J also considered the decision of the NSW Court of Appeal in World Book Australia Pty Ltd v Commissioner of Taxation (1992) 108 ALR 510 (World Book), where the Court considered that a contract for a result was outside the scope of the description \"a contract that is wholly or principally for the labour of the person\". Bromberg J's view was that the Court in World Book applied this qualification because of the potential consequences of a wide interpretation of the term. Bromberg J sought to distinguish the approach taken in World Book noting that: • The potential for subsection 12(3) to have an extreme operation is negated when reference is made to the context in which the subsection is found together with the underlying purpose of the SGAA; • The context of section 12 and underlying purpose of the SGAA were very different to the legislation considered in World Book (which examined the definition of 'salary and wages' as then found in section 221A of the Income Tax Assessment Act 1936); • The focus upon the single criterion of whether the contract is a contract for an outcome or result is inconsistent with the modern day multi-factorial approach to the totality test; and • The distinction between a contract for labour and a contract for the product of that labour is illusory in all but the most obvious cases. | • The potential for subsection 12(3) to have an extreme operation is negated when reference is made to the context in which the subsection is found together with the underlying purpose of the SGAA; • The context of section 12 and underlying purpose of the SGAA were very different to the legislation considered in World Book (which examined the definition of 'salary and wages' as then found in section 221A of the Income Tax Assessment Act 1936); • The focus upon the single criterion of whether the contract is a contract for an outcome or result is inconsistent with the modern day multi-factorial approach to the totality test; and • The distinction between a contract for labour and a contract for the product of that labour is illusory in all but the most obvious cases. | Accordingly, Bromberg J concluded that it was not appropriate to construe subsection 12(3) as excluding a contract for a given result. His Honour's conclusion in this respect is contrary to the existing line of authority on the meaning of \"a contract that is wholly or principally for the labour of the person\" that was applied to subsection 12(3) of the SGAA in the NSW Supreme Court of Appeal decision of Vabu Pty Ltd v Commissioner of Taxation (1996) 33 ATR 537 (Vabu). | Bromberg J also rejected the taxpayer's contention that subsection 12(3) only related to contracts involving the provision of tools and equipment, on the basis that the contention had no textual support or underlying policy justification. | Bromberg J was not satisfied that the contracts between the taxpayer and its workers were not contracts for the interpreters to perform work personally and accordingly held that, if the interpreters and translators were not employees in accordance with the general law, they would be employees of the taxpayer within the expanded meaning provided by subsection 12(3). | His Honour also noted that even if he was wrong in his construction of subsection 12(3), and a contract for a given result falls outside the scope of the subsection, he was not satisfied that the contracts of the relevant interpreters and translators were not for their labour but were instead for an agreed result.", "Issues_Decided": "Bromberg J held that the taxpayer failed to discharge its burden of proof of establishing that the interpreters and translators it engaged were engaged as independent contractors, and were not employees under subsection 12(1) of the SGAA. Bromberg J also held that, if the interpreters and contractors were not employees under subsection 12(1), they would be employees under the extended definition in subsection 12(3) of the SGAA. | Subsection 12(1): In relation to the ordinary meaning of who is a common law employee, consistent with authorities on the question, Bromberg J held that in determining whether a person is an employee or an independent contractor it is necessary to make an objective assessment of the nature of the relationship that person has with the entity that takes the benefit of that person's work and to look to the real substance of the relationship in question, taking into account not only the contractual terms agreed to but also the system operated under and the work practices which establish the 'totality of the relationship'. Following his consideration of the totality of the relationship, Bromberg J found that the interpreters and translators engaged by the taxpayer were employees within the ordinary meaning of the term, and were therefore employees under subsection 12(1) of the SGAA. | Subsection 12(3): In relation to the expanded meaning, in obiter dicta, Bromberg J considered that subsection 12(3) should be construed in the context of section 12 as a whole and the evident purpose of that section conveyed by the SGAA. Bromberg J's view was that subsection 12(3) is designed to facilitate occupational superannuation being paid in relation to the exchange of work for remuneration when an independent contractor provides personal services \"in an employment-like setting\" which is not of a domestic or private nature. His Honour considered that the question of whether such employment-like settings exist may be best answered by asking: '[w]hether, in all the circumstances, the labour component of the contract in question could have been provided by the recipient of the labour employing an employee?'. Bromberg J considered that although the context was quite different, the decision in Neale v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 supported the construction of subsection 12(3) that he had arrived at, insofar as he had concluded that subsection 12(3) only applies in relation to contracts for the personal performance of work by the worker who is a party to the contract (at [309]). Bromberg J also considered the decision of the NSW Court of Appeal in World Book Australia Pty Ltd v Commissioner of Taxation (1992) 108 ALR 510 (World Book), where the Court considered that a contract for a result was outside the scope of the description \"a contract that is wholly or principally for the labour of the person\". Bromberg J's view was that the Court in World Book applied this qualification because of the potential consequences of a wide interpretation of the term. Bromberg J sought to distinguish the approach taken in World Book noting that: • The potential for subsection 12(3) to have an extreme operation is negated when reference is made to the context in which the subsection is found together with the underlying purpose of the SGAA; • The context of section 12 and underlying purpose of the SGAA were very different to the legislation considered in World Book (which examined the definition of 'salary and wages' as then found in section 221A of the Income Tax Assessment Act 1936); • The focus upon the single criterion of whether the contract is a contract for an outcome or result is inconsistent with the modern day multi-factorial approach to the totality test; and • The distinction between a contract for labour and a contract for the product of that labour is illusory in all but the most obvious cases. • The potential for subsection 12(3) to have an extreme operation is negated when reference is made to the context in which the subsection is found together with the underlying purpose of the SGAA; • The context of section 12 and underlying purpose of the SGAA were very different to the legislation considered in World Book (which examined the definition of 'salary and wages' as then found in section 221A of the Income Tax Assessment Act 1936); • The focus upon the single criterion of whether the contract is a contract for an outcome or result is inconsistent with the modern day multi-factorial approach to the totality test; and • The distinction between a contract for labour and a contract for the product of that labour is illusory in all but the most obvious cases. Accordingly, Bromberg J concluded that it was not appropriate to construe subsection 12(3) as excluding a contract for a given result. His Honour's conclusion in this respect is contrary to the existing line of authority on the meaning of \"a contract that is wholly or principally for the labour of the person\" that was applied to subsection 12(3) of the SGAA in the NSW Supreme Court of Appeal decision of Vabu Pty Ltd v Commissioner of Taxation (1996) 33 ATR 537 (Vabu). Bromberg J also rejected the taxpayer's contention that subsection 12(3) only related to contracts involving the provision of tools and equipment, on the basis that the contention had no textual support or underlying policy justification. Bromberg J was not satisfied that the contracts between the taxpayer and its workers were not contracts for the interpreters to perform work personally and accordingly held that, if the interpreters and translators were not employees in accordance with the general law, they would be employees of the taxpayer within the expanded meaning provided by subsection 12(3). His Honour also noted that even if he was wrong in his construction of subsection 12(3), and a contract for a given result falls outside the scope of the subsection, he was not satisfied that the contracts of the relevant interpreters and translators were not for their labour but were instead for an agreed result.", "ATO_View_of_Decision": "Bromberg J's conclusion that the interpreters and translators were employees of the taxpayer within the meaning of employee under subsection 12(1) of the SGAA is consistent with the ATO's submissions in the case. | Bromberg J's additional conclusion that, if the interpreters and translators are not employees under subsection 12(1), they would be employees of the taxpayer within the extended meaning of employee under subsection 12(3) of the SGAA, is also consistent with the ATO's submissions in the case. However, the reasoning differs from the ATO view expressed in SGR 2005/1. His Honour's observations in this regard were obiter dicta. Although they are, with respect, to be given great weight, the principles established in Vabu - based on the earlier decisions of the High Court in Neale and the New South Wales Court of Appeal in World Book - represent the current authority on the application of subsection 12(3). Hence, the Commissioner will continue to administer subsection 12(3) in accordance with the Vabu line of authority. | The ATO will therefore maintain the views set out in SGR 2005/1.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None", "Related_Documents": "n/a | 2011 ATC 20-258 | SGR 2005/1: Superannuation guarantee - who is an employee? | SGR 2005/2: Superannuation guarantee - work arranged by intermediaries | 12(1) | 12(3) | 2001 ATC 4508 | (1986) 160 CLR 16 | 63 ALR 513 | (1955) 94 CLR 419 | 92 ATC 4327 | 96 ATC 4898 | 2010 ATC 20-184 | [2010] AATA 260", "Legislative_References": "Superannuation Guarantee (Administration) Act 1992 (Cth) 12(1) 12(3)", "Case_References": "Hollis v Vabu Pty Ltd (2001) 207 CLR 21 2001 ATC 4508 47 ATR 559 Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 63 ALR 513 Neale v Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419 [1955] HCA 18 World Book Australia Pty Ltd v Commissioner of Taxation (1992) 108 ALR 510 92 ATC 4327 23 ATR 412 Vabu Pty Ltd v Commissioner of Taxation (1996) 33 ATR 537 96 ATC 4898 Roy Morgan Research Pty Ltd v Commissioner of Taxation (2010) 184 FCR 448 2010 ATC 20-184 76 ATR 264 Associated Translators & Linguists Pty Ltd v Commissioner of Taxation [2010] AATA 260 78 ATR 937", "Subject_References": "Superannuation guarantee charge Definition of employee", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID409of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Park and Commissioner of Taxation", "Venue_Reference_No": "2010/4239-4240", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "18 August 2011", "Date_Published": "9 December 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the personal services income of Photocom Pty Ltd (Photocom), a personal services entity, was properly attributed to the applicant under section 86-15 of the ITAA 1997.", "Overview_of_Facts": "The Applicant was the director of Photocom. | During the 2006 and 2007 income years, the Applicant, on behalf of Photocom, performed computer programming services for the clients of Candle Australia Ltd (Candle). Candle is a labour hire firm. | During the relevant years, the Applicant maintained a residence in Sydney. Also, during that period, the Applicant provided services to a client of Candle in Perth and while performing this role, he rented an apartment in Perth and purchased household items to furnish the apartment. | During the 2007 income year, the Applicant withdrew amounts from Photocom's business bank account and claimed these withdrawals as a payment of Living Away From Home Allowance (LAFHA). | Photocom and the Applicant were subject to an income tax audit for the 2006 and 2007 income years. As a result of the audit, amended assessments issued which attributed personal services income to the Applicant and disallowed rental expenses deductions. | Issues decided by the tribunal | The Tribunal concluded that the Applicant's personal services income derived by Photocom was attributable to the Applicant in the relevant income years. However, the attributed income was reduced by rental expenses incurred by Photocom in relation to the Perth apartment. | The Tribunal reached this conclusion on the basis that section 86-60 permits the rental expenses to reduce attributable income if the Applicant would have been entitled to a deduction under section 8-1 for those expenses, if he himself had derived the income directly from Candle, and incurred the rent expense. | The Tribunal found that the Applicant would have been entitled to a deduction for the rental expenses because the \"occasion\" of the applicant's expenditure was the income-producing activities conducted under the contractual arrangement with Candle, and the expenditure was not of a private or domestic nature. | The Tribunal went on to find that section 85-15, a provision which disallows rental expenses in certain circumstances, did not apply. As the Applicant was an associate of Photocom, the deduction would only be denied if the apartment was the Applicant's residence. The Tribunal found that it was not his residence.", "Issues_Decided": "The Tribunal concluded that the Applicant's personal services income derived by Photocom was attributable to the Applicant in the relevant income years. However, the attributed income was reduced by rental expenses incurred by Photocom in relation to the Perth apartment. The Tribunal reached this conclusion on the basis that section 86-60 permits the rental expenses to reduce attributable income if the Applicant would have been entitled to a deduction under section 8-1 for those expenses, if he himself had derived the income directly from Candle, and incurred the rent expense. The Tribunal found that the Applicant would have been entitled to a deduction for the rental expenses because the \"occasion\" of the applicant's expenditure was the income-producing activities conducted under the contractual arrangement with Candle, and the expenditure was not of a private or domestic nature. The Tribunal went on to find that section 85-15, a provision which disallows rental expenses in certain circumstances, did not apply. As the Applicant was an associate of Photocom, the deduction would only be denied if the apartment was the Applicant's residence. The Tribunal found that it was not his residence.", "ATO_View_of_Decision": "The ATO view on the correct interpretation of section 86-60 can be found in Taxation Ruling TR 2003/10 at paragraphs 96 to 102. | TR 2003/10 explains that section 86-60 requires consideration of the circumstances that gave rise to Photocom's entitlement to a deduction and then those circumstances are applied to the relevant individual. Photocom is conducting a business and, in the course of that business, it incurred expenditure in providing accommodation to its employee. Applying the ATO view the question that should be asked is: would an individual who is conducting a business be entitled to a deduction under section 8-1 for expenditure incurred in providing accommodation to an employee? | In this case, the answer to that question is yes unless section 85-15 applies to prevent Photocom from deducting the costs of renting the Perth apartment on the basis that the expense was in respect of the residence of an associate of Photocom. The Tribunal found that it was not his residence. This decision was open on the facts of the case. | The concern arising from the Tribunal's interpretation of section 86-60 is that others may seek to apply the same interpretation; and depending on the factual situation an incorrect outcome could potentially be obtained.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "TR 92/15 | TR 98/9 | TR 2001/8 | 2011 ATC 10-198 | 8-1 | 85-15 | 86-20 | 86-60 | 87-18 | 280-160 | Division 284 | Division 298 | 2007 ATC 2467", "Legislative_References": "Income Tax Assessment Act 1997 (Cth) 8-1 85-15 86-20 86-60 87-18 Taxation Administration Act 1953 (Cth) 280-160 280-170 298-20 Division 284 Division 298", "Case_References": "C of T v Day [2008] HCA 53 (2008) 236 CLR 163 70 ATR 14 Taneja v C of T [2009] AATA 87 (2009) 75 ATR 111 2009 ATC 10-078 Skiba v FC of T [2007] AATA 1705 2007 ATC 2467 67 ATR 682", "Subject_References": "Personal services income Personal services entity Personal services business Results test", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/4239-4240/00001", "Unmatched_Content": ""}
{"Case_Name": "Perfrement and Commissioner of Taxation", "Venue_Reference_No": "2010/1310", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 April 2011", "Date_Published": "16 June 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether a payment received by the applicant from his employer on termination of his employment was a transitional termination payment under section 82-10 of the Income Tax ( Transitional Provisions ) Act 1997 (the TP Act).", "Overview_of_Facts": "The applicant started working at Mobil Oil Australia Limited (Mobil) under a contract dated 26 November 1992. The terms of employment were subject to company policies and procedures as amended from time to time, including a 1991 redundancy policy. Mobil amended this policy in May 1995, July 2005 and July 2008. The July 2008 amendment advised employees that, at law, their redundancy entitlements no longer included the option to roll over a payment into a superannuation fund. | The applicant's employment was terminated by redundancy on 30 September 2008. He asked Mobil to rollover his termination payment into a nominated superannuation fund. Mobil declined, on the basis that it was not a transitional termination payment (TTP) under section 82-10 of the TP Act, and made the redundancy payment to the applicant during the 2009 income year under its then current redundancy policy. | The applicant applied for a private ruling about whether the redundancy payment was a TTP. The Commissioner ruled that it was not a TTP. | Issues decided by the tribunal | The AAT decided that the redundancy payment made by Mobil to the applicant by was a TTP under section 82-10 of the TP Act (paragraph 36), as the entitlement to the payment was provided for under a contract in force before 10 May 2006. The Tribunal rejected the Commissioner's submission that the applicant's entitlement to the payment arose under the July 2008 amendment to Mobil's redundancy policy. That amendment merely advised employees about the effect of newly introduced tax laws, but did not change the method of compensation determined under the July 2005 policy amendment (paragraphs 34 and 35). | The AAT also commented, in paragraph 37, that, as the payment made to the applicant was a TTP, the provisions of section 82-10F of the TP Act are enlivened, as no pre-payment statement had yet been given by Mobil to the applicant. When the statement is given, the AAT noted that, under subsection 82-10F(2), the applicant can choose within 30 days to direct the payment be made to a superannuation fund.", "Issues_Decided": "The AAT decided that the redundancy payment made by Mobil to the applicant by was a TTP under section 82-10 of the TP Act (paragraph 36), as the entitlement to the payment was provided for under a contract in force before 10 May 2006. The Tribunal rejected the Commissioner's submission that the applicant's entitlement to the payment arose under the July 2008 amendment to Mobil's redundancy policy. That amendment merely advised employees about the effect of newly introduced tax laws, but did not change the method of compensation determined under the July 2005 policy amendment (paragraphs 34 and 35). The AAT also commented, in paragraph 37, that, as the payment made to the applicant was a TTP, the provisions of section 82-10F of the TP Act are enlivened, as no pre-payment statement had yet been given by Mobil to the applicant. When the statement is given, the AAT noted that, under subsection 82-10F(2), the applicant can choose within 30 days to direct the payment be made to a superannuation fund.", "ATO_View_of_Decision": "The ATO accepts that the decision of the AAT was reasonably open to it on the face of the contractual arrangement set out in the private ruling. | As the private ruling given to the applicant was confined to the question of whether the redundancy payment received by the applicant was a TTP under section 82-10 of the TP Act, the AAT's decision correctly only dealt with the application of that section to the payment. Accordingly, the AAT's comments in paragraph 37 of its reasons for decision about the operation of section 82-10F of the TP Act are not part of the AAT's decision. | Before a TTP is paid to an individual, section 82-10E requires the payer to give a pre-payment statement to the individual, setting out the taxable and tax free components of the payment. Within 30 days of receipt of the statement, the individual can direct the payer under section 82-10F to make the payment to a complying superannuation fund (CSF). A payment then made to a CSF is treated under section 82-10G as not assessable income nor exempt income of the individual. Mistakenly, in this case, Mobil did not give a pre-payment statement to the applicant before it made the payment to him. The AAT commented that section 82-10F was enlivened because Mobil was now required to make a pre-payment statement. | However, the ATO considers that, based on the arrangement set out in the private ruling, the AAT's comments about the operation of section 82-10F in this case are misleading. Once a TTP is paid to an individual, the provisions of Subdivision 82-B of the TP Act deal with the assessability of the TTP in the hands of the recipient. Even if the recipient has mistakenly not been given a pre-payment statement, the provisions of section 82-10F are not later 'enlivened' to affect what has already occurred under Subdivision 82-B.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Related_Documents": "n/a | 2011 ATC 10-179 | 82-10 | 82-10F(1) | 82-10F(2) | 82-10G | 2011 ATC 20-235 | [2000] FCA 889 | [2009] HCA 34", "Legislative_References": "Income Tax (Transitional Provisions) Act 1997 82-10 82-10F(1) 82-10F(2) 82-10G", "Case_References": "Colonial First State Investments Limited v Commissioner of Taxation [2011] FCA 16 2011 ATC 20-235 Riverwood International Australia Pty Ltd v McCormick [2000] FCA 889 177 ALR 193 Visscher v Giudice [2009] HCA 34 239 CLR 361", "Subject_References": "Superannuation Life benefit termination payment Transitional termination payment Directed termination payment Private ruling", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/1310/00001", "Unmatched_Content": ""}
{"Case_Name": "Re Mynott and Commissioner of Taxation", "Venue_Reference_No": "2010/2689-92", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "4 August 2011", "Date_Published": "8 November 2011", "Document_Type": "Impact of Court Decisions Report", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the ATO's approach to this case which concerned whether the applicant was a 'resident of Australia', as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for the 1999, 2000, 2001 and 2002 tax years.", "Overview_of_Facts": "After graduation as an electronic engineer in 1984, the applicant worked in Australia for 13 years, leaving on 18 September 1997 to work overseas. The applicant worked on various short term contracts in different countries until he returned to Australia permanently on 30 January 2002. | The applicant entered into a domestic relationship with a woman in the Philippines and rented an apartment with her in Manila from December 1998 until he returned to Australia in January 2002. During this time, when the applicant wasn't in Manila for fairly short periods on a tourist visa, he was either working overseas or visiting his parents in Australia. | The applicant sold his personal residence in Australia in June 1999, but maintained a bank account in Australia into which his contract payments were made. He also had local bank accounts overseas that were used for his own living expenses and for sending money to his partner in the Philippines, but did not otherwise acquire any overseas property or investments. | During the 1999 to 2002 income years, the applicant derived foreign income from his work, but did not include the income in his Australian income tax returns for those years, and did not pay any foreign tax on the income after mid-1998. | The applicant gave evidence to the Tribunal that his agent advised him orally that he was not a resident of Australia for the years in dispute. His agent gave evidence that he did not recall providing any advice to the applicant about his residence status and would have relied on the applicant's own representations as to his status in preparing the relevant tax returns. | Issues decided by the Administrative Appeals Tribunal | The Tribunal accepted that the applicant did not 'reside' in Australia for the purposes of the definition of 'resident of Australia' in subsection 6(1) of the ITAA 1936 for the 1999, 2000 and 2001 years, and up to 29 January 2002. While the applicant kept a bank account in Australia during this period, and regularly visited his parents, he sold his principal Australian residence in 1999, did not work in Australia during that time, and kept a domestic base in the Philippines for much of the time (paragraphs 36 to 41). | While the Tribunal accepted that the applicant's domicile was in Australia for the relevant years, for the purposes of subparagraph (a)(i) of the definition of 'resident of Australia' (paragraph 43), the objective conclusion was that he had established his home in the Philippines during that period and that was where he had his permanent place of abode (paragraphs 48 to 50). | Though the Tribunal found that the applicant was not a resident of Australia for the relevant periods, it commented that the Commissioner was not able to issue original assessments to the applicant for the 1999 and 2000 tax years, nor issue amended assessments to the applicant for the 2001 and 2002 years, because the avoidance of tax in not being assessed on his foreign earnings was not due to fraud or evasion under section 171A and the former subsection 170(2) of the ITAA 1936. While there was contrasting evidence given by the applicant and his agent about why his tax returns for the relevant years were prepared on the basis that the taxpayer was not a resident of Australia, the Tribunal accepted that this was due to a misunderstanding or a breakdown in communication between the two, and was not due to any intention to withhold information nor to any blameworthy act of the applicant (paragraphs 64 to 73). | The Tribunal also commented that, if penalties were payable, they would have been at 25% of the tax shortfall in each year for lack of reasonable care, not at 50% for recklessness, and that no remission of penalty was warranted (paragraphs 79 to 80).", "Issues_Decided": "The Tribunal accepted that the applicant did not 'reside' in Australia for the purposes of the definition of 'resident of Australia' in subsection 6(1) of the ITAA 1936 for the 1999, 2000 and 2001 years, and up to 29 January 2002. While the applicant kept a bank account in Australia during this period, and regularly visited his parents, he sold his principal Australian residence in 1999, did not work in Australia during that time, and kept a domestic base in the Philippines for much of the time (paragraphs 36 to 41). While the Tribunal accepted that the applicant's domicile was in Australia for the relevant years, for the purposes of subparagraph (a)(i) of the definition of 'resident of Australia' (paragraph 43), the objective conclusion was that he had established his home in the Philippines during that period and that was where he had his permanent place of abode (paragraphs 48 to 50). Though the Tribunal found that the applicant was not a resident of Australia for the relevant periods, it commented that the Commissioner was not able to issue original assessments to the applicant for the 1999 and 2000 tax years, nor issue amended assessments to the applicant for the 2001 and 2002 years, because the avoidance of tax in not being assessed on his foreign earnings was not due to fraud or evasion under section 171A and the former subsection 170(2) of the ITAA 1936. While there was contrasting evidence given by the applicant and his agent about why his tax returns for the relevant years were prepared on the basis that the taxpayer was not a resident of Australia, the Tribunal accepted that this was due to a misunderstanding or a breakdown in communication between the two, and was not due to any intention to withhold information nor to any blameworthy act of the applicant (paragraphs 64 to 73). The Tribunal also commented that, if penalties were payable, they would have been at 25% of the tax shortfall in each year for lack of reasonable care, not at 50% for recklessness, and that no remission of penalty was warranted (paragraphs 79 to 80).", "ATO_View_of_Decision": "The ATO accepts that it was reasonably open to the Tribunal, on the evidence before it, to decide that the applicant did not reside in Australia, and had a permanent place of abode in the Philippines, between 18 September 1997 and 30 January 2002. | Though not part of its decision, the ATO also accepts that it was reasonably open to the Tribunal to comment that any avoidance of tax was not due to fraud or evasion, and that any penalties would have been properly payable for a failure to take reasonable care.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "None | [2011] AATA 539 | 2011 ATC 10-195 | 6(1) | 170(1) | 170(2) | 171A | 14ZQ | Schedule 1 | 284-75 | 284-90 | 298-20 | (1946) 73 CLR 93 | (1985) 6 FCR 444 | 79 ATC 4307 | 85 ATC 225 | (1953) 88 CLR 23 | 96 CLR 359 | 90 ATC 499 | 2003 ATC 4375 | 2010 ATC 10-134 | (1949) 79 CLR 296 | 2001 ATC 2194 | 2003 ATC 4665 | 2010 ATC 20-163 | 2001 ATC 4111", "Legislative_References": "Income Tax assessment Act 1936 6(1) 170(1) 170(2) 171A 222A 226G 226H 227(3) Taxation Administration Act 1953 14ZQ Schedule 1 284-75 284-90 298-20", "Case_References": "FC of T v Miller (1946) 73 CLR 93 Re Executors of the Estate of Subrahmanyam and FC of T [2002] AATA 1298 Hafzav v Director-General of Social Security (1985) 6 FCR 444 Federal Commissioner of Taxation v Applegate (1979) 38 FLR 1 9 ATR 899 79 ATC 4307 Case S19 85 ATC 225 (1985) 28 CTBR (NS) 240 Australasian Jam Co Pty Ltd v FC of T (1953) 88 CLR 23 F C of T v Barton [1957] HCA 5 96 CLR 359 Case X66 90 ATC 499 21 ATR 3542 Kajewski& Ors v FC of T [2003] FCA 258 2003 ATC 4375 52 ATR 455 Re Mano and FC of T [2010] AATA 289 2010 ATC 10-134 78 ATR 981 Denver Chemical Manufacturing Co v C of T (NSW) (1949) 79 CLR 296 Case No 9 (1950) TBRD 17 Re SRBBB and FC of T [2001] AATA 529 47 ATR 1191 2001 ATC 2194 Hart v FC of T [2003] FCAFC 105 2003 ATC 4665 53 ATR 371 Forrest v FC of T [2010] FCAFC 6 2010 ATC 20-163 78 ATR 417 BRK (Bris) Pty Ltd v FC of T [2001] FCA 164 2001 ATC 4111 46 ATR 347", "Subject_References": "Resident of Australia Domicile Permanent place of abode outside Australia Assessment Fraud or evasion Penalties Recklessness Failure to take reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/2689-92/00001", "Unmatched_Content": ""}
{"Case_Name": "Reglon Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 4 of 2011", "Venue": "Federal Court of Australia", "Judgment_Date": "5 July 2011", "Date_Published": "5 December 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether a judgment for damages for conversion of leased equipment was connected with a taxable supply.", "Overview_of_Facts": "Proceedings between Reglon and others | Reglon Pty Ltd (Reglon) entered into an agreement to hire approximately 117,000 items of scaffolding equipment to ACS Hire Pty Ltd (ACS Hire) for ACS Hire's use in the building and construction industry. | Another company connected with ACS Hire, Action Constructions Pty Ltd (Action Constructions), owned other scaffolding, the purchase price of which had been borrowed from Citadel Finance Corporation Pty Ltd (Citadel). Citadel took a fixed and floating charge on the scaffolding purchased by Action Constructions. | ACS Hire allowed the scaffolding it had hired from Reglon to be intermingled with the scaffolding of Action Constructions in such a way that it could not be separately identified or distinguished. Action Construction used Reglon's scaffolding, intermingled with its own scaffolding, in its business of hiring out scaffolding. | Subsequently Citadel appointed a receiver and manager of the assets of Action Construction and later, after the receiver's retirement as such, Citadel, as mortgagee, took possession of the assets of Action Constructions which included the comingled Reglon scaffolding. | Reglon commenced litigation against the receiver and manager, and Citadel in the New South Wales Supreme Court. The judgment was that the defendants were liable to pay damages on conversion of the scaffolding that belonged to the plaintiff. | Proceedings between Reglon and the Commissioner | Subsequent to the proceedings noted above, the Commissioner audited Reglon and concluded that Reglon had made a taxable supply, within the meaning of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 , of the scaffolding to Citadel, which it had not accounted for, leading to an understatement of GST on the relevant Business Activity Statement. | The Commissioner argued that Reglon had made a supply of the goods or title in the goods because: • it had instituted the proceedings against Citadel and the receiver; • those proceedings were to either obtain the return of the goods or an amount equivalent to what it would have received upon a sale of the goods; • the consequence of Reglon initiating and successfully pursuing the proceedings was that title in the scaffolding passed from Reglon to Citadel and, in that sense, Reglon caused a supply of the scaffolding to be made. | • it had instituted the proceedings against Citadel and the receiver; • those proceedings were to either obtain the return of the goods or an amount equivalent to what it would have received upon a sale of the goods; • the consequence of Reglon initiating and successfully pursuing the proceedings was that title in the scaffolding passed from Reglon to Citadel and, in that sense, Reglon caused a supply of the scaffolding to be made. | Issue decided by the Court | The Court considered (at paragraph 29 of the judgement) that under the law of conversion the correct construction is that 'payment of a judgment in conversion, where the value of the converted goods is given as damages, is taken to be a purchase , not a sale .' Further (at paragraph 32), the Court decided that: | The payment made in satisfaction of that judgment resulted in ownership of the scaffolding vesting in Citadel. That is, the transfer of ownership to Citadel, and the extinguishment of the Taxpayer's ownership by operation of law, occurred without assent and was triggered by the payment of the judgment sum by Citadel. That payment did not depend upon any action of the Taxpayer. I do not consider that, in those circumstances, the Taxpayer may be said to have made a supply . | That is, the Court found that in an action for conversion the transfer of title occurs by operation of law upon the payment of the judgment sum and requires nothing by, in this case, Reglon in the way of making a supply. As there was no supply made by Reglon, there was no taxable supply.", "Issues_Decided": "The Court considered (at paragraph 29 of the judgement) that under the law of conversion the correct construction is that 'payment of a judgment in conversion, where the value of the converted goods is given as damages, is taken to be a purchase , not a sale .' Further (at paragraph 32), the Court decided that: The payment made in satisfaction of that judgment resulted in ownership of the scaffolding vesting in Citadel. That is, the transfer of ownership to Citadel, and the extinguishment of the Taxpayer's ownership by operation of law, occurred without assent and was triggered by the payment of the judgment sum by Citadel. That payment did not depend upon any action of the Taxpayer. I do not consider that, in those circumstances, the Taxpayer may be said to have made a supply . That is, the Court found that in an action for conversion the transfer of title occurs by operation of law upon the payment of the judgment sum and requires nothing by, in this case, Reglon in the way of making a supply. As there was no supply made by Reglon, there was no taxable supply.", "ATO_View_of_Decision": "The ATO accepts that an entity does not, merely by bringing a successful action for conversion, make a supply.", "Administrative_Treatment": "None | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "GSTR 2001/4 | 2011 ATC 20-267 | 7-1 | 9-5 | 9-10 | 9-15 | 9-20 | There are no cases directly on the issue of how the GST Act applies to the tort of conversion", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (Cth) 7-1 9-5 9-10 9-15 9-20 Taxation Administration Act 1953 (Cth) 105-5", "Case_References": "There are no cases directly on the issue of how the GST Act applies to the tort of conversion", "Subject_References": "Goods and services tax Taxable supply Damages Compensation Conversion Judgment", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD4of2011/00001", "Unmatched_Content": ""}
{"Case_Name": "Roy Morgan Research Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "M177 of 2010", "Venue": "High Court", "Judgment_Date": "28 September 2011", "Date_Published": "1 November 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the ATO's response to the case about whether superannuation guarantee charge (\"SGC\"), is a tax supported by s 51(ii) of the Commonwealth Constitution.", "Overview_of_Facts": "The taxpayer appealed to the High Court against the decision of the Full Court of the Federal Court which had upheld the constitutional validity of the Superannuation Guarantee Charge Act 1992 (\"the Charge Act\") and the Superannuation Guarantee ( Administration ) Act 1992 (\"the Administration Act\") . | Issues decided by the court | The appeal to the High Court concerned the power of the Parliament to make laws with respect to taxation under s 51(ii) of the Constitution. The taxpayer challenged the validity of the provisions in the Charge Act and the Administration Act dealing with the SGC. The taxpayer argued that the SGC was not a \"tax\" because it was not imposed for \"public purposes\". This was said to be because the SGC conferred \"a private and direct benefit\" on the relevant employees. It followed, the taxpayer argued, that neither the Charge Act nor the Administration Act was a law with respect to taxation within the meaning of s 51(ii), and that the legislation establishing the SGC and providing for its administration was invalid. | The High Court held unanimously that the SGC was a tax, and that the taxpayer's constitutional challenge to the Administration Act and the Charge Act failed. The receipt of the proceeds of the SGC into the Consolidated Revenue Fund (\"CRF\") established that the SGC was imposed for \"public purposes\". The Court held that where other necessary constitutional criteria of a tax are met, as they were in this case, the receipt of funds into the CRF conclusively established the character of the SGC as a valid tax.", "Issues_Decided": "The appeal to the High Court concerned the power of the Parliament to make laws with respect to taxation under s 51(ii) of the Constitution. The taxpayer challenged the validity of the provisions in the Charge Act and the Administration Act dealing with the SGC. The taxpayer argued that the SGC was not a \"tax\" because it was not imposed for \"public purposes\". This was said to be because the SGC conferred \"a private and direct benefit\" on the relevant employees. It followed, the taxpayer argued, that neither the Charge Act nor the Administration Act was a law with respect to taxation within the meaning of s 51(ii), and that the legislation establishing the SGC and providing for its administration was invalid. The High Court held unanimously that the SGC was a tax, and that the taxpayer's constitutional challenge to the Administration Act and the Charge Act failed. The receipt of the proceeds of the SGC into the Consolidated Revenue Fund (\"CRF\") established that the SGC was imposed for \"public purposes\". The Court held that where other necessary constitutional criteria of a tax are met, as they were in this case, the receipt of funds into the CRF conclusively established the character of the SGC as a valid tax.", "ATO_View_of_Decision": "The High Court's decision accords with the ATO view.", "Administrative_Treatment": "Implications for ATO precedential documents | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "None | 2011 ATC 20-282 | 16 | 17 | 5 | 6 | 60 CLR 263 | 176 CLR 480 | 93 ATC 4118 | 2002 ATC 4311", "Legislative_References": "Constitution 51(ii) Superannuation Guarantee (Administration) Act 1992 16 17 Superannuation Guarantee Charge Act 1992 5 6", "Case_References": "Matthews v Chicory Marketing Board (Vict) [1938] HCA 38 60 CLR 263 Australian Tape Manufacturers Association Ltd v The Commonwealth [1993] HCA 10 176 CLR 480 Northern Suburbs General Cemetery Reserve Trust v The Commonwealth [1993] HCA 12 176 CLR 555 25 ATR 1 93 ATC 4118 Luton v Lessels 210 CLR 333 2002 ATC 4311 49 ATR 471 [2002] HCA 13", "Subject_References": "Constitutional law (Cth) s 51(ii) Superannuation guarantee charge Whether imposed for 'public purposes' 'private and direct benefit'", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M177of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Russell v Commissioner of Taxation", "Venue_Reference_No": "QUD 008/10", "Venue": "Federal Court of Australia", "Judgment_Date": "4 February 2011", "Date_Published": "2 July 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case that concerns, first, whether an overseas registered company is a 'personal services entity' and if payments to it are the taxpayer's assessable income. Secondly, whether a partnership carried on enterprises and is entitled to input tax credits.", "Overview_of_Facts": "Income Tax - Individual taxpayer | 1. The taxpayer applied for a position as an office manager with an Australian company. | 2. A contract for the taxpayer's full time services was entered into between the Australian company and a New Zealand company, whose sole shareholder was the taxpayer's wife. | 3. The Australian company made all payments for the taxpayer's services (less an amount for GST) to the New Zealand company. | 4. The taxpayer claims not to have received salary or wages from the New Zealand company and only returned partnership distributions as income (amounts equal to the GST). | 5. The taxpayer was assessed for personal services income (PSI) for the monies paid by the Australian company. | 6. The Full Court found that these amounts constituted the taxpayer's PSI. | GST - Partnership | 1. The taxpayer and his wife, as a partnership, purported to carry on a number of enterprises - accountancy practice, forestry activity and naturist retreat. | 2. The Commissioner considered the partnership was not carrying on any enterprises and disallowed GST credits as being private expenses. | 3. The primary judge found that the partnership was carrying on a forestry activity enterprise but not an accountancy practice or naturist retreat enterprise. | 4. The Full Court found that the partnership was carrying on a naturist retreat enterprise but not an accountancy practice. | Issues decided by the Full Federal Court | 1. Court unanimously dismissed the individual's appeal. The ITAA 1997 does not purport to tax profits of a New Zealand company but taxes part of its income as the personal services income of the individual. Pursuant to the ITAA 1997 the taxpayer's personal services income would be excluded from the New Zealand company's assessable income and therefore, its taxable income, as it was not part of its profits and therefore not taxation of the profits of the New Zealand company's enterprise. | 2. On the issue of whether there are partnership input tax credits for expenses in relation to the accountancy practice enterprise and the naturist retreat enterprise, the Court held that the partnership: • was not carrying on an accountancy practice and was not entitled to input tax credits (unanimously). • was carrying on the enterprise of naturist retreat and was entitled to input tax credits (by majority) | • was not carrying on an accountancy practice and was not entitled to input tax credits (unanimously). • was carrying on the enterprise of naturist retreat and was entitled to input tax credits (by majority)", "Issues_Decided": "1. Court unanimously dismissed the individual's appeal. The ITAA 1997 does not purport to tax profits of a New Zealand company but taxes part of its income as the personal services income of the individual. Pursuant to the ITAA 1997 the taxpayer's personal services income would be excluded from the New Zealand company's assessable income and therefore, its taxable income, as it was not part of its profits and therefore not taxation of the profits of the New Zealand company's enterprise. 2. On the issue of whether there are partnership input tax credits for expenses in relation to the accountancy practice enterprise and the naturist retreat enterprise, the Court held that the partnership: • was not carrying on an accountancy practice and was not entitled to input tax credits (unanimously). • was carrying on the enterprise of naturist retreat and was entitled to input tax credits (by majority) • was not carrying on an accountancy practice and was not entitled to input tax credits (unanimously). • was carrying on the enterprise of naturist retreat and was entitled to input tax credits (by majority)", "ATO_View_of_Decision": "The ITAA 1997 does not bring to tax the profits of a New Zealand company but taxes, as statutory income, the personal services income of the individual. The facts of this case were unusual and it is not expected a factual scenario of like kind will often arise. | It was open on the facts to find that the partnership was carrying on a forestry enterprise and naturist retreat enterprise.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None.", "Related_Documents": "TR 2001/7 - Income Tax: the meaning of personal services income | TR 97/11 - Income Tax: am I carrying on a business of primary production? | MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number | 2011 ATC 20-240 | s 4-1 | s 6-5 | Pt 2-42 | s 86-20 | s 86-30 | s 86-35 | s 86-60 | s 9-20 | s 11-5 | s 11-10 | s 11-15 | s 11-20 | s 195-1 | s 3(2) | s 4(2) | Schedule 4 : NZ Agreement | 2010 ATC 20-221 | 2009 ATC 20-100 | [2006] FCA 71 | 2006 ATC 4098 | 70 ATC 4061 | [2003] HCA 22 | (1981) 148 CLR 182 | 89 ATC 4101 | 2005 ATC 4398 | (2006) 231 CLR 1 | [2006] HCA 54 | 231 CLR 52 | 2006 ATC 2419 | 90 ATC 4717 | (1979) 142 CLR 531", "Legislative_References": "Income Tax Assessment Act 1997 (\"ITAA 1997\") s 4-1 s 6-5 Pt 2-42 s 86-20 s 86-30 s 86-35 s 86-60 A New Tax System (Goods and Services Tax) Act 1999 s 9-20 s 11-5 s 11-10 s 11-15 s 11-20 s 195-1 International Tax Agreements Act 1953 s 3(2) s 4(2) s 6B(1A) Schedule 4 : NZ Agreement Article 3(1) Article 7(1)", "Case_References": "Commissioner of Taxation v Anstis [2010] HCA 40 272 ALR 1 76 ATR 735 2010 ATC 20-221 241 CLR 443 Commissioner of Taxation v Swansea Services Pty Ltd [2009] FCA 402 72 ATR 120 2009 ATC 20-100 Ell v Federal Commissioner of Taxation [2006] FCA 71 2006 ATC 4098 61 ATR 661 Fairwell Estates Pty Ltd v Federal Commissioner of Taxation [1970] HCA 29 123 CLR 153 1 ATR 726 70 ATC 4061 Fox v Percy [2003] HCA 22 214 CLR 118 Handley v Federal Commissioner of Taxation (1981) 148 CLR 182 John v Federal Commissioner of Taxation [1989] HCA 5 166 CLR 417 20 ATR 1 89 ATC 4101 McDermott Industries (Aust) Pty Ltd v Commissioner of Taxation [2005] FCAFC 67 142 FCR 134 2005 ATC 4398 59 ATR 358 Minister for Immigration and Multicultural and Indigenous Affairs v OAAH (2006) 231 CLR 1 NBGM v Minister for Immigration and Multicultural and Indigenous Affairs [2006] HCA 54 231 CLR 52 Peerless Marine Pty Ltd v Federal Commissioner of Taxation [2006] AATA 765 2006 ATC 2419 63 ATR 1303 Thiel v Federal Commissioner of Taxation (1990) 171 CLR 338 21 ATR 531 90 ATC 4717 Warren v Coombes (1979) 142 CLR 531", "Subject_References": "Personal services income International Tax New Zealand Agreement Double taxation Carrying on an enterprise Meaning of 'creditable acquisition'", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD008-10/00001", "Unmatched_Content": ""}
{"Case_Name": "Sogo Duty Free Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VT2003/211-213; VT2004/47; VT2009/1459 (AAT); VID 161 of 2010 (FC); VID 827 of 2010 (FFC)", "Venue": "Federal Court of Australia", "Judgment_Date": "16 March 2011", "Date_Published": "22 June 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to these decisions which concerned whether the Applicant had sold cigarettes to relevant travellers for export or whether the cigarettes had been sold domestically or, alternatively, were deemed to have been entered for home consumption.", "Overview_of_Facts": "During the period 11 April 1999 - 24 May 2001 (\" the relevant period \"), the Applicant was licensed to operate an \"outwards duty free shop\". In effect, the Applicant was licensed to sell duty free goods to persons travelling overseas. | During the relevant period, the Applicant sold 46,017,670 sticks of cigarettes. The invoices evidencing the cigarette sales recorded the sales as having been made to members of the crew of various ships. | The Commissioner had assessed the Applicant to understatements of Income Tax, understatements of Goods and Services Tax and duty imposed under section 60 of the Excise Act (1901) (\"the Excise Act \") on the basis that the cigarette sales had not been made to the crew members of ships travelling overseas but had been sold domestically and in breach of the requirements of the GST Regulations and the Applicant's relevant licences. | Issues decided by the court and Tribunal | The AAT found that the cigarette sales were not made to relevant travellers and that the goods had been delivered into home consumption. It also found that the sales invoices recorded a price less than the actual price received by the Applicant. | The AAT concluded that the Applicant had not discharged its burden of proof in either of the three proceedings. | The Applicant appealed from the AAT's decision to the Federal Court in respect of those parts of the decision that dealt with the Applicant's liability as to Income Tax and duty payable pursuant to section 60 of the Excise Act. | On appeal, Gordon J upheld the AAT's decision on the basis that it was reasonably open to the AAT to conclude on the evidence before it that the goods had been sold domestically rather than as stated on the invoices. Gordon J also rejected the Applicant's submissions that an 'outwards duty free shop' could not be subject to duty under section 60 of the Excise Act and was subject to liability only under an exclusive code outlined in section 61D of the Excise Act . | The Applicant appealed Gordon J's decision to the Full Federal Court in respect of that part of the decision that dealt with the Applicant's liability to duty payable pursuant to section 60 of the Excise Act. | The Full Federal Court found that although the enquiry as to whether goods have been kept safely for the purposes of section 60 may overlap with, and is logically anterior to, the enquiry as to whether the requirements of section 61D have been met, it did not follow that section 60 was incapable of extending to the same circumstances which enliven the provisions of section 61D of the Excise Act.", "Issues_Decided": "The AAT found that the cigarette sales were not made to relevant travellers and that the goods had been delivered into home consumption. It also found that the sales invoices recorded a price less than the actual price received by the Applicant. The AAT concluded that the Applicant had not discharged its burden of proof in either of the three proceedings. The Applicant appealed from the AAT's decision to the Federal Court in respect of those parts of the decision that dealt with the Applicant's liability as to Income Tax and duty payable pursuant to section 60 of the Excise Act. On appeal, Gordon J upheld the AAT's decision on the basis that it was reasonably open to the AAT to conclude on the evidence before it that the goods had been sold domestically rather than as stated on the invoices. Gordon J also rejected the Applicant's submissions that an 'outwards duty free shop' could not be subject to duty under section 60 of the Excise Act and was subject to liability only under an exclusive code outlined in section 61D of the Excise Act . The Applicant appealed Gordon J's decision to the Full Federal Court in respect of that part of the decision that dealt with the Applicant's liability to duty payable pursuant to section 60 of the Excise Act. The Full Federal Court found that although the enquiry as to whether goods have been kept safely for the purposes of section 60 may overlap with, and is logically anterior to, the enquiry as to whether the requirements of section 61D have been met, it did not follow that section 60 was incapable of extending to the same circumstances which enliven the provisions of section 61D of the Excise Act.", "ATO_View_of_Decision": "The Full Federal Court has reinforced the principles previously articulated in Sidebottom v Giuliano (2000) 98 FCR 579 and Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279. The decision is consistent with the Commissioner's submission that section 60 of the Excise Act operates independent of any other provision of that Act for the collateral protection of the revenue and is a separate and collateral liability to Excise duty. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None", "Administrative_Treatment": "None", "Related_Documents": "None | Federal Court | 2010 ATC 20-208 | Administrative Appeals Tribunal | 2010 ATC 10-123 | Full Federal Court | 2011 ATC 20-249 | 6-5 | A New Tax System (Goods and Services Tax) Act (1999) | 54 | 59 | 60 | 61D | [2000] FCA 607 | (1962) 107 CLR 279 | [1996] HCA 6", "Legislative_References": "Income Tax Assessment Act (1997) 6-5 A New Tax System (Goods and Services Tax) Act (1999) Excise Act (1901) 54 59 60 61D", "Case_References": "Sidebottom v Giuliano (2000) 98 FCR 579 [2000] FCA 607 Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279 [1962] HCA 20 Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 [1996] HCA 6", "Subject_References": "Income Tax False Pricing Undeclared Income Outward Duty Free Sales Failure to comply with GST Regulations Sealed Bag rules Failure to comply with Warehouse License Failure to ensure goods received onboard Relationship between s 60 and 61D of the Excise Act Whether s61D of the Excise Act precludes operation s60 from attaching liability to proprietor of outwards duty free shop Nature of collateral liability imposed under s60 of the Excise Act Interpretation of Tribunal's reasons", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID827of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Syttadel Holdings Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2010/1912", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "26 August 2011", "Date_Published": "7 February 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO approach to this case which concerned the market value of an asset to determine whether the maximum net asset value test threshold was satisfied and the entitlement to small business CGT concessions.", "Overview_of_Facts": "The taxpayer sold a marina in August 2006 for $8.9m. It claimed entitlement to concessional CGT treatment under Division 152 of the Income Tax Assessment Act 1997 , contending that the $5m maximum net asset value test was satisfied as the market value of the marina was $4.5m. The Commissioner did not accept that contention and assessed the taxpayer on the basis that the value of the asset was its sale price and, as the maximum net asset value test was exceeded, this precluded concessional treatment. | The sole issue before the Tribunal was the market value of the marina in July 2006. Both parties placed valuation evidence before the Tribunal that proceeded on the basis of highest and best use. The taxpayer's valuer determined the market value of the marina to be $4.5m, and the Commissioner's valuer determined it to be $5.3m. | Issues decided by the tribunal | The Tribunal was not persuaded by the taxpayer's valuation evidence as it involved adopting a market value by reference to offers made and the sum at which the taxpayer was prepared to sell. As such the taxpayer had not discharged its onus and it was not strictly necessary for the Tribunal to consider the Commissioner's valuation evidence. The Tribunal however commented that the capitalisation rate adopted by the Commissioner's valuer was appropriate having regard to the market evidence and other factors, and it also accepted the alternate valuation produced by undertaking the direct comparison method. Accordingly the Tribunal was satisfied that the marina had a market value of at least $5.3m in July 2006.", "Issues_Decided": "The Tribunal was not persuaded by the taxpayer's valuation evidence as it involved adopting a market value by reference to offers made and the sum at which the taxpayer was prepared to sell. As such the taxpayer had not discharged its onus and it was not strictly necessary for the Tribunal to consider the Commissioner's valuation evidence. The Tribunal however commented that the capitalisation rate adopted by the Commissioner's valuer was appropriate having regard to the market evidence and other factors, and it also accepted the alternate valuation produced by undertaking the direct comparison method. Accordingly the Tribunal was satisfied that the marina had a market value of at least $5.3m in July 2006.", "ATO_View_of_Decision": "The ATO considers that the case was decided on its facts. | Guidance on the process to establish a market value for various taxation purposes is contained in the ATO publication Market valuation for tax purposes (click on hyperlink to access). As noted in the publication, the ATO considers market value should be assessed on the basis of the ' highest and best use ' of the asset as recognised in the market. The Commissioner's valuation in the case proceeded on this basis (paragraph 13 of the decision). | The ATO generally considers the sale price of an asset to be its market value. | However, in each particular case all the relevant facts and circumstances must be taken into account to determine the most appropriate methodology for calculating market value. In the circumstances of this case, the most appropriate methodology for calculating market value (according to that term's ordinary meaning) was considered to be by way of an objective business valuation - what a desirous buyer would have paid as a fair price to a vendor willing to sell for a fair price but not desirous to sell (per Griffith CJ in Spencer v Commonwealth of Australia (1907) 5 CLR 418 at 432.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None. | Implications for Law Administration Practice Statements | None.", "Related_Documents": "N/A | 2011 ATC 10-199 | Div 152 | 152-20(1) | SDiv 960-S | 995-1 | (1907) 5 CLR 418", "Legislative_References": "Income Tax Assessment Act 1997 Div 152 152-20(1) SDiv 960-S 995-1", "Case_References": "Spencer v The Commonwealth (1907) 5 CLR 418", "Subject_References": "Capital gains tax Small business relief Basic conditions for relief Maximum net asset value test", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/1912/00001", "Unmatched_Content": ""}
{"Case_Name": "Taxpayer and Commissioner of Taxation", "Venue_Reference_No": "2008/3207-3030", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "27 May 2011", "Date_Published": "22 December 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case concerned whether certain expenses incurred in relation to earning personal services income were deductible.", "Overview_of_Facts": "1. The applicant is a consultant horticulturist, who provided expert advice to businesses that cultivate different kinds of commercial forest plantations, through a company. | 2. In a previous decision of the Tribunal, it was determined that the income of the company was to be treated as personal services income pursuant to s86-15 of the Income Tax Assessment Act 1997 (\"the ITAA 1997\") for the 2003, 2004 and 2005 income years. The Tribunal also decided that a penalty was applicable to the amount of the shortfall at the rate of 50% on the basis that there had been recklessness. | 3. Subsequent to that decision the matter was remitted to the Commissioner to ascertain whether any losses or outgoings incurred in the course of earning that income could be deducted pursuant to s86-20 of the ITAA 1997. | 4. The applicant contested the deductions which the Commissioner has disallowed. | 5. The deductions relate to a rural property near Rosebank in New South Wales, on which there is a macadamia nut plantation that generates a crop for sale, and residential accommodation housing an office which the applicant stays at in connection with his work. The property was also used by the applicant to grow a number of trees on an experimental basis to test his ideas. The deductions claimed by the applicant were said to be incurred in conducting tests and maintaining the 'laboratory'. | 6. The Commissioner accepted that some expenses may have been deductible, but many of the claims made were either unrelated to the personal services business or required apportionment, or the claims were inadequately substantiated. It was incumbent upon the applicant to provide a defensible basis for apportionment. | Issues decided by the tribunal | The Tribunal accepted the Commissioner's reliance on s14ZZK of the Taxation Administration Act 1953 such that the taxpayer could not succeed unless it was demonstrated that the assessment was wrong and that an alternative figure or approach was preferable. As the taxpayer maintained an \"all or nothing\" approach, and that each expense was attributed to the personal services business, the objection decision had to be affirmed unless substantially all of the expenses could be attributed to the personal services income. | The Tribunal found that the applicant was not entitled to claim all of the costs associated with holding and maintaining the farm, given that it was plainly held by the family company for a variety of purposes apart from the consulting business, and the \"test crop\" of trees grown in connection with the consulting business covered only part of the property. No evidentiary basis for apportioning the expenditure was provided. As the applicant declined to identify alternatives, the Tribunal affirmed the objection decision in relation to each expense not conceded by the Commissioner. Where an expense might have been deductible in part if it were apportioned, this was noted in the decision. | In relation to substantiation, The Tribunal confirmed that in claiming a loss or outgoing as a deduction, it is incumbent to provide evidence establishing that the expenditure was actually incurred, and that it had the requisite connection with gaining or producing the personal services income.", "Issues_Decided": "The Tribunal accepted the Commissioner's reliance on s14ZZK of the Taxation Administration Act 1953 such that the taxpayer could not succeed unless it was demonstrated that the assessment was wrong and that an alternative figure or approach was preferable. As the taxpayer maintained an \"all or nothing\" approach, and that each expense was attributed to the personal services business, the objection decision had to be affirmed unless substantially all of the expenses could be attributed to the personal services income. The Tribunal found that the applicant was not entitled to claim all of the costs associated with holding and maintaining the farm, given that it was plainly held by the family company for a variety of purposes apart from the consulting business, and the \"test crop\" of trees grown in connection with the consulting business covered only part of the property. No evidentiary basis for apportioning the expenditure was provided. As the applicant declined to identify alternatives, the Tribunal affirmed the objection decision in relation to each expense not conceded by the Commissioner. Where an expense might have been deductible in part if it were apportioned, this was noted in the decision. In relation to substantiation, The Tribunal confirmed that in claiming a loss or outgoing as a deduction, it is incumbent to provide evidence establishing that the expenditure was actually incurred, and that it had the requisite connection with gaining or producing the personal services income.", "ATO_View_of_Decision": "The decision confirms that an evidentiary basis for apportionment is required where the deduction relates only in part to personal services income, and the substantiation requirements in relation to deduction claims.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "TR 2001/7 | TR 2001/8 | TR 2003/6 | TR 2003/10 | 2011 ATC 1-034 | 86-15 | 86-20 | 14ZZK", "Legislative_References": "Income Tax Assessment Act 1997 86-15 86-20 Taxation Administration Act 1953 14ZZK", "Case_References": "", "Subject_References": "Personal services income Personal services entity Deductible expense Apportionment", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/3207-3030/00001", "Unmatched_Content": ""}
{"Case_Name": "Taxpayer and Commissioner of Taxation", "Venue_Reference_No": "2010/4083", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "5 August 2011", "Date_Published": "1 November 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns whether the taxpayer was engaged in the business of share trading during the income tax year ended 30 June 2008.", "Overview_of_Facts": "The applicant is the chief executive of a profitable services business conducted by a subsidiary of a holding company that the applicant controls. The day-to-day management of the services company has been delegated to competent executives, which enables the applicant to pursue a range of investment interests. The applicant also controls two other companies that invest in property and share markets. The applicant also has investments in shares and property in his own name. | The applicant registered with Commsec and arranged a margin load facility in late 2004. The applicant acquired some shares in 2005. The applicant became involved in a stock-picking and research service called Stockval in October 2006. The applicant purchased a licence from Stockval and became entitled to receive the firm's regular research and advice on share market opportunities. The licence is current and runs until 2012. The applicant also conducted his own online searches on the Commsec website and elsewhere, and talked to people in the market like his broker. | The applicant's strategy was to buy stocks that were out of favour at a low or falling price and wait for the price to rebound when the shares could be sold and a profit realised. However there was no formal business plan. | The applicant's pattern of buying and selling shares did not demonstrate that the applicant was turning over the shares he acquired. The applicant attributed the lack of turnover of shares to the global financial crisis which first started in 2007 and deepened in 2008, and the applicant's preference to hold onto the blue chip shares to maintain his Commsec margin loan facility. | The applicant's financial commitment was relatively large and the applicant managed his share trades on his own. The applicant conducted his trades from his laptop computer or mobile phone. | Issues decided by the tribunal | The applicant was in the business of trading shares during the income tax year ended 30 June 2008 based on the following: • The applicant intended to make a profit out of his activities during the year of income and the applicant initially intended to make that profit in the short term. • The applicant did not engage in an academic pursuit or a hobby. • The applicant's subjective and objective intention of the activity suggested the motive was profit. • The applicant had several million dollars at stake. • The applicant regarded it as a serious business. • The applicant intended to make regular trades, even though it turned out to be acquisitions rather than sales. • The applicant behaved in a systematic strategy. It was not detailed, scientific or formal but the applicant was not investing on a whim. • The applicant operated in a business-like manner - the applicant conducted his business from his laptop computer or mobile phone, the applicant kept his records online and entered into arrangements with a broker and Commsec. | • The applicant intended to make a profit out of his activities during the year of income and the applicant initially intended to make that profit in the short term. • The applicant did not engage in an academic pursuit or a hobby. • The applicant's subjective and objective intention of the activity suggested the motive was profit. • The applicant had several million dollars at stake. • The applicant regarded it as a serious business. • The applicant intended to make regular trades, even though it turned out to be acquisitions rather than sales. • The applicant behaved in a systematic strategy. It was not detailed, scientific or formal but the applicant was not investing on a whim. • The applicant operated in a business-like manner - the applicant conducted his business from his laptop computer or mobile phone, the applicant kept his records online and entered into arrangements with a broker and Commsec. | The Tribunal was satisfied that the applicant was a witness of truth.", "Issues_Decided": "The applicant was in the business of trading shares during the income tax year ended 30 June 2008 based on the following: • The applicant intended to make a profit out of his activities during the year of income and the applicant initially intended to make that profit in the short term. • The applicant did not engage in an academic pursuit or a hobby. • The applicant's subjective and objective intention of the activity suggested the motive was profit. • The applicant had several million dollars at stake. • The applicant regarded it as a serious business. • The applicant intended to make regular trades, even though it turned out to be acquisitions rather than sales. • The applicant behaved in a systematic strategy. It was not detailed, scientific or formal but the applicant was not investing on a whim. • The applicant operated in a business-like manner - the applicant conducted his business from his laptop computer or mobile phone, the applicant kept his records online and entered into arrangements with a broker and Commsec. • The applicant intended to make a profit out of his activities during the year of income and the applicant initially intended to make that profit in the short term. • The applicant did not engage in an academic pursuit or a hobby. • The applicant's subjective and objective intention of the activity suggested the motive was profit. • The applicant had several million dollars at stake. • The applicant regarded it as a serious business. • The applicant intended to make regular trades, even though it turned out to be acquisitions rather than sales. • The applicant behaved in a systematic strategy. It was not detailed, scientific or formal but the applicant was not investing on a whim. • The applicant operated in a business-like manner - the applicant conducted his business from his laptop computer or mobile phone, the applicant kept his records online and entered into arrangements with a broker and Commsec. The Tribunal was satisfied that the applicant was a witness of truth.", "ATO_View_of_Decision": "The case was decided on its facts and the decision that the taxpayer was conducting a business of share trading was based on the findings made by the Tribunal. As the decision was based on the specific facts of the case, it will not have any impact on any existing or future litigation proceedings.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A | Implications for Law Administration Practice Statements | N/A", "Related_Documents": "Taxation Ruling TR 97/11 | 2011 ATC 1-037 | 6-5 | 8-5 | 77 ATC 4255 | 79 ATC 4261 | 89 ATC 4101 | 2010 ATC 10-146 | 99 ATC 2037", "Legislative_References": "Income Tax Assessment Act 1997 6-5 8-5", "Case_References": "Federal Coke Co Pty Ltd v Federal Commissioner of Taxation [1977] FCA 3 7 ATR 519 77 ATC 4255 Ferguson v Federal Commissioner of Taxation [1979] FCA 29 79 ATC 4261 9 ATR 873 John v Commissioner of Taxation [1989] HCA 5 (1989) 166 CLR 417 20 ATR 1 89 ATC 4101 Smith v Commissioner of Taxation [2010] AATA 576 2010 ATC 10-146 Shields v Deputy Federal Commissioner of Taxation (1999) 41 ATR 1042 99 ATC 2037", "Subject_References": "Business of share trading Share investor", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/4083/00001", "Unmatched_Content": ""}
{"Case_Name": "Taxpayer and Commissioner of Taxation", "Venue_Reference_No": "2010/4609", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "25 July 2011", "Date_Published": "22 December 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case concerned whether discounts arising from the acquisition of shares under an employee share scheme are assessable income and not subject to the capital gains tax provisions.", "Overview_of_Facts": "The applicant, an employee of a multi-national corporation, exercised options as part of the company's employee share scheme to acquire 11,000 shares at a price below market value. | The Commissioner assessed the discount, being the difference between the market price of the share and the strike price of the option, as assessable income of the applicant in accordance with Division 13A of the Income Tax Assessment Act 1936. An administrative penalty was imposed at the rate of 25% for lack of reasonable care. | Issues decided by the tribunal | The Tribunal found the amount of the discount was assessable as income under Division 13A of the Income Tax Assessment Act 1936 , and a capital loss or gain did not arise. In the circumstances, the discount would be included in the income year in which the cessation time occurred, being the date the shares were acquired. The Tribunal accepted that for the purposes of ascertaining the market value of the share, exchange rate data from the company's website could be used, and that the foreign currency calculation required by the legislation need only occur once the weighted average share price had been determined. The Tribunal allowed a recalculation of the discount to permit the use of the most favourable exchange rates. | The administrative penalty had been correctly imposed as the applicant was experienced in financial matters as a result of his occupation and experience, and ought to have obtained advice given the amount of money involved.", "Issues_Decided": "The Tribunal found the amount of the discount was assessable as income under Division 13A of the Income Tax Assessment Act 1936 , and a capital loss or gain did not arise. In the circumstances, the discount would be included in the income year in which the cessation time occurred, being the date the shares were acquired. The Tribunal accepted that for the purposes of ascertaining the market value of the share, exchange rate data from the company's website could be used, and that the foreign currency calculation required by the legislation need only occur once the weighted average share price had been determined. The Tribunal allowed a recalculation of the discount to permit the use of the most favourable exchange rates. The administrative penalty had been correctly imposed as the applicant was experienced in financial matters as a result of his occupation and experience, and ought to have obtained advice given the amount of money involved.", "ATO_View_of_Decision": "The ATO considers that the case was decided on its facts. The decision confirms a discount arising from shares acquired under employee share schemes is to be included as assessable income of the taxpayer, and the methodology to be applied in ascertaining the value of the discount.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "N/A | 2011 ATC 1-036", "Legislative_References": "Income Tax Assessment Act 1936 Division 13A", "Case_References": "", "Subject_References": "Employee Share Schemes", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/4609/00001", "Unmatched_Content": ""}
{"Case_Name": "The Trustee for the Naidu Family Trust and Commissioner of Taxation", "Venue_Reference_No": "2011/0421", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "19 December 2011", "Date_Published": "16 February 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case, which concerned whether the taxpayer was liable to GST on a supply of property as mortgagee in possession.", "Overview_of_Facts": "", "Issues_Decided": "", "ATO_View_of_Decision": "The Tribunal's decision that the taxpayer is liable to pay GST on the supply of property is in accordance with the Commissioner's view of the operation of section 105-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth). | The Tribunal finding that the supply of property took place at settlement, that is, at the time the transfer was executed, is consistent with the Commissioner's submissions to the Tribunal. | The ATO also accepts that it was open to the Tribunal to remit the matter to the Commissioner to reassess the net amount based on the revised calculation.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Implications for Law Administration Practice Statements", "Related_Documents": "N/A | 2011 ATC 10-227 | 105-1 | 105-5 | 2008 ATC 20-028 | 2007 ATC 2794 | 2011 ATC 20-274 | 2008 ATC 20-034 | 91 ATC 4476", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (Cth) 105-1 105-5", "Case_References": "Federal Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 68 ATR 158 2008 ATC 20-028 Re Keenhilt Pty Ltd (as trustee for the CHC Services Trust) v Federal Commissioner of Taxation [2007] AATA 2095 67 ATR 988 2007 ATC 2794 Central Equity Ltd v Commissioner of Taxation [2011] FCA 908 2011 ATC 20-274 Brady King Pty Ltd v Commissioner of Taxation [2008] FCAFC 118 (2008) 168 FCR 558 2008 ATC 20-034 69 ATR 670 Stevenson v Federal Commissioner of Taxation (1991) 29 FCR 282 91 ATC 4476 22 ATR 56", "Subject_References": "GST liability on supply of a property Timing of supply of property Mortgagee in possession", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2011/0421/00001", "Unmatched_Content": ""}
{"Case_Name": "Tricare Group Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "2821 of 2011", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "", "Date_Published": "31 May 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "1. Tricare Group Pty Ltd is the head company of a consolidated group of companies that includes Tricare (Toowoomba) Pty Ltd (Tricare Toowoomba). | 2. Tricare Toowoomba acquired, as a going concern, the business of operating a retirement village from Vestaburn Pty Ltd. It carried on that business. After it acquired the business and while carrying it on, Tricare Toowoomba made payments to persons who had ceased to be a resident (or to their legal personal representative), representing a portion of the difference between the contribution made by those persons when they became residents of the retirement village and the new resident's contribution. | 3. Tricare Group Pty Ltd contended that the amounts so paid were deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) or alternatively under section 40-880 of the ITAA 1997. | 4. The Commissioner contended that the amounts were not deductible under section 8-1 of the ITAA 1997 on the ground that the amounts not incurred in carrying on a business for the purpose of gaining or producing assessable income and were capital or of a capital nature. The Commissioner also contended that paragraph 40-880(5)(d) of the ITAA 1997 operated to prevent a deduction under section 40-880 of the ITAA 1997. | Issues decided by the tribunal | The AAT held that the amounts in question were incurred in carrying on a business for the purpose of gaining or producing assessable income and were not capital or of a capital nature. That being the case, the operation of section 40-880 of the ITAA 1997 did not arise for consideration.", "Issues_Decided": "The AAT held that the amounts in question were incurred in carrying on a business for the purpose of gaining or producing assessable income and were not capital or of a capital nature. That being the case, the operation of section 40-880 of the ITAA 1997 did not arise for consideration.", "ATO_View_of_Decision": "The deductibility of an outgoing under section 8-1 of the ITAA 1997, and in particular, whether an outgoing is capital or of a capital nature is purely a question of fact unless there is a misdirection as to the relevant legal principles. In this case, on the basis of the circumstances of the taxpayer, the AAT concluded that the amounts in question were properly characterised as the cost of operating the business in question rather than a cost of acquiring it. | The application of correct legal principles under section 8-1 of the ITAA 1997 to the primary facts in reviewing an assessment may permit the AAT to arrive at more than one conclusion. A court will not interfere with the decision of the AAT in such cases even if it would itself have arrived at another conclusion. The AAT is not bound to follow its own decisions, and findings of fact are not in any event precedents. | Consequently, as a decision of fact based on the circumstances of this taxpayer, this decision has no implications where these payments are made by village operators in the differing circumstances covered by TR 2002/14. That is, an existing village operator makes these payments to a former resident (or to their legal personal representative) under a contractual obligation between the village operator and the resident. Consequently, in these circumstances, the ATO maintains the view, as outlined in paragraph 50 of TR 2002/14, that these payments are capital or of a capital nature. | In cases not covered by the TR 2002/14, close attention will need to be given to the particular facts and the tests stated in Sun Newspapers Ltd v Federal Commissioner of Taxation ; (1938) 61 CLR 337 to form a view as to whether the expenditure in question is on capital account. Because the distinction between capital and revenue is often a fine one, the result in this case will not necessarily be indicative: taxpayers who wish to know the ATO position in regard to their particular facts should seek ATO advice.", "Administrative_Treatment": "Based on the above view of the decision, the ATO does not intend to conduct a review of TR 2002/14. | The ATO also does not intend to conduct a review of GSTR 2011/1. | Implications for ATO precedential documents | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "Decision Impact Statement | TR 2002/14 | GSTR 2011/1 | N/A | 2011 ATC 1-031 | 8-1 | 40-880 | (1946) 72 CLR 634 | (1990) 90 ATC 4413 | 2009 ATC 20-109 | (1938) 61 CLR 337", "Legislative_References": "Income Tax Assessment Act 1997 8-1 40-880", "Case_References": "Hallstroms Pty Ltd v Federal Commissioner of Taxation [1946] HCA 34 (1946) 72 CLR 634 G.P. International Pipecoaters Pty Ltd v Federal Commissioner of Taxation [1990] HCA 25 (1990) 170 CLR 124 (1990) 90 ATC 4413 (1990) 21 ATR 1 Spriggs v Federal Commissioner of Taxation [2009] HCA 22 (2009) 239 CLR 1 2009 ATC 20-109 (2009) 72 ATR 148 Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337", "Subject_References": "Deductions Losses or outgoings Carrying on a business Purpose of gaining or producing assessable income Capital or of a capital nature", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2821of2011/00001", "Unmatched_Content": "Please refer to the Decision Impact Statement for Retirement Village Operator and Commissioner of Taxation [2013] AATA 887, issued on 12 November 2014, that outlines the ATO view of that decision and the administrative treatment that also applies to this decision."}
{"Case_Name": "Wynnum Holdings No 1 Pty Ltd and Federal Commissioner of Taxation; FD Dunn & JW Dunn and MAM Sky Superannuation Fund and Federal Commissioner of Taxation", "Venue_Reference_No": "2008/5986; 2011/5618", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "5 May 2011", "Date_Published": "19 June 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to related cases concerning recovery restrictions where a ruling was issued and whether the issues went to substantive liability, which entity carried on the enterprise, and whether premises were commercial residential premises.", "Overview_of_Facts": "In 2003, a number of parties (called 'Joint Venturers') formed a syndicate to invest in a retirement village. The Joint Venture Deed and Deed Poll contained provisions which indicated that Wynnum Holdings No 1 Pty Ltd (Wynnum Holdings) was the nominee and bare trustee of the real property for the Joint Venturers. The Joint Venturers also agreed that the leasing and management of the property was the main goal. | The property was purchased by Wynnum Holdings for $4.27m including GST of $388,182. The contract referred to the purchaser as \"Wynnum Holdings No 1 Pty Ltd A.C.N. 103 394 716 as trustee for the Wynnum Holdings No 1 Joint Venture Trust\". | The premises consisted of six buildings, five of which were accommodation units. The other one contained a community centre and a manager's private apartment. Ten car parking spaces were available for the general use of visitors and residents. The premises also included extensive landscaped grounds. | Various services were also provided - linen and towels, washing, meals and optional 24-hour emergency call monitoring. Accommodation was on a basis that matched pension income. Residents also had to not require higher care nursing facilities. They entered into \"Standard Residential Services Agreements\" (SRSAs) prior to occupation, which set out the terms and conditions of residency. | Wynnum Holdings was registered for GST. Between 1 October 2003 and 7 October 2003, it lodged a business activity statement (BAS) for the period 1 July 2003 to 30 September 2003 and claimed input tax credits for the purchase of the property, resulting in a refund net amount of $388,182. This was credited to its running balance account on 31 October 2003 and later paid to Wynnum Holdings. | On 23 October 2007 (more than four years after the lodgment of the relevant BAS), the Commissioner issued a 'Notice to Repay and incorrectly paid refunds for the tax period 1/07/2003 to 30/09/2003', claiming from Wynnum Holdings repayment of the $388,182. An assessment issued on 28 April 2008 for the tax periods from 1 July 2003 to 31 December 2007 specifying an assessed net amount of $0 for each period. | Objections were disallowed and Wynnum Holdings sought a review by the Tribunal. | Issues decided by the court | The following issues arose: • whether the Commissioner was prevented under section 105-50 in Schedule 1 to the Taxation Administration Act 1953 (TAA) from recovering the $388,182 payment (the \"timing issue\"); • whether the Commissioner was prevented from recovering the amount due to a previous ruling made (the \"ruling issue\"); • whether the above two issues went to the substantive liability of Wynnum Holdings and, therefore, to excessiveness of an assessment (the \"excessiveness of the assessment issue\"); • whether the Joint Venturers or Wynnum Holdings was the entity carrying on the enterprise at the relevant time (the \"enterprise issue\"); and • whether the premises were commercial residential premises (the \"commercial residential premises issue\"). | • whether the Commissioner was prevented under section 105-50 in Schedule 1 to the Taxation Administration Act 1953 (TAA) from recovering the $388,182 payment (the \"timing issue\"); • whether the Commissioner was prevented from recovering the amount due to a previous ruling made (the \"ruling issue\"); • whether the above two issues went to the substantive liability of Wynnum Holdings and, therefore, to excessiveness of an assessment (the \"excessiveness of the assessment issue\"); • whether the Joint Venturers or Wynnum Holdings was the entity carrying on the enterprise at the relevant time (the \"enterprise issue\"); and • whether the premises were commercial residential premises (the \"commercial residential premises issue\"). | The Tribunal's decisions concerning the first three issues are set out in [2011] AATA 296 (and subsequently incorporated into [2012] AATA 616 at [4]). The Tribunal's decisions concerning the final two issues are set out in [2012] AATA 616. | 1. The \"timing issue\" | The Tribunal decided that section 105-50, as it was then enacted, did not prevent the Commissioner from recovering the relevant amount. Section 105-50 states that any unpaid net amount or amount of indirect tax ceases to be payable in certain circumstances. The relevant amount was not an 'unpaid net amount'. The Tribunal also said at [28] that the relevant amount was not an 'unpaid amount of indirect tax'. | The Tribunal concluded at [35] that 'indirect tax' does not include amounts claimed as input tax credits because they are not tax payable under the GST law and imposed as goods and services tax. The Tribunal noted the Commissioner's submissions at [36] that the liability for incorrectly claimed credits arose under subsubsection 8AAZN(1) as the payment to Wynnum Holdings was an administrative overpayment. While not expressly endorsing this position, the Tribunal did not cast doubt on it. | 2. The \"ruling issue\" | The Tribunal did not accept at [43] that the Commissioner had provided any ruling to Wynnum Holdings and was therefore prevented from recovering the amount under section 37 of the TAA (as it then applied). Subsection 37(4) stated that a 'ruling' means any ruling or advice given or published by the Commissioner, including one that has been previously altered, but does not include one given orally or an assessment. The Tribunal observed at [43] that '[t]o post an amount to a taxpayer's running balance account is not to \"give\" or \"publish\" a \"ruling\" or \"advice\".' Any information the Commissioner may have given to Wynnum Holdings by phone was specifically excluded from the definition of a 'ruling'. | 3. The \"excessiveness of the assessment issue\" | In joint submissions, the Commissioner and Wynnum Holdings submitted that section 105-50 and section 37 affect, or go to, the substantive liability of a taxpayer and, therefore, to excessiveness of an assessment. The Tribunal agreed and observed at [47-48] that, if Wynnum Holdings had been successful on either the timing issue or the ruling issue, it would have shown the assessment to be excessive. | 4. The \"enterprise issue\" | The Tribunal found at [37] that Wynnum Holdings and the Joint Venturers agreed that Wynnum Holdings held 'the Assets', including the property, as nominee and bare trustee of the Joint Venturers. The Tribunal concluded at [40] that Wynnum Holdings was not carrying on the enterprise when it purchased the property. The fact that Wynnum Holdings, rather than the Joint Venturers, entered into an agreement with a third party to manage the premises did not matter. The Tribunal agreed at [41] that it was the Joint Venturers who carried on the enterprise at the relevant time. | 5. The \"commercial residential premises issue\" | The property would satisfy the definition of 'commercial residential premises' in section 195-1 if it was a hotel, motel, inn, hostel or boarding house under paragraph (a), or was anything similar to these types of premises under paragraph (f). | The Tribunal decided that the property was not a hotel, motel or inn (at [69-70]), and was not, nor similar to, a boarding house (at [71]). The Tribunal observed at [72] that the property seemed to have some attributes of a hostel and, at least in some respects, was similar to a hostel. However, it concluded at [76-77] that the presence of certain factors meant the property was not a hotel, motel, inn, hostel, boarding house, or similar premises, and therefore not commercial residential premises. | The Tribunal considered at [78-82] views expressed in GSTR 2000/20, concerning the relevance of eight attributes common to a hotel, motel, inn, hostel or boarding house. It observed that only considering the presence of those characteristics may not lead to the right outcome and demonstrates the difficulty in prescribing factors that are relevant to determining whether premises are commercial residential premises. | The Tribunal affirmed the disallowance of the objections at [84].", "Issues_Decided": "The following issues arose: • whether the Commissioner was prevented under section 105-50 in Schedule 1 to the Taxation Administration Act 1953 (TAA) from recovering the $388,182 payment (the \"timing issue\"); • whether the Commissioner was prevented from recovering the amount due to a previous ruling made (the \"ruling issue\"); • whether the above two issues went to the substantive liability of Wynnum Holdings and, therefore, to excessiveness of an assessment (the \"excessiveness of the assessment issue\"); • whether the Joint Venturers or Wynnum Holdings was the entity carrying on the enterprise at the relevant time (the \"enterprise issue\"); and • whether the premises were commercial residential premises (the \"commercial residential premises issue\"). • whether the Commissioner was prevented under section 105-50 in Schedule 1 to the Taxation Administration Act 1953 (TAA) from recovering the $388,182 payment (the \"timing issue\"); • whether the Commissioner was prevented from recovering the amount due to a previous ruling made (the \"ruling issue\"); • whether the above two issues went to the substantive liability of Wynnum Holdings and, therefore, to excessiveness of an assessment (the \"excessiveness of the assessment issue\"); • whether the Joint Venturers or Wynnum Holdings was the entity carrying on the enterprise at the relevant time (the \"enterprise issue\"); and • whether the premises were commercial residential premises (the \"commercial residential premises issue\"). The Tribunal's decisions concerning the first three issues are set out in [2011] AATA 296 (and subsequently incorporated into [2012] AATA 616 at [4]). The Tribunal's decisions concerning the final two issues are set out in [2012] AATA 616. | 1. The \"timing issue\": The Tribunal decided that section 105-50, as it was then enacted, did not prevent the Commissioner from recovering the relevant amount. Section 105-50 states that any unpaid net amount or amount of indirect tax ceases to be payable in certain circumstances. The relevant amount was not an 'unpaid net amount'. The Tribunal also said at [28] that the relevant amount was not an 'unpaid amount of indirect tax'. The Tribunal concluded at [35] that 'indirect tax' does not include amounts claimed as input tax credits because they are not tax payable under the GST law and imposed as goods and services tax. The Tribunal noted the Commissioner's submissions at [36] that the liability for incorrectly claimed credits arose under subsubsection 8AAZN(1) as the payment to Wynnum Holdings was an administrative overpayment. While not expressly endorsing this position, the Tribunal did not cast doubt on it. | 2. The \"ruling issue\": The Tribunal did not accept at [43] that the Commissioner had provided any ruling to Wynnum Holdings and was therefore prevented from recovering the amount under section 37 of the TAA (as it then applied). Subsection 37(4) stated that a 'ruling' means any ruling or advice given or published by the Commissioner, including one that has been previously altered, but does not include one given orally or an assessment. The Tribunal observed at [43] that '[t]o post an amount to a taxpayer's running balance account is not to \"give\" or \"publish\" a \"ruling\" or \"advice\".' Any information the Commissioner may have given to Wynnum Holdings by phone was specifically excluded from the definition of a 'ruling'. | 3. The \"excessiveness of the assessment issue\": In joint submissions, the Commissioner and Wynnum Holdings submitted that section 105-50 and section 37 affect, or go to, the substantive liability of a taxpayer and, therefore, to excessiveness of an assessment. The Tribunal agreed and observed at [47-48] that, if Wynnum Holdings had been successful on either the timing issue or the ruling issue, it would have shown the assessment to be excessive. | 4. The \"enterprise issue\": The Tribunal found at [37] that Wynnum Holdings and the Joint Venturers agreed that Wynnum Holdings held 'the Assets', including the property, as nominee and bare trustee of the Joint Venturers. The Tribunal concluded at [40] that Wynnum Holdings was not carrying on the enterprise when it purchased the property. The fact that Wynnum Holdings, rather than the Joint Venturers, entered into an agreement with a third party to manage the premises did not matter. The Tribunal agreed at [41] that it was the Joint Venturers who carried on the enterprise at the relevant time. | 5. The \"commercial residential premises issue\": The property would satisfy the definition of 'commercial residential premises' in section 195-1 if it was a hotel, motel, inn, hostel or boarding house under paragraph (a), or was anything similar to these types of premises under paragraph (f). The Tribunal decided that the property was not a hotel, motel or inn (at [69-70]), and was not, nor similar to, a boarding house (at [71]). The Tribunal observed at [72] that the property seemed to have some attributes of a hostel and, at least in some respects, was similar to a hostel. However, it concluded at [76-77] that the presence of certain factors meant the property was not a hotel, motel, inn, hostel, boarding house, or similar premises, and therefore not commercial residential premises. The Tribunal considered at [78-82] views expressed in GSTR 2000/20, concerning the relevance of eight attributes common to a hotel, motel, inn, hostel or boarding house. It observed that only considering the presence of those characteristics may not lead to the right outcome and demonstrates the difficulty in prescribing factors that are relevant to determining whether premises are commercial residential premises. The Tribunal affirmed the disallowance of the objections at [84].", "ATO_View_of_Decision": "The Tribunal's decisions on the timing issue, ruling issue and excessiveness of the assessment issue are consistent with the Commissioner's submissions. | Subsection 105-50(2), which took effect from 1 July 2008, introduced a four year time limit for recovery of amounts paid as refunds in relation to net amounts in certain circumstances. Prior to this, the Commissioner had an administrative practice of not pursuing incorrectly paid refunds (negative net amounts) after four years from the date on which the net amount became payable unless a notification that was the equivalent of a section 105-50 notice had been given before the end of the relevant four year period. | Section 37 was repealed with effect from 1 July 2006. Rules concerning rulings issued by the Commissioner now appear in Division 357. | The Tribunal's decision on the enterprise issue is consistent with views set out in GSTR 2008/3 Goods and services tax : dealings in real property by bare trusts . | While deciding that the property was not 'commercial residential premises', the Tribunal's reasoning for this conclusion differs to some extent with the preliminary views expressed in GSTR 2012/D1. The Tribunal's views in this regard have been reflected in GSTR 2012/6, which replaced GSTR 2000/20.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Not Applicable", "Related_Documents": "None | Wynnum Holdings No 1 Pty Ltd v Federal Commissioner of Taxation | [2011] AATA 296 | 2011 ATC 10-180 | FD Dunn & JW Dunn and MAM Sky Superannuation Fund v Federal Commissioner of Taxation | [2012] AATA 616 | 2012 ATC 10-274 | GSTR 2006/3 | MT 2010/1 | GSTR 2012/5 | GSTR 2012/6 | The Act | 2012 ATC 20-336 | 88 ATC 4995 | 2004 ATC 5068 | 2009 ATC 20-158 | 2009 ATC 20-143", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 The Act Taxation Administration Act 1953 The Act", "Case_References": "ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust v Commissioner of Taxation [2012] FCA 795 2012 ATC 20-336 Herdegen v Commissioner of Taxation [1988] FCA 699 20 ATR 24 88 ATC 4995 Marana Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 307 2004 ATC 5068 57 ATR 521 Meridien Marinas Horizon Shores Pty Ltd v FCT [2009] FCA 1594 2009 ATC 20-158 74 ATR 787 Lergou and Commissioner of Taxation [2009] AATA 292 72 ATR 812 Russell v Commissioner of Taxation [2009] FCA 1224 2009 ATC 20-143 74 ATR 466 Wynnum Holdings No 1 Pty Ltd and Commissioner of Taxation [2011] AATA 296 2011 ATC 10-180 83 ATR 444", "Subject_References": "Goods and services tax Whether the Commissioner's claim for recovery is out of time Whether amount paid is an 'unpaid net amount' or 'unpaid indirect tax' Whether Commissioner is prevented from recovering amount by a previous ruling Overclaimed input tax credits Commercial residential premises Enterprise Creditable purpose and creditable acquisition Trustee as nominee and bare trustee", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008-5986;2011-5618/00001", "Unmatched_Content": ""}
{"Case_Name": "Addoug v Commissioner of Taxation", "Venue_Reference_No": "2007/5020", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "3 February 2010", "Date_Published": "15 June 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "The decision under review was varied by reducing the penalty imposed in respect of the GST shortfall to 25%. In all remaining aspects, the decision under review was affirmed.", "Summary_of_Decision": "This case involves the question of whether the taxpayer has discharged the onus of proving that amended assessments of income tax and assessments for a net amount of GST were excessive, and whether administrative penalties imposed for assessed income tax and GST shortfalls were appropriate.", "Overview_of_Facts": "1. In August 2003 the Applicant entered into a contract for the purchase of a tobacco farm. | 2. An audit was undertaken of the Applicant's business activities. The audit considered the Applicant's compliance with A New Tax System (Goods and Services Tax) Act 1999 (\"the GST Act\") and income tax matters. | GST | 3. At the conclusion of the audit, the Respondent issued assessments of the Applicant's net amount for the period 1 January 2004 to 30 June 2005 and an assessment of administrative penalties (\"the GST Assessments\"). | 4. The applicant, by her Counsel in final submissions, conceded that she was liable to pay GST during the relevant periods. | Income Tax | 5. The review, for the purposes of income tax, was conducted in relation to the income years ended 2003, 2004 and 2005. | 6. At the conclusion of the audit, the respondent issued amended assessments in respect of income tax for the three years (\"the Income Tax Assessments\") and a notice of assessment and liability to pay penalty for the 2004 and 2005 years. | Issues decided by the court | The Tribunal affirmed the Commissioner's objection decision in respect of: • the amended income tax assessments for the 2003, 2004 and 2005 years, • the GST Assessments for the quarters ended 31 March 2004, 30 June 2004, 30 September 2004, 31 December 2004, 31 March 2005, and 30 June 2005, and • the penalty of 50% imposed with respect to the income tax shortfall. | • the amended income tax assessments for the 2003, 2004 and 2005 years, • the GST Assessments for the quarters ended 31 March 2004, 30 June 2004, 30 September 2004, 31 December 2004, 31 March 2005, and 30 June 2005, and • the penalty of 50% imposed with respect to the income tax shortfall. | The Tribunal, notwithstanding the doubts it expressed about the credibility of the taxpayer's evidence, accepted that she did receive advice from her accountant that she was not liable for GST. Consequently, the Tribunal decided to reduce the penalty imposed with respect to the GST shortfall to 25%.", "Issues_Decided": "The Tribunal affirmed the Commissioner's objection decision in respect of: • the amended income tax assessments for the 2003, 2004 and 2005 years, • the GST Assessments for the quarters ended 31 March 2004, 30 June 2004, 30 September 2004, 31 December 2004, 31 March 2005, and 30 June 2005, and • the penalty of 50% imposed with respect to the income tax shortfall. • the amended income tax assessments for the 2003, 2004 and 2005 years, • the GST Assessments for the quarters ended 31 March 2004, 30 June 2004, 30 September 2004, 31 December 2004, 31 March 2005, and 30 June 2005, and • the penalty of 50% imposed with respect to the income tax shortfall. The Tribunal, notwithstanding the doubts it expressed about the credibility of the taxpayer's evidence, accepted that she did receive advice from her accountant that she was not liable for GST. Consequently, the Tribunal decided to reduce the penalty imposed with respect to the GST shortfall to 25%.", "ATO_View_of_Decision": "The decision to reduce the GST penalty was open to the Tribunal on the particular facts and circumstances of this case. Therefore, it is considered that the decision will not have any impact on existing or future litigation matters.", "Administrative_Treatment": "n/a", "Related_Documents": "n/a | [2010] AATA 79 | 14ZZK | 284-80 | 284-90(1) | (1990) 90 ATC 4088 | (1979) 79 ATC 4111 | (1975) 75 ATC 4257", "Legislative_References": "Taxation Administration Act (1953) 14ZZK 284-80 284-90(1)", "Case_References": "Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 (1990) 20 ATR 1370 (1990) 90 ATC 4088 McCormack v Commissioner of Taxation (1979) 143 CLR 284 (1979) 9 ATR 610 (1979) 79 ATC 4111 Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 (1975) 5 ATR 672 (1975) 75 ATC 4257", "Subject_References": "Income Tax Penalties Goods & Services Tax GST Default assessments Burden of proof Onus on taxpayer to prove assessments excessive", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/5020/00001", "Unmatched_Content": ""}
{"Case_Name": "Aid/Watch Incorporated v Commissioner of Taxation", "Venue_Reference_No": "S82 of 2010", "Venue": "High Court", "Judgment_Date": "1 December 2010", "Date_Published": "11 December 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The case concerned whether the so-called \"political activities\" principle, having its origins in UK law from 1917, had the result that Aid/Watch should not be endorsed as a charitable institution under s 50-5, Item 1.1 of the ITAA 1997.", "Overview_of_Facts": "Effective from July 2001, Aid/Watch was endorsed as a charitable institution under Item 1.1 of the Table in s 50-5 of the Income Tax Assessment Act 1997 (ITAA 1997). However, after a review by the ATO, Aid/Watch's endorsement was revoked in October 2006. After its objection to this revocation was disallowed, Aid/Watch sought a review in the AAT. | The key facts ultimately relied on by the High Court are set out at paragraphs 5 and 6 of the majority judgment of the court where reference was made to the Full Federal Court's findings. It was accepted that Aid/Watch was an organisation concerned with promoting the effectiveness of Australian and multinational aid provided in foreign countries by means which include investment programs, projects and policies. The High Court included the following extracts from the Full Federal Court judgment: \"[Aid/Watch] researches 'generally in partnership with people that are recipients of the aid and non-government organisations'; it brings the issues it identifies to light by publicly releasing the reports that are the result of its research; and it campaigns for changes to the ways in which aid is delivered through media releases and public events designed to influence relevant agencies to alter the way aid programs are administered.\" \"This concern [of Aid/Watch] with the effectiveness of aid delivery is clearly aimed at the relief of poverty. Its premise is that if too little aid is delivered, if aid is delivered to the wrong areas, or if aid is of a particularly low quality it will be ineffective, or at least less efficient, at achieving its goal: namely, the relief of poverty. By promoting the effectiveness of foreign aid, Aid/Watch clearly seeks to promote more efficient use of resources directed to the relief of poverty. Indeed, it may be said that the focus on ensuring that aid is environmentally sustainable is also directed towards the relief of poverty. Where aid is delivered in an unsustainable way it may destroy ecosystems upon which communities rely in order to prosper.\" | The AAT (Downes J, President) decided [2008] AATA 652 that Aid/Watch fell within the concept of charitable purposes described in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531, in that it was a body established for the relief of poverty and also for the advancement of education. | He held that as Aid/Watch's activities were not political, it was not disqualified from charitable status. | The ATO appealed to the Full Federal Court. The Court (Kenny, Stone and Perram JJ) held [2009] FCAFC 128 that the concern of and attempts by Aid/Watch to promote the effectiveness of aid delivery was clearly aimed at the relief of poverty. Further, the Court was of the view that the publication of the results of Aid/Watch's research concerning aid delivery also fell within the charitable notion of the advancement of education. | However, all three judges of the Court held that Aid/Watch's purpose was to engage in political activities, and so, it should be disqualified from having charitable status. | Following the decision of the Full Federal Court, Aid/Watch was successful in seeking special leave to appeal to the High Court of Australia. | Issues decided by the court | The majority of the High Court, French CJ, Gummow, Hayne, Crennan and Bell JJ, in a joint judgment, found in favour of Aid/Watch. Heydon and Kiefel JJ published separate dissenting reasons for judgment. | The majority set out in paragraphs 5 and 6 of its judgment the facts upon which it would seem its decision was based. Specific reference was made to factual considerations taken into account by the Full Federal Court. They were that Aid/Watch was concerned with promoting the effectiveness of Australian and multinational aid provided in foreign countries by means of improved investment programs, projects and policies. | The court was of the view that the origin of the apparent \"political activities\" disqualification notion (i.e., Bowman v Secular Society Ltd [1917] AC 406) was decided in a context which did not take account of the Australian Constitution, and the inherent right of constituents for agitation and communication about matters affecting government, politics and policies. | The court decided that in Australia, there is no general doctrine which excludes from charitable purposes \"political objects\". | The court held that the concern of and attempts by Aid/Watch to promote the effectiveness of aid delivery was clearly aimed at the relief of poverty and that the promotion and generation by lawful means of public debate about matters affecting the better use of and delivery of Australian aid was a matter falling within the fourth Pemsel head, i.e., purposes beneficial to the community.", "Issues_Decided": "The majority of the High Court, French CJ, Gummow, Hayne, Crennan and Bell JJ, in a joint judgment, found in favour of Aid/Watch. Heydon and Kiefel JJ published separate dissenting reasons for judgment. The majority set out in paragraphs 5 and 6 of its judgment the facts upon which it would seem its decision was based. Specific reference was made to factual considerations taken into account by the Full Federal Court. They were that Aid/Watch was concerned with promoting the effectiveness of Australian and multinational aid provided in foreign countries by means of improved investment programs, projects and policies. The court was of the view that the origin of the apparent \"political activities\" disqualification notion (i.e., Bowman v Secular Society Ltd [1917] AC 406) was decided in a context which did not take account of the Australian Constitution, and the inherent right of constituents for agitation and communication about matters affecting government, politics and policies. The court decided that in Australia, there is no general doctrine which excludes from charitable purposes \"political objects\". The court held that the concern of and attempts by Aid/Watch to promote the effectiveness of aid delivery was clearly aimed at the relief of poverty and that the promotion and generation by lawful means of public debate about matters affecting the better use of and delivery of Australian aid was a matter falling within the fourth Pemsel head, i.e., purposes beneficial to the community.", "ATO_View_of_Decision": "The High Court decided, based on the facts set out in paragraphs 5 and 6 of the majority judgment, that the generation by lawful means of public debate (emphasis added) concerning the efficiency of foreign aid directed to the relief of poverty falls within the fourth head of the Pemsel charitable purposes, that is, the body's activities fall within that category in that it contributes to purposes beneficial to the community. | The Court refrained from going further, in that it specifically left aside the question of the generation of debate about the activities of government falling outside the four Pemsel charitable heads. At present, it is therefore the ATO's view that the generation of public debate about subject matters not falling within the four charitable heads does not fall within the ratio of the majority's decision and reasoning. The ATO recognises however the range of subject matters coming within the fourth Pemsel head can be wide and varied. | The majority's conclusion must be read together with the facts identified in paragraphs 5 to 6 of the reasons for judgment. Those findings were premised on the fact that Aid/Watch's concerns were with the more effective delivery of aid and therefore the relief of poverty. The ATO takes the view that an entity does not necessarily need to present a merely neutral view for the purposes of generating public debate; it may present a particular point of view, for example as was the case in Aid/Watch , where Aid/Watch promulgated a position which it considered to be the most effective manner about the delivery of aid in the relief of poverty. | The majority did not go so far as to say or decide that generating public debate about any or every government activity or policy, or the absence of a policy on a particular subject matter, would fall within the fourth Pemsel head: see paragraph 48 of the reasons for judgment of the majority. Therefore, whether the generation of public debate about a particular government activity or policy that lies beyond existing heads of charity can be a charitable purpose will be a matter to be considered on a case by case basis. | The Full Federal Court held that Aid/Watch was a charitable body within Item 1.1 of s 50-5, ITAA 1997 in that it was a body whose purpose was for the relief of poverty, or in the alternative, for the advancement of education. | The majority in the High Court, in finding in favour of Aid/Watch on the basis that it fell within the fourth Pemsel head, a body having purposes beneficial to the community, did not deal with the correctness or otherwise of the Full Federal Court's findings described above. | The reasoning of Heydon and Kiefel JJ in separate dissenting judgements went into some detail in analysing whether Aid/Watch fell within any of the charitable heads of relief of poverty, the advancement of education, or purposes beneficial to the community. For slightly differing reasons, both their Honours held that Aid/Watch met none of the relevant tests to qualify under any of these three heads. Kiefel J went further, and agreed with the Full Federal Court that in any event, Aid/Watch would have been disqualified by the political purposes principle.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Following the decision of the High Court, TR 2005/21 was withdrawn, and replaced by TR 2011/4 on 12 October 2011. This ruling considers the meaning of 'charitable' in light of more recent cases, including Aid/Watch, where the Courts have refined the factors previously thought to impose restrictions on entities claiming charitable status under the tax laws. | Date of amendment Part Comment 11 December 2014 Administrative treatment Updated to advise TR 2005/21 has been withdrawn and replaced by TR 2011/4.", "Related_Documents": "TR 2005/21 | 2010 ATC 20-227 | 50-5, Item 1.1 | [1917] AC 406 | [1981] 3 All ER 493 | 60 CLR 396", "Legislative_References": "Income Tax Assessment Act 1997 50-5, Item 1.1", "Case_References": "Bowman v Secular Society [1917] AC 406 McGovern v Attorney General [1982] Ch 321 [1981] 3 All ER 493 Royal North Shore Hospital of Sydney v Attorney General 60 CLR 396 [1938] HCA 39 [1938] ALR 434", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S82of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Applicant and Commissioner of Taxation", "Venue_Reference_No": "2009/4550", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "1 October 2010", "Date_Published": "18 May 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to the AAT's decision to exercise the discretions in s 154-50 of the Higher Education Support Act 2003 (HESA) and s 1061ZZFK of the Social Security Act 1991 (SSA) to defer payment of the applicant's accumulated Higher Education Loan Program and Financial Supplement debts.", "Overview_of_Facts": "On 13 July 2009, the Commissioner assessed the applicant under the HESA and the SSA, respectively, for accumulated HELP and FS debt repayment obligations for the 2007 and 2008 years. The Commissioner applied PAYG Withholding credits, to which the applicant was entitled in relation to his employment income, against both his HELP and FS assessment debts and his income tax liabilities for the 2007 and 2008 years under s 8AAZLD of the Taxation Administration Act 1953 (TAA). However, because of a mistake that the applicant made in completing an employment declaration, his PAYG Withholding credits were not sufficient to cover all his liabilities for the 2007 and 2008 years. | The applicant applied to the Commissioner to have his HELP and FS assessment debts amended to nil under s 154-50 of the HESA and s 1061ZZFK of the SSA on the basis of either serious hardship or special reasons. The Commissioner refused the applications. The applicant applied to the AAT to have those decisions reviewed. The effect of a decision to amend is that the assessed liability is added back to the accumulated debts and deferred for payment until later years. | Before the AAT, the applicant contended that: his medical and psychological conditions, and the limiting effect they have had on his lifestyle and income earning capacity; incorrect advice he received from an insolvency practitioner that his accumulated HELP and FS debts had been extinguished when he was made bankrupt in 2005; and the resulting mistake he made in completing an employment declaration, constituted the necessary financial hardship or special reasons that justified the AAT in exercising the discretions to defer the debts. | Based on the views expressed in previous AAT decisions on the exercise of the deferral discretions, the Commissioner argued that the applicant's strained financial circumstances were not sufficiently unusual, uncommon or exceptional to be regarded as special reasons that would justify the AAT in granting deferral to the applicant. | Issues decided by the court or tribunal | In preliminary comments, the AAT noted that the previous AAT decisions relied on by the Commissioner were of limited assistance in this case, because they were based on rules developed in cases that dealt with discretions to permanently relieve debtors from financial obligations to the Commonwealth or the community, and because they didn't discuss the differences between deferral relief and permanent relief discretions (paragraphs 9-11). | The deferral discretions in this case grant only temporary relief from payment, and their exercise does not frustrate the integrity of the underlying policy in the HESA and SSA that beneficiaries of education assistance pay for that assistance over time. As there is a lesser impact on the community, the criteria for exercise of the deferral relief discretions should be less stringent than those involved in the exercise of the permanent relief discretions. In particular, difficult financial circumstances coupled with other special circumstances should be enough to support the exercise of the discretions (paragraphs 14-16). | The applicant and his wife live a modest existence, and have financial difficulties that are caused by the applicant's medical and psychological conditions. There was also erroneous advice given to the applicant that resulted in him lodging an employment declaration that led to insufficient PAYG deductions being made to cover his HELP and FS repayment obligations. These are unusual circumstances that, while not sufficient to warrant permanent relief, are sufficient to be regarded as special in the context of temporary relief (paragraphs 30-31).", "Issues_Decided": "In preliminary comments, the AAT noted that the previous AAT decisions relied on by the Commissioner were of limited assistance in this case, because they were based on rules developed in cases that dealt with discretions to permanently relieve debtors from financial obligations to the Commonwealth or the community, and because they didn't discuss the differences between deferral relief and permanent relief discretions (paragraphs 9-11). The deferral discretions in this case grant only temporary relief from payment, and their exercise does not frustrate the integrity of the underlying policy in the HESA and SSA that beneficiaries of education assistance pay for that assistance over time. As there is a lesser impact on the community, the criteria for exercise of the deferral relief discretions should be less stringent than those involved in the exercise of the permanent relief discretions. In particular, difficult financial circumstances coupled with other special circumstances should be enough to support the exercise of the discretions (paragraphs 14-16). The applicant and his wife live a modest existence, and have financial difficulties that are caused by the applicant's medical and psychological conditions. There was also erroneous advice given to the applicant that resulted in him lodging an employment declaration that led to insufficient PAYG deductions being made to cover his HELP and FS repayment obligations. These are unusual circumstances that, while not sufficient to warrant permanent relief, are sufficient to be regarded as special in the context of temporary relief (paragraphs 30-31).", "ATO_View_of_Decision": "The ATO notes that the AAT seemed to approach this case based on an understanding that the Commissioner had applied the applicant's PAYG Withholding credits first against his income tax liabilities for the 2007 and 2008 years, and then against his HELP and FS assessment debts. In fact, as required by s 8AAZLD of the TAA, the Commissioner had applied those credits first against the applicant's HELP and FS assessment debts, and then against his income tax liabilities, leaving part of the income tax liabilities unpaid. However, the ATO accepts that, even if a person's HELP and FS assessment debts have been dealt with fully under s 8AAZLD, the discretions in s 154-30 of the HESA and s 1061ZZFK of the SSA are still available to amend the relevant assessments. In practical terms, this may lead to increased credits against other non-RBA tax debts, or to refunds. | While the AAT commented that previous AAT decisions on the exercise of the amendment discretions were of limited assistance in this case, its decision was not based on the 'serious hardship' limb of the discretions, and it did not expressly disagree with any of those previous decisions. The ATO also notes that the AAT did not disagree with previous decisions that 'special reasons' must be those that are unusual, uncommon or exceptional in the context in which they occur. | The ATO considers that it is not entirely clear how the AAT has concluded that the discretions should be applied. At least in relation to the 'special reasons' limb of the discretions, the AAT has found that difficult financial circumstances, coupled with other special circumstances can justify the exercise of the discretions. Based on the facts as found in this case by the AAT, the ATO accepts that the decision to apply the 'special reasons' limb of the discretions was reasonably open to it.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | 154-50 | 8AAZLD | 6 ALD 1 | (1993) 47 FCR 369 | [2001] AATA 704 | 2004 ATC 234", "Legislative_References": "Higher Education Support Act 2003 (Cth) 154-50 Social Security Act 1991(Cth) 1061ZZFK Taxation Administration Act 1953 8AAZLD", "Case_References": "Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32 [1991] HCA 7 99 ALR 275 Beadle v Director-General of Social Security [1984] AATA 176 (1985) 60 ALR 225 6 ALD 1 McAusland v DFCT (1993) 47 FCR 369 Szekely and FCT [2001] AATA 704 Re Taxpayer and FCT [2004] AATA 1073 2004 ATC 234 57 ATR 1200 O'Reilly and FCT [2009] AATA 235 75 ATR 502", "Subject_References": "Higher Education Loan Program (HELP) debt Financial Supplement (FS) debt Discretion to defer debts Whether serious hardship or special reasons exist", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/4550/00001", "Unmatched_Content": ""}
{"Case_Name": "Barkworth Olives Management Limited v Deputy Commissioner of Taxation", "Venue_Reference_No": "6430 of 2009", "Venue": "Supreme Court", "Judgment_Date": "9 April 2010", "Date_Published": "31 August 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether paragraph 254(1)(e) of the Income Tax Assessment Act 1936 (ITAA 1936) limits the personal liability of a trustee who has been conclusively assessed on the trust's net income, to trust amounts received by that trustee.", "Overview_of_Facts": "The Deputy Commissioner obtained summary judgment in the Supreme Court of Queensland against Barkworth Olives Management Limited (Barkworth Olives) for approximately $81.5m. This amount comprised income tax owing pursuant to assessments issued to Barkworth Olives under section 99A of the ITAA 1936 (in its capacity as trustee of a number of trusts), administrative penalty and general interest charge. | The primary judge rejected Barkworth Olives' argument that paragraph 254(1)(e) of the ITAA 1936 qualified what would otherwise be the conclusive nature of the assessments under section 170 of the ITAA 1936, noting that the contended effect of paragraph 254(1)(e) was an issue that could be raised in separate objection proceedings. | Barkworth Olives appealed the decision on the basis that paragraph 254(1)(e) of the ITAA 1936 meant it was not personally liable for the amounts specified in the notices of assessment because it had not received any of the money that comprised the income that was the subject of the section 99A assessments. | Section 254 relevantly provides: (1) With respect to every agent and with respect also to every trustee, the following provisions shall apply: ......... (d) He is hereby authorized and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains. (e) He is hereby personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount he has retained, or should have retained, under paragraph (d); but he shall not be otherwise personally liable for the tax. ......... (h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against the attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as he would have against the property of any other taxpayer in respect of tax. | (1) With respect to every agent and with respect also to every trustee, the following provisions shall apply: ......... (d) He is hereby authorized and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains. (e) He is hereby personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount he has retained, or should have retained, under paragraph (d); but he shall not be otherwise personally liable for the tax. ......... (h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against the attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as he would have against the property of any other taxpayer in respect of tax. | (d) He is hereby authorized and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains. (e) He is hereby personally liable for the tax payable in respect of the income, profits or gains to the extent of any amount he has retained, or should have retained, under paragraph (d); but he shall not be otherwise personally liable for the tax. ......... (h) For the purpose of insuring the payment of tax the Commissioner shall have the same remedies against the attachable property of any kind vested in or under the control or management or in the possession of any agent or trustee, as he would have against the property of any other taxpayer in respect of tax. | The Deputy Commissioner argued that paragraph 254(1)(e) cannot modify the amount of the debt otherwise fixed as due and payable. | Neither party adopted the view, apparently relied upon by the primary judge, that subparagraph 254(1)(e) forms part of the process of assessment under section 99A. | Issues decided by the court of Appeal | The Deputy Commissioner was entitled to summary judgment. | The Court found that the Applicant's contention that a trustee's liability to pay tax was limited by paragraph 254(1)(e) produced a substantial conflict with those provisions in Division 6, such as section 99A, which in specified circumstances rendered a trustee liable to pay tax, the amount of which was (except in objection proceedings) conclusively set out in the notice of assessment and was due and payable at a certain date (see sections 169, 175, subsection 177(1) and section 204 (now section 5-5 of the Income Tax Assessment Act 1997 ) of the ITAA 1936). | The Court held that this conflict was to be resolved by paragraph 254(1)(e) giving way to those specific provisions in Division 6 which impose liability to tax upon a trustee (as an exception to the general rule that the beneficiaries are liable). Whilst paragraph 254(1)(e) may qualify a personal liability of the trustee created by section 254, it does not qualify a trustee's personal liability created by other provisions (mentioned above) where the trustee is expressed to be liable to tax under a provision of Division 6. | In support of this approach, the Court cited Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998 ) 194 CLR 355 at 382. See paragraphs [28], [30] and [41]. | The Court also noted (at paragraph [42]) that this construction seems consistent with the extrinsic evidence concerning the Bill for the ITAA 1936. Fraser JA observed that the report of the Royal Commission which led to the enactment of that Act suggests that the original predecessor of paragraph 254(1)(e)) was intended to apply where it was the beneficiary, rather than the trustee, who was assessed to tax under the provision upon which Division 6 of Part III was based (the Royal Commission reporting that the trustee should be under no liability in respect of such assessment except in a representative capacity under provisions dealing with the collection of tax). | In reaching its decision the Court agreed the parties were correct to assert that subparagraph 254(1)(e) forms no part of the process of assessment whereby the tax payable by a trustee under Division 6 is ascertained (at paragraph [19]) and in respect of which the appellant has rights of objection and appeal (at paragraphs [26] and [43]). | The Court did not address the application of section 254 in situations where there had been a change in trustee (see paragraph [30]). | The High Court refused Barkworth Olives' application for special leave to appeal against the Decision of the Court of Appeal (see [2010] HCATrans 299). In refusing the application Hayne J observed that the Court of Appeal was right to hold that the provisions of section 254 did not qualify the operation of sections 177 or 204 in any way relevant to the matter before them.", "Issues_Decided": "The Deputy Commissioner was entitled to summary judgment. The Court found that the Applicant's contention that a trustee's liability to pay tax was limited by paragraph 254(1)(e) produced a substantial conflict with those provisions in Division 6, such as section 99A, which in specified circumstances rendered a trustee liable to pay tax, the amount of which was (except in objection proceedings) conclusively set out in the notice of assessment and was due and payable at a certain date (see sections 169, 175, subsection 177(1) and section 204 (now section 5-5 of the Income Tax Assessment Act 1997 ) of the ITAA 1936). The Court held that this conflict was to be resolved by paragraph 254(1)(e) giving way to those specific provisions in Division 6 which impose liability to tax upon a trustee (as an exception to the general rule that the beneficiaries are liable). Whilst paragraph 254(1)(e) may qualify a personal liability of the trustee created by section 254, it does not qualify a trustee's personal liability created by other provisions (mentioned above) where the trustee is expressed to be liable to tax under a provision of Division 6. In support of this approach, the Court cited Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998 ) 194 CLR 355 at 382. See paragraphs [28], [30] and [41]. The Court also noted (at paragraph [42]) that this construction seems consistent with the extrinsic evidence concerning the Bill for the ITAA 1936. Fraser JA observed that the report of the Royal Commission which led to the enactment of that Act suggests that the original predecessor of paragraph 254(1)(e)) was intended to apply where it was the beneficiary, rather than the trustee, who was assessed to tax under the provision upon which Division 6 of Part III was based (the Royal Commission reporting that the trustee should be under no liability in respect of such assessment except in a representative capacity under provisions dealing with the collection of tax). In reaching its decision the Court agreed the parties were correct to assert that subparagraph 254(1)(e) forms no part of the process of assessment whereby the tax payable by a trustee under Division 6 is ascertained (at paragraph [19]) and in respect of which the appellant has rights of objection and appeal (at paragraphs [26] and [43]). The Court did not address the application of section 254 in situations where there had been a change in trustee (see paragraph [30]). The High Court refused Barkworth Olives' application for special leave to appeal against the Decision of the Court of Appeal (see [2010] HCATrans 299). In refusing the application Hayne J observed that the Court of Appeal was right to hold that the provisions of section 254 did not qualify the operation of sections 177 or 204 in any way relevant to the matter before them.", "ATO_View_of_Decision": "Section 254 of the ITAA 1936 does not limit the personal liability of a trustee assessed to tax pursuant to sections 99A or 99; nor does it qualify the operation of section 177 or 5-5 of the ITAA 1997 in respect of such a liability.", "Administrative_Treatment": "The Commissioner will not accept that section 254 of the ITAA 1936 limits the personal liability of a trustee where that trustee is expressed to be liable to tax under a provision of Division 6.", "Related_Documents": "N/A | 2010 ATC 20-172 | 99 | 99A | 175 | 177 | 204 | 254 | 2008 ATC 20-045 | 95 ATC 4067 | 2008 ATC 20-039 | 94 ATC 4570 | 81 ATC 4280 | (1998) 194 CLR 355 | [1998] HCA 28", "Legislative_References": "Income Tax Assessment Act 1936 99 99A 175 177 204 254", "Case_References": "Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 [2008] HCA 41 2008 ATC 20-045 69 ATR 357 Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 [1995] HCA 23 95 ATC 4067 29 ATR 644 Deputy Federal Commissioner of Taxation of the Commonwealth of Australia v Futuris Corporation Ltd (2008) 237 CLR 146 [2008] HCA 32 2008 ATC 20-039 69 ATR 41 Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1 [1994] HCA 39 94 ATC 4570 28 ATR 336 FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 [1981] HCA 27 81 ATC 4280 11 ATR 914 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28", "Subject_References": "Assessment - validity Collection Debt Liability Net income Personal liability Tax payable Trustee", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/6430of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Bartercard Australia Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "2008/6172", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "23 December 2010", "Date_Published": "22 February 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly Adverse", "Summary_of_Decision": "Whether payments from terminating members of a barter exchange program were assessable income, and whether expenditure had been incurred for the purpose of carrying on research and development activities 'on behalf of any other person'.", "Overview_of_Facts": "Terminating member payments | 1. The taxpayer manages the reciprocal trade exchange program known as 'Bartercard' and the affairs of Bartercard Exchange Limited (Exchange), the Australian operator of the program, pursuant to a Deed of Management (the Deed) for which it receives management fees. | 2. The Bartercard program allows members to make and receive payments to and from other members in 'Trade Dollars' (T$). Under the Rules of the Trading Program (the Rules), a terminating member with a debit balance in their trade account has 30 days to trade to reduce the debit balance. After this period the member is required to pay a cash amount equal to the debit balance in its trade account to Exchange. | 3. The taxpayer received terminating payments from members exiting the Bartercard program totalling $711,053 in the year ended 30 June 2002 and $623,532 in the year ended 30 June 2003. | 4. The Commissioner assessed the payments as income of the taxpayer on the basis that under the Deed the taxpayer was entitled to treat the monies received from terminating members as a management fee and not as monies received for the use and benefit of Exchange. Although debit entries were made to account for the monies to Exchange, the Rules did not allow for such a transaction. | 5. It was the taxpayer's case that it received the monies as agent for Exchange and that it accounted to Exchange by means of debit entries in its trade account. In the alternative, if the relevant clause in the Deed had the construction which the Commissioner contended, the document did not reflect the agreement of the parties and a court of equity would rectify the agreement. | Research and Development | 6. The taxpayer and Bartercard International Pty Ltd (Bartercard International) are wholly owned by two companies incorporated in the British Virgin Islands, which are in turn wholly owned by Bartercard International Limited Company (Bartercard Bermuda). | 7. From 1999 Bartercard International acquired intellectual property relating to the Bartercard system from the taxpayer, and by agreement licensed the taxpayer to use that intellectual property. In 2000, that contract was assigned with the consent of the taxpayer from Bartercard International to Bartercard Bermuda. | 8. In 2002, an agreement was executed between the taxpayer and Bartercard Bermuda which provided that the taxpayer would develop technology owned by Bartercard Bermuda. Applications were made by both the taxpayer and Bartercard International for research and development tax concessions. | 9. The Commissioner refused to allow a concessional deduction under section 73B of the Income Tax Assessment Act 1936 (ITAA 1936), for 125% of the research and development expenditure, on the basis that the purpose of the expenditure was to carry on the associated research and development activities on behalf of another person, namely, Bartercard Bermuda. However, a deduction for 100% of this expenditure was allowed under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). | Issues decided by the court or tribunal | 1. Whether the terminating member payments received by the taxpayer were part of the management fee payable to the taxpayer under clause 6 of the Deed and thus were assessable income under section 6-5 of the ITAA 1997 in the 2002 and 2003 income years? | The Tribunal considered that the issue did not turn upon any complicated notion of what constitutes income according to ordinary concepts, but, rather, the arguments raised a factual enquiry about the party that received the benefit of the payments. | Construed literally and without reference to the wider context the words of clause 6.1 of the Deed had the effect contended by the Commissioner. However, the meaning of words in a contract are to be determined by what a reasonable person would have understood them to mean, and this requires consideration not only of the text, but also the surrounding circumstances known to the parties and the purpose and object of the transaction. | Although the relevant clause was found by the Tribunal to be poorly worded, the surrounding circumstances including that the Rules prevail over the Deed, that the parties are engaged in the conduct of a barter exchange, and that until members terminate, the total of outstanding debit balances ought to be matched by the total of outstanding credit balances, led to the conclusion that the proper construction of clause 6.1 of the Deed does not include terminating members payments. Consequently, the payments were not assessable income of the taxpayer. | The Tribunal noted that even if that view was wrong, the taxpayer's alternative submission relying on rectification answered the Commissioner's contention. On the evidence, the parties had conducted themselves on the basis that the taxpayer was obliged to account to Exchange for the terminating member payments. | 2. Whether expenditure incurred by the taxpayer on research and development activities was deductible under the concessional deduction rules in section 73B of the ITAA 1936? | The Tribunal found that the taxpayer had not satisfied the burden of proving that the assessment was excessive, under paragraph 14ZZK(b) of the Taxation Administration Act 1953 . The Tribunal considered that the evidence from the taxpayer on this aspect was unsatisfactory and it could not conclude that subsection 73B(9) of the ITAA 1936 does not operate to deny the concessional deduction. The taxpayer had not affirmed the accuracy of material or explained matters raised by the Commissioner that the expenditure on research and development activities was for the benefit of Bartercard Bermuda, and had not led evidence to show how it expected to make profits or gains from commercial exploitation of the results of the research and development activities to which the expenditure related. Consequently, the Tribunal was unable to find on whose behalf the research and development activities were undertaken, and that part of the objection decision rejecting the claim for a concessional deduction was affirmed.", "Issues_Decided": "1. Whether the terminating member payments received by the taxpayer were part of the management fee payable to the taxpayer under clause 6 of the Deed and thus were assessable income under section 6-5 of the ITAA 1997 in the 2002 and 2003 income years? The Tribunal considered that the issue did not turn upon any complicated notion of what constitutes income according to ordinary concepts, but, rather, the arguments raised a factual enquiry about the party that received the benefit of the payments. Construed literally and without reference to the wider context the words of clause 6.1 of the Deed had the effect contended by the Commissioner. However, the meaning of words in a contract are to be determined by what a reasonable person would have understood them to mean, and this requires consideration not only of the text, but also the surrounding circumstances known to the parties and the purpose and object of the transaction. Although the relevant clause was found by the Tribunal to be poorly worded, the surrounding circumstances including that the Rules prevail over the Deed, that the parties are engaged in the conduct of a barter exchange, and that until members terminate, the total of outstanding debit balances ought to be matched by the total of outstanding credit balances, led to the conclusion that the proper construction of clause 6.1 of the Deed does not include terminating members payments. Consequently, the payments were not assessable income of the taxpayer. The Tribunal noted that even if that view was wrong, the taxpayer's alternative submission relying on rectification answered the Commissioner's contention. On the evidence, the parties had conducted themselves on the basis that the taxpayer was obliged to account to Exchange for the terminating member payments. 2. Whether expenditure incurred by the taxpayer on research and development activities was deductible under the concessional deduction rules in section 73B of the ITAA 1936? The Tribunal found that the taxpayer had not satisfied the burden of proving that the assessment was excessive, under paragraph 14ZZK(b) of the Taxation Administration Act 1953 . The Tribunal considered that the evidence from the taxpayer on this aspect was unsatisfactory and it could not conclude that subsection 73B(9) of the ITAA 1936 does not operate to deny the concessional deduction. The taxpayer had not affirmed the accuracy of material or explained matters raised by the Commissioner that the expenditure on research and development activities was for the benefit of Bartercard Bermuda, and had not led evidence to show how it expected to make profits or gains from commercial exploitation of the results of the research and development activities to which the expenditure related. Consequently, the Tribunal was unable to find on whose behalf the research and development activities were undertaken, and that part of the objection decision rejecting the claim for a concessional deduction was affirmed.", "ATO_View_of_Decision": "In relation to the terminating member payments, the decision was open to the Tribunal on the particular facts of the case, given the construction of the terms of the Deed, the operation of the Rules, and the context of barter exchange. The decision confirms that the meaning of words in a contract requires consideration of the text, surrounding circumstances known to the parties and the purpose and object of the transaction. | On the issue of research and development, it followed from the Tribunal's findings on the evidence of the taxpayer that the burden of proving that the assessment was excessive had not been discharged, and a concessional deduction was accordingly denied. | The ATO maintains the view set out in the Guide to the R&D Tax Concession in respect of subsections 73B(1) and 73B(9) of the ITAA 1936 and the 'on own behalf' rules.", "Administrative_Treatment": "Implications on Precedential ATO View Documents (eg. public rulings, ATO IDs) | None.", "Related_Documents": "N/a | 2010 ATC 10-167 | 6-5 | 8-1 | 14ZZK(b) | [2000] QCA 445 | 90 ATC 4088 | )[1985] 1 WLR 1214 | 75 ATC 4257 | [2001] FCA 532 | 79 ATC 4111 | [2004] HCA 52", "Legislative_References": "Income Tax Assessment Act 1936 73B Income Tax Assessment Act 1997 6-5 8-1 Taxation Administration Act 1953 14ZZK(b)", "Case_References": "Bartercard Limited v Myallhurst Pty Ltd [2000] QCA 445 Federal Commissioner of Taxation v Dalco [1990] HCA 3 168 CLR 614 20 ATR 1370 90 ATC 4088 Gaspet Ltd v Elliss (Inspector of Taxes )[1985] 1 WLR 1214 Gaspet Ltd v Elliss (Inspector of Taxes )[1987] 1 WLR 769 (C.A.) Gauci v Federal Commissioner of Taxation [1975] HCA 54 135 CLR 81 5 ATR 672 75 ATC 4257 Industry Research and Development Board v Phai See Investments Pty Ltd [2001] FCA 532 112 FCR 24 McCormack v Federal Commissioner of Taxation [1979] HCA 18 (1979) 143 CLR 284 9 ATR 610 79 ATC 4111 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 219 CLR 165", "Subject_References": "Income tax Barter exchange system Reciprocal trade exchange program Terminating member payments Research and development expenditure Meaning of 'on behalf of any other person'", "Other_References": "Guide to the Research and Development Tax Concession", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/6172/00001", "Unmatched_Content": ""}
{"Case_Name": "Cannavo and Commissioner of Taxation", "Venue_Reference_No": "2009/5626 and 2010/2838", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "10 August 2010", "Date_Published": "22 December 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case concerned whether the applicant was entitled to small business concessions and the correct methodology of apportioning the incidental expense of vendor duty arising from the sale of property containing a pre-CGT portion.", "Overview_of_Facts": "1. The applicant was the owner of property at 672-676 Pacific Highway, Chatswood (\"the property\"), which had been acquired over a period of time in 1985 and 1986. | 2. On 11 July 2005, the property was sold for $9,900,000, and the applicant became liable to pay vendor duty under NSW legislation, and capital gains tax on the post-CGT portion of the property. | 3. The applicant declared a net capital gain of $1,179,357 for the 2006 income tax year, calculated on the basis of entitlement to the small business 50% reduction as the maximum net asset test and active asset tests in Division 152 of the Income Tax Assessment Act 1997 had been satisfied. | 4. The following factors were also relevant to the calculations: (a) an amount of $581,679 was included in the cost base of the property for the depreciated value of improvements; (b) a bill facility with the National Australia Bank which was used to fund the applicant's business, and which just prior to the sale of the property had been drawn upon in the amount of $4,813,667; (c) loans owing from related entities totaling $3,856,950 (\"the debts\"); (d) the applicant held an indirect interest in the Glowbuoy Unit Trust, which had a value of $94,129.32, and (e) member contributions made in the 2006 income year to the Joseph Cannavo Superannuation Fund of $1,014,116. | (a) an amount of $581,679 was included in the cost base of the property for the depreciated value of improvements; (b) a bill facility with the National Australia Bank which was used to fund the applicant's business, and which just prior to the sale of the property had been drawn upon in the amount of $4,813,667; (c) loans owing from related entities totaling $3,856,950 (\"the debts\"); (d) the applicant held an indirect interest in the Glowbuoy Unit Trust, which had a value of $94,129.32, and (e) member contributions made in the 2006 income year to the Joseph Cannavo Superannuation Fund of $1,014,116. | 5. Subsequent to an audit, the Commissioner determined the relevant tests had not been satisfied and issued an amended notice of assessment increasing the applicant's net capital gain to $1,745,639. An administrative penalty of 50% was imposed for recklessness. The applicant objected to the amended assessment and the penalty objection decision. | 6. At the hearing, the applicant contended that in calculating the liability for capital gains tax, it was not correct to deduct from the capital proceeds the relevant percentage (being the pre-CGT property percentage of 29.92%) of the value of the improvements or the relevant percentage of the vendor duty. It was also contended that the debts were not CGT assets and should not have been taken into account in calculating the small business concession threshold, or the debts were worth less than face value, or they were personal use assets and should be excluded. | 7. The Commissioner conceded at the hearing that the penalty should be reduced to 25% on the basis that the applicant's conduct should more appropriately be characterised as false and misleading. | Issues decided by the court | 1. The Tribunal found that the applicant's net CGT assets were far in excess of the threshold, thereby disentitling him to any small business concession in respect of his capital gains. The Commissioner's calculation of the capital gain, subject to the error in respect of the vendor duty, was correct and the objection decision must be affirmed. | 2. In respect of the vendor duty, which constituted an incidental expense forming part of the cost base of the property within section 110-35 of the Income Tax Assessment Act 1997 , it was not correct to apportion the relevant percentage of the vendor tax to the pre-CGT property. If the correct amount was written back in respect of the pre-CGT property the exempt gain would have been smaller while the taxable gain would have been greater. It followed that the amended assessment was not too high, but rather, too low. | 3. The Tribunal confirmed that debts are unquestionably CGT assets, and where a debt is not recovered in full the shortfall can be netted against capital gains, and where relevant carried forward. As there was no evidence to support the contentions of the taxpayer, and as the debts were linked to the bill facility, it was not reasonable to exclude the debts from the calculation of the threshold whilst nevertheless retaining the bill facility amount. | 4. No further reduction in the rate of penalty was warranted. Important aspects had been omitted from the applicant's tax return. Although the return was prepared by a tax agent, the actions of both are relevant, and a higher standard is expected from tax agents as they are presumed to be aware of the law.", "Issues_Decided": "1. The Tribunal found that the applicant's net CGT assets were far in excess of the threshold, thereby disentitling him to any small business concession in respect of his capital gains. The Commissioner's calculation of the capital gain, subject to the error in respect of the vendor duty, was correct and the objection decision must be affirmed. 2. In respect of the vendor duty, which constituted an incidental expense forming part of the cost base of the property within section 110-35 of the Income Tax Assessment Act 1997 , it was not correct to apportion the relevant percentage of the vendor tax to the pre-CGT property. If the correct amount was written back in respect of the pre-CGT property the exempt gain would have been smaller while the taxable gain would have been greater. It followed that the amended assessment was not too high, but rather, too low. 3. The Tribunal confirmed that debts are unquestionably CGT assets, and where a debt is not recovered in full the shortfall can be netted against capital gains, and where relevant carried forward. As there was no evidence to support the contentions of the taxpayer, and as the debts were linked to the bill facility, it was not reasonable to exclude the debts from the calculation of the threshold whilst nevertheless retaining the bill facility amount. 4. No further reduction in the rate of penalty was warranted. Important aspects had been omitted from the applicant's tax return. Although the return was prepared by a tax agent, the actions of both are relevant, and a higher standard is expected from tax agents as they are presumed to be aware of the law.", "ATO_View_of_Decision": "The decision clarifies the apportionment of vendor duty in respect of property with a pre-CGT portion for the purposes of calculating capital gains, and confirms the factors in determining the imposition of administrative penalties where a tax agent is involved.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None", "Related_Documents": "N/A | 2010 ATC 10-147 | 108-5 | 108-70 | 110-35 | 152-15 | 152-105 | 152-205 | 152-300 | 2002 ATC 5193 | 2010 ATC 1-021", "Legislative_References": "Income Tax Assessment Act 1997 108-5 108-70 110-35 152-15 152-105 152-205 152-300 Taxation Administration Act 1953 284-90", "Case_References": "Hart v Federal Commissioner of Taxation (2002) 51 ATR 471 [2002] FCA 1559 2002 ATC 5193 The Taxpayer and Commissioner of Taxation [2010] AATA 455 2010 ATC 1-021 79 ATR 510", "Subject_References": "Small business CGT concessions Administrative penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2010/2838/00001", "Unmatched_Content": ""}
{"Case_Name": "Cassaniti v Commissioner of Taxation", "Venue_Reference_No": "NSD 2489 of 2005", "Venue": "Federal Court of Australia", "Judgment_Date": "24 June 2010", "Date_Published": "22 April 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office response to this decision about what constitutes the withholding of an amount from salary or wages under the PAYG system - whether the taxpayer is entitled to a credit for amounts withheld regardless of whether any amount was actually withheld - whether PAYG withholding forms part of the assessment process.", "Overview_of_Facts": "The taxpayer was an employee of Reliance Financial Services (RFS). RFS provided services to Cassaniti & Associates, Accountants (controlled by the taxpayer's cousin, Sam Cassaniti). The taxpayer claimed he was paid a gross salary of approximately $130,000 p.a. for the years of income ended 30 June 2002, 30 June 2003 and 30 June 2004. He further claimed his employer withheld the sum of approximately $56,000 p.a. | The taxpayer argued that all that was necessary for a withholding to be made is there be a mathematical subtraction of amounts from his gross salary or wages so that what is paid to him is a net amount. Hence, the word 'withhold' does not specifically require the retention of the amounts so withheld/deducted in any identifiable form. | The Commissioner refused to allow the full amount of credits sought on the basis that the amounts were fictional, inflated or both, and that the central document relied upon by the taxpayer to show that the credits were withheld was unreliable. The taxpayer sought declarations that he was entitled to credits totalling $167,105. | The taxpayer was granted leave to file an amended Application on the last day of the proceedings. Leave was granted on the basis that his claim for the larger amounts of PAYG credits had the effect that if he failed to prove the larger amounts were credited, then he would get no credits at all, although some may have been withheld. [para196]. | Issues decided by the court or tribunal | 1. Is the taxpayer entitled to a credit equal to the total of amounts said to be withheld from salary or wages said to have been made to him in each of the relevant years of income within the meaning of s 18 - 15(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) . | His Honour found the obligation to withhold is on the payer of the salary. The payer is to withhold in accordance with the TFN Declaration, Withholding Declaration and the withholding schedules made under section 15-25 of Schedule 1 to the TAA and must be withheld at the time of making the payment. [paras 31-33 and 35-37] | His Honour also held that there must be a process by which the withholding takes place, and whether there has been a legitimate process of withholding will depend upon a close examination of the books of account and records of the payer, and the surrounding circumstances to see whether it can be inferred from those records and circumstances that a withholding has occurred. A mere journal entry, in the absence of other evidence, may not be sufficient. The authorities establish that entries of this kind, standing alone, are not conclusive evidence of the transaction [paras 163-165]. | An employee may provide the payer with an Upwards Variation requesting the withholding amount be increased. There is only an obligation imposed on the payer if the payer holds the approved form. If the payer does not hold the approved form then any additional sum withheld does not form part of the PAYG credit. [paras 39-41] His Honour held that an employee is only entitled to a credit equal to the sum actually withheld by the payer.[para 173] | His Honour upheld the Commissioner's submission that the information relied on by the taxpayer was not contemporaneous but was concocted at a later point in time. [para 187-188] However, his Honour concluded that amounts totalling $73,406.26 were withheld from payments of salary or wages to the taxpayer, and he was entitled to a credit for those amounts [paras 197-199]. | 2. Did the Commissioner have the power to assess or amend an assessment so as to disallow a PAYG credit ? | His Honour found that the PAYG credit is not protected by s 177(1) ITAA 1936. It is not a particular of the assessment - it is a particular of the statement of account between the taxpayer and the Commissioner. Hence, the production of a Notice of Assessment is not conclusive evidence that the amount of the credit is correct. He further held that if a person can provide evidence that the credit is greater than the amount shown on the Notice of Assessment, then they would be entitled to the credit for the greater amount. [para 175] | His Honour found that the \"amended assessments\" for the 2002 and 2003 tax years were Notices of Restatement of Account and not Notices of Assessment and therefore no objection rights arise under Part IVC. [para175]", "Issues_Decided": "1. Is the taxpayer entitled to a credit equal to the total of amounts said to be withheld from salary or wages said to have been made to him in each of the relevant years of income within the meaning of s 18 - 15(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) . His Honour found the obligation to withhold is on the payer of the salary. The payer is to withhold in accordance with the TFN Declaration, Withholding Declaration and the withholding schedules made under section 15-25 of Schedule 1 to the TAA and must be withheld at the time of making the payment. [paras 31-33 and 35-37] His Honour also held that there must be a process by which the withholding takes place, and whether there has been a legitimate process of withholding will depend upon a close examination of the books of account and records of the payer, and the surrounding circumstances to see whether it can be inferred from those records and circumstances that a withholding has occurred. A mere journal entry, in the absence of other evidence, may not be sufficient. The authorities establish that entries of this kind, standing alone, are not conclusive evidence of the transaction [paras 163-165]. An employee may provide the payer with an Upwards Variation requesting the withholding amount be increased. There is only an obligation imposed on the payer if the payer holds the approved form. If the payer does not hold the approved form then any additional sum withheld does not form part of the PAYG credit. [paras 39-41] His Honour held that an employee is only entitled to a credit equal to the sum actually withheld by the payer.[para 173] His Honour upheld the Commissioner's submission that the information relied on by the taxpayer was not contemporaneous but was concocted at a later point in time. [para 187-188] However, his Honour concluded that amounts totalling $73,406.26 were withheld from payments of salary or wages to the taxpayer, and he was entitled to a credit for those amounts [paras 197-199]. 2. Did the Commissioner have the power to assess or amend an assessment so as to disallow a PAYG credit ? His Honour found that the PAYG credit is not protected by s 177(1) ITAA 1936. It is not a particular of the assessment - it is a particular of the statement of account between the taxpayer and the Commissioner. Hence, the production of a Notice of Assessment is not conclusive evidence that the amount of the credit is correct. He further held that if a person can provide evidence that the credit is greater than the amount shown on the Notice of Assessment, then they would be entitled to the credit for the greater amount. [para 175] His Honour found that the \"amended assessments\" for the 2002 and 2003 tax years were Notices of Restatement of Account and not Notices of Assessment and therefore no objection rights arise under Part IVC. [para175]", "ATO_View_of_Decision": "The decision clarifies the meaning of the word 'withhold' for the purposes of the PAYG system, and explains that, where the withholding is represented only by accounting entries then whether or not a legitimate process of withholding has been undertaken will depend on a close examination of the payer's books of account and other records, as well as the surrounding circumstances. Any documentation kept to support such entries should be contemporaneous to the events. | The decision also confirms that a credit for PAYG withholding is not a particular of a notice of assessment - it is a particular of the statement of account between the taxpayer and the Commissioner. | It also clarifies that, for amounts withheld to be credits for withholding tax purposes, they must be calculated in accordance with the employee-provided Withholding Declaration and the schedules of rates. Any amounts which are withheld at the request of the taxpayer without the formal documentation will not be able to be credits for PAYG withheld.", "Administrative_Treatment": "Following the decision in this case, concern was expressed that, where an employer and an employee/taxpayer are not at arm's length (other than in circumstances where the ATO has reasonable grounds to suspect improper conduct), an unfair onus may be placed on the employee/taxpayer to provide information which an employee would not ordinarily be expected to provide. | The Tax Office has considered its practices for treating disputed PAYG withholding credits, as well as 2012 legislative amendments that prevent companies escaping liabilities and payments of employee entitlements. Following this consideration, the Tax Office confirms its treatment for such disputed claims. In addition, the Tax Office will ensure that its future communications with taxpayers involved in these types of disputes make it clear what the process involves, including what further evidence is required in the particular circumstances for each case. | Implications on current Public Rulings & Determinations | None", "Related_Documents": "None | 2010 ATC 20-192 | 995-1 | Income Tax Rates Act 1986 | Income Tax Regulations 1936 | 2004 ATC 4371 | 2002 ATC 4937 | 85 ATC 4206 | 75 ATC 4262 | 98 ATC 4323 | [2003] HCA 22 | 87 ATC 4441 | 91 ATC 4387", "Legislative_References": "Taxation Administration Act 1953 Pt 2-5 of Sch 1 18-15(1) Income Tax Assessment Act 1936 177(1) Div 2 of Pt VI Income Tax Assessment Act 1997 995-1 Income Tax Assessment Act 1947 221H Income Tax Assessment Act (No. 2) 1947 221H 221Q Income Tax Rates Act 1986 Evidence Act 1995 (Cth) Income Tax Regulations 1936", "Case_References": "Constantinidis v FC T (2004) 55 ATR 348 [2004] FCA 397 2004 ATC 4371 Cooke v FCT (2002) 51 ATR 223 [2002] FCA 1315 2002 ATC 4937 DCT v Sargon (1985) 16 ATR 355 85 ATC 4206 FCT v Barnes (1975) 133 CLR 483 [1975] HCA 61 5 ATR 713 75 ATC 4262 FCT v Ryan (1998) 82 FCR 345 38 ATR 464 98 ATC 4323 Fox v Percy (2003) 214 CLR 118 [2003] HCA 22 Taylor v FCT (1987) 16 FCR 212 18 ATR 715 87 ATC 4441 Temples Wholesale Flower Supplies Pty Ltd v FCT (1991) 29 FCR 93 21 ATR 1606 91 ATC 4387", "Subject_References": "Income Tax PAYG withholding What constitutes the withholding of an amount from salary or wages Entitlement to a credit for amounts withheld Whether quantification of a credit on a notice of assessment is part of the assessment process", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD2489of2005/00001", "Unmatched_Content": "Replaced paragraph 2 to note that the practices for treating disputed PAYG withholding credits is confirmed."}
{"Case_Name": "Clark and Anor v Commissioner of Taxation", "Venue_Reference_No": "500 of 2006, 501 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "30 April 2010", "Date_Published": "10 July 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerns offers of compromise under Order 23 of the Federal Court Rules and Calderbank offers.", "Overview_of_Facts": "On 25 November 2008, the applicants made offers upon the principles associated with Calderbank v Calderbank [1976] Fam 93 ( Calderbank .) A Calderbank offer is an offer made to settle the dispute which is without prejudice save as to costs. | Under the offers, the proceedings were to be discontinued, each party would bear their own costs of the proceedings and the applicants would forego the benefit of any existing costs orders. | On 27 November 2008, the respondent rejected the offers. | On 9 December 2008, the applicants made offers of compromise pursuant to Order 23 of the Federal Court Rules (FCR) offering to settle the proceedings on the basis that the respondent would allow their objections in full, each party would bear their own costs of the proceedings and the applicants would forego the benefit of any existing costs orders. The respondent rejected the offers. | On 30 November 2009, the Court delivered judgment in relation to the taxation appeals in favour of the applicants and requested the parties to file written submissions in relation to the determination of costs. | The applicants filed submissions seeking that they be awarded indemnity costs as follows: • from 25 November 2008 in reliance on the respondent's refusal of a Calderbank offer dated 25 November 2008; and • from 9 December 2008 in reliance on the respondent's refusal of a offer of compromise made pursuant to Order 23 of the FCR and dated 9 December 2008. | • from 25 November 2008 in reliance on the respondent's refusal of a Calderbank offer dated 25 November 2008; and • from 9 December 2008 in reliance on the respondent's refusal of a offer of compromise made pursuant to Order 23 of the FCR and dated 9 December 2008. | The respondent filed submissions acknowledging that the respondent should pay the applicants' costs on a party and party basis and submitting, inter alia, that: • the respondent's refusal of the Calderbank offer dated 25 November 2008 was not unreasonable; and • Order 23 of the FCR did not apply to Order 52B proceedings and therefore the offer of compromise made pursuant to Order 23 of the FCR and dated 9 December 2008 could not be made. | • the respondent's refusal of the Calderbank offer dated 25 November 2008 was not unreasonable; and • Order 23 of the FCR did not apply to Order 52B proceedings and therefore the offer of compromise made pursuant to Order 23 of the FCR and dated 9 December 2008 could not be made. | Greenwood J ordered, inter alia, that: • the respondent pay the costs of the applicant of and incidental to the proceeding up to and including 9 December 2008 on a party and party basis; and • the respondent pays the costs of the applicant of and incidental to the proceeding from 10 December 2008 on an indemnity basis. | • the respondent pay the costs of the applicant of and incidental to the proceeding up to and including 9 December 2008 on a party and party basis; and • the respondent pays the costs of the applicant of and incidental to the proceeding from 10 December 2008 on an indemnity basis. | Issues decided by the court | 1. Whether in the exercise of the Court's general discretion, the applicants demonstrated that the respondent's refusal to accept the offer of 25 November 2008 (that is the Calderbank offer) was unreasonable by reference to the circumstances at the time. | The Court held that the Commissioner did not act unreasonably in rejecting the Calderbank offer. | 2. Whether Order 23 of FCR as a whole, has no application in a proceeding by way of an appeal against an appealable objection decision pursuant to Order 52B of the FCR. | The Court held that Order 23 of the FCR applied to an appeal pursuant to Order 52B of the FCR. | 3. Whether the applicants' offer of compromise of 9 December 2008 satisfies the elements of Order 23. | The Court held that the offer satisfied Order 23 Rule 11(4) of the FCR because it was a genuine offer and that the applicants did obtain judgment not less favourable than the terms of the offer. | 4. Whether, under nOrder 23 Rule 11(4) of the FCR, there were exceptional circumstances that would lead to the conclusion that the Court should order costs on a party and party basis rather than an order for costs on a party and party basis to 10 December 2008 and indemnity costs thereafter. | The Court held that there were no exceptional circumstances that justify departure from the presumptive entitlement of the applicants to indemnity costs under order 23 Rule 11(4) from 10 December 2008. | The Commissioner contended that there were four considerations that would lead to the conclusion that the Court should order costs on a party and party basis rather than an order for costs on a party and party basis to 10 December 2008 and indemnity costs thereafter. | The Court noted that where a party offers to settle for a sum which is less than he or she eventually achieves at trial, there is a presumptive entitlement to indemnity costs under Order 23, r 11(4) of the FCR: see CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd . The offeree must demonstrate compelling and exceptional circumstances to support a different order. | The four considerations contended by the Commissioner were: • that the Commissioner had a real prospect of success in the proceeding; • that the substantive matters in question in the proceeding raised a question of significant importance and that it was a matter of public interest that the issue be resolved; • that the Commissioner's contention that the applicants had failed to satisfy the onus of proof pursuant to section 14ZZO of the Taxation Administration Act 1953 remained arguable; and • that, where there are important questions of legal principle and contentious factual issues bearing directly on the amount of the assessment, it is incumbent on the Commissioner in the performance of his statutory duty to defend the correctness of the amount of an assessment by any and all reasonable bases. | • that the Commissioner had a real prospect of success in the proceeding; • that the substantive matters in question in the proceeding raised a question of significant importance and that it was a matter of public interest that the issue be resolved; • that the Commissioner's contention that the applicants had failed to satisfy the onus of proof pursuant to section 14ZZO of the Taxation Administration Act 1953 remained arguable; and • that, where there are important questions of legal principle and contentious factual issues bearing directly on the amount of the assessment, it is incumbent on the Commissioner in the performance of his statutory duty to defend the correctness of the amount of an assessment by any and all reasonable bases. | In relation to the first consideration, the Court held that the notion that an ultimately unsuccessful party had a reasonable chance of success in the proceeding is not an exceptional circumstance. | In relation to the second consideration, the Court held that the fact that a proceeding raises a significant and unresolved question of law that is of public interest is not of itself an exceptional circumstance. | In relation to the third consideration, the Court noted that, in putting the taxpayers to proof on certain issues, the Commissioner had elected to cross examine the taxpayers' witnesses. In doing so, the Commissioner did not put an affirmative case but simply tested the quality of the evidence of relevant facts. The Court held that the Commissioner's failure to establish through cross examination a lack of proof of the relevant facts was not an exceptional circumstance. | In relation to the fourth consideration, the Court held that this consideration is essentially the same as the second consideration. The question is whether the circumstance that the Commissioner believed the assessment to be correct and one that ought to be defended both as to the merits and in the discharge of a statutory duty to defend the correctness of an assessment, is a circumstance which ought to displace the presumption arising under Order 23, r 11. The Court held it did not. | As such, his Honour was not satisfied that any of the four considerations put by the Commissioner constituted exceptional circumstances, and accordingly, held that there were no exceptional circumstances that justified departure from the presumptive entitlement of the applicants to indemnity costs from 10 December 2008. | As a result, indemnity costs were awarded under Order 23 Rule 11(4) of the FCR from 10 December 2008 being the day after the offer.", "Issues_Decided": "1. Whether in the exercise of the Court's general discretion, the applicants demonstrated that the respondent's refusal to accept the offer of 25 November 2008 (that is the Calderbank offer) was unreasonable by reference to the circumstances at the time.: The Court held that the Commissioner did not act unreasonably in rejecting the Calderbank offer. | 2. Whether Order 23 of FCR as a whole, has no application in a proceeding by way of an appeal against an appealable objection decision pursuant to Order 52B of the FCR.: The Court held that Order 23 of the FCR applied to an appeal pursuant to Order 52B of the FCR. | 3. Whether the applicants' offer of compromise of 9 December 2008 satisfies the elements of Order 23.: The Court held that the offer satisfied Order 23 Rule 11(4) of the FCR because it was a genuine offer and that the applicants did obtain judgment not less favourable than the terms of the offer. | 4. Whether, under nOrder 23 Rule 11(4) of the FCR, there were exceptional circumstances that would lead to the conclusion that the Court should order costs on a party and party basis rather than an order for costs on a party and party basis to 10 December 2008 and indemnity costs thereafter.: The Court held that there were no exceptional circumstances that justify departure from the presumptive entitlement of the applicants to indemnity costs under order 23 Rule 11(4) from 10 December 2008. The Commissioner contended that there were four considerations that would lead to the conclusion that the Court should order costs on a party and party basis rather than an order for costs on a party and party basis to 10 December 2008 and indemnity costs thereafter. The Court noted that where a party offers to settle for a sum which is less than he or she eventually achieves at trial, there is a presumptive entitlement to indemnity costs under Order 23, r 11(4) of the FCR: see CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd . The offeree must demonstrate compelling and exceptional circumstances to support a different order. The four considerations contended by the Commissioner were: • that the Commissioner had a real prospect of success in the proceeding; • that the substantive matters in question in the proceeding raised a question of significant importance and that it was a matter of public interest that the issue be resolved; • that the Commissioner's contention that the applicants had failed to satisfy the onus of proof pursuant to section 14ZZO of the Taxation Administration Act 1953 remained arguable; and • that, where there are important questions of legal principle and contentious factual issues bearing directly on the amount of the assessment, it is incumbent on the Commissioner in the performance of his statutory duty to defend the correctness of the amount of an assessment by any and all reasonable bases. • that the Commissioner had a real prospect of success in the proceeding; • that the substantive matters in question in the proceeding raised a question of significant importance and that it was a matter of public interest that the issue be resolved; • that the Commissioner's contention that the applicants had failed to satisfy the onus of proof pursuant to section 14ZZO of the Taxation Administration Act 1953 remained arguable; and • that, where there are important questions of legal principle and contentious factual issues bearing directly on the amount of the assessment, it is incumbent on the Commissioner in the performance of his statutory duty to defend the correctness of the amount of an assessment by any and all reasonable bases. In relation to the first consideration, the Court held that the notion that an ultimately unsuccessful party had a reasonable chance of success in the proceeding is not an exceptional circumstance. In relation to the second consideration, the Court held that the fact that a proceeding raises a significant and unresolved question of law that is of public interest is not of itself an exceptional circumstance. In relation to the third consideration, the Court noted that, in putting the taxpayers to proof on certain issues, the Commissioner had elected to cross examine the taxpayers' witnesses. In doing so, the Commissioner did not put an affirmative case but simply tested the quality of the evidence of relevant facts. The Court held that the Commissioner's failure to establish through cross examination a lack of proof of the relevant facts was not an exceptional circumstance. In relation to the fourth consideration, the Court held that this consideration is essentially the same as the second consideration. The question is whether the circumstance that the Commissioner believed the assessment to be correct and one that ought to be defended both as to the merits and in the discharge of a statutory duty to defend the correctness of an assessment, is a circumstance which ought to displace the presumption arising under Order 23, r 11. The Court held it did not. As such, his Honour was not satisfied that any of the four considerations put by the Commissioner constituted exceptional circumstances, and accordingly, held that there were no exceptional circumstances that justified departure from the presumptive entitlement of the applicants to indemnity costs from 10 December 2008. As a result, indemnity costs were awarded under Order 23 Rule 11(4) of the FCR from 10 December 2008 being the day after the offer.", "ATO_View_of_Decision": "The Commissioner accepts that Order 23 of the FCR applies to taxation appeals under order 52B of the FCR as in operation immediately prior to 1 August 2011. Likewise, the Commissioner accepts that Rule 25 [or Part 25] of the Federal Court Rules 2011 applies to taxation appeals under Division 33.1 of the Federal Court Rules 2011. | The Commissioner maintains that each offer of compromise made under Order 23 of the FCR or Rule 25 of the of the Federal Court Rules 2011, as the case may be, must be dealt with on its own merits and having regard to the particular facts and circumstances of each offer. For example, the question of whether a matter raises issues of public interest and importance may be a relevant consideration. [1]", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None identified | Implications for Law Administration Practice Statements | No changes to be made to PSLA 2009/9. | [1] See, for example, Australian Competition and Consumer Commission v Metcash Trading Limited (No 2) [2012] FCAFC 55, which considered sub-rule 25.14(2) of the Federal Court Rules 2011.", "Related_Documents": "PSLA 2009/9 - Conduct of Tax Office litigation | [2010] FCA 415 | 83 ATR 555 | [2008] FCAFC 173", "Legislative_References": "Federal Court Rules (as in operation immediately prior to 1 August 2011) Federal Court Rules", "Case_References": "Calderbank v Calderbank [1976] Fam 93 CGU Insurance Limited v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 Australian Competition and Consumer Commission v Metcash Trading Limited (No 2) [2012] FCAFC 55", "Subject_References": "Costs Offer of compromise Indemnity Costs Party and Party Basis Quantum Federal Court Rules (as in operation immediately prior to 1 August 2011)", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/500of2006_2/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Anstis", "Venue_Reference_No": "M64 of 2010", "Venue": "High Court", "Judgment_Date": "11 November 2010", "Date_Published": "9 December 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned whether study expenses of a tertiary student were incurred under section 8-1 of the Income Tax Assessment Act (1997 ) (ITAA 97) in gaining or producing Youth Allowance (YA) payments received under the Social Security Act (1991) (SSA), or were otherwise not allowable under paragraph 8-1(2)(b) as outgoings of a private nature.", "Overview_of_Facts": "During the 2006 income year, the taxpayer was enrolled as a full time student undertaking a teaching degree at the Australian Catholic University, and received YA payments of $3,622 under the SSA. She also derived $14,946 in income from part time work as a sales assistant. The taxpayer did not derive any income during the relevant year from having worked as a teacher. | In her income tax return for the 2006 year, the taxpayer claimed a deduction of $920 for expenses (travel expenses, teaching supplies, student administration fees, textbooks and computer depreciation) incurred in gaining or producing the YA payments. | Section 540 of the SSA provides that a person is eligible to receive YA for a period if, in addition to satisfying age and residency requirements, the person satisfies the 'activity test' in section 541, i.e., that the person is undertaking full-time study throughout the period. | The AAT (SM Pascoe) decided [2007] AATA 1238 that the expenses were not allowable under section 8-1 because they were unrelated to the derivation of YA income, and because they were merely necessary to put the taxpayer in a position to be able to receive income as a teacher. The essential character of the expenses was to enable the taxpayer to complete a university degree in order to commence to earn income as a teacher (paragraphs 7 and 8). | On appeal from the AAT to the Federal Court, Ryan J decided [2009] FCA 286 that the expenses were allowable as incurred in the course of producing the YA income received. The occasion of the expenses was the need to satisfy the requirements of the SSA for the receipt of the income, and satisfaction of those requirements was what was productive of the income. That the taxpayer's ultimate purpose in undertaking the study was to obtain a qualification leading to future employment as a teacher was irrelevant to the characterisation of the expenses in this case (paragraphs 54, 55 and 62). | On appeal to the Full Federal Court, Finn, Sundberg and Edmonds JJ adopted [2009] FCAFC 154 the reasoning of Ryan J, and found that the taxpayer was paid to undertake her course of study on the condition that she did so in a particular manner and to a particular standard. The expenses were incurred by the taxpayer in the course of undertaking her course of study, and the study, carried out according to the requirements of the SSA, was productive of the YA income. The income-producing activity commenced with enrolment in the course of study and continued during the period that the YA income was paid (paragraphs 40, 44 to 46). | The Commissioner was granted special leave to appeal to the High Court from the decision of the Full Federal Court. Before the High Court, the Commissioner primarily argued that social security payments made under the SSA, such as YA, were income that was conferred on eligible recipients, and not earned, such that no expenses could be incurred in 'gaining' or 'producing' the income under subsection 8-1(1). | The Commissioner was also granted special leave to argue that, if the expenses incurred were allowable under subsection 8-1(1), they were to be disallowed under paragraph 8-1(2)(b) as outgoings of a private nature. Neither the AAT, nor the Federal Court, had considered the application of paragraph 8-1(2)(b). The taxpayer also attempted to argue before the Court that the YA payments were not assessable income. | Issues decided by the High Court | First, while the Court recognised that periodicity of receipt, by itself, will not necessarily be sufficient to give to those receipts the character of income, the fact that the SSA, together with the Social Security (Administration) Act 1999 (SSAA), provided for periodic payment of YA to eligible recipients, in circumstances where the recipients can rely on those regular payments for income support so long as they continue to satisfy the requirements of those Acts, meant that YA payments are ordinary income of the taxpayer. This is consistent with the assumption made in the income tax law until 1985 that, but for being treated as exempt income until that time, payments in the nature of YA were ordinary income (paragraphs 20, 23 and 24). | Second, the Court recognised, contrary to the view of the Full Federal Court, that the taxpayer was not paid the YA income to study - it was not assessable to the taxpayer by reason of any personal exertion or exploitation of property. However, the Court found that the notion of 'gaining or producing' assessable income in section 8-1 is wider than those activities which may be said to earn income, and can be said to extend to 'obtain, secure or acquire'. In this case, the YA income was gained or produced by the taxpayer's entitlement to the payments under the SSA and SSAA. The occasion of her study expenses was to be found in what the taxpayer did to establish and retain her statutory entitlement to the receipts. The motive of the taxpayer in studying to obtain a qualification to undertake future employment as a teacher is not determinative of whether the expenses were incurred in gaining or producing YA income (paragraphs 29 to 31). | Third, the Court found that the expenses were not of a private nature, as they did not lose their connection with the entitlement the taxpayer held as a recipient of YA simply because she might have been studying for reasons other than enjoying the entitlement to YA (paragraph 38)", "Issues_Decided": "First, while the Court recognised that periodicity of receipt, by itself, will not necessarily be sufficient to give to those receipts the character of income, the fact that the SSA, together with the Social Security (Administration) Act 1999 (SSAA), provided for periodic payment of YA to eligible recipients, in circumstances where the recipients can rely on those regular payments for income support so long as they continue to satisfy the requirements of those Acts, meant that YA payments are ordinary income of the taxpayer. This is consistent with the assumption made in the income tax law until 1985 that, but for being treated as exempt income until that time, payments in the nature of YA were ordinary income (paragraphs 20, 23 and 24). Second, the Court recognised, contrary to the view of the Full Federal Court, that the taxpayer was not paid the YA income to study - it was not assessable to the taxpayer by reason of any personal exertion or exploitation of property. However, the Court found that the notion of 'gaining or producing' assessable income in section 8-1 is wider than those activities which may be said to earn income, and can be said to extend to 'obtain, secure or acquire'. In this case, the YA income was gained or produced by the taxpayer's entitlement to the payments under the SSA and SSAA. The occasion of her study expenses was to be found in what the taxpayer did to establish and retain her statutory entitlement to the receipts. The motive of the taxpayer in studying to obtain a qualification to undertake future employment as a teacher is not determinative of whether the expenses were incurred in gaining or producing YA income (paragraphs 29 to 31). Third, the Court found that the expenses were not of a private nature, as they did not lose their connection with the entitlement the taxpayer held as a recipient of YA simply because she might have been studying for reasons other than enjoying the entitlement to YA (paragraph 38)", "ATO_View_of_Decision": "The High Court has recognised that YA payments are ordinary income in the hands of recipients. In so deciding, the Court appears to have approved the alternative argument presented by the Commissioner in FCT v Stone (2005) 222 CLR 289, at 388, which was left open in that case. It is also consistent with the assumption underlying Divisions 51 and 52 of the ITAA 1997 that other regular payments made under the SSA are ordinary income in the hands of recipients, unless specifically made exempt from income tax under those Divisions. | The ATO recognises that the High Court decided that the non-depreciation expenses were incurred in this case in 'gaining or producing' the YA income received, and were not of a private nature. The ATO accepts that similar expenses would also be allowable under section 8-1 to other full-time students receiving YA income, and to students receiving Austudy and ABSTUDY payments. The ATO also accepts that, in working out whether a full-time student receiving YA income is entitled to deductions for the decline in value of a computer under section 40-25 of the ITAA 97, a taxable purpose in subsection 40-25(8) includes the purpose of producing such income. | Persons who are seeking paid work, but who are not full-time students, also need to satisfy an activity test to be able to receive either YA income or Newstart Allowance (NA) income. Both sections 541 and 601 of the SSA require a person to be actively seeking and willing to undertake paid work in Australia. The ATO accepts that expenses incurred by a recipient of either YA or NA income in actively seeking paid work are also incurred in gaining or producing that income. A taxable purpose in subsection 40-25(8) also includes the purpose of producing YA and NA income when seeking paid work. | However, the ATO also notes that the Court's decision does not extend to meals expenses incurred by recipients of YA, NA, Austudy or ABSTUDY income, and for travelling expenses between a full-time student's home and place of study, whose essential character would still be of a private nature.", "Administrative_Treatment": "Based on comments received on the initial Decision Impact Statement, the ATO considers that no further public advice or guidance is necessary at this stage. | Implications on current Public Rulings & Determinations | The ATO recognises that the views expressed in paragraphs 18, 19, 21 and 71 to 77 of Taxation Ruling TR 98/9 are contrary to the views expressed by the High Court in this case. | In the light of guidance provided by the Court, the ruling was amended on 7 December 2011 by way of an addendum.", "Related_Documents": "Taxation Ruling TR 98/9 - | Income tax: deductibility of self-education expenses | 2010 ATC 20-221 | 4-15(1) | 6-5(1) | 6-20(1) | 8-1 | 51-1 | 51-10 | 51-35 | 2005 ATC 4234 | 99 ATC 4749 | 87 ATC 4363 | [1952] HCA 65 | 86 CLR 540 | 83 ATC 4248 | 89 ATC 5322 | [1949] HCA 15 | 78 CLR 47 | 106 CLR 60 | 71 ATC 4184 | 89 ATC 4101 | 148 CLR 182 | 81 ATC 4165 | 91 ATC 4396 | [1945] 1 All ER 352", "Legislative_References": "Income Tax Assessment Act 1997 4-15(1) 6-5(1) 6-20(1) 8-1 51-1 51-10 51-35 Social Security Act 1991 (Cth) Part 2.11 Division 1 540 541 541B 550 550A(a) 550B 556 1067G 1070A Social Security (Administration) Act 1999 (Cth) Part 3 Division 2 3(2) 23(1) 37(1) 41(1) 43 80(1)", "Case_References": "FCT v Stone [2005] HCA 21 222 CLR 289 2005 ATC 4234 59 ATR 50 FCT v Montgomery [1999] HCA 34 198 CLR 639 42 ATR 475 99 ATC 4749 FCT v Myer Emporium Ltd [1987] HCA 18 163 CLR 199 18 ATR 69 87 ATC 4363 FCT v Dixon [1952] HCA 65 86 CLR 540 Keily v CofT (1983) 32 SASR 494 14 ATR 156 83 ATC 4248 Reid v CIR (1983) 6 TRNZ 494 6 NZTC 61624 CofT v Ranson (1989) 25 FCR 57 20 ATR 1652 89 ATC 5322 Ronpibon Tin NL v FCT [1949] HCA 15 78 CLR 47 FCT v Finn [1961] HCA 61 106 CLR 60 FCT v Hatchett [1971] HCA 47 125 CLR 494 2 ATR 557 71 ATC 4184 John v FCT [1989] HCA 5 166 CLR 417 20 ATR 1 89 ATC 4101 Handley v FCT [1981] HCA 16 148 CLR 182 11 ATR 644 81 ATC 4165 CofT v Cooper (1991) 29 FCR 177 21 ATR 1616 91 ATC 4396 Norman v Golder [1945] 1 All ER 352", "Subject_References": "Assessable income Unearned income Allowable deductions Gaining or producing Private expenses Social security payments Youth Allowance", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M64of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v AXA Asia Pacific Holdings Ltd", "Venue_Reference_No": "VID 917 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "18 November 2010", "Date_Published": "27 October 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO view of this case which concerned the availability of partial scrip-for scrip rollover relief under Subdivision 124M of the Income Tax Assessment Act 1997 in respect of a capital gain from the disposal of a shareholding in a wholly-owned subsidiary.", "Overview_of_Facts": "Under a complex structured arrangement AXA Asia Pacific Holdings Ltd ('AXA') agreed to exchange shares it held in AXA Australia Health Insurance Pty Ltd ('AXA Health\") for cash of $57m and $513m convertible vendor shares in a 99% Macquarie owned entity. As part of the arrangement put and call options could be exercised by AXA after an agreed period of six months. The options enabled AXA to either put the shares for cash or to convert the shares and obtain the Macquarie entity which would hold the proceeds from the on-sale of the AXA Health shares to a 'consortium' company MB Health Holdings Pty Ltd ('MB Health'). The members of MB Health were Macquarie ('MBL') and British United Provident Insurance Ltd ('BUPA'). By the time the Underwriting Agreement was entered into MBL and BUPA had agreed that MB Health would acquire the shares in AXA Health from the Macquarie entity. | Before Jessup J in the Federal Court the Commissioner argued that the taxpayer and the entity which acquired the shares in AXA Health did not deal with each other \"at arm's length\" within the meaning of section 124-780(4) of the 1997 Act with the result that the taxpayer was not entitled to the relief. His Honour held that the parties dealt \"at arms length\" and therefore roll-over relief was available. | Alternatively, the Commissioner submitted that if the requirements for roll-over under Subdivision 124-M were met, Part IVA applied to include the whole of the capital gain in the assessable income of the taxpayer in the 2003 income year. His Honour held that Part IVA did not apply because the taxpayer didn't obtain a tax benefit within the meaning of section 177C(I)(a). | The Commissioner appealed to the Full Federal Court on both the arm's length and Part IVA grounds. | Issues decided by the court | The Full Federal Court held that the parties (AXA and MBL) dealt with each other at \"arm's length\" pursuant to s124-780(4) and that Part IVA did not apply to deny AXA the partial roll-over relief. | A majority of the Court (Edmonds & Gordon JJ) dismissed the Commissioner's appeal in respect of the interpretation of Subdivision 124-M. The majority held that the trial judge was correct to conclude that the relevant parties dealt with each other \"at arm's length\". The dissenting judge, Dowsett J, concluded that the parties were not dealing \"at arm's length\" and the appeal should be allowed on the scrip for scrip roll-over issue. In concluding that the parties were not dealing at arm's length His Honour stated that Macquarie had, in effect, undertaken to assist AXA to dispose of AXA Health in a way which would minimise AXA's capital gains tax exposure. | The Court was unanimous in dismissing the Commissioner's appeal in respect of the application of Part IVA. In their joint reasons for judgment Gordon and Edmonds JJ (Dowsett J agreed) held that the Commissioner's appeal grounds concerning the tax benefit should be rejected. | In considering the Part IVA issues their Honours (Edmonds and Gordon JJ with Dowsett J substantially agreeing) stated the following relevant legal principles: 1. 'The starting point in any consideration of s 177C must be the whole of Pt IVA. No one provision can be viewed in isolation: Commissioner of Taxation v Hart [2004] HCA 26; (2004) 217 CLR 216 at [37] per Gummow and Hayne JJ'.(para 124) 2. 'Section 177C (read with the other provisions in Pt IVA) identifies that it is an \"objective fact\" whether a taxpayer obtained a tax benefit in relation to a scheme to which Pt IVA applies: Commissioner of Taxation v Peabody [1994] HCA 43; (1994) 181 CLR 359 at 382; Hart [2004] HCA 26; 217 CLR 216 at [37]; Federal Commissioner of Taxation v Lenzo [2008] FCAFC 50; (2008) 167 FCR 255 at [119] citing Commissioner of Taxation v Mochkin [2003] FCAFC 15; (2003) 127 FCR 185 at [26].'(para 126) 3. 'In the case of an amount being included in the assessable income of a taxpayer, s 177C(1)(a) provides that it is an objective inquiry as to what would have been included or might reasonably be expected to have been included in the assessable income had the \"scheme\" not been entered into or carried out: Epov v Federal Commissioner of Taxation [2007] FCA 34; (2007) 65 ATR 399 at [62] and Peabody [1994] HCA 43; 181 CLR 359 at 385-6.'(para 127) 4. 'The legislation requires a comparison between the relevant scheme and an alternative postulate, or counterfactual: Hart [2004] HCA 26; 217 CLR 216 at [66]'.(para 128) 5. 'The alternative postulate requires a \"prediction as to events which would have taken place if the relevant scheme had not been entered into or carried out and that prediction must be sufficiently reliable for it to be regarded as reasonable\" (emphasis added). \"A reasonable expectation requires more than a possibility\": Lenzo [2008] FCAFC 50; 167 FCR 255 at [122] citing Peabody [1994] HCA 43; 181 CLR 359 at 385.'(para 129) 6. 'The question posed by s 177C (1) is answered on the assumption that the scheme had not been entered into or carried out: Lenzo [2008] FCAFC 50; 167 FCR 255 at [121]' (para 129). 7. '... the question involves the objective enquiry of predicting the particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme: Lenzo [2008] FCAFC 50; 167 FCR 255 at [128]; Peabody [1994] HCA 43; 181 CLR 359 at 385 and Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd ( 2010) 186 FCR 410 at [28].' (para 131) 8. ' The particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme and which are identified as a result of the objective enquiry are not confined or defined by the scheme. As the High Court has said, \"scheme\" is a word of wide import: Peabody [1994] HCA 43; 181 CLR 359 at 383; Hart [2004] HCA 26; 217 CLR 216 at [87]' (para 131). 9. 'The express words of s 177C require a prediction about what would happen or might reasonably be expected to happen. It is necessarily a hypothetical analysis. But it is a hypothetical analysis directed at ascertaining what particular activity would have been (or might reasonably have been) undertaken if the scheme was not entered into. The \"integers\" comprising the scheme that are relevant to that objective enquiry are not limited and \"may not always permit the precise identification of ... all the integers of a particular 'scheme'\": Hart [2004] HCA 26; 217 CLR 216 at [43] and Trail Bros (2010) 186 FCR 410 at [30]' (para 132). 10. 'It is contrary to the express words of s 177C (including s 177C (2)), its context and its purpose to exclude particular integers from a prediction about what would happen or might reasonably be expected to happen. Put another way, absent particular integers, the enquiry would not be an objective enquiry as required by s 177C but a prediction of what would happen or might happen having regard to only a sub-set of the integers available to a taxpayer: see Trail Bros (2010) 186 FCR 410 at [31]' (para 133). 11. '... the onus is on the taxpayer ...to establish that he or she did not obtain a tax benefit in connection with the scheme; that is the taxpayer needs to show that the amount would not have been included, or might not reasonably be expected to have been included, in its assessable income if the scheme had not been entered into or carried out: s 14ZZK (and s 14ZZO) of the Taxation Administration Act 1953 (Cth); McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263 at 268-9; Gauci v Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81 at 89; McCormack v Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284 at 303, 306 and 323; Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614 at 620, 623-625 and Lenzo [2008] FCAFC 50; 167 (para 134). | 1. 'The starting point in any consideration of s 177C must be the whole of Pt IVA. No one provision can be viewed in isolation: Commissioner of Taxation v Hart [2004] HCA 26; (2004) 217 CLR 216 at [37] per Gummow and Hayne JJ'.(para 124) 2. 'Section 177C (read with the other provisions in Pt IVA) identifies that it is an \"objective fact\" whether a taxpayer obtained a tax benefit in relation to a scheme to which Pt IVA applies: Commissioner of Taxation v Peabody [1994] HCA 43; (1994) 181 CLR 359 at 382; Hart [2004] HCA 26; 217 CLR 216 at [37]; Federal Commissioner of Taxation v Lenzo [2008] FCAFC 50; (2008) 167 FCR 255 at [119] citing Commissioner of Taxation v Mochkin [2003] FCAFC 15; (2003) 127 FCR 185 at [26].'(para 126) 3. 'In the case of an amount being included in the assessable income of a taxpayer, s 177C(1)(a) provides that it is an objective inquiry as to what would have been included or might reasonably be expected to have been included in the assessable income had the \"scheme\" not been entered into or carried out: Epov v Federal Commissioner of Taxation [2007] FCA 34; (2007) 65 ATR 399 at [62] and Peabody [1994] HCA 43; 181 CLR 359 at 385-6.'(para 127) 4. 'The legislation requires a comparison between the relevant scheme and an alternative postulate, or counterfactual: Hart [2004] HCA 26; 217 CLR 216 at [66]'.(para 128) 5. 'The alternative postulate requires a \"prediction as to events which would have taken place if the relevant scheme had not been entered into or carried out and that prediction must be sufficiently reliable for it to be regarded as reasonable\" (emphasis added). \"A reasonable expectation requires more than a possibility\": Lenzo [2008] FCAFC 50; 167 FCR 255 at [122] citing Peabody [1994] HCA 43; 181 CLR 359 at 385.'(para 129) 6. 'The question posed by s 177C (1) is answered on the assumption that the scheme had not been entered into or carried out: Lenzo [2008] FCAFC 50; 167 FCR 255 at [121]' (para 129). 7. '... the question involves the objective enquiry of predicting the particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme: Lenzo [2008] FCAFC 50; 167 FCR 255 at [128]; Peabody [1994] HCA 43; 181 CLR 359 at 385 and Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd ( 2010) 186 FCR 410 at [28].' (para 131) 8. ' The particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme and which are identified as a result of the objective enquiry are not confined or defined by the scheme. As the High Court has said, \"scheme\" is a word of wide import: Peabody [1994] HCA 43; 181 CLR 359 at 383; Hart [2004] HCA 26; 217 CLR 216 at [87]' (para 131). 9. 'The express words of s 177C require a prediction about what would happen or might reasonably be expected to happen. It is necessarily a hypothetical analysis. But it is a hypothetical analysis directed at ascertaining what particular activity would have been (or might reasonably have been) undertaken if the scheme was not entered into. The \"integers\" comprising the scheme that are relevant to that objective enquiry are not limited and \"may not always permit the precise identification of ... all the integers of a particular 'scheme'\": Hart [2004] HCA 26; 217 CLR 216 at [43] and Trail Bros (2010) 186 FCR 410 at [30]' (para 132). 10. 'It is contrary to the express words of s 177C (including s 177C (2)), its context and its purpose to exclude particular integers from a prediction about what would happen or might reasonably be expected to happen. Put another way, absent particular integers, the enquiry would not be an objective enquiry as required by s 177C but a prediction of what would happen or might happen having regard to only a sub-set of the integers available to a taxpayer: see Trail Bros (2010) 186 FCR 410 at [31]' (para 133). 11. '... the onus is on the taxpayer ...to establish that he or she did not obtain a tax benefit in connection with the scheme; that is the taxpayer needs to show that the amount would not have been included, or might not reasonably be expected to have been included, in its assessable income if the scheme had not been entered into or carried out: s 14ZZK (and s 14ZZO) of the Taxation Administration Act 1953 (Cth); McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263 at 268-9; Gauci v Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81 at 89; McCormack v Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284 at 303, 306 and 323; Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614 at 620, 623-625 and Lenzo [2008] FCAFC 50; 167 (para 134). | Applying those principles to the evidence their Honours decided that the trial judge was correct to conclude that there was no tax benefit obtained by AXA in connection with the scheme. That is, having accepted the evidence of the Macquarie representative that had the scheme not been carried out in the way it was, Macquarie would not have obtained their fees and this was sufficient to discharge AXA's onus of demonstrating that the Commissioner's alternative postulate of a direct sale of AXA Health to MB Health was not sufficiently reliable for it to be regarded as reasonable. | Their Honours stated that ultimately the Court will decide what would have been done, or might reasonably be expected to have been done, in lieu of the scheme having regard to all of the evidence that is led. Based on the evidence before the trial judge, the Full Court concluded that it might reasonably be expected that had the scheme not been entered into a direct sale of AXA Health assets to Medical Benefits Fund of Australia Ltd ('MBF') rather than a sale of shares would have occurred. | The Commissioner was not granted special leave to appeal from the decision of the Full Federal Court to the High Court of Australia. The Court stated that the arm's length issue was essentially a factual issue and in relation to Part IVA the Court considered that there were insufficient prospects of success.", "Issues_Decided": "The Full Federal Court held that the parties (AXA and MBL) dealt with each other at \"arm's length\" pursuant to s124-780(4) and that Part IVA did not apply to deny AXA the partial roll-over relief. A majority of the Court (Edmonds & Gordon JJ) dismissed the Commissioner's appeal in respect of the interpretation of Subdivision 124-M. The majority held that the trial judge was correct to conclude that the relevant parties dealt with each other \"at arm's length\". The dissenting judge, Dowsett J, concluded that the parties were not dealing \"at arm's length\" and the appeal should be allowed on the scrip for scrip roll-over issue. In concluding that the parties were not dealing at arm's length His Honour stated that Macquarie had, in effect, undertaken to assist AXA to dispose of AXA Health in a way which would minimise AXA's capital gains tax exposure. The Court was unanimous in dismissing the Commissioner's appeal in respect of the application of Part IVA. In their joint reasons for judgment Gordon and Edmonds JJ (Dowsett J agreed) held that the Commissioner's appeal grounds concerning the tax benefit should be rejected. In considering the Part IVA issues their Honours (Edmonds and Gordon JJ with Dowsett J substantially agreeing) stated the following relevant legal principles: 1. 'The starting point in any consideration of s 177C must be the whole of Pt IVA. No one provision can be viewed in isolation: Commissioner of Taxation v Hart [2004] HCA 26; (2004) 217 CLR 216 at [37] per Gummow and Hayne JJ'.(para 124) 2. 'Section 177C (read with the other provisions in Pt IVA) identifies that it is an \"objective fact\" whether a taxpayer obtained a tax benefit in relation to a scheme to which Pt IVA applies: Commissioner of Taxation v Peabody [1994] HCA 43; (1994) 181 CLR 359 at 382; Hart [2004] HCA 26; 217 CLR 216 at [37]; Federal Commissioner of Taxation v Lenzo [2008] FCAFC 50; (2008) 167 FCR 255 at [119] citing Commissioner of Taxation v Mochkin [2003] FCAFC 15; (2003) 127 FCR 185 at [26].'(para 126) 3. 'In the case of an amount being included in the assessable income of a taxpayer, s 177C(1)(a) provides that it is an objective inquiry as to what would have been included or might reasonably be expected to have been included in the assessable income had the \"scheme\" not been entered into or carried out: Epov v Federal Commissioner of Taxation [2007] FCA 34; (2007) 65 ATR 399 at [62] and Peabody [1994] HCA 43; 181 CLR 359 at 385-6.'(para 127) 4. 'The legislation requires a comparison between the relevant scheme and an alternative postulate, or counterfactual: Hart [2004] HCA 26; 217 CLR 216 at [66]'.(para 128) 5. 'The alternative postulate requires a \"prediction as to events which would have taken place if the relevant scheme had not been entered into or carried out and that prediction must be sufficiently reliable for it to be regarded as reasonable\" (emphasis added). \"A reasonable expectation requires more than a possibility\": Lenzo [2008] FCAFC 50; 167 FCR 255 at [122] citing Peabody [1994] HCA 43; 181 CLR 359 at 385.'(para 129) 6. 'The question posed by s 177C (1) is answered on the assumption that the scheme had not been entered into or carried out: Lenzo [2008] FCAFC 50; 167 FCR 255 at [121]' (para 129). 7. '... the question involves the objective enquiry of predicting the particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme: Lenzo [2008] FCAFC 50; 167 FCR 255 at [128]; Peabody [1994] HCA 43; 181 CLR 359 at 385 and Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd ( 2010) 186 FCR 410 at [28].' (para 131) 8. ' The particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme and which are identified as a result of the objective enquiry are not confined or defined by the scheme. As the High Court has said, \"scheme\" is a word of wide import: Peabody [1994] HCA 43; 181 CLR 359 at 383; Hart [2004] HCA 26; 217 CLR 216 at [87]' (para 131). 9. 'The express words of s 177C require a prediction about what would happen or might reasonably be expected to happen. It is necessarily a hypothetical analysis. But it is a hypothetical analysis directed at ascertaining what particular activity would have been (or might reasonably have been) undertaken if the scheme was not entered into. The \"integers\" comprising the scheme that are relevant to that objective enquiry are not limited and \"may not always permit the precise identification of ... all the integers of a particular 'scheme'\": Hart [2004] HCA 26; 217 CLR 216 at [43] and Trail Bros (2010) 186 FCR 410 at [30]' (para 132). 10. 'It is contrary to the express words of s 177C (including s 177C (2)), its context and its purpose to exclude particular integers from a prediction about what would happen or might reasonably be expected to happen. Put another way, absent particular integers, the enquiry would not be an objective enquiry as required by s 177C but a prediction of what would happen or might happen having regard to only a sub-set of the integers available to a taxpayer: see Trail Bros (2010) 186 FCR 410 at [31]' (para 133). 11. '... the onus is on the taxpayer ...to establish that he or she did not obtain a tax benefit in connection with the scheme; that is the taxpayer needs to show that the amount would not have been included, or might not reasonably be expected to have been included, in its assessable income if the scheme had not been entered into or carried out: s 14ZZK (and s 14ZZO) of the Taxation Administration Act 1953 (Cth); McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263 at 268-9; Gauci v Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81 at 89; McCormack v Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284 at 303, 306 and 323; Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614 at 620, 623-625 and Lenzo [2008] FCAFC 50; 167 (para 134). 1. 'The starting point in any consideration of s 177C must be the whole of Pt IVA. No one provision can be viewed in isolation: Commissioner of Taxation v Hart [2004] HCA 26; (2004) 217 CLR 216 at [37] per Gummow and Hayne JJ'.(para 124) 2. 'Section 177C (read with the other provisions in Pt IVA) identifies that it is an \"objective fact\" whether a taxpayer obtained a tax benefit in relation to a scheme to which Pt IVA applies: Commissioner of Taxation v Peabody [1994] HCA 43; (1994) 181 CLR 359 at 382; Hart [2004] HCA 26; 217 CLR 216 at [37]; Federal Commissioner of Taxation v Lenzo [2008] FCAFC 50; (2008) 167 FCR 255 at [119] citing Commissioner of Taxation v Mochkin [2003] FCAFC 15; (2003) 127 FCR 185 at [26].'(para 126) 3. 'In the case of an amount being included in the assessable income of a taxpayer, s 177C(1)(a) provides that it is an objective inquiry as to what would have been included or might reasonably be expected to have been included in the assessable income had the \"scheme\" not been entered into or carried out: Epov v Federal Commissioner of Taxation [2007] FCA 34; (2007) 65 ATR 399 at [62] and Peabody [1994] HCA 43; 181 CLR 359 at 385-6.'(para 127) 4. 'The legislation requires a comparison between the relevant scheme and an alternative postulate, or counterfactual: Hart [2004] HCA 26; 217 CLR 216 at [66]'.(para 128) 5. 'The alternative postulate requires a \"prediction as to events which would have taken place if the relevant scheme had not been entered into or carried out and that prediction must be sufficiently reliable for it to be regarded as reasonable\" (emphasis added). \"A reasonable expectation requires more than a possibility\": Lenzo [2008] FCAFC 50; 167 FCR 255 at [122] citing Peabody [1994] HCA 43; 181 CLR 359 at 385.'(para 129) 6. 'The question posed by s 177C (1) is answered on the assumption that the scheme had not been entered into or carried out: Lenzo [2008] FCAFC 50; 167 FCR 255 at [121]' (para 129). 7. '... the question involves the objective enquiry of predicting the particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme: Lenzo [2008] FCAFC 50; 167 FCR 255 at [128]; Peabody [1994] HCA 43; 181 CLR 359 at 385 and Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd ( 2010) 186 FCR 410 at [28].' (para 131) 8. ' The particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme and which are identified as a result of the objective enquiry are not confined or defined by the scheme. As the High Court has said, \"scheme\" is a word of wide import: Peabody [1994] HCA 43; 181 CLR 359 at 383; Hart [2004] HCA 26; 217 CLR 216 at [87]' (para 131). 9. 'The express words of s 177C require a prediction about what would happen or might reasonably be expected to happen. It is necessarily a hypothetical analysis. But it is a hypothetical analysis directed at ascertaining what particular activity would have been (or might reasonably have been) undertaken if the scheme was not entered into. The \"integers\" comprising the scheme that are relevant to that objective enquiry are not limited and \"may not always permit the precise identification of ... all the integers of a particular 'scheme'\": Hart [2004] HCA 26; 217 CLR 216 at [43] and Trail Bros (2010) 186 FCR 410 at [30]' (para 132). 10. 'It is contrary to the express words of s 177C (including s 177C (2)), its context and its purpose to exclude particular integers from a prediction about what would happen or might reasonably be expected to happen. Put another way, absent particular integers, the enquiry would not be an objective enquiry as required by s 177C but a prediction of what would happen or might happen having regard to only a sub-set of the integers available to a taxpayer: see Trail Bros (2010) 186 FCR 410 at [31]' (para 133). 11. '... the onus is on the taxpayer ...to establish that he or she did not obtain a tax benefit in connection with the scheme; that is the taxpayer needs to show that the amount would not have been included, or might not reasonably be expected to have been included, in its assessable income if the scheme had not been entered into or carried out: s 14ZZK (and s 14ZZO) of the Taxation Administration Act 1953 (Cth); McAndrew v Federal Commissioner of Taxation [1956] HCA 62; (1956) 98 CLR 263 at 268-9; Gauci v Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81 at 89; McCormack v Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284 at 303, 306 and 323; Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614 at 620, 623-625 and Lenzo [2008] FCAFC 50; 167 (para 134). Applying those principles to the evidence their Honours decided that the trial judge was correct to conclude that there was no tax benefit obtained by AXA in connection with the scheme. That is, having accepted the evidence of the Macquarie representative that had the scheme not been carried out in the way it was, Macquarie would not have obtained their fees and this was sufficient to discharge AXA's onus of demonstrating that the Commissioner's alternative postulate of a direct sale of AXA Health to MB Health was not sufficiently reliable for it to be regarded as reasonable. Their Honours stated that ultimately the Court will decide what would have been done, or might reasonably be expected to have been done, in lieu of the scheme having regard to all of the evidence that is led. Based on the evidence before the trial judge, the Full Court concluded that it might reasonably be expected that had the scheme not been entered into a direct sale of AXA Health assets to Medical Benefits Fund of Australia Ltd ('MBF') rather than a sale of shares would have occurred. The Commissioner was not granted special leave to appeal from the decision of the Full Federal Court to the High Court of Australia. The Court stated that the arm's length issue was essentially a factual issue and in relation to Part IVA the Court considered that there were insufficient prospects of success.", "ATO_View_of_Decision": "The Commissioner is of the view that this case raised important issues concerning the interpretation of paragraph 177(C)(1)(a) where a taxpayer carries out a commercial transaction (eg the disposal of an asset) which is structured in a particular way (the scheme) so that an amount is not included in its assessable income (the tax benefit). | Why the Commissioner sought special leave to appeal to the High Court | The Commissioner's application for special leave to appeal to the High Court was essentially based on the notion that, in an income benefit case where there is a scheme from which a profit from a commercial endeavour has been achieved in a way that does not give rise to an assessable amount, you have the constituent elements of the phrase \"the obtaining by a taxpayer of a tax benefit in connection with a scheme\". | The way forward | It is well settled that the application of Part IVA will be sensitive to the particular facts of each case. | Notwithstanding how the parties put their respective cases, the Full Court has confirmed that it is the Court that will decide what would have been done or might reasonably be expected to have been done in lieu of the scheme having regard to all the evidence that is led. | As stated above, in this case the Full Court itself identified that on the evidence before the trial judge it might reasonably be expected that, had the scheme not been entered into or carried out, a direct sale of AXA Health's business assets to MBF would have occurred. The activity would then have produced a gain, but not a gain for the taxpayer assessed by the Commissioner. | The ability of the Court to form a view as to whether a tax benefit has been obtained by a particular taxpayer on a basis other than that put by the parties is consistent with the High Court's approach in Peabody regarding the Court's ability to determine the existence of a scheme independent of the scheme identified by the Commissioner. | The Full Federal Court's decision demonstrates the criticality or primacy of the evidence in the application of Part IVA. On the basis of the evidence accepted by the trial judge, the Court held that AXA did not obtain a tax benefit. | A clear implication of the Court's decision is the need for the Commissioner to test any evidence supporting assertions or statements by taxpayers about what would or might reasonably be expected to have happened absent the scheme. Depending on the particular facts of a case, it may be necessary to undertake a more forensic exercise in analysing all possible counterfactuals subject to the proviso that they are not speculative or have no direct relevance to the impugned scheme. | In some cases, a counterfactual consistent with the substance of the activity which gave rise to a tax benefit will be reasonably clear on the facts (see Spotless and British American Tobacco Australia Services v FCT(2010) ATC 20-222 ) | The Court's conclusion on the evidence in this case that a different taxpayer, AXA Health, would have obtained a tax benefit raises implications for future cases. At least in income benefit cases, the Commissioner may need to consider raising multiple assessments. This will depend on the particular facts of a case. | The Commissioner will take all decisions of the High Court and Federal Court into account in applying Part IVA to the particular facts of cases and will give due regard to the decision in AXA in determining on the evidence whether a relevant taxpayer obtains a tax benefit under s 177C.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | Law Administration Practice Statement PS LA 2005/24 Application of General Anti Avoidance Rules was updated on 16 September 2016 to reflect statements made by the Full Federal Court in this case; in particular, the Commissioner may need to consider raising multiple assessments on different taxpayers under different alternative postulates. Refer to paragraph 162 of PS LA 2005/24. See also paragraph 99. | In relation to other comments made by the Full Federal Court in this case, note that section 177CB was inserted by the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013, Schedule 1. In the ATO's view, section 177CB so significantly alters the conceptual framework of the tax benefit test in subsection 177C(1) that earlier case law involving the tax benefit concept can no longer be wholly regarded as representing the law after 16 November 2012, and should be treated with extreme caution. Refer to paragraph 83 of PSLA 2005/24. | Date of amendment Part Comment 27 October 2016 Administrative treatment Updated to reflect PS LA 2005/24 has been revised. Comments section Deleted", "Related_Documents": "TR 2005/19 | PS LA 2005/24 | 2010 ATC 20-224 | Part IVA | Subdivision 124-M | [2005] VSC 201 | (1987) 75 ALR 287 | 2002 ATC 4917 | 96 ATC 4831 | 90 ATC 4088 | 2004 ATC 4599 | 2003 ATC 4272 | 94 ATC 4663 | 96 ATC 5201 | 2010 ATC 20-198 | 2007 ATC 4092 | 2011 ATC 20-255 | 2008 ATC 20-014 | 75 ATC 4257 | 95 ATC 4240 | 79 ATC 4111 | 2008 ATC 20-009 | 88 ATC 4565 | 2002 ATC 109 | (1907) 5 CLR 418 | 91 ATC 4007", "Legislative_References": "Income Tax Assessment Act 1936 Part IVA Income Tax Assessment Act 1997 Subdivision 124-M", "Case_References": "ACI Operations Pty Ltd v Berri Ltd (2005) 15 VR 312 [2005] VSC 201 Australian Trade Commission v WA Meat Exports Pty Ltd (1987) 75 ALR 287 Baxter v Commissioner of Taxation (2002) 196 ALR 519 [2002] FCA 1256 2002 ATC 4917 51 ATR 209 Collis v Federal Commissioner of Taxation (1996) 33 ATR 438 96 ATC 4831 Commissioner of Taxation v Dalco [1990] HCA 3 (1990) 168 CLR 614 90 ATC 4088 20 ATR 1370 Commissioner of Taxation v Hart [2004] HCA 26 2004 ATC 4599 55 ATR 712 Commissioner of Taxation v Mochkin [2003] FCAFC 15 (2003) 127 FCR 185 2003 ATC 4272 52 ATR 198 Commissioner of Taxation v Peabody [1994] HCA 43 94 ATC 4663 28 ATR 344 Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34 96 ATC 5201 34 ATR 183 Commissioner of Taxation v Trail Bros Steel & Plastics (2010) 186 FCR 410 2010 ATC 20-198 Epov v Federal Commissioner of Taxation [2007] FCA 34 65 ATR 399 2007 ATC 4092 Federal Commissioner of Taxation v Ashwick (Qld) No 127 Pty Ltd [2011] FCAFC 49 2011 ATC 20-255 192 FCR 325 Federal Commissioner of Taxation v Lenzo [2008] FCAFC 50 (2008) 167 FCR 255 2008 ATC 20-014 71 ATR 511 Gauci v Commissioner of Taxation [1975] HCA 54 5 ATR 672 75 ATC 4257 Granby v Federal Commissioner of Taxation [1995] FCA 1217 (1995) 129 ALR 503 30 ATR 400 95 ATC 4240 McAndrew v Federal Commissioner of Taxation [1956] HCA 62 2007 ATC 4092 65 ATR 399 McCormack v Commissioner of Taxation [1979] HCA 18 79 ATC 4111 9 ATR 610 McCutcheon v Federal Commissioner of Taxation; Re Hains (deceased) [2008] FCA 318 2008 ATC 20-009 69 ATR 607 Barnsdall v Federal Commissioner of Taxation (1988) 81 ALR 173 88 ATC 4565 19 ATR 1352 Re RAL and Federal Commissioner of Taxation [2002] AATA 653 (2002) 50 ATR 1076 2002 ATC 109 50 ATR 1076 Spencer v The Commonwealth (1907) 5 CLR 418 [1907] HCA 82 Trustee for the Estate of the late AW Furse No 5 Will Trust v Federal Commissioner of Taxation (1991) 21 ATR 1123 91 ATC 4007", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID917of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Bamford & Ors; Bamford & Anor v Commissioner of Taxation", "Venue_Reference_No": "S310 and S311/2009", "Venue": "High Court", "Judgment_Date": "30 March 2010", "Date_Published": "30 April 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Part Adverse", "Summary_of_Decision": "Outlines the ATO view of the Bamford decision which concerned the meaning of the phrase 'income of the trust estate' and the words 'that share' in subsection 97(1) of the Income Tax Assessment Act 1936 (ITAA 1936). All references are to the ITAA 1936 unless otherwise indicated.", "Overview_of_Facts": "This decision is important because it concerns key elements of Division 6 of Part III by which the liability of trustees and beneficiaries to tax is determined under that Division. | Under Division 6, a notional taxable income for a trust estate is calculated in accordance with section 95. This is the first key element. That notional taxable income is referred to as the 'net income' of the trust estate, but to avoid confusion in this Decision Impact Statement it is referred to as the '[tax] net income'. | A resident beneficiary is liable to tax in respect of a part of that [tax] net income if the beneficiary is presently entitled to a share of the 'income of the trust estate' and not under a legal disability. If a beneficiary is so entitled, the beneficiary is liable to tax on 'that share' of the [tax] net income under section 97. These are the other key elements, but their meaning is not defined by the Act. | The case concerned the assessment of the [tax] net income of the Bamford Trust ('Trust') for the 2002 and 2000 years. The 2002 year (in respect of which the Commissioner was the appellant) raised the meaning of the phrase 'income of the trust estate'. The 2000 year (in respect of which the taxpayers were the appellants) raised the meaning of 'that share'. | 2002 year | The Trust recorded a net profit of $55,675 for accounting purposes for the year consisting wholly of a capital profit on the sale of certain real property. The capital gain for tax purposes on the disposal of the property was a different amount. | The trustee resolved, in exercise of its powers under the deed, to distribute the 'net income' of the trust as to 'the first $60,000, including capital gain' to Mr and Mrs Bamford equally (and the balance to the Church of Scientology). It was common ground that by virtue of this resolution the trustee had, pursuant to a power contained in clause 7(n) of the trust deed, treated the capital profit as income to which income beneficiaries could be entitled. | The income tax return lodged for the Trust recorded a nil [tax] net income (because of carry forward losses). However, following the disallowance of deductions by the Commissioner the Trust's [tax] net income was $16,100. It was common ground that these deductions were not allowable. | The Commissioner assessed the whole of the Trust's [tax] net income to the trustee pursuant to section 99A on the basis that there was no income to which any beneficiary was presently entitled. In particular, the Commissioner proceeded on the basis that the capital profit disclosed in the accounts was not 'income of the trust estate' within the meaning of subsection 97(1). | 2000 year | The Commissioner disallowed deductions claimed by the Trust in the amount of $191,701. It was common ground that these deductions were not allowable. The Trust's [tax] net income was therefore increased by the amount of the deductions disallowed. | Mr and Mrs Bamford were each presently entitled to an amount of $33,872 (or 18.062%) of the total income available for distribution for trust purposes ($187,530). | The Commissioner therefore assessed part of the increased [tax] net income to Mr and Mrs Bamford in proportion to their respective shares of the income of the Trust available for distribution. And, on that basis, their respective shares of the [tax] net income of the Trust increased by $34,624 each (being 18.062% of $191,701). | Issues for the Court | In relation to the 2002 year, the issue was whether the expression 'income of the trust estate' in the opening words of subsection 97(1) means: • income according to ordinary concepts (the Commissioner's position as appellant); or • income for trust law purposes (the taxpayers' position as respondent). | • income according to ordinary concepts (the Commissioner's position as appellant); or • income for trust law purposes (the taxpayers' position as respondent). | In relation to the 2000 year, the issue was whether 'that share' in subparagraph 97(1)(a)(i) means: • the beneficiary's proportionate or fractional entitlement to so much of the income of the trust estate as has been distributed or is available for distribution - that is, the proportionate approach (the Commissioner's position as respondent); or • the prescription of entitlement used for trust purposes to measure a beneficiary's entitlement to distributable trust income - whether it be a fixed amount, a proportion or a balance (the taxpayers' position as appellant). | • the beneficiary's proportionate or fractional entitlement to so much of the income of the trust estate as has been distributed or is available for distribution - that is, the proportionate approach (the Commissioner's position as respondent); or • the prescription of entitlement used for trust purposes to measure a beneficiary's entitlement to distributable trust income - whether it be a fixed amount, a proportion or a balance (the taxpayers' position as appellant). | Note: The Commissioner drew the Court's attention to an additional argument, namely that 'income' may mean that which is treated as income for taxation purposes (i.e., including statutory income) and 'that share' may mean so much of the income to which a beneficiary is entitled as corresponds to an amount of [tax] net income. However, this alternative construction, which would have effected a closer alignment of the liability for tax with the enjoyment of the income, was not contended by the taxpayer. | The Court's decision | The Court dismissed both appeals. | As regards the 2002 year, the Court decided that the capital profit made by the trust during the year was 'income of the trust estate' for that year as a result of the valid exercise by the trustee of a power under the deed to so treat the profit arising on the disposal of the property. | As regards the 2000 year, the Court adopted the proportionate approach in determining the share of the trust's [tax] net income to be included in the assessable income of Mr and Mrs Bamford. | However, the Court recognised that 'both sides in argument on the present appeals accepted that whichever of the competing constructions of Div 6 were accepted examples could readily be given of apparent unfairness in the resulting administration of the legislation'. In this context the Court noted that it was more than 20 years since Hill J observed that 'the scheme of Div 6 calls out for legislative clarification, especially since the insertion into [the ITAA 1936] of provisions taxing capital gains as assessable income'. See paragraph [17]. | Meaning of income | The Court observed that the contrast between the undefined expression 'income of the trust estate' in the opening words of subsection 97(1) and the defined notion of 'net income of the trust estate' in section 95 suggests that the former expression takes its meaning from the general law of trusts. | In support of this conclusion the Court remarked that 'the language of present entitlement [in subsection 97(1)] is that of the general law of trusts, but adapted to the operation of the 1936 Act upon distinct years of income' and that '[t]he identification in subsection 97(1) of 'a trust estate' of which there is 'a beneficiary' also bespeaks the general law of trusts'. See paragraphs [36-38]. | As to the meaning 'income' takes under the general law of trusts, the Court said: ... the distinction between income and capital in trust law was a product of the administration of successive equitable estates with the balancing in particular of the concern of those with life interests in the receipt of income and those with remainder interests in the conservation and augmentation of capital ... [and] the 'rules' which were developed in Chancery regarding apportionment between capital and income of receipts and outgoings and losses largely took the form of presumptions which would yield to provision made in the trust instrument. See paragraph [17]. | As to the processes of administration by which is identified the 'share' of income of the trust estate to which a beneficiary is 'presently entitled', the High Court endorsed the statement of the Full Federal Court in Federal Commissioner of Taxation v Totledge Pty Ltd ('Totledge') that: | A beneficiary under a trust who is entitled to income will ordinarily only be entitled to receive actual payment of the appropriate share of surplus or distributable income: the trustee will be entitled and obliged to meet revenue outgoings from income before distributing to a life tenant or other beneficiary entitled to income... [h]e is entitled to receive an account of it from the trustee and to be paid his share of what remains of it after payment of, or provision for, the trustee's proper costs, expenses and outgoings. See paragraph [39]. | The Court further observed that Sundberg J's approach in Zeta Force Pty Ltd v Commissioner of Taxation (' Zeta Force') to the question of the meaning of income for the purposes of section 97 was 'to like effect': | The words 'income of the trust estate' in the opening part of subsection 97(1) refer to distributable income, that is to say income ascertained by the trustee according to appropriate accounting principles and the trust instrument ... The beneficiary's 'share' is his share of the distributable income. See paragraph [45]. | Meaning of share | The Court recognised that the subsection 97(1) income and the [tax] net income were 'two subject matters which do not correspond' (see paragraph [43]). | Consistently with the decision of Sundberg J in Zeta Force , the Court held that the words 'that share' of the [tax] net income (being an 'artificial tax amount') relate back to the beneficiary's 'share' of the subsection 97(1) distributable income with the consequence that 'share' is to be construed as taking its natural meaning of 'proportion', rather that 'part' or 'portion'. | Thus 'once the share of the distributable income to which the beneficiary is presently entitled is worked out, the notion of present entitlement has served its purpose, and the beneficiary is to be taxed on that share (or proportion) of the taxable income of the trust estate'. See paragraph [45] quoting Sundberg J.", "Issues_Decided": "In relation to the 2002 year, the issue was whether the expression 'income of the trust estate' in the opening words of subsection 97(1) means: • income according to ordinary concepts (the Commissioner's position as appellant); or • income for trust law purposes (the taxpayers' position as respondent). • income according to ordinary concepts (the Commissioner's position as appellant); or • income for trust law purposes (the taxpayers' position as respondent). In relation to the 2000 year, the issue was whether 'that share' in subparagraph 97(1)(a)(i) means: • the beneficiary's proportionate or fractional entitlement to so much of the income of the trust estate as has been distributed or is available for distribution - that is, the proportionate approach (the Commissioner's position as respondent); or • the prescription of entitlement used for trust purposes to measure a beneficiary's entitlement to distributable trust income - whether it be a fixed amount, a proportion or a balance (the taxpayers' position as appellant). • the beneficiary's proportionate or fractional entitlement to so much of the income of the trust estate as has been distributed or is available for distribution - that is, the proportionate approach (the Commissioner's position as respondent); or • the prescription of entitlement used for trust purposes to measure a beneficiary's entitlement to distributable trust income - whether it be a fixed amount, a proportion or a balance (the taxpayers' position as appellant). Note: The Commissioner drew the Court's attention to an additional argument, namely that 'income' may mean that which is treated as income for taxation purposes (i.e., including statutory income) and 'that share' may mean so much of the income to which a beneficiary is entitled as corresponds to an amount of [tax] net income. However, this alternative construction, which would have effected a closer alignment of the liability for tax with the enjoyment of the income, was not contended by the taxpayer. | The Court's decision: The Court dismissed both appeals. As regards the 2002 year, the Court decided that the capital profit made by the trust during the year was 'income of the trust estate' for that year as a result of the valid exercise by the trustee of a power under the deed to so treat the profit arising on the disposal of the property. As regards the 2000 year, the Court adopted the proportionate approach in determining the share of the trust's [tax] net income to be included in the assessable income of Mr and Mrs Bamford. However, the Court recognised that 'both sides in argument on the present appeals accepted that whichever of the competing constructions of Div 6 were accepted examples could readily be given of apparent unfairness in the resulting administration of the legislation'. In this context the Court noted that it was more than 20 years since Hill J observed that 'the scheme of Div 6 calls out for legislative clarification, especially since the insertion into [the ITAA 1936] of provisions taxing capital gains as assessable income'. See paragraph [17]. | Meaning of income: The Court observed that the contrast between the undefined expression 'income of the trust estate' in the opening words of subsection 97(1) and the defined notion of 'net income of the trust estate' in section 95 suggests that the former expression takes its meaning from the general law of trusts. In support of this conclusion the Court remarked that 'the language of present entitlement [in subsection 97(1)] is that of the general law of trusts, but adapted to the operation of the 1936 Act upon distinct years of income' and that '[t]he identification in subsection 97(1) of 'a trust estate' of which there is 'a beneficiary' also bespeaks the general law of trusts'. See paragraphs [36-38]. As to the meaning 'income' takes under the general law of trusts, the Court said: ... the distinction between income and capital in trust law was a product of the administration of successive equitable estates with the balancing in particular of the concern of those with life interests in the receipt of income and those with remainder interests in the conservation and augmentation of capital ... [and] the 'rules' which were developed in Chancery regarding apportionment between capital and income of receipts and outgoings and losses largely took the form of presumptions which would yield to provision made in the trust instrument. See paragraph [17]. As to the processes of administration by which is identified the 'share' of income of the trust estate to which a beneficiary is 'presently entitled', the High Court endorsed the statement of the Full Federal Court in Federal Commissioner of Taxation v Totledge Pty Ltd ('Totledge') that: A beneficiary under a trust who is entitled to income will ordinarily only be entitled to receive actual payment of the appropriate share of surplus or distributable income: the trustee will be entitled and obliged to meet revenue outgoings from income before distributing to a life tenant or other beneficiary entitled to income... [h]e is entitled to receive an account of it from the trustee and to be paid his share of what remains of it after payment of, or provision for, the trustee's proper costs, expenses and outgoings. See paragraph [39]. The Court further observed that Sundberg J's approach in Zeta Force Pty Ltd v Commissioner of Taxation (' Zeta Force') to the question of the meaning of income for the purposes of section 97 was 'to like effect': The words 'income of the trust estate' in the opening part of subsection 97(1) refer to distributable income, that is to say income ascertained by the trustee according to appropriate accounting principles and the trust instrument ... The beneficiary's 'share' is his share of the distributable income. See paragraph [45]. | Meaning of share: The Court recognised that the subsection 97(1) income and the [tax] net income were 'two subject matters which do not correspond' (see paragraph [43]). Consistently with the decision of Sundberg J in Zeta Force , the Court held that the words 'that share' of the [tax] net income (being an 'artificial tax amount') relate back to the beneficiary's 'share' of the subsection 97(1) distributable income with the consequence that 'share' is to be construed as taking its natural meaning of 'proportion', rather that 'part' or 'portion'. Thus 'once the share of the distributable income to which the beneficiary is presently entitled is worked out, the notion of present entitlement has served its purpose, and the beneficiary is to be taxed on that share (or proportion) of the taxable income of the trust estate'. See paragraph [45] quoting Sundberg J.", "ATO_View_of_Decision": "A number of general propositions emerge from the High Court's decision: • the income of a trust estate for trust law purposes and its income for tax purposes are two different subject matters which do not necessarily correspond; • in subsection 97(1) 'income of the trust estate' takes its meaning from the general law of trusts and not from taxation law; • under the general law of trusts the concept of 'income' is governed by a set of rules designed to ensure that trustees fairly apportion the receipts and outgoings of a period between those entitled to income and those with an interest in capital; • the rules of apportionment adopted by the general law of trusts take the form of presumptions about whether particular receipts or outgoings constitute income or capital. The trust law presumptions can be displaced by express provision in the trust instrument; • the apportionment of receipts and outgoings forms part of the processes in trust administration, explained in Totledge , whereby the 'surplus or distributable income' to which income beneficiaries may become presently entitled in respect of 'distinct year[s] of income' is ascertained (the 'distributable income'); • once the amount of income to which a beneficiary is presently entitled has been ascertained it is converted into a percentage share of the distributable income (howsoever the entitlement was expressed for trust purposes); and • that percentage is then applied to the [tax] net income of the trust to work out the amount which is included in the assessable income of the beneficiary under paragraph 97(1)(a). This is a simple mathematical calculation the product of which may not correspond with the beneficiary's actual entitlement. | • the income of a trust estate for trust law purposes and its income for tax purposes are two different subject matters which do not necessarily correspond; • in subsection 97(1) 'income of the trust estate' takes its meaning from the general law of trusts and not from taxation law; • under the general law of trusts the concept of 'income' is governed by a set of rules designed to ensure that trustees fairly apportion the receipts and outgoings of a period between those entitled to income and those with an interest in capital; • the rules of apportionment adopted by the general law of trusts take the form of presumptions about whether particular receipts or outgoings constitute income or capital. The trust law presumptions can be displaced by express provision in the trust instrument; • the apportionment of receipts and outgoings forms part of the processes in trust administration, explained in Totledge , whereby the 'surplus or distributable income' to which income beneficiaries may become presently entitled in respect of 'distinct year[s] of income' is ascertained (the 'distributable income'); • once the amount of income to which a beneficiary is presently entitled has been ascertained it is converted into a percentage share of the distributable income (howsoever the entitlement was expressed for trust purposes); and • that percentage is then applied to the [tax] net income of the trust to work out the amount which is included in the assessable income of the beneficiary under paragraph 97(1)(a). This is a simple mathematical calculation the product of which may not correspond with the beneficiary's actual entitlement. | For practical purposes this means that: • a provision of a trust instrument, or a trustee acting in accordance with a trust instrument, may treat the whole or part of a receipt as income of a period and it will thereby constitute 'income of the trust estate' for the purposes of section 97; • if a trust instrument does not specify when a receipt is to be treated as income of a period, and the trustee does not have any special power to characterise receipts, then the question of whether the whole or part of a receipt constitutes 'income of the trust estate' for the purposes of section 97 will fall to be determined in accordance with the general presumptions of trust law; • similarly, the provisions of a trust instrument, or a trustee acting in accordance with a trust instrument, may determine whether an outgoing is properly chargeable against the income of a period (absent which the question will fall to be determined in accordance with the general presumptions of trust law); and • subject to the possible operation of provisions outside Division 6, the amount included in a beneficiary's assessable income under section 97 consists of an un-dissected or un-allocated proportionate share of the entirety of the [tax] net income. | • a provision of a trust instrument, or a trustee acting in accordance with a trust instrument, may treat the whole or part of a receipt as income of a period and it will thereby constitute 'income of the trust estate' for the purposes of section 97; • if a trust instrument does not specify when a receipt is to be treated as income of a period, and the trustee does not have any special power to characterise receipts, then the question of whether the whole or part of a receipt constitutes 'income of the trust estate' for the purposes of section 97 will fall to be determined in accordance with the general presumptions of trust law; • similarly, the provisions of a trust instrument, or a trustee acting in accordance with a trust instrument, may determine whether an outgoing is properly chargeable against the income of a period (absent which the question will fall to be determined in accordance with the general presumptions of trust law); and • subject to the possible operation of provisions outside Division 6, the amount included in a beneficiary's assessable income under section 97 consists of an un-dissected or un-allocated proportionate share of the entirety of the [tax] net income. | It has been suggested by some commentators that the High Court's observations about the manner in which the taxation law deals with trusts as distinct from companies (see paragraphs [19] and [20]) and the way in which it illustrated the differences between the parties' contentions as to 'that share' (see paragraph [15]) support the view that: • amounts distributed to beneficiaries by trustees always retain the same character in the hands of the beneficiaries for trust and tax law purposes as they had in the hands of the trustees for those purposes; and • Division 6 is an exclusive code for the taxation of beneficiaries. | • amounts distributed to beneficiaries by trustees always retain the same character in the hands of the beneficiaries for trust and tax law purposes as they had in the hands of the trustees for those purposes; and • Division 6 is an exclusive code for the taxation of beneficiaries. | The Commissioner does not accept that the abovementioned passages can be read in that way and, in any event, he notes that those issues were not before the Court. This is a matter that the Commissioner is testing before the Courts in Commissioner of Taxation v Greenhatch . | Amendments to Subdivisions 115-C and 207-B of the ITAA 1997 ensure the tax effective streaming of capital gains tax and franked distributions for the 2010-11 and later income years.", "Administrative_Treatment": "2009-10 and earlier income years | Law Administration Practice Statement PS LA 2009/7 set out the Commissioner's approach to Division 6 pending resolution of the Bamford litigation. | Following the finalisation of the Bamford litigation PS LA 2009/7 was withdrawn. It was replaced by PS LA 2010/1 which, among other things, sets out the compliance approaches that staff should adopt in respect of the 2009-10 and earlier income years. | PS LA 2010/1 explains,that the Commissioner will not generally seek to disturb returns for the 2009-10 or earlier income years if taxpayers have relied on a view of Division 6 that was reasonably open prior to the Bamford litigation. The only exception to this will be if there has been a deliberate attempt to exploit Division 6 or there is a dispute for some other reason. | Implications for current Public Rulings & Determinations | The decision in Bamford meant that the following rulings and practice statements had to be withdrawn: • Taxation Ruling TR 95/29: Income tax: Division 16 - Applicability of averaging provisions to beneficiaries of trust estates carrying on a business of primary production ( withdrawn 30 June 2010 ) • Taxation Ruling No. IT 331: Adjustments to estate income as returned to arrive at net income of estate for the purposes of section 95 ( withdrawn 30 June 2010 ) • Law Administration Practice Statement (General Administration) PS LA 2005/1 (GA): Taxation of capital gains of a trust ( withdrawn 13 October 2010 ) | • Taxation Ruling TR 95/29: Income tax: Division 16 - Applicability of averaging provisions to beneficiaries of trust estates carrying on a business of primary production ( withdrawn 30 June 2010 ) • Taxation Ruling No. IT 331: Adjustments to estate income as returned to arrive at net income of estate for the purposes of section 95 ( withdrawn 30 June 2010 ) • Law Administration Practice Statement (General Administration) PS LA 2005/1 (GA): Taxation of capital gains of a trust ( withdrawn 13 October 2010 ) | In recognition of the fact that trustees and beneficiaries may have already relied on these products in respect of the 2009-10 income year, they were withdrawn only with effect from the beginning of the 2010-11 income year. However, a taxpayer who wishes to rely on the law as decided in Bamford for the year ended 30 June 2010 (or an earlier year) may of course do so. | Taxation Ruling TR 92/13 (Trust dividends and franking) was withdrawn on 22 June 2011 on the basis that it concerned provisions of the taxation law which were no longer in force (the current imputation provisions in Subdivision 207-B of the Income Tax Assessment Act 1997 (ITAA 1997) appear to be more than a mere re-enactment of the former Division 7 of Part IIIAA). Although the Commissioner considered replacing the ruling with a new interpretative product about the operation of Subdivision 207-B that did not proceed because amendments were made to Subdivision 207-B to enable streaming of franked distributions. Those amendments operate generally with effect for the 2010-11 and later income years. | The Commissioner understands that for the 2009-10 and earlier income years taxpayers may have relied on TR 92/13 as a guide to how the Commissioner would seek to apply Subdivision 207-B. Returns reasonably prepared on that basis will not be disturbed. | Implications for future Public Rulings & Determinations | Whilst the High Court's decision provides guidance for cases which are on all fours with Bamford a number of issues concerning the application of Division 6 in other circumstances remain unresolved. | For example, issues which remain uncertain include: • what constitutes a receipt or an outgoing of a trust for the purposes of ascertaining the trust's distributable income of a period; • the extent to which accounting principles are relevant in identifying and measuring the apportionable receipts and outgoings of a trust and therefore the trust's distributable income of a period (for example, cash versus accruals bases); • whether a trustee can identify and measure the trust's distributable income using an accounting methodology that differs from the accounting methodology the trustee uses to account to beneficiaries as to the condition of the trust estate from period to period; • the effect for trust law purposes of provisions in trust instruments (or trustee determinations) which purport to equate the trust's distributable income with its [tax] net income where the [tax] net income includes notional amounts (eg. franking credits or deemed capital gains) or where the time at which income is recognised for tax purposes differs from the time at which it is recognised for trust accounting purposes (eg. where trust assets are accounted for at fair value); • how a trust's distributable income is to be determined where the trust instrument employs different notions of income for different purposes; • the principles to be applied in identifying the section 97 'income of the trust estate' if a particular trust does not distinguish between income and capital for the purposes of ascertaining beneficiary entitlements to trust property; • how paragraphs 97(1)(a), (b)and (c) are to be reconciled; • how the statutory flow through provisions such as Subdivision 115-C of the ITAA 1997 (capital gains and trusts) and Subdivision 207-B of the ITAA 1997 (franking credits and trusts) interact with Division 6 given that a beneficiary's liability to be assessed on the [tax] net income of the trust under Division 6 may not correspond with the beneficiary's actual entitlement; and • the manner in which Division 6 interacts with other provisions which rely on a beneficiary's present entitlement to the income of a trust (for example, Division 11A of the ITAA 1936). | • what constitutes a receipt or an outgoing of a trust for the purposes of ascertaining the trust's distributable income of a period; • the extent to which accounting principles are relevant in identifying and measuring the apportionable receipts and outgoings of a trust and therefore the trust's distributable income of a period (for example, cash versus accruals bases); • whether a trustee can identify and measure the trust's distributable income using an accounting methodology that differs from the accounting methodology the trustee uses to account to beneficiaries as to the condition of the trust estate from period to period; • the effect for trust law purposes of provisions in trust instruments (or trustee determinations) which purport to equate the trust's distributable income with its [tax] net income where the [tax] net income includes notional amounts (eg. franking credits or deemed capital gains) or where the time at which income is recognised for tax purposes differs from the time at which it is recognised for trust accounting purposes (eg. where trust assets are accounted for at fair value); • how a trust's distributable income is to be determined where the trust instrument employs different notions of income for different purposes; • the principles to be applied in identifying the section 97 'income of the trust estate' if a particular trust does not distinguish between income and capital for the purposes of ascertaining beneficiary entitlements to trust property; • how paragraphs 97(1)(a), (b)and (c) are to be reconciled; • how the statutory flow through provisions such as Subdivision 115-C of the ITAA 1997 (capital gains and trusts) and Subdivision 207-B of the ITAA 1997 (franking credits and trusts) interact with Division 6 given that a beneficiary's liability to be assessed on the [tax] net income of the trust under Division 6 may not correspond with the beneficiary's actual entitlement; and • the manner in which Division 6 interacts with other provisions which rely on a beneficiary's present entitlement to the income of a trust (for example, Division 11A of the ITAA 1936). | Treating income as capital | There also remains a particular issue as to the effect for taxation purposes of a recharacterisation clause that requires or permits the trustee to treat as capital what is otherwise received as income. Those were not the facts before the High Court in Bamford . | The manner in which the High Court in Bamford dealt with the decision in Federal Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd (ANZ) does not assist in the resolution of this issue. (Refer paragraph [40] of the judgment in Bamford .) | In ANZ a beneficiary with an entitlement to exempt income was found to have an individual interest in the exempt income which satisfied subsection 97(1) notwithstanding that the exempt income was treated as capital for trust purposes. The High Court did not explicitly overrule ANZ but it remains unclear how that decision can be reconciled with Bamford . The question will be whether ANZ was correctly decided and, if it was, the basis upon which it rested. Until such time as the decision in ANZ is reversed the Commissioner does not feel free to treat the decision as having been wrongly decided. | Consultation | The Commissioner has consulted with interested practitioners on the prioritisation and resolution of all these issues. A draft ruling TR 2012/D1 about the meaning of the expression 'income of the trust estate' deals with many of the issues identified above. | As the government has announced a broad review and rewrite of the trust assessing provisions in Division 6 of Part III of the ITAA 1936, the Commissioner does not currently propose to issue any advice products about the remaining issues.. | Existing ATO products which may be also relevant | Creation of a new trust - Statement of Principles | As noted above if, in a particular case, the deed contains no definition of 'income', the income of the trust will fall to be determined in accordance with the general law of trusts. It might be expected that some taxpayers may wish to amend their deeds to insert a definition of income where one does not exist and, in particular, insert an income recharacterisation or income equalisation clause. | Assuming any such amendment would be within power, its taxation effect would fall to be determined in accordance with the Commissioner's Statement of Principles regarding resettlements (see the document Creation of a new trust - Statement of Principles , August 2001). | Decision Impact Statement - Forrest | A clause that permits or requires the trustee to recharacterise a receipt or outgoing cannot contradict other requirements of the trust instrument. That is, such powers must be construed so as to give effect to the settlor's objective intention - ascertained from the trust deed read as a whole and from any other relevant matters evidencing the settlor's intention. Refer to the Commissioner's Decision Impact Statement in respect of the decision of the Full Federal Court in Forrest v Commissioner of Taxation [2010] FCAFC 6. | That is, it may be that what appears to be an unfettered discretion to determine whether receipts are capital or income is in fact no more than an administrative power to honestly classify receipts according to law.", "Related_Documents": "Taxation Ruling TR 95/29: Income tax: Division 16 - applicability of averaging provisions to beneficiaries of trust estates carrying on a business of primary production | Taxation Ruling No. IT 331: Income tax: trustees and beneficiaries: adjustments to estate income as returned to arrive at net income of estate for the purposes of section 95 | Taxation Ruling TR 92/13: Income tax: distribution by trustees of dividend income under the imputation system | Law Administration Practice Statement (General Administration) PS LA 2005/1(GA): Taxation of capital gains of a trust | Law Administration Practice Statement PS LA 2009/7: Approach to certain trust issues involving Division 6 of Part III of the Income Tax Assessment Act 1936 pending resolution of the Bamford litigation | Div 6 | 95 | 97(1) | 99A | 98 ATC 4850 | 82 ATC 4168 | (1982) 82 ATC 4168", "Legislative_References": "Income Tax Assessment Act 1936 Div 6 95 97(1) 99A", "Case_References": "Federal Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd (1998) 194 CLR 328 39 ATR 419 98 ATC 4850 Federal Commissioner of Taxation v Totledge Pty Ltd (1982) 40 ALR 385 82 ATC 4168 12 ATR 830 Zeta Force Pty Ltd v Commissioner of Taxation (1998) 84 FCR 70 (1982) 12 ATR 830 (1982) 82 ATC 4168", "Subject_References": "Income tax Income of the trust estate Assessable income of a beneficiary A share of the income of the trust estate Net income of a trust estate Distributable income Disparity between net income and distributable income Present entitlement Trust beneficiaries Trust distributions Trusts", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S310/2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Gloxinia Investments Ltd atf Gloxinia Unit Trust", "Venue_Reference_No": "S 154 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "24 May 2010", "Date_Published": "9 February 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office view in relation to this decision, which concerns the GST treatment of the sale of strata-titled home units: • constructed by a developer on its own account; • on lands already held by the developer by virtue of an existing long-term lease granted to the developer by a local Council; and • whereby the developer's existing long-term leasehold interest in the land, upon completion of construction of the home units, will be converted into individual 99 year strata lot leases. | • constructed by a developer on its own account; • on lands already held by the developer by virtue of an existing long-term lease granted to the developer by a local Council; and • whereby the developer's existing long-term leasehold interest in the land, upon completion of construction of the home units, will be converted into individual 99 year strata lot leases.", "Overview_of_Facts": "The taxpayer, Gloxinia, is the trustee of the Gloxinia Unit Trust. Gloxinia entered into an agreement with Woollahra Municipal Council with respect to the redevelopment of a site in Double Bay. At the time of entering into the agreement with the Council, Gloxinia already occupied the site under an existing long term lease that was transferred to Gloxinia in 1994, with the term of this existing lease expiring on 4 May 2063. | The principal legal agreement that governs the terms of the redevelopment project is the Agreement for Lease (\"AFL\"). Gloxinia executed its counterpart of the AFL on 19 October 2007 and the Council executed its counterpart on 22 October 2007. | In accordance with the terms of the AFL, Gloxinia is required to undertake the development in a staged manner, although Gloxinia can undertake the works contemporaneously. The Works consist of the Retail Works, the Car Park Works and the Residential Works. | As the various stages of the project are completed, it is agreed that Gloxinia will surrender its existing lease and then take back 99 year leases from the Council. | Following completion of the Residential Works, and upon registration of a strata leasehold plan, the Council will grant leases to Gloxinia over each of the 28 individual strata lots in that strata leasehold plan. The owners' corporation will be granted a lease of the common property in that strata leasehold plan. | Gloxinia intends that, after completion of the Residential Works and grant of the Strata Lot Leases by the Council, it will sell to third party purchasers each of the residential premises that is the subject of a lot in the strata leasehold plan. | Issues decided by the court | The issue in dispute in this matter was whether the home units will have previously been the subject of a long term lease and no longer be new residential premises pursuant to s 40-75(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when Gloxinia sells them to third parties by assigning the individual strata lot leases. | The majority of the Full Federal Court (Kenny and Middleton J) held that when the strata lot leases are granted to Gloxinia, there is a grant or assignment of real property, which effects a supply, pursuant to s 9-10 of the GST Act, by way of a long-term lease of each of the home units that is the subject of a lot in the Strata Leasehold Plan. | Having found that the grant of the strata lot leases involves the making of a supply of each of the home units to Gloxinia, the majority held that the home units, when sold by Gloxinia, will have previously been the subject of a long term lease and will no longer be new residential premises pursuant to s 40-75(1)(a) of the GST Act. | The Court concluded that, pursuant to s 40-65 of the GST Act, the sale of the home units by Gloxinia to third parties would be input taxed supplies of residential premises.", "Issues_Decided": "The issue in dispute in this matter was whether the home units will have previously been the subject of a long term lease and no longer be new residential premises pursuant to s 40-75(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when Gloxinia sells them to third parties by assigning the individual strata lot leases. The majority of the Full Federal Court (Kenny and Middleton J) held that when the strata lot leases are granted to Gloxinia, there is a grant or assignment of real property, which effects a supply, pursuant to s 9-10 of the GST Act, by way of a long-term lease of each of the home units that is the subject of a lot in the Strata Leasehold Plan. Having found that the grant of the strata lot leases involves the making of a supply of each of the home units to Gloxinia, the majority held that the home units, when sold by Gloxinia, will have previously been the subject of a long term lease and will no longer be new residential premises pursuant to s 40-75(1)(a) of the GST Act. The Court concluded that, pursuant to s 40-65 of the GST Act, the sale of the home units by Gloxinia to third parties would be input taxed supplies of residential premises.", "ATO_View_of_Decision": "Current legislation | Subsection 40-75(1)(a) of the GST Act provides that residential premises are new residential premises if they have not previously been sold as residential premises and have not previously been the subject of a long term lease. | The Commissioner considers the effect of the decision in this case, under the current law, to be as follows: Development lease arrangements [1] • A developer supplies development services to the land owner when they undertake development works pursuant to the terms of a development lease arrangement. Subject to the application of Division 82 [2] , the supply of those development services will be a taxable supply, and the land owner will make a corresponding creditable acquisition. • Upon transfer or grant of the freehold or leasehold title to the land comprising the completed works to the developer, the land owner makes a taxable supply to the developer. The consideration received from the developer will include the development works undertaken by the developer (except any works to which Division 82 applies). • To the extent that the land comprises residential premises, the developer does not make a creditable acquisition in acquiring the land from the land owner. This is because the acquisition relates to the developer's subsequent sales of the premises to home buyers and investors and, in accordance with the decision, those subsequent sales are input taxed supplies of residential premises. Sale of newly constructed residential stratum unit • The grant by a government agency, to a developer, of a long-term lease with respect to a newly constructed residential unit that is an individual lot in a strata leasehold plan will give effect to a supply of that residential unit to the developer. A subsequent sale of the residential unit, by way of assignment of the long-term leasehold interest, will be an input taxed supply of residential premises. In accordance with the decision, at the time of the subsequent sale, the residential unit will not be new residential premises because it will have previously been the subject of a long term lease. • Similarly, the transfer for consideration under a development lease arrangement, by a government agency, to a developer, of a community or strata title with respect to a newly constructed residential unit that is an individual lot in a strata plan is a sale of that residential unit to the developer. A subsequent sale of the residential unit will be an input taxed supply of residential premises. At the time of the subsequent sale, the residential unit will not be new residential premises because it will have previously been the subject of a long term lease. | Development lease arrangements [1] • A developer supplies development services to the land owner when they undertake development works pursuant to the terms of a development lease arrangement. Subject to the application of Division 82 [2] , the supply of those development services will be a taxable supply, and the land owner will make a corresponding creditable acquisition. • Upon transfer or grant of the freehold or leasehold title to the land comprising the completed works to the developer, the land owner makes a taxable supply to the developer. The consideration received from the developer will include the development works undertaken by the developer (except any works to which Division 82 applies). • To the extent that the land comprises residential premises, the developer does not make a creditable acquisition in acquiring the land from the land owner. This is because the acquisition relates to the developer's subsequent sales of the premises to home buyers and investors and, in accordance with the decision, those subsequent sales are input taxed supplies of residential premises. | Sale of newly constructed residential stratum unit • The grant by a government agency, to a developer, of a long-term lease with respect to a newly constructed residential unit that is an individual lot in a strata leasehold plan will give effect to a supply of that residential unit to the developer. A subsequent sale of the residential unit, by way of assignment of the long-term leasehold interest, will be an input taxed supply of residential premises. In accordance with the decision, at the time of the subsequent sale, the residential unit will not be new residential premises because it will have previously been the subject of a long term lease. • Similarly, the transfer for consideration under a development lease arrangement, by a government agency, to a developer, of a community or strata title with respect to a newly constructed residential unit that is an individual lot in a strata plan is a sale of that residential unit to the developer. A subsequent sale of the residential unit will be an input taxed supply of residential premises. At the time of the subsequent sale, the residential unit will not be new residential premises because it will have previously been the subject of a long term lease. | Proposed amendments | However, it is noted that the Assistant Treasurer issued a press release \"Clarifying GST Rules Around Residential Property\" below on 27 January 2011 announcing that the Government will move to amend the GST Act in the light of this decision to ensure that the Act achieves the intended policy outcomes for the GST treatment of residential premises. | The press release indicates that the amendments, when enacted, will have some retrospective application. The press release also indicates that the amendments will contain a transitional provision to ensure that taxpayers who have entered into arrangements on a basis consistent with the Court's findings, prior to the date of the press release, are not disadvantaged. | On the basis that it is intended that the proposed amendments will have some retrospective effect, the link above sets out the Tax Office's approach to amendments that are proposed to operate retrospectively.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | GSTR 2008/2 was withdrawn on 11 May 2011 because the decision meant that the ATO view outlined in that ruling with respect to development lease arrangements with government agencies is incorrect under the current law. | GSTR 2003/3 was also reviewed and it is considered that no changes are required to GSTR 2003/3 as a result of the decision. | Refunds of GST | The decision means that, under the current law, an overpayment may have occurred in instances where taxpayers have applied the ATO view in GSTR 2008/2 (now withdrawn), or otherwise treated relevant sales of residential premises as being taxable. | Pending any amendments becoming law, the ATO will process any claims for refunds, arising from the decision, in accordance with its usual processes. | Any entitlement to a refund will also be subject to relevant provisions of the Taxation Administration Act 1953 ('TAA'). In particular, the ATO considers that s 105-65 of Schedule 1 to that Act will apply in those circumstances. | Pursuant to s 105-65, the ATO is not required to refund an amount paid with respect to relevant sales of residential premises where the conditions for the operation of s 105-65 are satisfied, namely: (a) the ATO is not satisfied that a corresponding amount has been reimbursed to the recipient of the supply; or (b) the recipient of the supply is registered or required to be registered for GST purposes. | (a) the ATO is not satisfied that a corresponding amount has been reimbursed to the recipient of the supply; or (b) the recipient of the supply is registered or required to be registered for GST purposes. | However, s 105-65 provides the Commissioner with the discretion to pay a refund in appropriate circumstances, even though the conditions for the operation of s 105-65 are satisfied. Paragraphs 128 to 132 of MT 2010/1 set out the guiding principles that the Commissioner will have regard to when considering whether it would be appropriate to exercise his discretion in a particular case. | Any refund claims received in this period will be considered on their merits having regard to the above conditions for the operation of s 105-65. If taxpayers consider that, in their particular circumstances, refunds should be paid, even though the conditions for the operation of s 105-65 apply, the ATO should be provided with full details of the basis of the overpayment and the reasons why a refund should be paid. | Any entitlement to a refund may also be affected by section 105-55 of Schedule 1 to the TAA, which provides for a four year time limit for entitlements to refunds, other payments or credits in relation to GST. | Implications on current Public Rulings & Determinations | GSTR 2008/2 will be withdrawn. The Court's decision means that the ATO view outlined in GSTR 2008/2 with respect to development lease arrangements with government agencies is incorrect under the current law. | GSTR 2003/3 will also be reviewed to ensure consistency with the Court's decision.", "Related_Documents": "GSTR 2008/2 | 2010 ATC 20-182 | 9-5 | 9-10 | 40-75 | 195-1 | A New Tax System (Indirect Tax and Consequential Amendments) Act 1999 (Cth) | Strata Schemes Leasehold Development Act 1986 (NSW) | Tax Laws Amendment (2006 Measures No. 3) Act 2006 (Cth) | 96 ATC 5135 | 2008 ATC 20-034 | (1997) 187 CLR 384 | 2008 ATC 20-028 | 2009 ATC 20-108 | 2006 ATC 4841 | 2005 ATC 4796 | 2006 ATC 4227 | 2006 ATC 4363", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-5 9-10 40-75 195-1 A New Tax System (Indirect Tax and Consequential Amendments) Act 1999 (Cth) Strata Schemes Leasehold Development Act 1986 (NSW) Tax Laws Amendment (2006 Measures No. 3) Act 2006 (Cth)", "Case_References": "Abbey National Building Society v Cann [1911] 1 AC 56 Allders International Pty Ltd v Commissioner of State Revenue (Vic) (1996) 186 CLR 630 96 ATC 5135 (1996) 34 ATR 258 Australian Guarantee Corporation (NZ) Ltd v Nicholson [1996] 1 NZLR 167 Brady King Pty Ltd v Federal Commissioner of Taxation (2008) 168 FCR 558 2008 ATC 20-034 (2008) 69 ATR 670 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 2008 ATC 20-028 (2008) 68 ATR 158 Gloxinia Investments Limited v Commissioner of Taxation [2009] FCA 641 2009 ATC 20-108 (2009) 72 ATR 975 Hadlee v Commissioner of Inland Revenue [1991] 3 NZLR 517 Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256 2006 ATC 4841 (2006) 64 ATR 602 Sogelease Australia Ltd v Boston Australia Ltd (1991) 26 NSWLR 1 Sterling Guardian Pty Ltd v Commissioner of Taxation (2005) 220 ALR 550 2005 ATC 4796 (2005) 60 ATR 502 Sterling Guardian Pty Ltd v Commissioner of Taxation (2006) 149 FCR 255 2006 ATC 4227 (2006) 62 ATR 119 Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd (2006) 152 FCR 461 2006 ATC 4363 (2006) 62 ATR 682", "Subject_References": "development lease GST input taxed supply long term lease new residential premises residential premises strata lot lease taxable supply", "Other_References": "Clarifying GST Rules around Residential Property - 27 January 2011 (Media Release No. 20) The ATO's approach to dealing with retrospective law changes", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/s154of2010/00001", "Unmatched_Content": "Footnotes: [1] The term 'development lease arrangement' is a reference to an arrangement whereby a developer becomes entitled to the supply of a freehold or long term leasehold interest in land upon satisfactory completion of a development on that land. | [2] Division 82 only applies where the works are undertaken in return for the supply by an Australian government agency of right to develop land, and where they satisfy the other requirements stipulated in subsections 82-5(1) and 82-10(1). Division 82 does not apply if the supply of the works is a condition of the sale or long-term lease of the land to the developer, rather than a condition of obtaining a right to develop the land."}
{"Case_Name": "Commissioner of Taxation v H", "Venue_Reference_No": "NSD 211 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "20 October 2010", "Date_Published": "9 April 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Commissioner's appeal dismissed", "Summary_of_Decision": "", "Overview_of_Facts": "The taxpayer was a director and shareholder of a company, Waffles Pty Ltd ('Waffles'). Between 1999 and 2001, Waffles had an arrangement with an overseas company in which Waffles paid the overseas company amounts described as 'marketing expenses' and the overseas company remitted approximately 90% of those amounts back (directly or indirectly) to the taxpayer's bank account. Waffles claimed deductions for the 'marketing expenses'. | In 2007 the Commissioner disallowed the deductions Waffles had claimed for the marketing expenses in the 1999 to 2001 income years, and made amended assessments increasing Waffles' taxable income and tax payable, and imposed general interest charge ('GIC') under s 204 of the Income Tax Assessment Act 1936 ('ITAA 1936'). | In 2007 the Commissioner issued amended assessments to the taxpayer, assessing him pursuant to Division 7A on his share of the amounts deposited into the bank account, as payments treated as dividends pursuant to s 109C of the ITAA 1936. | In calculating Waffles' distributable surplus under s 109Y for the purposes of Division 7A as at 30 June 1999, 2000 and 2001, the Commissioner did not subtract any amount of tax payable by Waffles under the amended assessments made in 2007 from its net assets, as the tax payable under the amended assessments was not considered to be a present legal obligation of Waffles as at the end of the relevant income years. Similarly, the Commissioner did not subtract any amount of GIC in calculating the company's net assets. | The taxpayer objected to the amended assessments; the objection was disallowed, and he subsequently applied to the AAT for review of the objection decision. | The AAT held that income tax, having been imposed by the Income Tax Act 1986 to be payable for each year, was a present legal obligation of the company as at the end of each income year. The obligation was to pay tax at the amount subsequently properly ascertained, assessed and determined. The amounts of tax payable under the amended assessments made in 2007 in respect of the 1999, 2000 and 2001 income years should have been subtracted from the company's net assets in calculating its distributable surplus as at 30 June in the income years 1999, 2000 and 2001. | The AAT also held that as s 204 of the ITAA 1936 provides that GIC accrues daily while tax is unpaid after the due date, the GIC also was a present legal obligation as at 30 June of the 1999 to 2001 income years for the purposes of the s 109Y distributable surplus calculation. | The Commissioner appealed to the Full Federal Court. | Issues decided by the court | Income Tax | The Court considered the legislative context of s 109Y and the explanatory memorandum to the Bill introducing Division 7A, and found that the purpose of s 109Y was to provide a 'cap' or limit on the amount to be treated as assessable dividends, namely, up to but not exceeding the realised and unrealised profits in the company, and the meaning of 'present legal obligation' and 'distributable surplus' should be interpreted in that context | The Court observed that the profits of a company available for distribution are 'after-tax' profits, and considered that a construction of s 109Y which promotes that result is to be preferred to one that does not. | The Court considered that the term 'obligation' embraces situations outside of a creditor/debtor relationship, and concluded that prior to an assessment, the company had an obligation to pay income tax arising from the operation of the Income Tax Act 1986. That obligation came into existence on 30 June of the year of income in which the income was derived. At worst that obligation might be a contingent obligation (contingent on an assessment being made), but that does not disqualify it as a present legal obligation in the sense that it exists as at 30 June, though the obligation is to do something at a future date. | The Court agreed with the AAT that the obligation to pay income tax arises by operation of the Income Tax Act 1986 itself, and not by the issue of a notice of assessment. On the making of an assessment, the present legal obligation arising from the Income Tax Act 1986 matures into an enforceable debt that becomes due and payable. | Accordingly, the Court found that the obligation to pay tax at the amount subsequently properly ascertained, assessed and determined was a 'present legal obligation', for the purposes of s 109Y, as at the end of the financial year in respect of which the income is derived. | GIC | The Court agreed with the AAT's observations that a person's liability to the GIC accrues on a daily basis as a direct consequence of the fact that tax remains unpaid after the due date. As a consequence, GIC becomes a present legal obligation on each day on which tax that should have been paid remains unpaid. | The fact that the Commissioner can remit GIC does not alter this position. Unless and until remitted, GIC remains a 'present legal obligation' on each day on which the tax that should have been paid remains unpaid.", "Issues_Decided": "Income Tax: The Court considered the legislative context of s 109Y and the explanatory memorandum to the Bill introducing Division 7A, and found that the purpose of s 109Y was to provide a 'cap' or limit on the amount to be treated as assessable dividends, namely, up to but not exceeding the realised and unrealised profits in the company, and the meaning of 'present legal obligation' and 'distributable surplus' should be interpreted in that context The Court observed that the profits of a company available for distribution are 'after-tax' profits, and considered that a construction of s 109Y which promotes that result is to be preferred to one that does not. The Court considered that the term 'obligation' embraces situations outside of a creditor/debtor relationship, and concluded that prior to an assessment, the company had an obligation to pay income tax arising from the operation of the Income Tax Act 1986. That obligation came into existence on 30 June of the year of income in which the income was derived. At worst that obligation might be a contingent obligation (contingent on an assessment being made), but that does not disqualify it as a present legal obligation in the sense that it exists as at 30 June, though the obligation is to do something at a future date. The Court agreed with the AAT that the obligation to pay income tax arises by operation of the Income Tax Act 1986 itself, and not by the issue of a notice of assessment. On the making of an assessment, the present legal obligation arising from the Income Tax Act 1986 matures into an enforceable debt that becomes due and payable. Accordingly, the Court found that the obligation to pay tax at the amount subsequently properly ascertained, assessed and determined was a 'present legal obligation', for the purposes of s 109Y, as at the end of the financial year in respect of which the income is derived. | GIC: The Court agreed with the AAT's observations that a person's liability to the GIC accrues on a daily basis as a direct consequence of the fact that tax remains unpaid after the due date. As a consequence, GIC becomes a present legal obligation on each day on which tax that should have been paid remains unpaid. The fact that the Commissioner can remit GIC does not alter this position. Unless and until remitted, GIC remains a 'present legal obligation' on each day on which the tax that should have been paid remains unpaid.", "ATO_View_of_Decision": "The decision applied the following principles in calculating the distributable surplus for the purposes of s 109Y(2) of the ITAA 1936. | Income Tax | The obligation to pay income tax for a particular year of income is a present legal obligation of a company at the end of that year of income. That obligation is to pay tax that is subsequently properly assessed. | If an amended assessment is made in relation to a particular year of income, the calculation of distributable surplus (where relevant) in relation to that year is similarly amended to reflect the tax payable on the amended assessment. That is, an amended assessment is a present legal obligation of the year to which it relates, rather than the year in which it is made. | While the Full Federal Court referred specifically to years of income ending on 30 June, the decision will also apply to companies which have a substituted accounting period. | GIC and SIC | The Court and the Tribunal considered that because liability to GIC accrues on a daily basis as a direct consequence of the fact that tax remains unpaid after the due date, GIC is considered to be a present legal obligation on each day the amount remained unpaid. | GIC payable due to an amended assessment is treated as a present legal obligation in the year in which it accrues (unless it is subsequently remitted). | The Commissioner notes that the assessments before the Court were for the years ended 30 June 1999 to 30 June 2003 (inclusive), and that amendments were made to the GIC regime by the Income Tax Amendment (Improvements to Self Assessment) Act (No. 1) 2005. Those amendments revised the due date for tax payable under amended assessments, and introduced the Shortfall Interest Charge (SIC). | Tax shortfall penalty | The Tribunal's decision on tax shortfall penalty was not appealed to the Federal Court and it accordingly stands. Tax shortfall penalty is not a present legal obligation of a company until an assessment of shortfall penalty is made.", "Administrative_Treatment": "The ATO has reviewed TD 2007/28 and TD 2012/10 (which replaced TD 2008/28) following the decision of the AAT in this matter. The view expressed in the TD's reflected the decision of the Full Federal Court in Commissioner of Taxation v H [2010] FCAFC 128. This matter did not espouse any new principle and simply applied the decision in H. As such no further amendments were required to be made to any ATO precedential documents. | Implications on current Public Rulings & Determinations | The ATO is reviewing TD 2007/28 and TD 2008/28 to accord with the decision of the Full Federal Court.", "Related_Documents": "TD 2007/28 | TD 2008/28 | 2010 ATC 20-218 | 109Y(2) | 204 | The Act | 81 ATC 4429 | 99 ATC 4373 | 96 ATC 4752", "Legislative_References": "Income Tax Assessment Act 1936 109Y(2) 204 Income Tax Act 1986 The Act", "Case_References": "Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 12 ATR 173 81 ATC 4429 Commissioner of Taxation v Jones (1999) 86 FCR 282 41 ATR 460 166 ALR 650 99 ATC 4373 Commissioner of Taxation v Kavich (1996) 68 FCR 519 33 ATR 273 96 ATC 4752", "Subject_References": "Distributable surplus Division 7A General Interest Charge Net assets Present legal obligation", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD211of2010/00001", "Unmatched_Content": "Précis for the web page index: Outlines the ATO response to the decision of the Full Federal Court in relation to when income tax and general interest charge assessed by an amended assessment are 'present legal obligations' for the purposes of calculating a company's net assets and distributable surplus. | Updated to reflect that all administrative treatment has been finalised and no further amendments required."}
{"Case_Name": "Commissioner of Taxation v News Australia Holdings Pty Ltd", "Venue_Reference_No": "NSD 1209 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "30 June 2010", "Date_Published": "22 December 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Unfavourable", "Summary_of_Decision": "The global corporate restructure implemented by News Corporation in order to move its ultimate holding company from Australia to the US resulted in a capital loss of $1.5 billion. The migration would have caused a large CGT liability if done directly; however, the requirement of management was that it should create no tax and no tax risk.", "Overview_of_Facts": "This case concerns a corporate restructure, a purpose of which was to change the intra-group holding of shares in a US subsidiary from the Australian taxpayer company to a new US head company. During this restructure, a series of steps was implemented which included the US subsidiary buying back the shares held by the Australian taxpayer company (resulting in a capital loss by operation of Division 16K of the ITAA 1936) in exchange for a debt note. On the same day, the US subsidiary then re-issued shares to the new US head company in exchange for the debt note which the US head company received on the same day from the Australian taxpayer company as a reduction of capital distribution by the Australian taxpayer company in which the US head company was the shareholder. | In connection with the restructure, the News group applied for, and received, favourable rulings from the US Internal Revenue Service ('IRS') relating to the US tax consequences of certain aspects of the arrangements. News group also applied for and received a ruling from the ATO that, as there was no longer an anticipated capital gain due to a turn in market prices, Part IVA could not apply to include a capital gain in the applicant's income as a result of the disposal of its interest in the US subsidiary by way of a buyback of shares. The taxpayer did not request a ruling in relation to a possible capital loss benefit. | The Commissioner made a Part IVA determination to disallow the tax benefit (the $1.5 billion CGT loss) that was generated by a \"scheme\" identified by the Commissioner within a much broader arrangement, being the migration of News Corporation from Australia to the US. The Commissioner's alternate postulate was that the taxpayer, in the absence of the scheme, might reasonably have been expected to make a direct transfer of shares which would not have generated a loss. | The AAT concluded that the manner in which the scheme was entered into or carried out did not point to an objective purpose of obtaining a tax benefit as the transactions undertaken to give effect to the corporate restructure, although complex, had the non-tax purpose of effecting the restructure for the ultimate commercial benefit of News Group and its shareholders. | The AAT considered that as it was intended to move very substantial assets from an Australian corporation to a related US corporation it was not surprising that the process was both complex and complicated and that mechanisms other than transfers were considered for parts of the process. The particular steps undertaken were sensible and rational against the \"no tax, no tax risk\" requirement of management, without which the restructure would not have occurred. | Issues decided by the court | The appeal raised three errors of law that we said had been made by the AAT in deciding to set aside the objection decision. | Firstly, the Court rejected the argument that the AAT had erred in having regard to subjective purposes of the taxpayer and others by accepting evidence that the taxpayer would not have undertaken the transaction if there was a risk of tax being payable in Australia. The Court stated that, to the extent the AAT did take this \"no tax, no tax risk\" position into account, it did so on the basis of objectively ascertainable evidence. | Secondly, the Court rejected the argument that the buy back structure had been suggested in the context of the payment of a dividend being ruled out for UK tax reasons, but was not related to the choice between a buy back and a direct transfer of shares for which UK tax was not a relevant consideration. The Court considered that there was some evidence to show that the decision to proceed with the buy back option was prompted by UK tax considerations, and that was sufficient for there to be no error of law. | Thirdly, the Court rejected the argument that the AAT had failed to properly compare the form and substance of the scheme and had misunderstood our submission that the whole set of complex circular transactions resulted in the taxpayer being in precisely the same economic position after the buy back. The Court concluded that this argument had been addressed by the AAT and simply rejected, which disclosed no error of law.", "Issues_Decided": "The appeal raised three errors of law that we said had been made by the AAT in deciding to set aside the objection decision. Firstly, the Court rejected the argument that the AAT had erred in having regard to subjective purposes of the taxpayer and others by accepting evidence that the taxpayer would not have undertaken the transaction if there was a risk of tax being payable in Australia. The Court stated that, to the extent the AAT did take this \"no tax, no tax risk\" position into account, it did so on the basis of objectively ascertainable evidence. Secondly, the Court rejected the argument that the buy back structure had been suggested in the context of the payment of a dividend being ruled out for UK tax reasons, but was not related to the choice between a buy back and a direct transfer of shares for which UK tax was not a relevant consideration. The Court considered that there was some evidence to show that the decision to proceed with the buy back option was prompted by UK tax considerations, and that was sufficient for there to be no error of law. Thirdly, the Court rejected the argument that the AAT had failed to properly compare the form and substance of the scheme and had misunderstood our submission that the whole set of complex circular transactions resulted in the taxpayer being in precisely the same economic position after the buy back. The Court concluded that this argument had been addressed by the AAT and simply rejected, which disclosed no error of law.", "ATO_View_of_Decision": "This was a very complex series of international transactions with rulings from different regulators. This made for a factually difficult case for the application of Part IVA because the transaction was based upon tax advice in at least three jurisdictions which became embedded in the transaction as it evolved. The earlier UK tax advice on the evidence led to the development of a structure upon which rulings were obtained from the US Inland Revenue Service. One of those rulings was a significant factor in the decision of the AAT. | There were a number of factual findings by the AAT which we disagreed with, but, as an appeal only lies on an error of law, we, and the Full Federal Court, were confined to the facts as found by the AAT. | The Court stated emphatically that the test as to purpose in Part IVA was an objective one and that the Tribunal had identified the correct principles, including that the section leaves no room for consideration of a person's subjective purposes or motivations. Whilst we had considered that the AAT had erred in having regard to the taxpayer's \"no tax no tax risk\" position we accept the Court's view that the AAT had in fact confined itself to objectively ascertainable evidence. | The Court also agreed with the Tribunal's conclusion that our counterfactual \"was likely to have led to a capricious and uncertain outcome\" and the avoidance of such an outcome was more likely to have been the dominant purpose. Although we consider the taxpayer could have chosen a time when the possibility of a capricious outcome would have been ameliorated, we accept that it was open to the Court to find that our counterfactual was subject to the problems identified by the Tribunal. | The Court decided that there was some evidence to support the findings by the AAT that the buy-back element of the scheme had been decided upon for UK tax reasons. The Court considered that the taxpayer's decision was \"prompted by\" rather than \"decided upon\" for UK tax considerations, but that the Tribunal's language should not be parsed in an effort to find legal error. We agree that it is not possible to sustain an argument that there was an error of law on the basis of no evidence in these circumstances. | We also accept that it was open to the Court to find that the AAT had addressed, but rejected, the Commissioner's submissions in relation to the form and substance of the scheme and that of itself was not an error of law. | We do not consider that the decision, properly understood, raises any uncertainty (or at least, any uncertainty capable of ready particularisation) about the application of Part IVA.", "Administrative_Treatment": "Public Rulings & Determinations to be reviewed and considered | None", "Related_Documents": "None | PS LA 2005/24 | 2010 ATC 20-191 | 177D | 2004 ATC 4599 | 2003 ATC 4942 | [2003] HCA 26 | [2009] FCAFC 140 | 2005 ATC 4829", "Legislative_References": "Income Tax Assessment Act 1936 177D", "Case_References": "Commissioner of Taxation v Hart [2004] HCA 26 217 CLR 216 55 ATR 712 2004 ATC 4599 Commissioner of Taxation v Zoffanies Pty Ltd [2003] FCAFC 236 54 ATR 280 2003 ATC 4942 Dranichnikov v Minister for Immigration and Multicultural Affairs [2003] HCA 26 197 ALR 389 Lafu v Minister for Immigration and Citizenship [2009] FCAFC 140 Macquarie Finance Ltd v Commissioner of Taxation [2005] FCAFC 205 2005 ATC 4829 61 ATR 1", "Subject_References": "Corporate restructure capital loss Part IVA subjective purpose of taxpayer proper consideration of form & substance", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1209of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Secretary to the Department of Transport (Vic)", "Venue_Reference_No": "VID 845 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "9 July 2010", "Date_Published": "20 June 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this matter which concerned whether a subsidy provider made creditable acquisitions in respect of the subsidy payments and was therefore entitled to input tax credits under the GST Act.", "Overview_of_Facts": "The Department of Transport (DOT), through the Victorian Taxi Directorate (VTD), administers taxi-cab licences and the Multi Purpose Taxi Program (MPTP) in the State of Victoria pursuant to the Transport Act 1983 (Vic). The DOT is registered for GST. | Under the MPTP, the DOT provides a 50% subsidy of the metered taxi-cab fare (up to a specified maximum per trip and a specified maximum per year) for taxi-cab travel to Victorian residents who suffer from a severe and permanent disability and are unable to independently access public transport (a MPTP Member and for the purposes of the transactions in question, the passenger in the taxi). | Every taxi-cab licence requires the taxi-cab to be fitted out to facilitate the implementation of the MPTP and to be operated in accordance with the terms of the MPTP. | The metered taxi-cab fare payable by a passenger is calculated at the end of the taxi-cab ride. The passenger pays the metered taxi-cab fare, less the subsidy. | The taxi-cab trip undertaken by the passenger is reported to the VTD. Before the trip commences, the passenger presents an MPTP card to the taxi-cab operator which is then validated electronically by DOT. The DOT pays the MPTP subsidy to the taxi-cab operator or, if the passenger paid the whole of the fare, the DOT pays the MPTP subsidy to the passenger. | Issues decided by the court | The issue in dispute in this matter was whether the DOT made creditable acquisitions in accordance with section 11-5 of the GST Act in respect to the payments it made to taxi-cab operators under the MPTP and was therefore entitled to input tax credits under section 11-20 of the GST Act. | The majority of the Full Federal Court (Kenny and Dodds-Streeton JJ) held that the DOT made creditable acquisitions in respect to the payments it made under the MPTP. | The majority held that a taxi-cab operator made two supplies: the supply of transport to the passenger and the supply to the DOT of the service of transporting the MPTP member. The subsidy payment was consideration for the supply to the DOT and therefore the DOT acquired a taxable supply from the taxi-cab operator for the purposes of paragraph 11-5(b). | The Court observed that the suggestion that there will be a supply made in every case that consideration is provided is an erroneous proposition. | Having found that the DOT made creditable acquisitions in respect of the payments it made under the MPTP, it concluded that the DOT was entitled to input tax credits under section 11-20 of the GST Act.", "Issues_Decided": "The issue in dispute in this matter was whether the DOT made creditable acquisitions in accordance with section 11-5 of the GST Act in respect to the payments it made to taxi-cab operators under the MPTP and was therefore entitled to input tax credits under section 11-20 of the GST Act. The majority of the Full Federal Court (Kenny and Dodds-Streeton JJ) held that the DOT made creditable acquisitions in respect to the payments it made under the MPTP. The majority held that a taxi-cab operator made two supplies: the supply of transport to the passenger and the supply to the DOT of the service of transporting the MPTP member. The subsidy payment was consideration for the supply to the DOT and therefore the DOT acquired a taxable supply from the taxi-cab operator for the purposes of paragraph 11-5(b). The Court observed that the suggestion that there will be a supply made in every case that consideration is provided is an erroneous proposition. Having found that the DOT made creditable acquisitions in respect of the payments it made under the MPTP, it concluded that the DOT was entitled to input tax credits under section 11-20 of the GST Act.", "ATO_View_of_Decision": "The Commissioner considers that, as a result of the decision, a broader approach than that taken by the ATO to date when analysing subsidy arrangements of this kind is required. | In that regard, the Commissioner notes that the majority of the Court took into account two factors in deciding that the taxi-cab operators made supplies to the DOT for which the subsidy payments were held to be consideration: • Having regard to the arrangements for electronic 'validation' before the journeys began, the taxi-cab operator was doing what the DOT had 'in effect' asked it to do on the basis that the DoT would make the payment. • The identified supply to DOT of this service of transporting the MPTP member enabled the DOT to fulfil its objects under the relevant Transport Act and to perform its functions. [Paragraph 56 of judgment] | • Having regard to the arrangements for electronic 'validation' before the journeys began, the taxi-cab operator was doing what the DOT had 'in effect' asked it to do on the basis that the DoT would make the payment. • The identified supply to DOT of this service of transporting the MPTP member enabled the DOT to fulfil its objects under the relevant Transport Act and to perform its functions. [Paragraph 56 of judgment]", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The Commissioner issued addenda on 14 December 2012 to GSTR 2006/9 and GSTR 2006/10 that set out the Commissioner's views as to when supplies may be identified under a tripartite arrangement following the Court's decision. | The Commissioner issued GSTR 2012/2 on 30 May 2012 which sets out the Commissioner's views on when a financial assistance payment is consideration for a supply. GSTR 2000/11 was withdrawn, subject to a transitional provision extending to 1 January 2013, from 30 May 2012. GSTR 2012/2 references the Court's decision. | The Commissioner has also reviewed the following products and considers that the views expressed there do not require amendment following the Court's decision: GSTD 2001/1, GSTR 2001/4, GSTD 2006/1, and GSTR 2006/1.", "Related_Documents": "GSTR 2006/9 | 2010 ATC 20-196 | 7-1 | 7-5 | 7-10 | 7-15 | 9-5 | 9-10 | 9-15 | 9-20 | 9-40 | 9-70 | 9-75 | 11-5 | 11-10 | 11-15 | 11-20 | 11-25 | 17-5 | 29-10 | 33-5 | 35-10 | 149-5 | 149-15 | 184-1 | 195-1 | Subdivision 40-A | Div 78 | Div 111 | 41 | 15AA | 2(1) | 4 | 86 | 87 | 88 | 90 | 139 | 140 | 143 | 144 | 146 | 147 | 149 | 150 | 153 | 156 | 157 | 158 | Div 5 of Part VI | 29 | 43 | [1892] 2 QBD 484 | [1999] 1 WLR 408 | 2005 ATC 4571 | (1920) 28 CLR 66 | (1920) 26 ALR 225 | [1920] HCA 51 | (2009) 2009 ATC 20-140 | (2009) 2009 ATC 20-157", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 7-1 7-5 7-10 7-15 9-5 9-10 9-15 9-20 9-40 9-70 9-75 11-5 11-10 11-15 11-20 11-25 17-5 29-10 33-5 35-10 149-5 149-15 184-1 195-1 Subdivision 40-A Div 78 Div 111 A New Tax System (Australian Business Number ) Act 1999 41 Acts Interpretation Act 1901 (Cth) 15AA Transport Act 1983 (Vic) 2(1) 4 86 87 88 90 139 140 143 143 144 146 147 147 149 150 153 156 157 158 Div 5 of Part VI Transport (Taxi-Cab) Regulations 2005 (Vic) 29 41 43", "Case_References": "Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 [1892] 2 QBD 484 Customs and Excise Commissioners v Redrow Group plc [1999] 1 WLR 408 HP Mercantile Pty Ltd v Federal Commissioner of Taxation (2005) 143 FCR 553 [2005] FCAFC 126 2005 ATC 4571 60 ATR 106 Mallinson v Scottish Australian Investment Co Ltd (1920) 28 CLR 66 (1920) 26 ALR 225 [1920] HCA 51 Secretary to the Department of Transport (Victoria) v Commissioner of Taxation (2009) 261 ALR 39 [2009] FCA 1209 (2009) 2009 ATC 20-140 (2009) 73 ATR 690 TT-Line Company Pty Ltd v Federal Commissioner of Taxation (2009) 181 FCR 400 (2009) 2009 ATC 20-157 (2009) 74 ATR 771", "Subject_References": "GST multiparty arrangement government entity taxi-cab operators Multi Purpose Taxi Program transport services of disabled passengers subsidy creditable acquisition acquisition supply taxable supply consideration input tax credits", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID845of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd", "Venue_Reference_No": "QUD 275 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "29 July 2010", "Date_Published": "3 November 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO view of this case which concerned whether Part IVA of the Income Tax Assessment Act 1936 applied to a scheme to overcome law changes that limited employer deductibility for superannuation contributions for employees to age-based limits.", "Overview_of_Facts": "The taxpayer employed Mark Trail and Allan Trail under written employment contracts. | Each employment contract required the taxpayer, in addition to cash remuneration, to make superannuation contributions to the Trail Bros Superannuation Fund (the Fund) totalling $297,000 during the first four years of trading. $120,000 was paid by the taxpayer to the Fund in the year ended 30 June 1996, representing a $60,000 payment for each employee. | In the year ended 30 June 1997 (the 1997 year), legislative amendments had the effect of limiting deductibility for superannuation contributions under the employment contracts to annual age-based deduction limits for each employee: $27,170 for Mark Trail and $9,782 for Allan Trail in the 1997 year and $28,420 for Mark Trail and $10,232 for Allan Trail in the year ended 30 June 1998 (the 1998 year). | In response, the taxpayer and the two employees orally agreed to vary the employment contracts so that instead of making superannuation contributions to the Fund, the Taxpayer would make payments to the Trail Bros Pty Ltd Employee Welfare Fund (the Welfare Fund). The Welfare Fund was established by a deed of trust dated 19 June 1997. In both the 1997 year and the 1998 year, the taxpayer paid $210,000 to the Welfare Fund. The taxpayer claimed a deduction for each payment. The Commissioner disallowed the deductions on the basis that the amounts were not deductible or, if they were, that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) operated to disallow the deductions. | The Administrative Appeals Tribunal (the AAT) found the payments to the Welfare Fund were deductible under s 51(1) of the ITAA 1936 for the 1997 year and under s 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the 1998 year. The AAT also found that although there was a scheme within the meaning of s 177A(1) of the ITAA 1936, Part IVA of the ITAA 1936 did not apply because the taxpayer had not obtained a tax benefit in connection with a scheme within the meaning of s 177C of the ITAA 1936. The AAT did not consider the application of s 177D (b) of the ITAA 1936. | The Commissioner appealed to the Federal Court pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (the AAT Act). That appeal was limited to the AAT's treatment of Part IVA of the ITAA 1936. | The trial judge (Greenwood J) found that the taxpayer had obtained a tax benefit in each year but, contrary to the Commissioner's submission, found that the tax benefit was not the $210,000 paid to the Welfare Fund in each of the 1997 year and the 1998 year, but the difference between the $210,000 and the superannuation age-based deduction limits for each employee (the differential). His Honour set aside the decision of the AAT and remitted the matter to the AAT. | The Commissioner appealed to the Full Federal Court concerning the amount of the tax benefits found by the trial judge, contending the taxpayer obtained tax benefits in connection with the scheme of the full amount of the deductions allowable under the scheme. | The taxpayer cross-appealed, contending that: (a) the Commissioner's appeal to the Federal Court from the AAT's decision was not 'on a question of law' as required by s 44 of the AAT Act; and (b) the trial judge, having determined that the tax benefit the taxpayer had obtained in connection with the scheme in each year was not $210,000, but the differential, should have found that the Commissioner's power to make a determination under s 177F of the ITAA 1936 was never enlivened and so should have dismissed the Commissioner's appeal on the basis that the taxpayer had established that the Commissioner's assessment was excessive. | (a) the Commissioner's appeal to the Federal Court from the AAT's decision was not 'on a question of law' as required by s 44 of the AAT Act; and (b) the trial judge, having determined that the tax benefit the taxpayer had obtained in connection with the scheme in each year was not $210,000, but the differential, should have found that the Commissioner's power to make a determination under s 177F of the ITAA 1936 was never enlivened and so should have dismissed the Commissioner's appeal on the basis that the taxpayer had established that the Commissioner's assessment was excessive. | Issues decided by the court | The Full Federal Court (Dowsett & Gordon JJ, with whom Edmonds J agreed) unanimously dismissed both the Commissioner's appeal and the taxpayer's cross appeal, thereby remitting the matter to the AAT to complete its analysis of the application of s 177D(b) of the ITAA 1936. | The taxpayer withdrew its appeal on 28 February 2011 before the AAT completed its review and the case is now finalised. | Commissioner's appeals were on a question of law | The Court dismissed the taxpayer's argument that the questions raised by the Commissioner on his appeal from the AAT 'involved' a question of law but were not 'on' a question of law. | The Court concluded that each of the Commissioner's questions \"was properly the subject of appeal under s 44 of the AAT Act\" (para [15]), noting (at para [14]) that: a question of law 'directing the Court's attention to the manner in which the Tribunal failed to discharge its obligations according to law' is a legitimate subject of an 'appeal' under s 44(1) of the AAT Act and nothing in the cases 'limits the reach of s 44 to questions of law divorced from the need to look at the facts'. | Taxpayer has onus of proving no tax benefit obtained in connection with a scheme | The Court held (at para [35]) that it is the taxpayer who bears the onus to establish they have not obtained a tax benefit in connection with a scheme for the purposes of s 177C of the ITAA 1936. In so doing, the Court rejected (at para [34]) the taxpayer's submission that: the Commissioner, not the Taxpayer, had the burden of identifying the alternative postulate [what would have or might reasonably be expected to have taken place in the absence of the scheme] and that only when the Commissioner had established an alternative postulate did the burden shift to the taxpayer to show that the Commissioner's alternative postulate was only a 'possibility not a prediction sufficiently reliable for it to be regarded as reasonable'. | An element of the scheme may form part of the alternative postulate | At paragraphs [27] to [31], the Court considered a submission the Commissioner had made to the trial judge, but which formed no part of the Commissioner's submissions before the Full Court. That submission was that: The question posed by s 177C (1) (b) is to be answered on the assumption that the entire scheme had not been entered into or carried out. It is not open to the taxpayer to point to what might reasonably be expected to have been done if only part of the scheme had not been entered into or carried out [citing FCT v Lenzo [2008] FCAFC 50; (2008) 167 FCR 255 at [121].] | That submission went on to argue that \"[b]y taking into account the availability to the applicant and the directors of varying the contracts of employment the Tribunal had regard to an irrelevant or improper consideration\" because \"[v]ariation of the contracts of employment was one of the very components of the scheme in the present case which s 177C (1) requires to be taken not to have occurred [citing Lenzo at [121] and [130] ]\". | The Court concluded that an element of the scheme may form part of the alternative postulate. In particular, the Court stated (at para [29]): The particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme and which are identified as a result of the objective enquiry are not confined or defined by the scheme. Of course, it cannot be the same complete set of events giving rise to the scheme - that would be the scheme. But at the same time, the identification of the activity or the events does not necessarily preclude any element of the scheme. | Deduction under alternative postulate need not be of same kind as that under scheme | The Court concluded that the trial judge was wrong in approaching the question of the identification of the tax benefit obtained by the taxpayer in connection with the scheme by reference to whether under the alternative postulate there was an allowable deduction of the same kind as the deduction allowable under the scheme. The Court concluded (at paras [44] and [66]) that an allowable deduction identified in the alternative postulate need not be of the same kind as the deduction allowable under the scheme. In so doing, the Court arguably did not follow the decision of the differently constituted Full Federal Court in Lenzo . The observations at para [52] could be interpreted as regarding Lenzo as wrongly decided in that respect. | Instead, the Court held (see paras [30], [49] and [65]) that the amount of the tax benefit in the context of s 177C (1) (b) is simply any excess in the amount of the deduction allowable to the taxpayer in relation to a year of income under the scheme over the amount of the deduction allowable to the taxpayer in relation to that year of income under the alternative postulate. Edmonds J stated (at para [65]) that: This does not mean that the taxpayer is at large in pointing to some alternative allowable deduction having no relevance to the impugned scheme,... | Amount of tax benefit obtained by taxpayer in connection with scheme was the differential | The Court concluded (at paras [53] and [54]) that the trial judge was right to conclude that the taxpayer had obtained a tax benefit in connection with the scheme in each of the relevant years equal to the difference between the amount of the allowable deduction under the scheme for the employee welfare fund contributions and the amount of the allowable deduction under the alternative postulate (which was a deduction for superannuation contributions for the two employees up to their age-based limits). | Errors in Part IVA determination do not invalidate related assessment | The Court held (at paras [57] and [72]) that \"it is not open to a taxpayer to challenge the validity of an assessment to give effect to a determination made under Part IVA [of the ITAA 1936] by showing some error in the making of the determination.\" | Further, the Court held (at para [57]) that \"[t]he making of a determination under s 177F of the 1936 Act is not open to challenge in Pt IVC proceedings by showing some error in the making of the determination ...The making of a determination is procedural and does not go to substantive liability\". | The Court noted (at para [57]) that, instead: A determination having been made by the Commissioner, the issues of objective fact in a Pt IVC proceeding will be whether there was a scheme to which Pt IVA applied and if so, whether there was a tax benefit obtained in connection with that scheme ... The onus is on the taxpayer to show objectively that there was no scheme in connection with which the taxpayer obtained a tax benefit. | Consequently, the Court held (at para [57]) that \"the erroneous identification by the Commissioner of the scheme, or the misconception by him as to the connection of a tax benefit with such a scheme, will not be fatal to the application of Pt IVA\". | The Court therefore dismissed the taxpayer's cross-appeal as to the validity of the assessment, concluding (at paras [58] and [59]): The assessment is not invalid. The making of the Commissioner's determination is procedural - it is not open to challenge. The taxpayer's submissions are contrary to the express words of the 1936 Act (ss 175, 175A and 177) and contrary to long established authority. ... The fact that the tax benefit, objectively determined, is the differential does not lead to the dismissal of the Commissioner's appeal.", "Issues_Decided": "The Full Federal Court (Dowsett & Gordon JJ, with whom Edmonds J agreed) unanimously dismissed both the Commissioner's appeal and the taxpayer's cross appeal, thereby remitting the matter to the AAT to complete its analysis of the application of s 177D(b) of the ITAA 1936. The taxpayer withdrew its appeal on 28 February 2011 before the AAT completed its review and the case is now finalised. | Commissioner's appeals were on a question of law: The Court dismissed the taxpayer's argument that the questions raised by the Commissioner on his appeal from the AAT 'involved' a question of law but were not 'on' a question of law. The Court concluded that each of the Commissioner's questions \"was properly the subject of appeal under s 44 of the AAT Act\" (para [15]), noting (at para [14]) that: a question of law 'directing the Court's attention to the manner in which the Tribunal failed to discharge its obligations according to law' is a legitimate subject of an 'appeal' under s 44(1) of the AAT Act and nothing in the cases 'limits the reach of s 44 to questions of law divorced from the need to look at the facts'. | Taxpayer has onus of proving no tax benefit obtained in connection with a scheme: The Court held (at para [35]) that it is the taxpayer who bears the onus to establish they have not obtained a tax benefit in connection with a scheme for the purposes of s 177C of the ITAA 1936. In so doing, the Court rejected (at para [34]) the taxpayer's submission that: the Commissioner, not the Taxpayer, had the burden of identifying the alternative postulate [what would have or might reasonably be expected to have taken place in the absence of the scheme] and that only when the Commissioner had established an alternative postulate did the burden shift to the taxpayer to show that the Commissioner's alternative postulate was only a 'possibility not a prediction sufficiently reliable for it to be regarded as reasonable'. | An element of the scheme may form part of the alternative postulate: At paragraphs [27] to [31], the Court considered a submission the Commissioner had made to the trial judge, but which formed no part of the Commissioner's submissions before the Full Court. That submission was that: The question posed by s 177C (1) (b) is to be answered on the assumption that the entire scheme had not been entered into or carried out. It is not open to the taxpayer to point to what might reasonably be expected to have been done if only part of the scheme had not been entered into or carried out [citing FCT v Lenzo [2008] FCAFC 50; (2008) 167 FCR 255 at [121].] That submission went on to argue that \"[b]y taking into account the availability to the applicant and the directors of varying the contracts of employment the Tribunal had regard to an irrelevant or improper consideration\" because \"[v]ariation of the contracts of employment was one of the very components of the scheme in the present case which s 177C (1) requires to be taken not to have occurred [citing Lenzo at [121] and [130] ]\". The Court concluded that an element of the scheme may form part of the alternative postulate. In particular, the Court stated (at para [29]): The particular activity or the events that would have, or might reasonably be expected to have, taken place in the absence of the scheme and which are identified as a result of the objective enquiry are not confined or defined by the scheme. Of course, it cannot be the same complete set of events giving rise to the scheme - that would be the scheme. But at the same time, the identification of the activity or the events does not necessarily preclude any element of the scheme. | Deduction under alternative postulate need not be of same kind as that under scheme: The Court concluded that the trial judge was wrong in approaching the question of the identification of the tax benefit obtained by the taxpayer in connection with the scheme by reference to whether under the alternative postulate there was an allowable deduction of the same kind as the deduction allowable under the scheme. The Court concluded (at paras [44] and [66]) that an allowable deduction identified in the alternative postulate need not be of the same kind as the deduction allowable under the scheme. In so doing, the Court arguably did not follow the decision of the differently constituted Full Federal Court in Lenzo . The observations at para [52] could be interpreted as regarding Lenzo as wrongly decided in that respect. Instead, the Court held (see paras [30], [49] and [65]) that the amount of the tax benefit in the context of s 177C (1) (b) is simply any excess in the amount of the deduction allowable to the taxpayer in relation to a year of income under the scheme over the amount of the deduction allowable to the taxpayer in relation to that year of income under the alternative postulate. Edmonds J stated (at para [65]) that: This does not mean that the taxpayer is at large in pointing to some alternative allowable deduction having no relevance to the impugned scheme,... | Amount of tax benefit obtained by taxpayer in connection with scheme was the differential: The Court concluded (at paras [53] and [54]) that the trial judge was right to conclude that the taxpayer had obtained a tax benefit in connection with the scheme in each of the relevant years equal to the difference between the amount of the allowable deduction under the scheme for the employee welfare fund contributions and the amount of the allowable deduction under the alternative postulate (which was a deduction for superannuation contributions for the two employees up to their age-based limits). | Errors in Part IVA determination do not invalidate related assessment: The Court held (at paras [57] and [72]) that \"it is not open to a taxpayer to challenge the validity of an assessment to give effect to a determination made under Part IVA [of the ITAA 1936] by showing some error in the making of the determination.\" Further, the Court held (at para [57]) that \"[t]he making of a determination under s 177F of the 1936 Act is not open to challenge in Pt IVC proceedings by showing some error in the making of the determination ...The making of a determination is procedural and does not go to substantive liability\". The Court noted (at para [57]) that, instead: A determination having been made by the Commissioner, the issues of objective fact in a Pt IVC proceeding will be whether there was a scheme to which Pt IVA applied and if so, whether there was a tax benefit obtained in connection with that scheme ... The onus is on the taxpayer to show objectively that there was no scheme in connection with which the taxpayer obtained a tax benefit. Consequently, the Court held (at para [57]) that \"the erroneous identification by the Commissioner of the scheme, or the misconception by him as to the connection of a tax benefit with such a scheme, will not be fatal to the application of Pt IVA\". The Court therefore dismissed the taxpayer's cross-appeal as to the validity of the assessment, concluding (at paras [58] and [59]): The assessment is not invalid. The making of the Commissioner's determination is procedural - it is not open to challenge. The taxpayer's submissions are contrary to the express words of the 1936 Act (ss 175, 175A and 177) and contrary to long established authority. ... The fact that the tax benefit, objectively determined, is the differential does not lead to the dismissal of the Commissioner's appeal.", "ATO_View_of_Decision": "It is not clear whether the Full Federal Court's interpretation of s 177C(1) in Trail Bros Steel & Plastics Pty Ltd (Trail Bros ) differs in some respects from that of the differently constituted Full Federal Court in the earlier case of Lenzo . | In Lenzo , Sackville J (with whom Heerey and Siopis JJ agreed, at paras [42] and [160] respectively) held (at para [128]) in relation to the interpretation of s 177C(1)(b) that: in determining whether the particular deduction claimed by the taxpayer would or might reasonably have been allowable, the Court must consider, in the absence of the scheme, what activity the taxpayer would have undertaken. The taxpayer can satisfy the onus of showing that he or she has not obtained a tax benefit in connection with a scheme if: • he or she would have undertaken or might reasonably be expected to have undertaken a particular activity in lieu of the scheme; and • the activity would or might reasonably be expected to have resulted in an allowable deduction of the same kind as the deduction claimed by the taxpayer in consequence of the scheme . (Emphasis added) | • he or she would have undertaken or might reasonably be expected to have undertaken a particular activity in lieu of the scheme; and • the activity would or might reasonably be expected to have resulted in an allowable deduction of the same kind as the deduction claimed by the taxpayer in consequence of the scheme . (Emphasis added) | Sackville J went on to say [at para 129] in rejecting the taxpayer's contention of a hypothetical contribution to a superannuation fund: \"...it would have been a deduction of quite a different character than that actually claimed...\". | This suggests that the court may have intended that \"the same kind\" requirement meant \"of the same character\" not simply the same amount. | However, in Trail Bros , Dowsett and Gordon JJ (with whom Edmonds J agreed at para [62]) held (at para [44]) that: we do not consider that on the proper construction of s 177C, the allowable deduction identified in the alternative postulate must be of the same kind as that claimed as a deduction under the scheme. | Further, their Honours went on (in para [52]) to hold in relation to s 177C(1)(b) that: in the identification of the tax benefit, no part of the enquiry posed by s 177C enquires whether there was an allowable deduction of the same kind as that claimed under the scheme. Any suggestion to the contrary in earlier authorities (e.g. Lenzo 167 FCR 255 at [121] - [125] and [128]) may now be put to one side as explained in Spotless 186 CLR 404. | Interestingly, the Court based its reasoning on the High Court's decision in Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 which was an income benefit case involving paragraph 177C(1)(a). In that case, the High Court stated that \" the paragraph speaks of the amount produced from a particular source or activity \" (at 424) but did not specifically address the identification of a deduction tax benefit. | The Full Federal Court (Edmonds J, with whom Bennett and Middleton JJ agreed) in FCT v Ashwick (Qld) No 127 Pty Ltd [2011] FCAFC 49 has subsequently expressed the same view (at para [153, (14)]), as the Court in Trail Bros . | While a degree of uncertainty may still exist, it seems clear that the allowable deduction under the alternative postulate must have some reasonable factual basis to support it and that a taxpayer is not at large in pointing to an alternative allowable deduction having no relevance to the impugned scheme (see in particular Edmonds J at para 65). | As noted earlier, the Court in Trail Bros concluded that an element of the scheme may form part of an alternative postulate. On the other hand there are a number of passages in Lenzo that suggest a different view, that is, that an element of the scheme may not form part of an alternative postulate: see, for example, paragraphs [121], [130] and [136]. However, the Full Courts in Ashwick (at para [153] (4) & (6)) and AXA (at paras 131-133) have subsequently expressed the same view as the Court in Trail Bros . | Compensating Adjustments | The compensating adjustment provisions are an important part of the statutory scheme of Part IVA and, in the Commissioner's respectful opinion, bear on the proper construction of s 177C. However, they are not discussed in Trail Bros, Ashwick or Lenzo . Subsection 177F (3) authorises the Commissioner, among other things, to allow \"any taxpayer\" a deduction if two conditions are met. It is clear, we think, that \"any taxpayer\" includes the taxpayer in respect of whom the Commissioner has made a determination under s 177F(1) to cancel a tax benefit referable to a deduction, and does not mean \"any other taxpayer\". The two conditions are, first, that the Commissioner must be of the opinion that an amount would have been allowed or would be allowable to the relevant taxpayer as a deduction in relation to a year of income if the scheme had not been entered into or carried out, being an amount that was not allowed or would not, but for the compensating adjustment provisions, be allowable as a deduction to the relevant taxpayer in relation to that year of income; and second, that the Commissioner must also be of the opinion that it is fair and reasonable to allow that amount or a part of that amount as a deduction to the relevant taxpayer in relation to that year of income. | Prima facie , the compensating adjustment provision authorises the Commissioner to allow a compensating adjustment for a hypothetical alternative deduction, whether of the same or different kind to that actually obtained as a result of the scheme, with two provisos. First, the test requires that the Commissioner must be of the opinion that the taxpayer would have obtained a deduction, not merely that they might reasonably be expected to have obtained a deduction, if the scheme had not been entered into or carried out. That is, the standard required by the compensating adjustment provisions is higher than that for s 177C (1) (b). Second, and importantly, there is a requirement that it be fair and reasonable in the Commissioner's opinion to allow the compensating adjustment. | The approach taken by the Full Court in Trail Bros to the determination of the amount of a tax benefit in the context of s 177C(1)(b) produces the same result as a compensating adjustment by the Commissioner under s 177F(3)(b) in relation to the taxpayer in respect of whom the Commissioner has made a determination under s 177F(1)(b) where the deduction to be allowed as a compensating adjustment to that taxpayer in relation to a year of income would have been so allowable if the scheme had not been entered into or carried out. | However, the approach of the Full Court in Trail Bros produces a different result from the application of s 177F(3)(b) to such a taxpayer where an alternative postulate involves a hypothetical alternative deduction being allowable to the taxpayer in relation to the year of income, but the Commissioner is not of the opinion that: • such a deduction would have been so allowable (the taxpayer may have established only that such a deduction might reasonably be expected) if the scheme had not been entered into or carried out; or • it is fair and reasonable to allow such a deduction. | • such a deduction would have been so allowable (the taxpayer may have established only that such a deduction might reasonably be expected) if the scheme had not been entered into or carried out; or • it is fair and reasonable to allow such a deduction. | The way forward | It is well settled that the application of Part IVA will be sensitive to the particular facts of each case. The possible inconsistency in the Full Federal Court between Lenzo on the one hand and Trail Bros and Ashwick on the other as to whether the allowable deduction (if any) identified in the alternative postulate has to be of the same kind or character as that allowable (but for Part IVA) under the scheme creates some uncertainty for both taxpayers and the Commissioner. | The Commissioner will take all decisions of the High Court and Federal Court into account in applying Part IVA to the particular facts of cases. The Commissioner notes however the weight of authority now provided by the judgments in Trail Bros, Ashwick and AXA on the interpretation of s 177C (1).", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | Law Administration Practice Statement PS LA 2005/24 Application of General Anti Avoidance Rules was updated on 16 September 2016 to reflect statements made by the Full Federal Court in relation to identifying the nature and amount of the a benefit under subsection 177C(1). The enactment of subsection 177CB(2) however, means that this issue will now be academic in many deduction cases after 16 November 2012. Refer to paragraphs 65-68 and 100 of the PS LA. See also paragraphs 99 and 116. | Date of amendment Part Comment 3 November 2016 Administrative treatment Updated to reflect PS LA 2005/24 has been revised Comments section Deleted", "Related_Documents": "PS LA 2005/24 | 2010 ATC 20-198 | The Act | 175 | 175A | 177 | Pt IVA | 177A(1) | 177C | 177C(1) | 177C(1)(b) | 177F | 8-1 | Pt IVC | 14ZZK | 14ZZO | Sch 4 | (1993) 43 FCR 280 | [2007] FCAFC 111 | [2006] FCAFC 27 | 2010 ATC 20-224 | 90 ATC 4088 | 2008 ATC 20-039 | 2004 ATC 4599 | 90 ATC 4990 | 2003 ATC 4272 | 94 ATC 4663 | 2004 ATC 4477 | 96 ATC 5201 | 2009 ATC 20-100 | 2003 ATC 4942 | 95 ATC 4067 | 2007 ATC 4092 | 2011 ATC 20-255 | 91 ATC 4396 | 2008 ATC 20-014 | 75 ATC 4257 | (1952) 86 CLR 183 | (1956) 98 CLR 263 | 79 ATC 4111 | [2001] FCA 744 | 2007 ATC 5044 | [2002] FCAFC 192 | [2008] NSWCA 277 | 2004 ATC 5088 | 88 ATC 4279 | 2007 ATC 4679 | 2008 ATC 20-040", "Legislative_References": "Administrative Appeals Tribunal Act 1975 44 Administrative Decisions (Judicial Review) Act 1977 The Act Income Tax Assessment Act 1936 51(1) Pt III, Div 3, Subdiv AA 82AAC 175 175A 177 Pt IVA 177A(1) 177C 177C(1) 177C(1)(b) 177D(b) 177F Income Tax Assessment Act 1997 8-1 Taxation Administration Act 1953 Pt IVC 14ZZK 14ZZO Superannuation Contributions and Termination Payments Taxes Legislation Amendment Act 1997 The Act Superannuation Contributions Tax (Consequential Amendments) Act 1997 The Act Taxation Laws Amendment Act (No 2) 1997 Sch 4", "Case_References": "Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 Collins v Administrative Appeals Tribunal (2007) 163 FCR 35 [2007] FCAFC 111 Comcare v Etheridge (2006) 149 FCR 522 [2006] FCAFC 27 Commissioner of Taxationv AXA Asia Pacific Holdings Ltd [2010] FCAFC 134 2010 ATC 20-224 Commissioner of Taxation v Dalco (1990) 168 CLR 614 [1990] HCA 3 90 ATC 4088 20 ATR 1370 Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 2008 ATC 20-039 69 ATR 41 Commissioner of Taxation v Hart (2004) 217 CLR 216 2004 ATC 4599 55 ATR 712 Commissioner of Taxation v Jackson (1990) 27 FCR 1 90 ATC 4990 21 ATR 1012 Commissioner of Taxation v Mochkin (2003) 127 FCR 185 2003 ATC 4272 52 ATR 198 Commissioner of Taxation v Peabody (1994) 181 CLR 359 94 ATC 4663 28 ATR 344 Commissioner of Taxation v Sleight (2004) 136 FCR 211 2004 ATC 4477 55 ATR 555 Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 96 ATC 5201 34 ATR 183 Commissioner of Taxation v Swansea Services Pty Ltd (2009) 72 ATR 120 [2009] FCA 402 2009 ATC 20-100 Commissioner of Taxation v Zoffanies Pty Ltd (2003) 132 FCR 523 54 ATR 280 2003 ATC 4942 Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 29 ATR 644 95 ATC 4067 Epov v Federal Commissioner of Taxation (2007) 65 ATR 399 2007 ATC 4092 Federal Commissioner of Taxation v Ashwick (Qld) No 127 Pty Ltd [2011] FCAFC 49 2011 ATC 20-255 Federal Commissioner of Taxation v Cooper (1991) 29 FCR 177 91 ATC 4396 21 ATR 1616 Federal Commissioner of Taxation v Lenzo (2008) 167 FCR 255 2008 ATC 20-014 71 ATR 511 Gauci v Commissioner of Taxation (1975) 135 CLR 81 75 ATC 4257 5 ATR 672 George v Federal Commissioner of Taxation (1952) 86 CLR 183 [1952] HCA 21 McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263 [1956] HCA 62 McCormack v Commissioner of Taxation (1979) 143 CLR 284 79 ATC 4111 9 ATR 610 Minister for Immigration and Multicultural Affairs v Al Miahi (2001) 65 ALD 141 [2001] FCA 744 Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007) 243 ALR 728 2007 ATC 5044 67 ATR 544 Repatriation Commission v Hill (2002) 69 ALD 581 [2002] FCAFC 192 Scicluna v New South Wales Land and Housing Corporation (2008) 72 NSWLR 674 [2008] NSWCA 277 Tax Agents' Board v Bray (2004) 58 ATR 118 2004 ATC 5088 TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 19 ATR 1067 88 ATC 4279 WR Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation (2007) 161 FCR 1 66 ATR 336 2007 ATC 4679 WR Carpenter Holdings Pty Ltd v Commissioner of Taxation (2008) 237 CLR 198 2008 ATC 20-040 69 ATR 29", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD275of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v White; Commissioner of Taxation v White (No 2)", "Venue_Reference_No": "VID 889 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "14 July 2010", "Date_Published": "28 April 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether amounts paid to an employee incentive trust were assessable to a shareholder/director of the employer company, and whether an administrative penalty of 50% for recklessness was excessive.", "Overview_of_Facts": "The taxpayer, an engineer, was the sole director and a shareholder of Troy White Engineering Pty Ltd (TWE), a company carrying on a tooling engineering business during the 1999 and 2000 income years. The taxpayer was also an employee of TWE. | As part of what was purported to be an employee incentive trust plan for TWE, a new company, Kalix Investments Pty Ltd (Kalix), was incorporated on 30 June 1999, and the taxpayer became its employee. It was intended that the taxpayer would become a consultant to TWE, and that Kalix would be paid management fees from TWE for the taxpayer's services. The taxpayer was the sole director of Kalix. | A trust was also established on or about 30 June 1999 for the purported purpose of providing long term incentives to the taxpayer and two important employees of TWE. The taxpayer was a director of the trustee of the trust. | On 30 June 1999, TWE made a payment of $120,120 (for the two employees) to the trustee of the trust. The plan had also been for TWE to make a management fee payment of $22,000 to Kalix, and for Kalix to make a payment of $22,000 to the trustee for the taxpayer. However, TWE made the payment of $22,000 directly to the trustee on 30 June 1999. | In the 2000 income year, one of the other employees of TWE also became an employee of Kalix and a consultant to TWE. A remuneration report recommended that a particular level of incentive payments be made by Kalix to the trustee of the trust for the taxpayer and the other employee. However, the recommendation was not followed, and considerably more was paid by TWE to Kalix as a management fee for the taxpayer ($399,000), and then paid by Kalix to the trustee for the taxpayer. | The Commissioner assessed the amounts of $22,000 and $399,000 to the taxpayer for the 1999 and 2000 years, respectively, as ordinary income from dividends or services rendered, or as deemed dividends under section 109 of the Income Tax Assessment Act 1936 (ITAA 1936). The Commissioner also assessed a penalty of 40% (50% for a tax shortfall caused by recklessness, reduced by 20% for voluntary disclosure made after the start of the tax audit). | The AAT found that the taxpayer used the incentive plan as a means of extracting profits from TWE. In relation to the 1999 year, the AAT found that it would be fanciful to suggest that the taxpayer provided any services to TWE in his capacity as an employee of Kalix. Rather, the payment of $22,000 to the trustee was made by TWE in return for services rendered by the taxpayer as an employee of TWE. The payment was in the nature of ordinary income, which the taxpayer directed be paid to the trustee. | In relation to the 2000 year, the AAT found that the payment of $399,000 from TWE to Kalix was also made for services rendered by the taxpayer to TWE. However, the AAT was satisfied that only $135,000 of the $399,000 was assessable to the taxpayer as either ordinary income, or excessive remuneration under section 109 of the ITAA 1936. | The AAT also found that the penalty imposed for both years should be 20% (25% for a tax shortfall caused by lack of reasonable care, reduced by 20% for voluntary disclosure). | The Commissioner appealed to the Federal Court on the basis that the AAT had erred in not finding that the amount of $264,000 was also assessable to the taxpayer in the 2000 year, and in not finding that the taxpayer was liable to penalty tax at a base amount of 50% (subject to a reduction of 20%) because the tax shortfall was caused by the recklessness of the taxpayer's tax agent. The taxpayer cross-appealed against the AAT's findings that the amounts of $22,000 and $135,000 were assessable to the taxpayer. | Issues decided by the court | In its first decision, the Federal Court (Gordon J) found that, as the AAT had found that the payment of $399,000 from TWE to Kalix was a payment made for services rendered by the taxpayer, the AAT should have found that the amount of $264,000 paid by Kalix to the trustee in the 2000 income year was also derived as ordinary income by the taxpayer (paragraphs 20 to 29). The Court also rejected the taxpayer's cross-appeal that the amount of $22,000 paid to the trustee was not derived as ordinary income in the 1999 year (paragraphs 41 to 44). | In its second decision, on penalty, the Federal Court held that the AAT had failed to address the former section 226H of the ITAA 1936, and that the taxpayer had not discharged the onus of proving that his tax agent was not reckless in filing the taxpayer's tax returns for the 1999 and 2000 income years. Her Honour noted that the conclusion that a 50% penalty applied to the tax shortfall was not inconsistent with any finding by the AAT (paragraphs 17 to 20).", "Issues_Decided": "In its first decision, the Federal Court (Gordon J) found that, as the AAT had found that the payment of $399,000 from TWE to Kalix was a payment made for services rendered by the taxpayer, the AAT should have found that the amount of $264,000 paid by Kalix to the trustee in the 2000 income year was also derived as ordinary income by the taxpayer (paragraphs 20 to 29). The Court also rejected the taxpayer's cross-appeal that the amount of $22,000 paid to the trustee was not derived as ordinary income in the 1999 year (paragraphs 41 to 44). In its second decision, on penalty, the Federal Court held that the AAT had failed to address the former section 226H of the ITAA 1936, and that the taxpayer had not discharged the onus of proving that his tax agent was not reckless in filing the taxpayer's tax returns for the 1999 and 2000 income years. Her Honour noted that the conclusion that a 50% penalty applied to the tax shortfall was not inconsistent with any finding by the AAT (paragraphs 17 to 20).", "ATO_View_of_Decision": "The Federal Court recognised that, based on the findings of fact made by the AAT, the payments made to the trustee of the incentive trust on behalf of the taxpayer were ordinary income derived by him from the provision of his services. | The Court also recognised that the taxpayer was liable to a penalty under the former section 226H of the ITAA 1936.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | 2010 ATC 20-195 | 2010 ATC 20-205 | 26(e) | 44(1) | 109 | 6-5(1) | 6-5(4) | 6-10(3) | 14ZZK | 2005 ATC 4234 | 2007 ATC 4223 | 99 ATC 4749 | 2003 ATC 4942 | 2007 ATC 5447 | 2001 ATC 4111", "Legislative_References": "Income Tax Assessment Act 1936 26(e) 44(1) 109 226H 226L Income Tax Assessment Act 1997 6-5(1) 6-5(4) 6-10(3) Taxation Administration Act 1953 14ZZK Administrative Appeals Tribunal Act 1975 44", "Case_References": "FCT v Stone (2005) 222 CLR 289 2005 ATC 4234 59 ATR 50 FCT v McNeil (2007) 229 CLR 656 2007 ATC 4223 64 ATR 431 FCT v Montgomery (1999) 198 CLR 639 99 ATC 4749 42 ATR 475 FCT v Zoffanies Pty Ltd (2003) 132 FCR 523 2003 ATC 4942 54 ATR 280 FCT v Starr (2007) 164 FCR 436 2007 ATC 5447 67 ATR 923 BRK (Bris)Pty Ltd v FCT 2001 ATC 4111 [2001] FCA 164 46 ATR 347", "Subject_References": "Assessable income Employee benefits Deemed dividends Administrative penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID889of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Yalos Engineering Pty Ltd; Yalos Engineering Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "VID 479 of 2009 (FC); 2007/3018-3019 (AAT)", "Venue": "Federal Court of Australia", "Judgment_Date": "23 December 2009", "Date_Published": "26 May 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to these decisions which concern whether the taxpayer was entitled to a Personal Services Business Determination (PSBD) under s 87-65 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the personal services income of an employee.", "Overview_of_Facts": "The taxpayer was a personal services entity within the meaning of s 86-15(2) of the ITAA 97, whose sole assessable income during the 2004 and 2005 income years was from a labour hire firm, Manpower Services P/L. The taxpayer agreed with Manpower in October 2002 to provide the services of an employee, Mr Koundouras, as an offshore installation engineer to BHP Billiton in relation to the Minerva gas field until 31 December 2003. The contract was extended to April 2005 as a result of delays in the construction of the onshore gas plant. Manpower paid the taxpayer a daily rate for the services of Mr Koundouras. | BHP Billiton approached Mr Koundouras on the recommendation of a colleague. The other contracts that the taxpayer obtained in the 2001 and 2003 to 2008 income years in providing the services of Mr Koundouras as a consulting engineer in the offshore oil and gas industry were obtained by word of mouth or recommendations from others in the industry. The potential clients for those services were restricted to a small number of companies. | In the 2001, 2003 and 2006 to 2008 income years, the taxpayer's assessable income included consulting fees from the provision of Mr Kondouras' services to two clients. | The taxpayer applied to the Commissioner for a PSBD for the 2004 and 2005 years in relation to the personal services income of Mr Koundouras. | The taxpayer sought a PSBD on the basis that it met the results test in the 2004 and 2005 years and/or also would have met, or could reasonably be expected to meet, the unrelated clients test in those years but for unusual circumstances. The Commissioner refused to issue a PSBD to the taxpayer. The application to the AAT related to the refusal to issue a PSBD. | The AAT (SM Pascoe) initially directed the Commissioner to make a PSBD for the taxpayer in relation to the personal services income of Mr Koundouras for the 2004 and 2005 years. | The AAT found that the taxpayer did not meet, nor could reasonably be expected to meet, under s 87-65(3A) the results test under s 87-18 in either of the relevant years because none of the fees paid were for producing a result. While the installation contractor for the pipeline produced a result, Mr Koundouras was hired at a daily rate to provide expertise not otherwise available within BHP Billiton. In addition, Mr Koundouras did not provide equipment or tools required to produce the pipeline, nor would he be liable for the cost of rectifying any defect in the pipeline (paragraph 14). | However, the AAT concluded that, but for unusual circumstances, the taxpayer could have been expected under ss 87-65(3B) and (6) to meet the unrelated clients test in s 87-20 for the 2004 and 2005 years. The services originally contracted for were unusually large, and there were unexpected delays that extended the contract for more than one year. | The AAT also concluded that the taxpayer met the test in the 2001 and 2003 years, could reasonably have been expected to meet the test in subsequent years, and that the services were provided as a direct result of offers or invitations to the limited market for those services (paragraph 15). | Issues decided by the court and Tribunal | The Court (Jessup J) decided that the AAT had erred in law in failing to consider under s 87-65(3B) and (6) whether, but for unusual circumstances applying to the taxpayer in the 2004 and 2005 years, it had met paragraph (b) of the unrelated clients test in s 87-20(1) (paragraphs 15-21). Accordingly, his Honour allowed the appeal and remitted the matter back to the AAT for hearing and determination consistently with the reasons of the Court. For the sake of completeness, his Honour also made comments about other questions of law raised by the Commissioner: • to the extent that the AAT concluded that a 'section of the public' in paragraph 87-20(1)(b) was apt to include all the 'players' in an industry that had a limited number of 'players', the AAT did not err (paragraph 24); • though not clear, the AAT would have erred if it had found that the relevant 'offers or invitations' referred to in paragraph 87-20(1)(b) could be made by anyone other than the taxpayer (paragraph 25); and • 'subsequent income years' in s 87-65(4) does not mean every subsequent income year but such years generally, and not necessarily without exception (paragraph 27). | • to the extent that the AAT concluded that a 'section of the public' in paragraph 87-20(1)(b) was apt to include all the 'players' in an industry that had a limited number of 'players', the AAT did not err (paragraph 24); • though not clear, the AAT would have erred if it had found that the relevant 'offers or invitations' referred to in paragraph 87-20(1)(b) could be made by anyone other than the taxpayer (paragraph 25); and • 'subsequent income years' in s 87-65(4) does not mean every subsequent income year but such years generally, and not necessarily without exception (paragraph 27). | On remittal from the Federal Court, the AAT (SM Pascoe) affirmed its first decision and directed the Commissioner to make a PSBD for the taxpayer in relation to the personal services income of Mr Koundouras for the 2004 and 2005 years. | In particular, the AAT decided that, but for the unusual circumstances of the extension of the contract with BHP Billiton, the taxpayer would have provided services to 2 or more entities and those services would have been provided as a direct result of the taxpayer, through Mr Koundouras as a director/employee, making offers or invitations to the section of the public engaged in offshore petroleum exploration and mining. The regular personal contact that Mr Koundouras had with the relevant companies amounted to making offers or invitations to provide services (paragraphs 19-21).", "Issues_Decided": "The Court (Jessup J) decided that the AAT had erred in law in failing to consider under s 87-65(3B) and (6) whether, but for unusual circumstances applying to the taxpayer in the 2004 and 2005 years, it had met paragraph (b) of the unrelated clients test in s 87-20(1) (paragraphs 15-21). Accordingly, his Honour allowed the appeal and remitted the matter back to the AAT for hearing and determination consistently with the reasons of the Court. For the sake of completeness, his Honour also made comments about other questions of law raised by the Commissioner: • to the extent that the AAT concluded that a 'section of the public' in paragraph 87-20(1)(b) was apt to include all the 'players' in an industry that had a limited number of 'players', the AAT did not err (paragraph 24); • though not clear, the AAT would have erred if it had found that the relevant 'offers or invitations' referred to in paragraph 87-20(1)(b) could be made by anyone other than the taxpayer (paragraph 25); and • 'subsequent income years' in s 87-65(4) does not mean every subsequent income year but such years generally, and not necessarily without exception (paragraph 27). • to the extent that the AAT concluded that a 'section of the public' in paragraph 87-20(1)(b) was apt to include all the 'players' in an industry that had a limited number of 'players', the AAT did not err (paragraph 24); • though not clear, the AAT would have erred if it had found that the relevant 'offers or invitations' referred to in paragraph 87-20(1)(b) could be made by anyone other than the taxpayer (paragraph 25); and • 'subsequent income years' in s 87-65(4) does not mean every subsequent income year but such years generally, and not necessarily without exception (paragraph 27). On remittal from the Federal Court, the AAT (SM Pascoe) affirmed its first decision and directed the Commissioner to make a PSBD for the taxpayer in relation to the personal services income of Mr Koundouras for the 2004 and 2005 years. In particular, the AAT decided that, but for the unusual circumstances of the extension of the contract with BHP Billiton, the taxpayer would have provided services to 2 or more entities and those services would have been provided as a direct result of the taxpayer, through Mr Koundouras as a director/employee, making offers or invitations to the section of the public engaged in offshore petroleum exploration and mining. The regular personal contact that Mr Koundouras had with the relevant companies amounted to making offers or invitations to provide services (paragraphs 19-21).", "ATO_View_of_Decision": "The AAT's initial decision is consistent with the ATO view in Taxation Ruling TR 2001/8 in relation to the application of the results test in s 87-65(3A). | The Federal Court recognised that, in relation to the application of the unrelated clients test in paragraphs 87-65(3B)(a) or 87-65(6)(a), neither provision is satisfied unless, but for unusual circumstances applying to an entity in the relevant year, both paragraphs of s 87-20(1) could reasonably have been expected to be met or would have been met. | The ATO accepts the views of the Federal Court that 'subsequent income years' in subsection 87-65(4) does not mean every subsequent income year, but such years generally, and that 'a section of the public' in paragraph 87-20(1)(b) can refer to the 'limited number of players' that might operate within the narrow area of activity for which the offered individual's skills and experience are suited. | These views are not inconsistent with TR 2001/8. Whether they are satisfied in a particular case depends on the facts and circumstances of each case. The ATO accepts that it was open to the AAT on the facts of this case to find in its decision on remittal from the Court that the small number of companies engaged in offshore petroleum exploration and mining constituted a relevant 'section of the public' for which the skills and experience of Mr Koundouras were suited. | The ATO also notes that the Court made it clear that the relevant 'offers or invitations' referred to in paragraph 87-20(1)(b) could only be made by the taxpayer. | Though the AAT's decision on remittal from the Court was short on detailed reasoning, the ATO accepts that there are no clear legal errors in the conclusion that, but for unusual circumstances, the taxpayer could reasonably have been expected to meet the test in paragraph 87-20(1)(b).", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The ATO considers that the decisions in this case are consistent with the principles in Taxation Ruling TR 2001/8.", "Related_Documents": "TR 2001/8 | Federal Court | 2009 ATC 20-154 | Administrative Appeals Tribunal | 2010 ATC 10-139 | 87-15 | 87-18 | 87-20(1)(a) | 87-20(1)(b) | 87-65(3) | 87-65(3A) | 87-65(3B) | 87-65(4) | 87-65(6)", "Legislative_References": "Income Tax Assessment Act 1997 87-15 87-18 87-20(1)(a) 87-20(1)(b) 87-65(3) 87-65(3A) 87-65(3B) 87-65(4) 87-65(6)", "Case_References": "", "Subject_References": "Personal services income Personal services business determination Results Test Unrelated Clients Test Unusual circumstances Meaning of offers or invitations to the public or a section of the public", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/3018-3019/00001", "Unmatched_Content": ""}
{"Case_Name": "Darrelen Pty Ltd, Trustee of the Henfam Superannuation Fund v The Commissioner of Taxation", "Venue_Reference_No": "NSD 1079 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "30 April 2010", "Date_Published": "2 February 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable / Appeal dismissed.", "Summary_of_Decision": "This matter concerned former s273(2) of the ITAA 1936, which treated private company dividends received by a complying superannuation fund as 'special income' taxed at the top marginal rate, unless the Commissioner considered it reasonable to not do so.", "Overview_of_Facts": "The material facts, as recorded by the judgment, include the following: \"On 10 October 1995 the trustee of the Fund acquired from an existing shareholder four shares (of the 100 on issue) in Vercot [Pty Ltd ('Vercot')] for $51,218. Vercot was a passive holding company that held 25,609,320 shares in Abigroup Limited ('Abigroup'), a listed public company. The listed market value of each Abigroup share was $0.58 per share.\" \"The acquisition had the effect that the Fund obtained an indirect interest in 1,024,373 shares in Abigroup, the market value of which on the date of acquisition was $594,136. The result was that the market value of the Fund's shareholding in Vercot, both when it was acquired and thereafter (and during the relevant years of income), was far in excess of the amount paid for it; the price was about 10% of the market value and between 1/10th and 1/6th of the true value.\" \"Abigroup paid substantial dividends to Vercot, which in turn paid dividends to its shareholders including the trustee of the Fund; the dividends in each of the relevant years of income were far in excess of the purchase price which the trustee of the Fund had paid for the shares. In this regard, against an acquisition cost of $51,218 (paid in October 1995), the trustee of the Fund received dividends as follows:\" ... \"in 2000 - $143,720; in 2001 - $143,720; in 2002 - $86,320 and in 2003 - $76,640.\" And, \"all dividends paid by Vercot on its shares in each of the relevant years of income were paid pari passu at the same rate, so that each shareholder (including the trustee of the Fund) received dividends in amounts equal to the proportion that the number of shares held bore to the total number of issued shares in Vercot.\" | Issues decided by the court | The underlying policy intent of section 273(2) | The court held that the underlying policy intent of section 273(2) \"is to enable the Commissioner to deny the concessional taxation of income which has been diverted from taxpayers not enjoying that status\". | The proper inquiry under section 273(2) | The court rejected the applicant's argument that the proper inquiry under section 273(2) is whether the dividend income was derived on a non-arm's length basis. The court explained that the applicant's argument was that what mattered was what happened in the year or years in which the dividend income was derived, not what happened in the year of acquisition. In that regard, the applicant argued that because all dividends paid in respect of the shares were paid pari passu there was no non-arm's length payment of dividends and the discretion should be exercised in the applicant's favour. | The court held that the argument is not supported by the text of section 273(2), and that it is inconsistent with the underlying policy intent of section 273(2), in that it \"seems to adopt the position that the only way in which this can occur ... is where differential dividend rates are paid on such shares so that dividends paid on shares held by the concessional taxpayer are greater than the dividends paid on shares held by non-concessional taxpayer. But that is not the only way such income diversion can occur, as the facts of the present case illustrate.\" | Relevantly, the court observed, at paragraph 34, that: \"[i]f the price at which the four shares in Vercot were sold to the Fund had been set at their market value, the price at which they were sold would not have secured the sale of even one share; the dividends on those four shares would have continued to accrue to the transferor, a non-concessional taxpayer. So understood, the income diversion has occurred by recourse to a non-arm's length transaction on the acquisition of the shares.\" | The 'rate of return' or 'yield' | The Tribunal held that the rate of return on the dividends was \"unquestionably enormous\". In that regard, the court held that paragraph (c), which refers to the \"rate of the dividend paid\", does not also permit reference to the 'rate of return' or 'yield' on a dividend. However, the court held that the Commissioner may nonetheless have regard to the rate of return on the investment under paragraph (f). | The market value of the shares at the time of acquisition | The court disagreed with the Tribunal's reasoning that as a result of historical considerations the word 'value' in paragraph (a) means 'paid-up value' or 'par value'. The court held that \"[h]istorical considerations of the kind referred to by the Tribunal do not persuade us that the word 'value' used in para (a), and in juxtaposition to the word 'cost' in para (b), means anything other than market value\". | The court also held that the market value of the shares at the time of acquisition can be taken into \"account under the heads of either paras (b) or (f), or in combination with each other\". | Should the discretion have been exercised in the applicant's favour? | The court held that the Tribunal did not err in deciding that the discretion in section 273(2) should not be exercised.", "Issues_Decided": "The underlying policy intent of section 273(2): The court held that the underlying policy intent of section 273(2) \"is to enable the Commissioner to deny the concessional taxation of income which has been diverted from taxpayers not enjoying that status\". | The proper inquiry under section 273(2): The court rejected the applicant's argument that the proper inquiry under section 273(2) is whether the dividend income was derived on a non-arm's length basis. The court explained that the applicant's argument was that what mattered was what happened in the year or years in which the dividend income was derived, not what happened in the year of acquisition. In that regard, the applicant argued that because all dividends paid in respect of the shares were paid pari passu there was no non-arm's length payment of dividends and the discretion should be exercised in the applicant's favour. The court held that the argument is not supported by the text of section 273(2), and that it is inconsistent with the underlying policy intent of section 273(2), in that it \"seems to adopt the position that the only way in which this can occur ... is where differential dividend rates are paid on such shares so that dividends paid on shares held by the concessional taxpayer are greater than the dividends paid on shares held by non-concessional taxpayer. But that is not the only way such income diversion can occur, as the facts of the present case illustrate.\" Relevantly, the court observed, at paragraph 34, that: \"[i]f the price at which the four shares in Vercot were sold to the Fund had been set at their market value, the price at which they were sold would not have secured the sale of even one share; the dividends on those four shares would have continued to accrue to the transferor, a non-concessional taxpayer. So understood, the income diversion has occurred by recourse to a non-arm's length transaction on the acquisition of the shares.\" | The 'rate of return' or 'yield': The Tribunal held that the rate of return on the dividends was \"unquestionably enormous\". In that regard, the court held that paragraph (c), which refers to the \"rate of the dividend paid\", does not also permit reference to the 'rate of return' or 'yield' on a dividend. However, the court held that the Commissioner may nonetheless have regard to the rate of return on the investment under paragraph (f). | The market value of the shares at the time of acquisition: The court disagreed with the Tribunal's reasoning that as a result of historical considerations the word 'value' in paragraph (a) means 'paid-up value' or 'par value'. The court held that \"[h]istorical considerations of the kind referred to by the Tribunal do not persuade us that the word 'value' used in para (a), and in juxtaposition to the word 'cost' in para (b), means anything other than market value\". The court also held that the market value of the shares at the time of acquisition can be taken into \"account under the heads of either paras (b) or (f), or in combination with each other\". | Should the discretion have been exercised in the applicant's favour?: The court held that the Tribunal did not err in deciding that the discretion in section 273(2) should not be exercised.", "ATO_View_of_Decision": "The judgment is generally consistent with the Commissioner's view, as outlined in Taxation Ruling TR 2006/7. | The Court found (contrary to the Commissioner's contention) that s 273(2)(c) (the \"rate of the dividend paid\") does not permit consideration of the rate of return on the investment, or yield. However, the court also held that such a consideration was permissible under paragraph (f) (any other matters the Commissioner considers relevant). The Commissioner accepts the court's view on this issue.", "Administrative_Treatment": "Implications for ATO precedential documents (Public Rulings & Determinations etc) | Taxation Ruling TR 2006/7 | Section 273 has been repealed. However, section 295-550 of the Income Tax Assessment Act 1997 was enacted, which contains the same factors, but does not impose a discretion on the Commissioner. Rather, it has an objective test requiring the amount received to be consistent with an arm's length dealing. | Taxation Ruling TR 2006/7 has been amended to take account of the decision, including the court's observations about paragraph 273(2)(c).", "Related_Documents": "TR 2006/7 | 2010 ATC 20-180 | Section 273(2)(repealed by Act No. 15 of 2007)", "Legislative_References": "Income Tax Assessment Act 1936 Section 273(2)(repealed by Act No. 15 of 2007)", "Case_References": "", "Subject_References": "Special income Complying superannuation fund Concessional taxation", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1079of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Day and Commissioner of Taxation", "Venue_Reference_No": "2007/2955", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 April 2010", "Date_Published": "30 June 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether GST and income tax assessments issued as a result of applying an asset betterment methodology are excessive and whether administrative penalties were correctly imposed.", "Overview_of_Facts": "The taxpayer carried on a re-upholstery business and was registered for GST with effect from 1 July 2004. As a result of an audit, it was determined, through an asset betterment methodology, that the taxpayer was required to be registered for GST with effect from 1 July 2002, that he had failed to account for GST between that date and 1 July 2004, and that he had not declared business income for that same period. Both GST and income tax assessments were issued and administrative penalties were imposed for: (i) the taxpayer's failure to register at the correct time; (ii) his failure to lodge GST returns; and (iii) for false and misleading statements resulting in income tax shortfalls. | Objections to the tax and penalty assessments were partly allowed, and, on a review of the asset betterment, following evidence given by the taxpayer at the hearing, the Commissioner conceded that some amounts should not be included in the GST and income tax assessments. | Issues decided by the tribunal | The Tribunal found on the evidence that the taxpayer was carrying on an enterprise at all material times from 1 July 2002 to 30 June 2004, and that he should have been registered for GST as from that date (paragraph 22). | Subject to the concessions made by the Commissioner, set out at paragraphs 24 and 25, the Tribunal was not satisfied that the taxpayer had discharged the onus of proving that the relevant GST and income tax assessments were excessive (paragraph 32). | In relation to the administrative penalties imposed, the Tribunal agreed that no remission of the failure to register penalty was warranted, and that no further remission of the failure to lodge penalty was warranted past the reduction to 50% accepted by the Commissioner (paragraphs 33 and 34). The Tribunal was also satisfied that the income tax shortfalls resulted from recklessness (paragraph 37).", "Issues_Decided": "The Tribunal found on the evidence that the taxpayer was carrying on an enterprise at all material times from 1 July 2002 to 30 June 2004, and that he should have been registered for GST as from that date (paragraph 22). Subject to the concessions made by the Commissioner, set out at paragraphs 24 and 25, the Tribunal was not satisfied that the taxpayer had discharged the onus of proving that the relevant GST and income tax assessments were excessive (paragraph 32). In relation to the administrative penalties imposed, the Tribunal agreed that no remission of the failure to register penalty was warranted, and that no further remission of the failure to lodge penalty was warranted past the reduction to 50% accepted by the Commissioner (paragraphs 33 and 34). The Tribunal was also satisfied that the income tax shortfalls resulted from recklessness (paragraph 37).", "ATO_View_of_Decision": "Subject to the concessions made by the Commissioner, based on the evidence presented by the taxpayer at the hearing, the Tribunal accepted that the taxpayer had not otherwise discharged the burden of proving that the assessments were excessive or that the penalties should be further reduced. The case was decided on its own facts.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations; Implications on Law Administration Practice Statements | None", "Related_Documents": "N/A | 2010 ATC 10-133 | 167 | 9-20 | 17-5 | 23-5 | 23-15 | 25-5 | 25-10 | 14ZL(1) | 14ZL(2) | 14ZQ | 14ZZK(b) | 4AA(1) | 90 ATC 4907 | 90 ATC 4088 | 75 ATC 4257 | 88 ATC 4605 | (1936) 56 CLR 63 | 2003 ATC 4665 | [2010] AATA 79", "Legislative_References": "Income Tax Assessment Act 1936 167 A New Tax System (Goods and Services Tax) Act 1999 9-20 17-5 23-5 23-15 25-5 25-10 Taxation Administration Act 1953 14ZL(1) 14ZL(2) 14ZQ 14ZQ 14ZZK(b) Crimes Act 1914 4AA(1)", "Case_References": "Eldridge v FC of T 90 ATC 4907 21 ATR 897 FC of T v Dalco 90 ATC 4088 20 ATR 1370 [1990] HCA 3 Gauci and Others v FC of T 75 ATC 4257 5 ATR 672 [1975] HCA 54 McCauley v FC of T 88 ATC 4605 19 ATR 1443 Trautwein v FC of T (1936) 56 CLR 63 [1936] ALR 425 [1936] HCA 77 Hart v FC of T 2003 ATC 4665 [2003] FCAFC 105 (2003) 53 ATR 371 Re Addoug and Commissioner of Taxation [2010] AATA 79 75 ATR 204", "Subject_References": "Goods and Services Tax Income Tax Default assessments Asset betterment Burden of proof Administrative penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/2955/00001", "Unmatched_Content": ""}
{"Case_Name": "Deputy Commissioner of Taxation v Law Institute of Victoria", "Venue_Reference_No": "No 3772 of 2009", "Venue": "Supreme Court", "Judgment_Date": "8 April 2010", "Date_Published": "23 July 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the ATO's response to the decision of the Court of Appeal of the Supreme Court of Victoria in Deputy Commissioner of Taxation v Law Institute of Victoria [2010] VSCA 73. At issue was whether the Law Institute of Victoria (LIV) was required to disclose certain documents pursuant to a notice issued by the Commissioner under paragraph 264(1)(b) of Income Tax Assessment Act 1936 (Cth); or whether such documents were protected from disclosure by reason of the LIV's statutory obligations under the Legal Profession Act (Vic ) ( 2004 ) and the common law doctrine of public interest immunity.", "Overview_of_Facts": "On 27 October 2008, a notice to produce documents was issued by the Deputy Commissioner of Taxation (the Commissioner), pursuant to paragraph 264(1)(b) of the Income Tax Assessment Act 1936 (ITAA 1936) (the s264 notice), to the LIV in the course of a Project Wickenby audit concerning the tax affairs of Mr Nicholas Kephala, a former practising lawyer in Victoria. | The categories of documents sought under the s264 notice were as follows: 1. Records showing the history of Mr Kephala's practice in Victoria; 2. Records of any audit conducted in respect of Mr Kephala's trust accounts; and 3. Records in respect of the cessation of Mr Kephala's registration as a practising lawyer. | 1. Records showing the history of Mr Kephala's practice in Victoria; 2. Records of any audit conducted in respect of Mr Kephala's trust accounts; and 3. Records in respect of the cessation of Mr Kephala's registration as a practising lawyer. | On 24 December 2008, the LIV sought a declaration from the Supreme Court that its compliance with the s264 notice would not constitute a contravention of the LIV's confidentiality obligations under s6.4.5 of the Legal Profession Act (Vic ) (LP Act). | Appeals | In an interim decision of Pagone J of 26 February 2009 [2009] VSC 55, his Honour found that, even if s6.4.5 of the LP Act was invalidated under s109 of The Constitution to the extent of any inconsistency with s264 of the ITAA 1936, the fundamental question was whether the Commissioner, in reliance upon s264, can require production of documents if they were protected from disclosure under the common law doctrine of public interest immunity. | In Pagone J's final decision of 12 May 2009 [2009] VSC 179, his Honour found that: • the documents in the first and third category contained information of a kind that did not attract public interest immunity; and • the documents in the second category were immune from disclosure by reason of public interest immunity because such disclosure of the information and content of these documents interferes with, and potentially damages, the discharge of the duties and functions by the LIV in its regulation of the legal profession. | • the documents in the first and third category contained information of a kind that did not attract public interest immunity; and • the documents in the second category were immune from disclosure by reason of public interest immunity because such disclosure of the information and content of these documents interferes with, and potentially damages, the discharge of the duties and functions by the LIV in its regulation of the legal profession. | The Commissioner lodged an appeal to the Court of Appeal against the decision of Pagone J on the primary ground that there was no evidence to show that complying with the s264 notice would interfere with or damage the LIV's discharge of its duties and functions under the LP Act or would otherwise support a claim to public interest immunity. | The LIV lodged a cross appeal on the ground that the primary judge erred in finding that public interest immunity did not attach to documents labelled 1C and 2C within the third category of documents because these documents contained the names of informers and details of their complaints against Mr Kephala; and such documents served no purpose in furthering the Commissioner's investigation into Mr Kephala's tax affairs. | Issue decided by the Court | At issue was whether the LIV was required to produce the three categories of documents sought by the Commissioner pursuant to the s264 notice; or whether these documents were immune from disclosure pursuant to the common law doctrine of public interest immunity. | The primary judge, having inspected the documents filed by the LIV and undertaken a balancing exercise of the parties' competing interests, concluded that only the second category attracted public interest immunity because these documents were created as part of the LIV discharging its statutory function of regulating the legal profession with an obligation to keep them confidentially. Conversely, the primary judge found that there was nothing to indicate in either documents 1C and 2C of the third category that the identity of the informants, who had made a complaint against Mr Kephala, be kept confidential. | The Court of Appeal also inspected the documents and concluded that they were innocuous and that there was nothing about their contents that should give rise for concern if they were disclosed to the Commissioner. | Insofar as the LIV was advancing a 'class' claim in respect of the second category of documents, the Court of Appeal considered that such a claim would fail at the threshold of showing that their disclosure was likely to cause harm to the public interest. At paragraph 50 the Court stated: Documents received or generated in the course of the statutory task of regulating the legal profession may be protected by public interest immunity but this class of documents is not of such high significance or importance that it will ever be protected from disclosure by public interest immunity irrespective of the contents. | The Court of Appeal found that, as there was no relevant concern about disclosing the contents of the second category of documents, the occasion to undertake a balancing exercise of the parties' competing interests, as performed by the primary judge, did not arise. | It was not necessary for the Court of Appeal to determine the LIV's cross appeal because the Commissioner was prepared to accept production of copies of the documents with the names of the informants blanked out.", "Issues_Decided": "At issue was whether the LIV was required to produce the three categories of documents sought by the Commissioner pursuant to the s264 notice; or whether these documents were immune from disclosure pursuant to the common law doctrine of public interest immunity. The primary judge, having inspected the documents filed by the LIV and undertaken a balancing exercise of the parties' competing interests, concluded that only the second category attracted public interest immunity because these documents were created as part of the LIV discharging its statutory function of regulating the legal profession with an obligation to keep them confidentially. Conversely, the primary judge found that there was nothing to indicate in either documents 1C and 2C of the third category that the identity of the informants, who had made a complaint against Mr Kephala, be kept confidential. The Court of Appeal also inspected the documents and concluded that they were innocuous and that there was nothing about their contents that should give rise for concern if they were disclosed to the Commissioner. Insofar as the LIV was advancing a 'class' claim in respect of the second category of documents, the Court of Appeal considered that such a claim would fail at the threshold of showing that their disclosure was likely to cause harm to the public interest. At paragraph 50 the Court stated: Documents received or generated in the course of the statutory task of regulating the legal profession may be protected by public interest immunity but this class of documents is not of such high significance or importance that it will ever be protected from disclosure by public interest immunity irrespective of the contents. The Court of Appeal found that, as there was no relevant concern about disclosing the contents of the second category of documents, the occasion to undertake a balancing exercise of the parties' competing interests, as performed by the primary judge, did not arise. It was not necessary for the Court of Appeal to determine the LIV's cross appeal because the Commissioner was prepared to accept production of copies of the documents with the names of the informants blanked out.", "ATO_View_of_Decision": "The decision of the Court of Appeal recognises that documents created or received in the course of the statutory task of regulating the legal profession are capable of being protected by public interest immunity, depending on their contents.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "n/a | [2010] VSCA 73 | 6.4.5 | (1978) 142 CLR 1 | [1999] NSWCCA 166 | (1998) 99 ATC 4082", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) 264(1)(b) Legal Profession Act 2004 (Vic) 6.4.5 The Constitution (Cth) 109", "Case_References": "State of Victoria v Brazel (2008) 19 VR 553 [2008] VSCA 37 Royal Women's Hospital v Medical Practitioners Board of Victoria (2006) 15 VR 22 [2006] VSCA 85 Sankey v Whitlam (1978) 142 CLR 1 [1978] HCA 43 Alister v R (1984) 154 CLR 404 [1984] HCA 85 The Commonwealth v Northern Land Council (1993) 176 CLR 604 [1993] HCA 24 Neilsen v Laugharne [1981] 1 QB 736 Borg v Barnes (1987) 10 NSWLR 734 Law Institute of Victoria v Irving [1990] VR 429 Legal Services Commission v Trotter (1990) 54 SASR 74 Finch v Grieve (1991) 22 NSWLR 578 Middencorp Electric Co Pty Ltd v Law Institute of Victoria & anor [1994] 2 VR 313 R v Young (1999) 46 NSWLR 681 [1999] NSWCCA 166 Zarro v Australian Securities Commission (1992) 36 FCR 40 State of Victoria v Seal Rocks Victoria (Australia) Pty Ltd (2001) 3 VR 1 [2001] VSCA 94 Federal Commissioner of Taxation v Coombes (No 2) (1998) 160 ALR 456 40 ATR 403 (1998) 99 ATC 4082", "Subject_References": "practice & procedure public interest immunity", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/3772of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Dreamtech International Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 159 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "25 August 2010", "Date_Published": "22 December 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "The issue in this case was whether or not a stretched Hummer vehicle was a \"limousine\" and, therefore, came within the definition of \"car\" in section 27-1 of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act).", "Overview_of_Facts": "The Administrative Appeals Tribunal found the following facts (although it is noted that Dreamtech disagreed with certain of the findings): • Dreamtech is a licensed motor vehicle dealer. It imported a Hummer H1 which had been stretched from its original 122.8 inch wheelbase to a 140 inch wheelbase. It weighed 5.82 tonnes and had a carrying capacity of 14 people, including the driver. Following importation, the applicant made some modifications to the vehicle in order to comply with the Australian standards. • Upon importation, the interior of the stretched Hummer included such features as leather-look seating, flashing lights, strobe lights under the seats, large ice buckets for holding alcoholic beverages, liquid crystal display screens, DVD player, built in sound system, polished stainless steel ceiling and fibre optic lights. • The price of the vehicle exceeded the LCT threshold. Dreamtech agreed that should the stretched Hummer be found to be a 'car' for LCT purposes, it would be subject to LCT. | • Dreamtech is a licensed motor vehicle dealer. It imported a Hummer H1 which had been stretched from its original 122.8 inch wheelbase to a 140 inch wheelbase. It weighed 5.82 tonnes and had a carrying capacity of 14 people, including the driver. Following importation, the applicant made some modifications to the vehicle in order to comply with the Australian standards. • Upon importation, the interior of the stretched Hummer included such features as leather-look seating, flashing lights, strobe lights under the seats, large ice buckets for holding alcoholic beverages, liquid crystal display screens, DVD player, built in sound system, polished stainless steel ceiling and fibre optic lights. • The price of the vehicle exceeded the LCT threshold. Dreamtech agreed that should the stretched Hummer be found to be a 'car' for LCT purposes, it would be subject to LCT. | Issue decided by the Tribunal | • The stretched Hummer was a 'limousine' and therefore a car within s 27-1 of the LCT Act. The Tribunal found that the ordinary meaning of the word 'limousine' is reasonably wide and referred to the common use of the term in colloquial speech. | • The stretched Hummer was a 'limousine' and therefore a car within s 27-1 of the LCT Act. The Tribunal found that the ordinary meaning of the word 'limousine' is reasonably wide and referred to the common use of the term in colloquial speech. | Issues decided by the Full Court | • The Tribunal gave the word 'limousine' its ordinary meaning and took into account all relevant considerations. The Tribunal considered both whether the vehicle was a motor vehicle and a limousine before correctly making a finding that the vehicle was a car for the purposes of s27-1 of the LCT Act. Further, the Tribunal gave due consideration to Dreamtech's arguments that the vehicle is similar to a bus and is defined to be a heavy vehicle under the Australian Design Rules. • The construction of the definition of 'limousine' is a question of law; however, whether a particular vehicle falls within the definition of 'limousine' is a question of fact. | • The Tribunal gave the word 'limousine' its ordinary meaning and took into account all relevant considerations. The Tribunal considered both whether the vehicle was a motor vehicle and a limousine before correctly making a finding that the vehicle was a car for the purposes of s27-1 of the LCT Act. Further, the Tribunal gave due consideration to Dreamtech's arguments that the vehicle is similar to a bus and is defined to be a heavy vehicle under the Australian Design Rules. • The construction of the definition of 'limousine' is a question of law; however, whether a particular vehicle falls within the definition of 'limousine' is a question of fact.", "Issues_Decided": "• The stretched Hummer was a 'limousine' and therefore a car within s 27-1 of the LCT Act. The Tribunal found that the ordinary meaning of the word 'limousine' is reasonably wide and referred to the common use of the term in colloquial speech. • The stretched Hummer was a 'limousine' and therefore a car within s 27-1 of the LCT Act. The Tribunal found that the ordinary meaning of the word 'limousine' is reasonably wide and referred to the common use of the term in colloquial speech. | Issues decided by the Full Court: • The Tribunal gave the word 'limousine' its ordinary meaning and took into account all relevant considerations. The Tribunal considered both whether the vehicle was a motor vehicle and a limousine before correctly making a finding that the vehicle was a car for the purposes of s27-1 of the LCT Act. Further, the Tribunal gave due consideration to Dreamtech's arguments that the vehicle is similar to a bus and is defined to be a heavy vehicle under the Australian Design Rules. • The construction of the definition of 'limousine' is a question of law; however, whether a particular vehicle falls within the definition of 'limousine' is a question of fact. • The Tribunal gave the word 'limousine' its ordinary meaning and took into account all relevant considerations. The Tribunal considered both whether the vehicle was a motor vehicle and a limousine before correctly making a finding that the vehicle was a car for the purposes of s27-1 of the LCT Act. Further, the Tribunal gave due consideration to Dreamtech's arguments that the vehicle is similar to a bus and is defined to be a heavy vehicle under the Australian Design Rules. • The construction of the definition of 'limousine' is a question of law; however, whether a particular vehicle falls within the definition of 'limousine' is a question of fact.", "ATO_View_of_Decision": "The decision confirms the ATO's view of the attributes that are to be taken into account when determining whether or not a vehicle is a limousine.", "Administrative_Treatment": "None - the case confirms the ATO view.", "Related_Documents": "None | 2010 ATC 20-204 | 25-1 | 27-1 | 87 ATC 4069 | (1924) 35 CLR 449 | [1976] 1 WLR 1117 | (1931) 46 CLR 572 | 38 ALR 87 | (1997) 72 FCR 467 | [1973] AC 854 | (1993) 43 FCR 280 | 115 ALR 1 | 90 ATC 4182 | [2006] FCAFC 125 | 80 ATC 4386 | [1956] HCA 80 | 94 CLR 509 | (1983) 48 ALR 549 | 77 FLR 47 | 2007 ATC 5044 | (1995) 59 FCR 6", "Legislative_References": "A New Tax System (Luxury Car Tax) Act 1999 25-1 27-1 A New Tax System (Indirect Tax and Consequential Amendments) Act (No 2) 1999", "Case_References": "Deputy Commissioner of Taxation v ICI Australia Operations Pty Ltd (1987) 18 ATR 313 87 ATC 4069 Falkiner v Whitton [1917] AC 106 22 CLR 324 Metropolitan Gas Co v Federated Gas Employees' Industrial Union (1924) 35 CLR 449 31 ALR 117 Seay v Eastwood [1976] 1 WLR 1117 [1976] 3 All ER 153 Adams v Rau (1931) 46 CLR 572 38 ALR 87 Baxter Healthcare Pty Limited v Comptroller-General of Customs (1997) 72 FCR 467 Brutus v Cozens [1973] AC 854 Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 115 ALR 1 Commissioner of Taxation v Murray (1990) 21 FCR 436 21 ATR 78 90 ATC 4182 Ergon Energy Corporation Ltd v Commissioner of Taxation [2006] FCAFC 125 153 FCR 551 64 ATR 130 Hope v Bathurst City Council [1980] HCA 16 144 CLR 1 12 ATR 231 80 ATC 4386 NSW Associated Blue-Metal Quarries Limited v Federal Commissioner of Taxation [1956] HCA 80 94 CLR 509 Peacock v Zyfert (1983) 48 ALR 549 77 FLR 47 Price Street Professional Centre Pty Ltd v Commissioner of Taxation [2007] FCAFC 154 243 ALR 728 2007 ATC 5044 67 ATR 544 Sharp Corporation of Australia Pty Ltd v Collector of Customs (1995) 59 FCR 6 22 AAR 35", "Subject_References": "Taxation luxury car tax whether stretched Hummer within the definition of 'car' in the A New Tax System (Luxury Car Tax) Act 1999 (Cth) whether construction of the word 'limousine' was a question of fact or a question of law within s 44(1) of the AAT Act.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID159of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Federal Commissioner of Taxation v Co-Operative Bulk Handling Ltd", "Venue_Reference_No": "WAD 158 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "17 December 2010", "Date_Published": "16 December 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to the Full Federal Court decision that the taxpayer was exempt from income tax under s 50-40 of the ITAA 1997 as being established for the purpose of promoting the development of Australian agricultural resources, and not carried on for the profit or gain of its individual members.", "Overview_of_Facts": "Co-operative Bulk Handling Ltd (CBH) is the major bulk handler of grain in WA and was incorporated in 1933 with the principal object of establishing, maintaining and conducting any schemes for bulk handling of grain. A Royal Commission report in 1935 concluded that the handling of wheat in bulk by CBH had been of advantage to the wheat growing industry in WA. The Bulk Handling Act 1935 (WA) was enacted to regulate the business of CBH [later the Bulk Handling Act 1967 (WA)]. | In 1971, CBH had been accepted by the ATO as being exempt from tax under s 23(h) of the Income Tax Assessment Act 1936 , and by private ruling in 1996 the ATO confirmed that, if certain constitutional and legislative changes were made, CBH would be regarded as continuing not to be carried on for the profit or gain of its members. | In 2008, CBH applied for a private ruling on whether it was exempt from income tax under s 50-40 of the Income Tax Assessment Act 1997 [equivalent to s 23(h) of the ITAA 1936]. The Commissioner ruled that CBH did not satisfy either the positive or negative limbs of s 50-40 on the basis that it was not an association established for the purpose of promoting the development of Australian agricultural resources and was carried on for the profit or gain of its members. CBH objected against the 2008 ruling. The Commissioner determined the objection adversely to CBH, and CBH appealed against the objection decision. The Court was confined in its consideration by the scheme description set out in the Commissioner's ruling and so did not consider evidence or make any findings of fact. | At first instance, Gilmour J [2010] FCA 508 rejected the Commissioner's submission that the \"development of agricultural resources\" is confined to the farm side of the \"farm gate\" and concluded that the term \"agricultural resources\" has a broader meaning than the word \"agriculture\". He held that it would be artificial to distinguish the product of agriculture and the means by which it is handled in bulk from the activities of planting, growing and harvesting inside the \"farm gate\". His Honour concluded that CBH was and continues to be established primarily for the purpose of promoting the development of the grain growing industry of Western Australia and that the current and proposed activities of CBH are evolutionary in character and not static. | His Honour concluded that CBH is not carried on for the individual profit or gain of its individual members, as it cannot distribute its assets but must apply them only to the furtherance of its objects. CBH's members benefit from its activities not because they are members but because they are growers. | Issues decided by the Full Federal Court | A majority of the Full Court (Mansfield, McKerracher JJ, Siopis J dissenting) confirmed the decision of Gilmour J that the activities of CBH regarded as a whole are directed primarily to \"promoting the development of agricultural resources of Australia\" being the grain growing industry in WA. They concluded that \"promoting the development of agricultural resources\" in the expression extends beyond what is done on the farm or nearby. The expression includes developing the range of resources available to facilitate and support agriculture. The purpose for which CBH was established must be determined by considering globally all activities of CBH against the whole legislative expression. | The majority concluded that conducting activities in an efficient and profitable manner did not exclude CBH from eligibility for exemption. The exemption assumes a profit and can only apply to profits, so seeking to operate profitably cannot be inconsistent with a purpose of promoting development. | The majority agreed with Gilmour J that CBH was established to promote the interests of the grain industry as a whole and not for the benefit of individual members. Benefits to members did not arise because they are members but because they are grain growers. While the majority concluded that the statutory prohibition on distribution or application of assets for the benefit of CBH's members is not determinative they said it is an important consideration. | Accordingly CBH was entitled to endorsement as an income tax exempt association under Item 8.2(a) of section 50-40 ITAA97. | Siopis J, in dissent, considered that, on the scheme to which the ruling related, CBH is not established for promoting the development of agricultural resources and is carried on for the profit or gain of its individual members.", "Issues_Decided": "A majority of the Full Court (Mansfield, McKerracher JJ, Siopis J dissenting) confirmed the decision of Gilmour J that the activities of CBH regarded as a whole are directed primarily to \"promoting the development of agricultural resources of Australia\" being the grain growing industry in WA. They concluded that \"promoting the development of agricultural resources\" in the expression extends beyond what is done on the farm or nearby. The expression includes developing the range of resources available to facilitate and support agriculture. The purpose for which CBH was established must be determined by considering globally all activities of CBH against the whole legislative expression. The majority concluded that conducting activities in an efficient and profitable manner did not exclude CBH from eligibility for exemption. The exemption assumes a profit and can only apply to profits, so seeking to operate profitably cannot be inconsistent with a purpose of promoting development. The majority agreed with Gilmour J that CBH was established to promote the interests of the grain industry as a whole and not for the benefit of individual members. Benefits to members did not arise because they are members but because they are grain growers. While the majority concluded that the statutory prohibition on distribution or application of assets for the benefit of CBH's members is not determinative they said it is an important consideration. Accordingly CBH was entitled to endorsement as an income tax exempt association under Item 8.2(a) of section 50-40 ITAA97. Siopis J, in dissent, considered that, on the scheme to which the ruling related, CBH is not established for promoting the development of agricultural resources and is carried on for the profit or gain of its individual members.", "ATO_View_of_Decision": "On the scheme as set out in the Private Ruling, the Commissioner took the view as a matter of fact that the business of CBH was a business of bulk receiving, transport, storage, blending and loading of grain and that the level of activity directed at promoting the development of the grain growing industry in WA was insignificant in relation to day to day bulk handling activities. Nevertheless it was open to the court to conclude as a matter of fact on the scheme set out that a significant proportion of the current and proposed activities of CBH were evolutionary in character and guided by an intent to promote the development of the grain growing industry and therefore to conclude that CBH was established primarily for the relevant statutory purpose. | The Commissioner accepts that the statutory expression requiring the entity to be established for the purpose of \"promoting the development of agricultural resources of Australia\" is a composite expression with a broader application than the component words. Thus the reference to \"promoting the development of agricultural resources\" in that context is not limited to promoting activities on the farm side of the farm gate. The expression requires a global review of the activities of the relevant entity to determine the principal or dominant purpose for which it is established. | The majority concluded that, on the scheme as set out in the ruling, a combination of the terms of the articles and the governing statute precluded the possibility that any profit or gain would go to members individually, including on a wind up of the entity. It was open to the court to conclude on the scheme as a matter of fact that any incidental gain or benefit which may be received by members is not received by virtue of the membership but only in common with all grain growers in WA.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | In light of this decision, Taxation Ruling IT 2415 has been reviewed. No direct conflict is evident. Whilst IT 2415 is written in limited terms, and there has been legislative change and a development of case law since its publication, the ATO does not see a need to take any action at this time to provide a broader range of advice.", "Related_Documents": "IT 2415 - Income Tax: Associations promoting the development of Australian Resources. | 2010 ATC 20-231 | 50-40 - Item 8.2(a)", "Legislative_References": "Income Tax Assessment Act 1997 50-40 - Item 8.2(a)", "Case_References": "", "Subject_References": "Income tax Exemption Society or association established for the purpose of promoting the development of Australian agricultural resources Carried on for the profit or gain of its individual members", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD158of2010/00001", "Unmatched_Content": "Updated to advise IT 2415 has been reviewed. No amendment required."}
{"Case_Name": "Forrest v Commissioner of Taxation", "Venue_Reference_No": "WAD 101 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "5 February 2010", "Date_Published": "4 May 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially Allowed", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned the deductibility of interest on money borrowed to acquire units in a hybrid trust, and the assessability, as an eligible termination payment, of a payment made to a charity on the resignation of the taxpayer from his employment.", "Overview_of_Facts": "Forrest was a shareholder and Chief Executive Officer of Anaconda Nickel Ltd, an ASX listed company (\"Anaconda\"). He was also a unit holder in the Minderoo Trust (\"the Trust\") that held a large number of shares in Anaconda. He had borrowed money to acquire the units and claimed interest expenses in relation to the loans. | The Trust was a 'hybrid' trust in that it was to be in receipt of revenue income that was to be distributed to the unit holders and also capital gains that were to be distributed to the discretionary beneficiaries at the discretion of the trustee. However, one of the provisions of the deed indicated the trustee could treat any income as income of any type. It appeared that it could treat fixed income as discretionary income and vice versa. | Forrest and his family owned 8% of Anaconda and the other large shareholders were Anglo American plc (\"Anglo\") which owned 25%, Glencore International AG (\"Glencore\") which owned 22% and Sherritt International Corporation (\"Sherritt\") which owned 9%. On 4/4/01 Anglo requisitioned an extraordinary general meeting to be held on 31/5/01. Anglo's purpose in calling this meeting was to wrest control of the board of Anaconda from Mr Forrest and those who supported him. Glencore was aligned with Anglo and on the morning of 31/5/01, Forrest was advised that Sherritt had given its proxy to Glencore. | When Forrest became aware of this he realised that he would be defeated and he commenced negotiations with Sherritt and Glencore in the belief that Glencore would make concessions to avoid a public vote. It was agreed amongst other things that: • Forrest would stay on as CEO of Anaconda until the earlier of 18/11/01 or the appointment of a replacement CEO. • Anaconda would make a donation of $3.5m to a charity (\"the Charity\") that Forrest was going to establish. (Glencore also agreed to contribute $3.5m and Anglo agreed in principle to consider making a donation). | • Forrest would stay on as CEO of Anaconda until the earlier of 18/11/01 or the appointment of a replacement CEO. • Anaconda would make a donation of $3.5m to a charity (\"the Charity\") that Forrest was going to establish. (Glencore also agreed to contribute $3.5m and Anglo agreed in principle to consider making a donation). | Forrest resigned as CEO on 16/11/01 and Anaconda paid $3.5m into a trust account pending requirements which had to be met relating to the creation of the charity. On 31/12/01, the $3.5m was deposited into the account of the charity and then on 15/1/02 the $3.5m was withdrawn from the charity's account and deposited into the account of Forrest. The money was paid in an off market transaction to Forrest and related parties for the acquisition of 4,117,643 Anaconda shares. For the purposes of the transaction, the shares were valued at 85 cents each, while on that day the ASX closing price for such shares was 74 cents. | The Commissioner disallowed the interest costs claimed in relation to the purchase of the units in the Trust and assessed Forrest on an ETP of $3.5m in the year ended 30 June 2002. | The Commissioner considered the Trust was a discretionary trust and there was no certainty that any income derived by the Trust would be directed to Mr Forrest. Accordingly it was considered that there was not sufficient nexus to the gaining of income for the interest expenses to be deductible. | It was also considered that the payment of the $3.5m to the charity was made in consequence of the termination of employment by Forrest and the amount was assessable to him as an ETP. | Penalties were imposed at a rate of 25% in respect of the interest expenses as Forrest or his agent were considered to be careless. A penalty of 50% was imposed in relation to the ETP as it was considered that Forrest or his agent had been reckless. | Forrest claimed that the Trust was a fixed trust and that he was entitled to the income of the trust in proportion to the units that he held. He also claimed that, even if it were found that the trust was discretionary, it was the intention of the trustees to distribute the income to him and therefore the interest expenses were deductible. | Forrest also claimed that the payment of $3.5m was not made in consequence of the termination of his employment. He claimed that it was made in consequence of settlement of a dispute between shareholders over control of Anaconda and accordingly it was not assessable to him as it was paid to the Charity. | He further claimed that, if the payment was considered to be an assessable ETP, he was entitled to a deduction for that amount as a donation to an approved charity. | The matter went before the Administrative Appeals Tribunal In a decision reported as The Taxpayer and Commissioner of Taxation [2008] AATA 325, Deputy President Nicholson found that: • The trust was a discretionary trust; • There was insufficient nexus between the interest expenses and the gaining of assessable income for the expenses to be deductible; • The penalty imposed in respect of claiming the interest expenses as a deduction was remitted in full; • The payment of $3.5m was assessable as an ETP; • Forrest was not entitled to any deduction for a donation; and • The penalty imposed for failing to return the ETP was appropriate. | • The trust was a discretionary trust; • There was insufficient nexus between the interest expenses and the gaining of assessable income for the expenses to be deductible; • The penalty imposed in respect of claiming the interest expenses as a deduction was remitted in full; • The payment of $3.5m was assessable as an ETP; • Forrest was not entitled to any deduction for a donation; and • The penalty imposed for failing to return the ETP was appropriate. | Forrest appealed against this decision to the Federal Court. The Court decided that it was appropriate for the matter to be heard by a Full Court. | Issues decided by the court | The Court found that whether the interest expenses are deductible depended on a proper construction of the trust deed. In the opinion of the Court, the power conferred by clause 12 of the deed could not be exercised by the trustee wrongly to classify a receipt as a capital gain, when the receipt was, in truth, income. The clause is not an unlimited power to be exercised in the trustee's unconfined discretion. In the Court's judgment, the terms of the deed demonstrate the settlor's and trustee's objective intention that the income other than capital gains was to be held on a fixed trust for the Unit Holders and capital gains were to be held on a discretionary trust. | The Court agreed with Forrest's submissions that the interest expenses were incurred for the purpose of furthering his present or future income. To be deductible under s8-1, an expense must be incurred 'in the course of' gaining or producing assessable income. It is both sufficient and necessary that the occasion for the loss be found in whatever would be expected to produce income though income need not in fact be produced. | The Court found that the income of the Trust, other than realised and unrealised capital gains, was held on a fixed trust for the Unit Holders and it followed that the interest payments are deductible. | The Commissioner submitted that, if Forrest was successful in his appeal on the deductibility of interest, the matter should be remitted to the Tribunal to consider the question of apportionment. The Court decided that the right to appeal against an AAT decision is only on a question of law and as the Commissioner had not raised this issue before the Tribunal, it could not now be raised. The Court did not consider whether there was any merit in the apportionment contention. | The Court held that the finding on the facts by the Tribunal that the payment by Anaconda to the Charity was an ETP could disclose a question of law only if the only finding open to the Tribunal was that the payment by Anaconda was not in consequence of the termination of Forrest's employment. The Court considered the factors stated in the judgment of the Tribunal and concluded that it was open to the Tribunal to conclude that the payment was made in consequence of the termination of Forrest's employment as CEO of Anaconda. Therefore, Forrest's appeal disclosed no error of law in the Tribunal's decision. | The parties agreed that, if it was found that the $3.5m payment was part of Forrest's assessable income, then he would be entitled to a deduction for this amount under Division 30 of the Income Tax Assessment Act 1997 unless s78A of the Income Tax Assessment Act 1936 operated to disallow the deduction. | The Court considered the circumstances of the donation and sale of shares to the Charity. The Court said that these circumstances, including the fact that the amount the Charity paid for the shares was more than their market value at the time, led to the deduction being denied under paragraphs 78A(2)(a), (c) and (d). | The Court also considered the penalty imposed on Forrest for failing to return his ETP. The Commissioner had imposed a penalty of 50% as it was considered that Forrest had been reckless. The Court commented that the test for recklessness required gross carelessness rather than mere negligence. The Court concluded that it could not be reasonably argued that Forrest or his accountant were guilty of gross carelessness. The penalty was reduced to nil.", "Issues_Decided": "The Court found that whether the interest expenses are deductible depended on a proper construction of the trust deed. In the opinion of the Court, the power conferred by clause 12 of the deed could not be exercised by the trustee wrongly to classify a receipt as a capital gain, when the receipt was, in truth, income. The clause is not an unlimited power to be exercised in the trustee's unconfined discretion. In the Court's judgment, the terms of the deed demonstrate the settlor's and trustee's objective intention that the income other than capital gains was to be held on a fixed trust for the Unit Holders and capital gains were to be held on a discretionary trust. The Court agreed with Forrest's submissions that the interest expenses were incurred for the purpose of furthering his present or future income. To be deductible under s8-1, an expense must be incurred 'in the course of' gaining or producing assessable income. It is both sufficient and necessary that the occasion for the loss be found in whatever would be expected to produce income though income need not in fact be produced. The Court found that the income of the Trust, other than realised and unrealised capital gains, was held on a fixed trust for the Unit Holders and it followed that the interest payments are deductible. The Commissioner submitted that, if Forrest was successful in his appeal on the deductibility of interest, the matter should be remitted to the Tribunal to consider the question of apportionment. The Court decided that the right to appeal against an AAT decision is only on a question of law and as the Commissioner had not raised this issue before the Tribunal, it could not now be raised. The Court did not consider whether there was any merit in the apportionment contention. The Court held that the finding on the facts by the Tribunal that the payment by Anaconda to the Charity was an ETP could disclose a question of law only if the only finding open to the Tribunal was that the payment by Anaconda was not in consequence of the termination of Forrest's employment. The Court considered the factors stated in the judgment of the Tribunal and concluded that it was open to the Tribunal to conclude that the payment was made in consequence of the termination of Forrest's employment as CEO of Anaconda. Therefore, Forrest's appeal disclosed no error of law in the Tribunal's decision. The parties agreed that, if it was found that the $3.5m payment was part of Forrest's assessable income, then he would be entitled to a deduction for this amount under Division 30 of the Income Tax Assessment Act 1997 unless s78A of the Income Tax Assessment Act 1936 operated to disallow the deduction. The Court considered the circumstances of the donation and sale of shares to the Charity. The Court said that these circumstances, including the fact that the amount the Charity paid for the shares was more than their market value at the time, led to the deduction being denied under paragraphs 78A(2)(a), (c) and (d). The Court also considered the penalty imposed on Forrest for failing to return his ETP. The Commissioner had imposed a penalty of 50% as it was considered that Forrest had been reckless. The Court commented that the test for recklessness required gross carelessness rather than mere negligence. The Court concluded that it could not be reasonably argued that Forrest or his accountant were guilty of gross carelessness. The penalty was reduced to nil.", "ATO_View_of_Decision": "The ATO accepts the finding of the Court that, having regard to the settlor's objective intention ascertained from all the provisions of the deed, the clause which appeared to confer upon the trustee an unfettered discretion to determine whether a receipt was capital or income was in fact no more than an administrative power to honestly classify receipts according to law. | Relevantly, the Court was of the view that the settlor's intention of creating a fixed trust of income other than capital gains would have been defeated if the power had been construed as a discretionary power of re-characterisation. There may be other cases in which such a power would not be inconsistent with the settlor's objective intention. | For procedural reasons, the Court did not consider whether the Commissioner was correct to contend that the interest expenses should be apportioned between their income producing and non-income producing purposes, as countenanced in Taxation Determination TD 2009/17. The Court's decision therefore does not require a review of the position stated in that Determination. | The ATO agrees with the decision in relation to the eligible termination payment and the gift issues. | The ATO accepts that the decision to reduce the penalty to nil was open to the Court on the facts.", "Administrative_Treatment": "None", "Related_Documents": "Taxation Determination TD 2009/17 | 2010 ATC 20-163 | 97 | 8-1 | Div 30 | 284-90 | [2008] FCAFC 10 | 2007 ATC 4731 | 2002 ATC 4907 | (1979) 79 ATC 4325 | [2005] WASCA 199 | 75 ATC 4213 | [1897] AC 22 | [2004] WASC 28", "Legislative_References": "Administrative Appeals Tribunal Act 44 Income Tax Assessment Act 1936 27A 78(2) 97 Income Tax Assessment Act 1997 8-1 Div 30 Taxation Administration Act 1953 284-90", "Case_References": "Colby Corporation Pty Ltd v FCT [2008] FCAFC 10 (2008) 165 FCR 133 71 ATR 62 FCT v R & D Holdings Pty Ltd [2007] FCAFC 107 (2007) 160 FCR 248 2007 ATC 4731 67 ATR 790 In re Baillie; Whiting v Cavendish [1928] VLR 171 (1928) 34 ALR 12 Le Grand v Commissioner of Taxation [2002] FCA 1258 (2002) 124 FCR 53 2002 ATC 4907 (2002) 195 ALR 194 (2002) 51 ATR 139 McIntosh v FCT (1979) 25 ALR 557 (1979) 10 ATR 13 (1979) 79 ATC 4325 Orr v Wendt [2005] WASCA 199 Re Wynn (decd); Public Trustee v Newborough [1952] 1 Ch 271 Reseck v FCT [1975] HCA 38 (1975) 133 CLR 45 5 ATR 538 75 ATC 4213 Salomon v A Saloman & Co Ltd [1897] AC 22 Wendt v Orr [2004] WASC 28", "Subject_References": "Interest Expense Hybrid Trust Eligible Termination Payment Gift Penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD101of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Hamed and Commissioner of Taxation", "Venue_Reference_No": "2007/2286-2290", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "8 September 2010", "Date_Published": "1 March 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether deposits made to bank accounts owned by the taxpayer, individually or jointly, were correctly characterised as income, and whether the 50% administrative penalty imposed for recklessness was appropriate.", "Overview_of_Facts": "The taxpayer's tax returns for the 2001 to 2004 income years disclosed modest amounts of income derived from his various employment, rental properties and Centrelink benefits. In the course of a review of his financial affairs by the Commissioner, the taxpayer was discovered to have purchased several properties during the relevant years, had borrowings of about $1.2 million and had significant monthly payments in respect of those borrowings. | The Commissioner issued amended assessments for the 2001 to 2004 income years and a default assessment for the 2005 income year, with taxable income totalling $538,802. The assessments were made on the basis of 147 deposits made to bank accounts that the taxpayer owned individually or jointly. The Commissioner imposed a 50% administrative penalty for recklessness. Objections to the assessments were disallowed. | Issues decided by the court or tribunal | 1. Whether the bank deposits constituted assessable income of the taxpayer | The Tribunal confirmed that the taxpayer needs to prove, on the balance of probabilities, his 'actual taxable income' and, from that, his 'true tax liability' for the relevant years. If these amounts were less than the corresponding amounts assessed to him, he will have discharged the burden placed upon him by s14ZZK(b)(i) of the TAA 1953. | The Tribunal considered whether each deposit represented income of the taxpayer on the basis of documents and an analysis of banking transactions. The Tribunal accepted that some of the deposits did not represent amounts of income derived by the taxpayer as there was acceptable evidence otherwise. Accordingly, the taxpayer had discharged the burden of proving that the assessments were excessive, and the appropriate course was to set aside the objection decision in relation to primary tax, and to remit the matter to the Commissioner to allow assessments to be amended or further amended. | 2. Whether the administrative penalties assessed by the Commissioner were appropriate | The Tribunal found that the taxpayer's attitude towards his obligation to report accurate details of his income was 'palpably cavalier', and the 50% penalty level imposed on the basis that the taxpayer had been reckless was correct. However, the amount of the penalty imposed had to be reduced as a consequence of the reduction in primary tax.", "Issues_Decided": "1. Whether the bank deposits constituted assessable income of the taxpayer: The Tribunal confirmed that the taxpayer needs to prove, on the balance of probabilities, his 'actual taxable income' and, from that, his 'true tax liability' for the relevant years. If these amounts were less than the corresponding amounts assessed to him, he will have discharged the burden placed upon him by s14ZZK(b)(i) of the TAA 1953. The Tribunal considered whether each deposit represented income of the taxpayer on the basis of documents and an analysis of banking transactions. The Tribunal accepted that some of the deposits did not represent amounts of income derived by the taxpayer as there was acceptable evidence otherwise. Accordingly, the taxpayer had discharged the burden of proving that the assessments were excessive, and the appropriate course was to set aside the objection decision in relation to primary tax, and to remit the matter to the Commissioner to allow assessments to be amended or further amended. | 2. Whether the administrative penalties assessed by the Commissioner were appropriate: The Tribunal found that the taxpayer's attitude towards his obligation to report accurate details of his income was 'palpably cavalier', and the 50% penalty level imposed on the basis that the taxpayer had been reckless was correct. However, the amount of the penalty imposed had to be reduced as a consequence of the reduction in primary tax.", "ATO_View_of_Decision": "The decision in relation to the character of the bank deposits was open to the Tribunal on the evidence. It followed from the Tribunal's acceptance that some of the bank deposits were not income, and that the burden on the taxpayer of proving the assessments were excessive had been discharged. The case was decided on its own particular facts.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | 2010 ATC 10-151 | 14ZZK | 2001 ATC 4111 | (1994) 94 ATC 4844 | (1990) 90 ATC 4088 | (1952) 86 CLR 183 | (1994) 94 ATC 4587 | (2007) 2007 ATC 2363 | 2007 ATC 2218", "Legislative_References": "Taxation Administration Act 1953 14ZZK", "Case_References": "BRK (Bris) Pty Limited v Federal Commissioner of Taxation 2001 ATC 4111 [2001] FCA 164 (2001) 46 ATR 347 Commissioner of Taxation v Australia and New Zealand Savings Bank Limited (1994) 181 CLR 466 [1994] HCA 58 (1994) 94 ATC 4844 (1994) 29 ATR 11 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 [1990] HCA 3 (1990) 90 ATC 4088 (1990) 20 ATR 1370 George v Federal Commissioner of Taxation (1952) 86 CLR 183 [1952] HCA 21 Vale Press Pty Ltd v Commissioner of Taxation (No. 2) (1994) 53 FCR 92 (1994) 94 ATC 4587 (1994) 29 ATR 207 Re Barakat and Commissioner of Taxation [2007] AATA 1564 (2007) 2007 ATC 2363 (2007) 68 ATR 283 Re Sharkey and Commissioner of Taxation (2007) 95 ALD 509 2007 ATC 2218 (2007) 66 ATR 878", "Subject_References": "Income tax Bank deposit Assessable income Burden of proof Penalty Recklessness Objection decision", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/2286-2290/00001", "Unmatched_Content": ""}
{"Case_Name": "Horrocks and Commissioner of Taxation", "Venue_Reference_No": "2009/2865, 4347-4355", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 April 2010", "Date_Published": "30 June 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the taxpayer was a resident of Australia during the relevant years, whether he was taxable on income the Commissioner claimed he had derived, and whether penalties imposed should be reduced.", "Overview_of_Facts": "As a result of an audit conducted in April 2005 into the taxpayer's income tax affairs, default assessments for the 1993, 1994, 1997 and 1999 to 2005 income years were issued to the taxpayer in September 2006 (no returns lodged). The taxpayer sought review by the Tribunal of decisions which disallowed objections to the assessments for the 1993, 1994, 1997, 1999 and 2000 years. | The taxpayer purchased a property in Victoria and paid a deposit of $20,000 in May 1993, and the balance of $12,000 in May 1994. He was assessed to those amounts for the 1993 and 1994 years, respectively. As at October 1996, the improved value of the property had increased by $60,000. The increase in value was assessed to the taxpayer for the 1997 year. The assessments for the 1999 and 2000 years included unexplained deposits to an Australian bank account. | The taxpayer claimed that he was not assessable to the amounts assessed because, between 1990 and 1999, he was a resident of NZ, and a non-resident of Australia, deriving income solely from sources in NZ. | Issues decided by the tribunal | Given the inconsistencies in the taxpayer's oral evidence about the dates of his residency in NZ, and the lack of objective evidence to support a ten year stay in NZ, the Tribunal was not able to be satisfied that he was residing in NZ during the relevant period and, therefore, that he was a non-resident of Australia during the years in dispute (paragraph 10). | Accordingly, the Tribunal found that, in respect of the 1993, 1994, 1999 and 2000 years, the taxpayer had not discharged the burden of proving under section 14ZZK of the Taxation Administration Act 1953 the assessments were excessive (paragraphs 12 and 13). | In respect of the 1997 year, the Tribunal found that only $6,000 was assessable to the taxpayer, on the basis that it accepted the taxpayer's oral evidence that he only spent that amount during the year in improving the value of the property acquired (paragraph 15). | For the 1999 and 2000 years, the Tribunal held that it was not appropriate to remit the late lodgement penalties which were imposed on the taxpayer. For the 1993 and 1994 years, the Tribunal remitted the penalty from the default rate of 200% to 50%. For the 1997 year, the Tribunal remitted the penalty imposed by 50% (paragraphs 16 and 17).", "Issues_Decided": "Given the inconsistencies in the taxpayer's oral evidence about the dates of his residency in NZ, and the lack of objective evidence to support a ten year stay in NZ, the Tribunal was not able to be satisfied that he was residing in NZ during the relevant period and, therefore, that he was a non-resident of Australia during the years in dispute (paragraph 10). Accordingly, the Tribunal found that, in respect of the 1993, 1994, 1999 and 2000 years, the taxpayer had not discharged the burden of proving under section 14ZZK of the Taxation Administration Act 1953 the assessments were excessive (paragraphs 12 and 13). In respect of the 1997 year, the Tribunal found that only $6,000 was assessable to the taxpayer, on the basis that it accepted the taxpayer's oral evidence that he only spent that amount during the year in improving the value of the property acquired (paragraph 15). For the 1999 and 2000 years, the Tribunal held that it was not appropriate to remit the late lodgement penalties which were imposed on the taxpayer. For the 1993 and 1994 years, the Tribunal remitted the penalty from the default rate of 200% to 50%. For the 1997 year, the Tribunal remitted the penalty imposed by 50% (paragraphs 16 and 17).", "ATO_View_of_Decision": "The Tax Office accepts that it was open to the Tribunal to accept the oral evidence of the taxpayer as to the expenditure incurred in the 1997 year on improving the property acquired, and to remit the penalties on the bases decided. The case was decided on its own particular facts.", "Administrative_Treatment": "", "Related_Documents": "N/A | [2010] AATA 307 | 14ZZK", "Legislative_References": "Taxation Administration Act 1953 14ZZK Income Tax Assessment Act 1936 163B 163C 222(1)", "Case_References": "", "Subject_References": "Non-resident Onus of proof Unexplained deposits Penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/2865/00001", "Unmatched_Content": ""}
{"Case_Name": "Hua-Aus Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 195 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "14 April 2010", "Date_Published": "25 May 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this decision to set aside the AAT's decision, confirming the decision under review, which was based on a rejection by the AAT of the evidence of the taxpayer's director, despite the fact that his evidence had not been explicitly impugned.", "Overview_of_Facts": "The Tribunal had made the following findings of fact that were not in dispute and were accepted by Edmonds J in the Federal Court: a) The taxpayer carried on a business as a provider of escort services. b) Mr Mike Hua was the sole director of the taxpayer. c) The taxpayer supplied delivery and advertising services to escorts used in its enterprise. d) The escorts were in the position of contractors to the taxpayer. | a) The taxpayer carried on a business as a provider of escort services. b) Mr Mike Hua was the sole director of the taxpayer. c) The taxpayer supplied delivery and advertising services to escorts used in its enterprise. d) The escorts were in the position of contractors to the taxpayer. | At issue was whether two amounts were sourced from consideration for taxable supplies made by the taxpayer. | Issues before the Federal Court | Whether the Tribunal had erred in law in deciding against the taxpayer by: a) adopting an interpretation of s 14ZZK of the TAA imposing the burden of proving that the amended assessment was excessive - an interpretation which obviated the requirement for the Tribunal to make findings of fact or findings of fact and law as to the satisfaction of the statutory criteria for taxable supplies; b) not finding that there was a statutory requirement for the Tribunal to satisfy itself that each of the taxpayer's receipts which the Tribunal found to be unexplained satisfied the statutory criteria for the making of a taxable supply by the taxpayer; c) rejecting the evidence of Mr Hua (who also appeared as advocate for the taxpayer) regarding the source of the funds, in the absence of corroborating evidence or further explanation from him, without making any finding of credit against him; d) denying the taxpayer procedural fairness in the way that it dealt with certain documents lodged with the Tribunal by the taxpayer after the hearing but before the Tribunal gave its decision, and by failing to afford the taxpayer a reasonable opportunity to do several things and to re-list the application for review. | a) adopting an interpretation of s 14ZZK of the TAA imposing the burden of proving that the amended assessment was excessive - an interpretation which obviated the requirement for the Tribunal to make findings of fact or findings of fact and law as to the satisfaction of the statutory criteria for taxable supplies; b) not finding that there was a statutory requirement for the Tribunal to satisfy itself that each of the taxpayer's receipts which the Tribunal found to be unexplained satisfied the statutory criteria for the making of a taxable supply by the taxpayer; c) rejecting the evidence of Mr Hua (who also appeared as advocate for the taxpayer) regarding the source of the funds, in the absence of corroborating evidence or further explanation from him, without making any finding of credit against him; d) denying the taxpayer procedural fairness in the way that it dealt with certain documents lodged with the Tribunal by the taxpayer after the hearing but before the Tribunal gave its decision, and by failing to afford the taxpayer a reasonable opportunity to do several things and to re-list the application for review. | Issues decided by the Federal Court", "Issues_Decided": "Whether the Tribunal had erred in law in deciding against the taxpayer by: a) adopting an interpretation of s 14ZZK of the TAA imposing the burden of proving that the amended assessment was excessive - an interpretation which obviated the requirement for the Tribunal to make findings of fact or findings of fact and law as to the satisfaction of the statutory criteria for taxable supplies; b) not finding that there was a statutory requirement for the Tribunal to satisfy itself that each of the taxpayer's receipts which the Tribunal found to be unexplained satisfied the statutory criteria for the making of a taxable supply by the taxpayer; c) rejecting the evidence of Mr Hua (who also appeared as advocate for the taxpayer) regarding the source of the funds, in the absence of corroborating evidence or further explanation from him, without making any finding of credit against him; d) denying the taxpayer procedural fairness in the way that it dealt with certain documents lodged with the Tribunal by the taxpayer after the hearing but before the Tribunal gave its decision, and by failing to afford the taxpayer a reasonable opportunity to do several things and to re-list the application for review. a) adopting an interpretation of s 14ZZK of the TAA imposing the burden of proving that the amended assessment was excessive - an interpretation which obviated the requirement for the Tribunal to make findings of fact or findings of fact and law as to the satisfaction of the statutory criteria for taxable supplies; b) not finding that there was a statutory requirement for the Tribunal to satisfy itself that each of the taxpayer's receipts which the Tribunal found to be unexplained satisfied the statutory criteria for the making of a taxable supply by the taxpayer; c) rejecting the evidence of Mr Hua (who also appeared as advocate for the taxpayer) regarding the source of the funds, in the absence of corroborating evidence or further explanation from him, without making any finding of credit against him; d) denying the taxpayer procedural fairness in the way that it dealt with certain documents lodged with the Tribunal by the taxpayer after the hearing but before the Tribunal gave its decision, and by failing to afford the taxpayer a reasonable opportunity to do several things and to re-list the application for review.", "ATO_View_of_Decision": "The outcomes for issues (a), (b) and (d) are consistent with the Commissioner's submissions to the Court. | The ATO respectfully accepts that, on the facts of the case, the outcome for issue (c) was open to the Court. The ATO also acknowledges that, where it is sought to impugn the credit of a witness, it is necessary to make it absolutely clear through cross-examination that their credit is in issue.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | 2010 ATC 20-175 | Taxation Administration Act 1953 (Cth) | A New Tax System (Goods and Services Tax) Act 1999 (Cth) | Income Tax Assessment Act 1936 (Cth) | 2008 ATC 20-045 | 90 ATC 4088 | (1997) 97 ATC 5041 | 75 ATC 4257 | 92 ATC 4373 | 79 ATC 4133 | 79 ATC 4111 | (1936) 56 CLR 63 | 2006 ATC 4387", "Legislative_References": "Taxation Administration Act 1953 (Cth) A New Tax System (Goods and Services Tax) Act 1999 (Cth) Income Tax Assessment Act 1936 (Cth)", "Case_References": "Danmark Pty Ltd v Federal Commissioner of Taxation; Forestwood Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 [2008] HCA 41 69 ATR 357 2008 ATC 20-045 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 [1990] HCA 3 20 ATR 1370 90 ATC 4088 Federal Commissioner of Taxation v Munro (1997) 97 ATC 5041 37 ATR 249 Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 [1975] HCA 54 5 ATR 672 75 ATC 4257 Ma v Commissioner of Taxation (1992) 37 FCR 225 23 ATR 485 92 ATC 4373 Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217 9 ATR 638 79 ATC 4133 McCormack v Federal Commissioner of Taxation (1978) 143 CLR 284 [1979] HCA 18 9 ATR 610 79 ATC 4111 Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 [1936] HCA 77 Vu v Federal Commissioner of Taxation 2006 ATC 4387 [2006] FCA 889 2006 ATC 4387 63 ATR 341", "Subject_References": "Goods & Services Tax Assessment of GST net amount Burden of proof Construction and application of s 14ZZK of Taxation Administration Act 1953 (TAA) Whether onus is discharged where taxpayer's evidence is not impugned and there is no adverse finding as to credit Whether taxpayer denied procedural fairness", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD195of2009/00001", "Unmatched_Content": "a) Rejected - on the basis that the Tribunal was absolutely correct in concluding that s 14ZZK imposed on the taxpayer the burden of proving that the amended assessment under review was excessive. b) Rejected - on the basis that the statutory criteria were never engaged because of the Tribunal's finding that the taxpayer failed to discharge the burden imposed on it to establish that the assessment was excessive. c) Accepted - on the basis that, in the absence of any impugnment of Mr Hua's credit, the Tribunal erred in its conclusion that Mr Hua's explanation was inadequate to discharge the onus because Mr Hua had not called a witness to support his explanation. d) Rejected - on the basis that there was nothing to suggest that the Tribunal failed to afford the taxpayer a reasonable opportunity to do any of the things it wanted to do; rather, because the taxpayer did not have legal representation during the hearing, or the benefit of legal counsel subsequent to the hearing, it did not avail itself of those opportunities. The fact that, out of ignorance, Mr Hua did not avail himself of the same opportunities as a competent legal representative might have does not constitute a denial of procedural fairness on the part of the Tribunal."}
{"Case_Name": "JMB Beverages Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 1071 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "10 June 2010", "Date_Published": "21 July 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the Tax Office response to this case which concerned the GST treatment of de-alcoholised wine.", "Overview_of_Facts": "The taxpayer manufactures and sells, by wholesale, alcohol-removed wine products. The manufacture of the products involves a three-stage process: • Preparation of the base wine - grapes are crushed and the juices fermented into wine according to normal winemaking processes (including the blending of different batches of juices or wines). • A de-alcoholisation process - the base wine is subject to a process by which the fermentation by-products (volatile esters) and most of the alcohol are removed. • A reconstitution (or blending process) - the volatile esters, grape juice concentrate, 'low sugar juice', and in some instances rain water are added to the de-alcoholised base wine. The approximate percentage by volume of the de-alcoholised base wine component contained in the wine products ranges from 85% to 89%. | • Preparation of the base wine - grapes are crushed and the juices fermented into wine according to normal winemaking processes (including the blending of different batches of juices or wines). • A de-alcoholisation process - the base wine is subject to a process by which the fermentation by-products (volatile esters) and most of the alcohol are removed. • A reconstitution (or blending process) - the volatile esters, grape juice concentrate, 'low sugar juice', and in some instances rain water are added to the de-alcoholised base wine. The approximate percentage by volume of the de-alcoholised base wine component contained in the wine products ranges from 85% to 89%. | The wine products are bottled (or in the case of the Sparkling Cuvee, carbonated then bottled). The final wine products contain less than 0.30% alcohol. | Pursuant to Subdivision 38-A of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), supplies of the following beverages as set out in the table in clause 1 of Schedule 2 to the GST Act are GST-free: • non-alcoholic carbonated beverages, if they consist wholly of juices of fruits or vegetables (item 11); • non-alcoholic non-carbonated beverages, if they consist of at least 90% by volume of juices of fruits or vegetables (item 12). | • non-alcoholic carbonated beverages, if they consist wholly of juices of fruits or vegetables (item 11); • non-alcoholic non-carbonated beverages, if they consist of at least 90% by volume of juices of fruits or vegetables (item 12). | At first instance, Edmonds J held that the term 'juices of fruits' in the context of the above items has its ordinary English meaning and therefore is confined to juices extracted from fruits and does not extend to 'fruit juice' in the wider sense of that term in trade parlance. Further, the test required to be satisfied by the above items is a quantitative test relating to the constituents existing at the time of the supply. His Honour found that, although the wine-making process commences with the juices of fruits, once the fermentation process commences, the nature of this component of the beverage changes. The juices of fruits become wine and the later processes undertaken to remove the alcohol and restore its flavour never result in the product being returned to its original state. It was not to the point that the beverage was originally derived from juices of fruits. | In considering the phrase 'wholly of juices of fruits' contained in item 11 of the table in clause 1 of Schedule 2 to the GST Act, the primary Judge found that there was no scope for a de minimis rule to operate in circumstances where the clear intent of the legislature was that the product consist of 100% of the juices of fruit. This was made clear by the fact that items 10 and 12 of the table only require the beverages to consist of at least 90% by volume of juices of fruits, thereby allowing the beverages to include non-fruit-based additives without the loss of the exemption from GST. | The primary judge preferred the Commissioner's position that the requirement that the beverage be 'non-alcoholic' should be confined to those beverages which do not acquire their alcohol content through human intervention (i.e. by using yeast to cause or accelerate fermentation), and his Honour held that the supplies of the wine products were not GST-free. | The taxpayer appealed to the Full Federal Court. | Issues decided by the court | The Full Court dismissed the appeal. | The Full Court found that the primary Judge had not erred in finding that the process of fermentation used to produce the base wine had changed the nature of the grape juices used at the starting point of the manufacturing process, and that there was no evidence that was inconsistent with this finding. As a result of the fermentation process, juices of fruit were no longer present in the base wine. Due to the volumes of base wine contained in the beverages, they did not satisfy the requirements that they consist of at least 90% by volume of juices of fruits in relation to the non-carbonated products or wholly of juices of fruits in relation to carbonated products. The Full Court also found that the taxpayer's submission that the beverages were \"made from\" juices of fruit to be inconsistent with long-standing authority which construed \"consist of\" as referring to constituents actually existing at the time of tax. | The Full Court did not consider it necessary to consider the other aspects of the decision of the primary Judge.", "Issues_Decided": "The Full Court dismissed the appeal. The Full Court found that the primary Judge had not erred in finding that the process of fermentation used to produce the base wine had changed the nature of the grape juices used at the starting point of the manufacturing process, and that there was no evidence that was inconsistent with this finding. As a result of the fermentation process, juices of fruit were no longer present in the base wine. Due to the volumes of base wine contained in the beverages, they did not satisfy the requirements that they consist of at least 90% by volume of juices of fruits in relation to the non-carbonated products or wholly of juices of fruits in relation to carbonated products. The Full Court also found that the taxpayer's submission that the beverages were \"made from\" juices of fruit to be inconsistent with long-standing authority which construed \"consist of\" as referring to constituents actually existing at the time of tax. The Full Court did not consider it necessary to consider the other aspects of the decision of the primary Judge.", "ATO_View_of_Decision": "The Full Court decision confirms that processes such as fermentation may change the nature of the juice of a fruit or vegetable such that it no longer bears that character. It is necessary to determine whether the beverage consists either wholly or at of at least 90% by volume of juices of fruit (as the case may be) by referring to the constituents of the beverage actually existing at the time the beverage is supplied. | The requirement in item 11 for carbonated beverages to 'consist wholly of juices of fruit or vegetables' requires that, apart from carbon dioxide used for carbonation, the beverage consist 100% of the juices of fruit or vegetables. The requirement does not allow any additives that are not juices of fruit or vegetables, even if the addition is only of a de minimis amount. The Commissioner considers this to be settled law following the decision of the primary judge and of the Supreme Court of New South Wales in P & N Beverages Australia Pty Ltd v Commissioner of Taxation [2007] NSWSC 338. | In accordance with the decision of the primary judge, non-alcoholic beverages referred to in the table in clause 1 of Schedule 2 to the GST Act are confined to those beverages which do not acquire their alcohol content through human intervention (i.e. by using yeast to cause or accelerate fermentation).", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The Commissioner considers that the views contained in GSTD 2002/2 are not inconsistent with the decision of the Full Court.", "Related_Documents": "GSTD 2002/2 | 2010 ATC 20-187 | 9-30 | 17-5 | 38-2 | 38-4 | Schedule 1 | Schedule 2 cl 1 - Items 2, 5 ,10 ,11 and 12. | 31-1 | 83 CLR 594 | 2007 ATC 4481 | [1967] 2 NSWR 47", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-30 17-5 38-2 38-4 Schedule 1 Schedule 2 cl 1 - Items 2, 5 ,10 ,11 and 12. A New Tax System (Wine Equalisation Tax) Act 1999 31-1", "Case_References": "Federal Commissioner of Taxation v F.H. Faulding & Co Ltd [1950] HCA 42 83 CLR 594 P & N Beverages Australia Pty Ltd v Commissioner of Taxation [2007] NSWSC 338 210 FLR 202 2007 ATC 4481 65 ATR 391 Deputy Commissioner of Taxation v Pepsi-Cola Metropolitan Bottling Co Inc [1967] 2 NSWR 47 (1967) 10 FLR 101", "Subject_References": "GST Beverages meaning of 'juices of fruits' ordinary meaning or trade meaning meaning of 'consist of' contrast to 'contained' whether de-alcoholised wine is a non-alcoholic beverage.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1071of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Lean v Commissioner of Taxation", "Venue_Reference_No": "NSD 529 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "28 January 2010", "Date_Published": "21 September 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Appeal from the judgment of Stone J in the Federal Court dismissed.", "Summary_of_Decision": "Whether misappropriated money was included as assessable income; and whether the act of applying money towards expenses or investment was sufficient to break the necessary connection between the money included in the taxpayer's assessable income and a subsequent misappropriation.", "Overview_of_Facts": "1. In January 2001 the taxpayer attended a meeting held by a company that provided a research and share trading system. At that meeting the taxpayer was provided with the name of a share trader, Mr Heffernan, who he was led to believe was \"reputable and highly successful\". In May 2001 the taxpayer transferred $5,000 to a Hong Kong account nominated by Mr Heffernan. | 2. The taxpayer held options to acquire shares in Microsoft Inc in the United States. Mr Heffernan encouraged the taxpayer to increase his investment. The taxpayer exercised the options and sold the allocated shares through a US stockbroker. The taxpayer instructed the US stockbroker to transfer the proceeds of sale to the Hong Kong bank account nominated by Mr Heffernan. | 3. On 11 July 2001 $AUS 517,416 was transferred to the Hong Kong Bank Account. The taxpayer received an E-ceipt issued in the name of Our World Exchange Limited. Our World Exchange Limited was incorporated in Vanuatu and was subservient to Mr Heffernan and operated at his whim. Therefore it was an agent of Mr Heffernan and did not act independently. | 4. In August 2001 the taxpayer went to a seminar held by Mr Heffernan. At that seminar the taxpayer was offered an arrangement which would allegedly give the taxpayer more control over his money. | 5. On 24 August 2001 the taxpayer instructed his US stockbroker to transfer an amount of $AUS 4,112,898.59 representing the proceeds of a further sale of Microsoft Inc shares to the Hong Kong Bank Account. The taxpayer received two E-ceipts that stated the funds had been credited to two different numbered accounts in the taxpayer's name. | 6. The taxpayer could not provide evidence that he derived any investment income nor was he able to show that any investment transactions actually occurred. | Issues decided by the court | Whether the money in respect of which the taxpayer has incurred a loss (being the money that was transferred to Hong Kong and misappropriated) was money that was included in the taxpayer's assessable income and thus a deduction could be claimed under section 25-45 for the year ended 30 June 2002. In order to do this it must be found that the money that was misappropriated was capable of being characterised as the same money that was included in the taxpayer's assessable income. | The court found that where the money had left the taxpayer's hands - for instance for reinvestment - there can be no relevant misappropriation in respect of that money. | His Honour, Edmonds J, expressed the view that the section could only ever apply to cash basis taxpayers [paragraph 34]. Perram J agreed that he could not see how it could operate outside of cash basis accounting in practice. However, his Honour expressed the view that he was hesitant to \"close the door finally\" on that issue. [para 53]", "Issues_Decided": "Whether the money in respect of which the taxpayer has incurred a loss (being the money that was transferred to Hong Kong and misappropriated) was money that was included in the taxpayer's assessable income and thus a deduction could be claimed under section 25-45 for the year ended 30 June 2002. In order to do this it must be found that the money that was misappropriated was capable of being characterised as the same money that was included in the taxpayer's assessable income. The court found that where the money had left the taxpayer's hands - for instance for reinvestment - there can be no relevant misappropriation in respect of that money. His Honour, Edmonds J, expressed the view that the section could only ever apply to cash basis taxpayers [paragraph 34]. Perram J agreed that he could not see how it could operate outside of cash basis accounting in practice. However, his Honour expressed the view that he was hesitant to \"close the door finally\" on that issue. [para 53]", "ATO_View_of_Decision": "The decision concerned a deduction for a loss by theft, stealing, embezzlement, larceny, defalcation or misappropriation under section 25-45. It considered where the provision could be applied and where it could not. This case rejected an argument that tracing alone was sufficient to bring losses arising from the subsequent spending of funds into the operation of the provision on the basis that it was included in the taxpayer's assessable income. | It should be noted that section 116-60 of the Income Tax Assessment Act 1997 applies to amounts misappropriated in the 2007-08 income years and later income years. This provision allows for modifications to the capital proceeds of a CGT event in circumstances where an employee or agent misappropriates all or part of the capital proceeds.", "Administrative_Treatment": "", "Related_Documents": "n/a | 2010 ATC 20-159 | 51AAA | 6-1 | 6-5 | 6-10 | 6-15 | 8-1 | 25-45 | 102-5 | 88 ATC 4517 | (1956) 95 CLR 344", "Legislative_References": "Income Tax Assessment Act 1936 51AAA 71 Income Tax Assessment Act 1997 6-1 6-5 6-10 6-15 8-1 25-45 102-5", "Case_References": "EHL Burgess Pty Ltd v Federal Commissioner of Taxation (1988) 80 ALR 639 88 ATC 4517 19 ATR 1407 Charles Moore & Co (WA) Pty Ltd v Federal Commissioner of Taxation (1956) 95 CLR 344 [1956] HCA 77", "Subject_References": "Income Tax Deductions Misappropriation Necessary connection Money included in assessable income", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD529of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Manne and Commissioner of Taxation", "Venue_Reference_No": "2009/2253, 2254 and 400", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 May 2010", "Date_Published": "9 July 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly adverse", "Summary_of_Decision": "This case involves the question whether amended assessments of income tax were excessive, whether administrative penalties were appropriately imposed for shortfall amounts and, if so, whether they should be remitted.", "Overview_of_Facts": "1. The proceedings related to the years ended 30 June 2003 to 2005 inclusive. In the original return, the applicant claimed deductions for work related, general and investment property expenses. On 11 February 2007, the Applicant sought to amend the returns to reduce her taxable income. After receipt and consideration of the amendments an audit was commenced. Prior to commencement of the audit, the Applicant withdrew the amended returns. | On 11 February 2007, the Applicant sought to amend the returns to reduce her taxable income. After receipt and consideration of the amendments an audit was commenced. Prior to commencement of the audit, the Applicant withdrew the amended returns. | 2. At the conclusion of the audit, the Respondent issued amended assessments in respect of the income tax and notices of assessment and liability to pay penalty (reduced for voluntary allowance in respect to the amended returns). The Applicant objected, the Commissioner disallowed the objections and the Applicant filed an application for review. | 3. The Respondent subsequently cancelled the 2005 amended assessment. | Issues decided by the court | On review of the Commissioner's decision, the Tribunal found that the Applicant had provided further documentary evidence to support some of the deductions claims, and found that her oral evidence was sufficiently detailed to explain the lack of documentation. The Tribunal found in favour of the Applicant on the basis that it: • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. The Tribunal affirmed the Commissioner's objection decision that: • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome. | The Tribunal found in favour of the Applicant on the basis that it: • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. | • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. | The Tribunal affirmed the Commissioner's objection decision that: • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome. | • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome.", "Issues_Decided": "On review of the Commissioner's decision, the Tribunal found that the Applicant had provided further documentary evidence to support some of the deductions claims, and found that her oral evidence was sufficiently detailed to explain the lack of documentation. The Tribunal found in favour of the Applicant on the basis that it: • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. The Tribunal affirmed the Commissioner's objection decision that: • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome. The Tribunal found in favour of the Applicant on the basis that it: • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. • allowed in full the objections to the 2005 amended assessments. • allowed in part the objections to include the deductions for which evidence was provided. • allowed a full reduction of the penalties in respect of the preparation of the original income tax returns, on the basis that the taxpayer had taken reasonable care. The Tribunal affirmed the Commissioner's objection decision that: • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome. • there was a shortfall amount resulting from the amended returns. It was unnecessary for a credit or refund to be made for a shortfall to result. • the penalty was properly imposed on the Applicant with respect to the amended returns. The Applicant failed to exercise reasonable care in completing her amended returns. • the imposition of penalties would not produce a harsh outcome.", "ATO_View_of_Decision": "The Tribunal affirmed the Commissioner's objection decisions that the penalty was properly imposed on the Applicant with respect to the 2003 and 2004 amended returns. The decisions in relation to the other issues were based on the specific facts of this case. It is considered that this decision will not have any impact on any existing or future litigation proceedings.", "Administrative_Treatment": "", "Related_Documents": "N/A | 2010 ATC 10-138 | 170 | 8-1 | Div. 30 | 14ZZK | Div. 284 | Div. 298 | 2003 ATC 4665 | 2008 ATC 20-015", "Legislative_References": "Income Tax Assessment Act 1936 170 Income Tax Assessment Act 1997 8-1 Div. 30 Tax Administration Act 1953 14ZZK Div. 284 Div. 298", "Case_References": "Hart v Federal Commissioner of Taxation [2003] FCAFC 105 (2003) 131 FCR 203 2003 ATC 4665 53 ATR 371 Re Dixon and the Commissioner of Taxation [2006] AATA 130 2006 ATC 2092 62 ATR 1001 Dixon v Federal Commissioner of Taxation [2008] FCAFC 54 (2008) 167 FCR 287 2008 ATC 20-015 69 ATR 627", "Subject_References": "Income Tax Burden of proof Shortfall amounts Imposition of penalties Reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/2253/00001", "Unmatched_Content": "Administrative Treatment: List of Rulings and Determinations Affected - n/a"}
{"Case_Name": "Mano and Commissioner of Taxation", "Venue_Reference_No": "2008/228-244", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "22 April 2010", "Date_Published": "30 June 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case, which concerned: whether deposits made to the taxpayer's bank accounts were assessable as income; whether the failure to return overseas investment income was due to fraud or evasion; and whether penalties had been correctly imposed.", "Overview_of_Facts": "The taxpayer and her husband moved to Australia from the UK in 1992. At that time, she held investments in the UK from which she derived income. When the taxpayer was audited, it was discovered that she had not included her investment income ($292,411) from the UK in her Australian tax returns for the 1993 to 2004 income years. The audit also discovered that deposits of almost $500,000 were made to various bank accounts of the taxpayer during the 2000 to 2004 income years. | Amended assessments were issued to the taxpayer in September 2006, including the deposits made to her bank accounts in her assessable income for the 2000 to 2004 years, on the basis that she did not have a satisfactory explanation for the source of the funds. Amendments for the 1993 to 1996, and 1999 to 2004, income years, as well as original assessments for the 1997 and 1998 years, were also issued to the taxpayer in December 2006, including the amounts of investment income from the UK in her assessable income. | The amendments for the 2002 to 2004 years were made under the former paragraph 170(2)(c) of the Income Tax Assessment Act 1936 ('ITAA') within 4 years from the date on which tax was due and payable under the original assessments. | The amendments for the earlier years relied on the former paragraph 170(2)(a) of the ITAA, on the basis that the Commissioner had formed the opinion that an avoidance of tax was due to fraud or evasion. In relation to the December 2006 amendments, the opinion was based on the findings that the taxpayer knew that she had derived UK-source income for the relevant years and had deliberately withheld details of that income from her Australian tax returns. The audit had established that the taxpayer's Australian tax agent had asked her when she arrived in Australia whether she had any overseas income, and she had said that she didn't have any. | In relation to the amended assessments, penalties of 75% for intentional disregard were imposed under the former section 226J of the ITAA and Division 284 of Schedule 1 to the Taxation Administration Act 1953 . Penalties were imposed under the former sections 163B and 163C of the ITAA for the 1997 and 1998 years. | Before the Tribunal, the taxpayer challenged the amendments issued in September 2006 on the basis that the deposits were not her assessable income, but came from her husband as gifts. The taxpayer accepted that the investment income from the UK was assessable to her, but argued that the December 2006 amendments for the 1993 to 1996, and 1999 to 2001, years were not authorised by paragraph 170(2)(c) because the avoidance of tax was not due to fraud or evasion. The taxpayer also argued that the penalties were not payable or should be remitted. | Issues decided by the tribunal | In relation to the September 2006 amendments, the Tribunal accepted that the deposits were not assessable income of the taxpayer because she had established that they were gifts from her husband (sourced from a wedding gift and loans from relatives). This conclusion was supported by the fact that the taxpayer's employment has always been as a teacher and that no evidence was provided by the Commissioner of any other income source (paragraph 74). | In relation to the December 2006 amendments, the Tribunal found that they were not authorised by paragraph 170(2)(a) because the non-inclusion of the investment income from the UK in the taxpayer's income tax returns was not due to fraud or evasion. In particular, the Tribunal accepted the credible evidence of the taxpayer, when she lodged her relevant Australian tax returns, that: her UK tax obligations in relation to the investment income were controlled by her accountants in the UK; she had a genuine belief that there was no need to declare the investment income in Australia (including a genuine misunderstanding of the question asked of her by her Australian tax agent about overseas income); and that she was not of a character to deliberately not declare income (paragraphs 52 to 54). | Similarly, the Tribunal found that no penalties were payable under section 226J or Division 284 because the taxpayer did not have an intentional disregard for the law in not disclosing the investment income in her tax returns. The Tribunal accepted that the taxpayer genuinely believed that she was not liable to pay tax on the investment income which had already been taxed in the UK, and that the Commissioner had been effectively informed of the investment income in a letter written to the ATO by the taxpayer's husband in October 1993 (paragraphs 59 to 65). | Finally, the Tribunal also decided that the late lodgement penalties under the former sections 163B and 163C should be remitted (paragraph 75).", "Issues_Decided": "In relation to the September 2006 amendments, the Tribunal accepted that the deposits were not assessable income of the taxpayer because she had established that they were gifts from her husband (sourced from a wedding gift and loans from relatives). This conclusion was supported by the fact that the taxpayer's employment has always been as a teacher and that no evidence was provided by the Commissioner of any other income source (paragraph 74). In relation to the December 2006 amendments, the Tribunal found that they were not authorised by paragraph 170(2)(a) because the non-inclusion of the investment income from the UK in the taxpayer's income tax returns was not due to fraud or evasion. In particular, the Tribunal accepted the credible evidence of the taxpayer, when she lodged her relevant Australian tax returns, that: her UK tax obligations in relation to the investment income were controlled by her accountants in the UK; she had a genuine belief that there was no need to declare the investment income in Australia (including a genuine misunderstanding of the question asked of her by her Australian tax agent about overseas income); and that she was not of a character to deliberately not declare income (paragraphs 52 to 54). Similarly, the Tribunal found that no penalties were payable under section 226J or Division 284 because the taxpayer did not have an intentional disregard for the law in not disclosing the investment income in her tax returns. The Tribunal accepted that the taxpayer genuinely believed that she was not liable to pay tax on the investment income which had already been taxed in the UK, and that the Commissioner had been effectively informed of the investment income in a letter written to the ATO by the taxpayer's husband in October 1993 (paragraphs 59 to 65). Finally, the Tribunal also decided that the late lodgement penalties under the former sections 163B and 163C should be remitted (paragraph 75).", "ATO_View_of_Decision": "The Tax Office accepts that the decision was open to the Tribunal on the evidence given at the hearing. The case was decided on its own facts.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations; Implications on Law Administration Practice Statements | None", "Related_Documents": "N/A | 2010 ATC 10-134 | 167 | 170 | 14ZZK | Div 284 Schedule 1 | 79 CLR 296 | 1990) 90 ATC 4088 | [2003] FCA 356 | 2007 ATC 4320 | 2006 ATC 4387", "Legislative_References": "Income Tax Assessment Act 1936 163B 163C 167 170 226J Taxation Administration Act 1953 14ZZK Div 284 Schedule 1", "Case_References": "Attwood v R (1960) 102 CLR 535 Barripp v Commissioner of Taxation (NSW) (1941) 6 ATD 69 (1941) 65 CLR 661 Denver Chemical Manufacturing Co v Commissioner of Taxation (NSW) 79 CLR 296 [1949] HCA 25 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 20 ATR 1370 1990) 90 ATC 4088 [1990] HCA 3 Harris v Burrows (1945) 7 ATD 518 Nozzi Pty Ltd v Commissioner of Taxation [2003] FCA 356 52 ATR 521 Price Street Professional Centre Pty Ltd v Federal Commissioner of Taxation [2007] FCA 345 66 ATR 1 2007 ATC 4320 Simic v R (1980) 144 CLR 319 (1980) 30 ALR 519 [1980] HCA 25 Vu v Commissioner of Taxation [2006] FCA 889 2006 ATC 4387 (2006) 63 ATR 341 Wedd v R 2000 WASCA 273", "Subject_References": "Foreign income Fraud or evasion Unexplained deposits Penalties Culpable behaviour", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/228-244/00001", "Unmatched_Content": ""}
{"Case_Name": "MW McIntosh Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 7 of 2009 (FFC); S 205 of 2009 (HC)", "Venue": "Federal Court of Australia", "Judgment_Date": "28 July 2009", "Date_Published": "18 November 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO view concerning the taxpayers' application for judicial review of the Commissioner's decision refusing the head company taxpayer's application in 2006 to retrospectively consolidate with respect to the year ended 30 June 2004.", "Overview_of_Facts": "McIntosh brought proceedings in the Federal Court, pursuant to the AD(JR) Act and section 39B of the Judiciary Act 1903, seeking to challenge the Commissioner's decision not to exercise his discretion under section 388-55 of the TAA to extend the period for making a choice to form a consolidated group under section 703-50 of the ITAA97. | The Commissioner refuse to exercise his discretion on the grounds that: 1) the Commissioner was not empowered by section 388-55 of the TAA to extend the time for the head company to lodge a notice to consolidate pursuant to section 703-50 of the ITAA 1997; and 2) even if the Commissioner was so empowered, a favourable exercise of the discretion to extend the time for notification was not considered to be warranted in the circumstances of this case. | 1) the Commissioner was not empowered by section 388-55 of the TAA to extend the time for the head company to lodge a notice to consolidate pursuant to section 703-50 of the ITAA 1997; and 2) even if the Commissioner was so empowered, a favourable exercise of the discretion to extend the time for notification was not considered to be warranted in the circumstances of this case. | The matter was heard by Graham J. at first instance. He handed down his decision on 19 December 2008 and he found that the Commissioner was not empowered to exercise his discretion under section 388-55 in respect of section 703-50. | The taxpayer appealed the decision to the Full Federal Court. On 28 July 2009, the Full Court (Mansfield, Stone and Edmonds JJ) affirmed the decision at first instance. | The taxpayer then applied to the High Court for special leave to appeal against the decision of the Full Federal Court. The special leave application was heard by the High Court on 3 September 2010. The High Court refused the taxpayers' application. | Issues decided by the court | Issues | Whether special leave to appeal to the High Court was warranted with respect to the following issues: 1) whether section 388-55 of Schedule 1 to the TAA is confined in its operation to provisions which require the giving of an approved form or whether it also extends to provisions by which taxpayers may choose to lodge approved forms; and 2) whether the 'period for giving the choice' in subsection 703-50(3) of the ITAA 1997 is fixed and not to be extended by the general power contained in subsection 388-55(1) of Schedule 1 to the TAA. | 1) whether section 388-55 of Schedule 1 to the TAA is confined in its operation to provisions which require the giving of an approved form or whether it also extends to provisions by which taxpayers may choose to lodge approved forms; and 2) whether the 'period for giving the choice' in subsection 703-50(3) of the ITAA 1997 is fixed and not to be extended by the general power contained in subsection 388-55(1) of Schedule 1 to the TAA. | Answers to Issues | The High Court refused the taxpayers' application for special leave because: a) the legislative provisions under consideration in this matter had been amended in May 2010 with effect from 1 July 2002 such that only a narrow category of taxpayers remained adversely affected by the provisions as they previously stood; and b) even if the Court found, contrary to the submissions of the Commissioner, that the discretion in section 388-55 applied to section 703-50, the Commissioner had decided that in the alternative he would refuse to exercise the discretion favourably in this matter in any event, based on the merits of the case. As a result, a grant of special leave on the grounds sought would not necessarily result in finally disposing of the matter. | a) the legislative provisions under consideration in this matter had been amended in May 2010 with effect from 1 July 2002 such that only a narrow category of taxpayers remained adversely affected by the provisions as they previously stood; and b) even if the Court found, contrary to the submissions of the Commissioner, that the discretion in section 388-55 applied to section 703-50, the Commissioner had decided that in the alternative he would refuse to exercise the discretion favourably in this matter in any event, based on the merits of the case. As a result, a grant of special leave on the grounds sought would not necessarily result in finally disposing of the matter.", "Issues_Decided": "Issues: Whether special leave to appeal to the High Court was warranted with respect to the following issues: 1) whether section 388-55 of Schedule 1 to the TAA is confined in its operation to provisions which require the giving of an approved form or whether it also extends to provisions by which taxpayers may choose to lodge approved forms; and 2) whether the 'period for giving the choice' in subsection 703-50(3) of the ITAA 1997 is fixed and not to be extended by the general power contained in subsection 388-55(1) of Schedule 1 to the TAA. 1) whether section 388-55 of Schedule 1 to the TAA is confined in its operation to provisions which require the giving of an approved form or whether it also extends to provisions by which taxpayers may choose to lodge approved forms; and 2) whether the 'period for giving the choice' in subsection 703-50(3) of the ITAA 1997 is fixed and not to be extended by the general power contained in subsection 388-55(1) of Schedule 1 to the TAA. | Answers to Issues: The High Court refused the taxpayers' application for special leave because: a) the legislative provisions under consideration in this matter had been amended in May 2010 with effect from 1 July 2002 such that only a narrow category of taxpayers remained adversely affected by the provisions as they previously stood; and b) even if the Court found, contrary to the submissions of the Commissioner, that the discretion in section 388-55 applied to section 703-50, the Commissioner had decided that in the alternative he would refuse to exercise the discretion favourably in this matter in any event, based on the merits of the case. As a result, a grant of special leave on the grounds sought would not necessarily result in finally disposing of the matter. a) the legislative provisions under consideration in this matter had been amended in May 2010 with effect from 1 July 2002 such that only a narrow category of taxpayers remained adversely affected by the provisions as they previously stood; and b) even if the Court found, contrary to the submissions of the Commissioner, that the discretion in section 388-55 applied to section 703-50, the Commissioner had decided that in the alternative he would refuse to exercise the discretion favourably in this matter in any event, based on the merits of the case. As a result, a grant of special leave on the grounds sought would not necessarily result in finally disposing of the matter.", "ATO_View_of_Decision": "The decision of the Full Federal Court endorsed the Commissioner's view that the discretion in section 388-55 of the TAA could not be exercised to extend the period for making a choice to consolidate under section 703-50 of the ITAA97.", "Administrative_Treatment": "The decision should have little impact because section 703-50 was amended by the Tax Laws Amendment (2010 Measures No. 1) Act 2010 , with effect from 1 July 2002, such that a taxpayer is no longer required to make a choice to form a consolidated group in an \"approved form\"; rather the choice needs simply be made in writing. Accordingly, section 703-50 is clearly outside the ambit of the Commissioner's discretion in section 388-55, which can only be exercised where a taxpayer is required to give the Commissioner a choice to form a consolidated group in an approved form. | Implications for ATO precedential documents (Public Rulings & Determinations etc) | None identified. | Implications for Law Administration Practice Statements | None identified.", "Related_Documents": "N/A | Full Federal Court | 2009 ATC 20-119 | High Court | 286-75 | 388-50 | 388-55 | 701-1 | 703-50 | Div 170 | Subdiv 170-A | Item 37 of Sch 3 | Item 38 of Sch 3 | 166A | 459G | 588FF(3) | A New Tax System (Tax Administration) Act (No. 2) 2000 (Cth) | [1981] HCA 64", "Legislative_References": "Taxation Administration Act 1953 (Cth) 286-75 388-50 388-55 Income Tax Assessment Act 1997 (Cth) 701-1 703-50 Div 170 Subdiv 170-A New Business Tax System (Consolidation) Act (No. 1) 2002 (Cth) Item 37 of Sch 3 Item 38 of Sch 3 Income Tax Assessment Act 1936 (Cth) 80G 166A Corporations Act 2001 (Cth) 459G 588FF(3) A New Tax System (Tax Administration) Act (No. 2) 2000 (Cth)", "Case_References": "Australian Paper Manufacturers Limited v CIL Inc (1981) 148 CLR 551 [1981] HCA 64 37 ALR 289", "Subject_References": "Taxation Power of Commissioner s 388-55 of Sch 1 of the Taxation Administration Act 1953 (Cth) ('the TAA') Retrospectively consolidate Notice of the choice to consolidate Extension of time s 703-50(3) of the Income Tax Assessment Act 1997 (Cth) Discretionary power", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S205of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Primary Health Care Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID911/2005, NSD2169/2005, NSD1790/2005, NSD2467/2005, NSD193/2006 & NSD195/2006", "Venue": "Federal Court of Australia", "Judgment_Date": "4 May 2010", "Date_Published": "4 July 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Entitlement to claim deductions in respect of decline in value of copyright in patient records, allegedly acquired from medical and dental practices.", "Overview_of_Facts": "Primary Health Care Limited (PHC) is a public company whose shares are listed on the Australian Stock Exchange. At all material times it was the sole beneficial owner of all the issued units in the Artlu Unit Trust (Trust) of which Idameneo (No 123) Pty Ltd was the trustee. | PHC operated medical centres and as part of its business strategy it purchased existing medical and dental practices. When purchasing a practice, PHC also entered into a contract with the medical practitioner to work in the PHC medical centre as an independent contractor. | All of the Sale of Practice Agreements provided for the sale to include the goodwill of the Practice. The taxpayer contended that the goodwill of the Practice included the assets of copyright in the medical records. This contention challenged the findings of the High Court in Commissioner of Taxation of the Commonwealth of Australia v Murry (1998) 193 CLR 605 at 608-9 that goodwill is an indivisible item of property and it is an asset legally distinct from its sources - including other assets of the business. This also challenged the Commissioner's position as reflected in TR 1999/16 . | The taxpayer also contended that the purchase price for the Practice, although apportioned between goodwill and some minor physical asset, included an amount for the copyright in the medical records. This proposition challenged the findings in Murry v King (1984) 4 FCR 1 and TD 2005/1 and would have significant ramifications. If accepted, each party to a transaction could retrospectively rewrite and reapportion amounts agreed to in an executed contract. | The relevant legislative provisions are the Income Tax (Transitional Provisions) Act 1997; former Division 10B of ITAA 1936: former Division 373 of ITAA 1997 and Division 40 of the ITAA 1997. These provisions allow a deduction for depreciation, or a capital allowance, for an interest in copyright that was used or available for use, in the course of carrying on a business for the purposes of producing assessable income. | The preliminary questions was whether the Trustee was entitled to claim deductions with respect to the decline in value of intellectual property rights, namely copyright in patient records, allegedly acquired by it. If these deductions are allowed the net income of the Trust would be reduced, and therefore the income of PHC would be reduced. | Issues decided by the court | In relation to each of the sample sale of practice agreements, the Court considered the following preliminary questions: (i) Did copyright subsist in the patient records of the practices acquired by the Trustee? (ii) Did the Trustee acquire ownership of any copyright or a licence to use any such copyright? (iii) Did the Trustee give any consideration for any acquisition of copyright from a vendor? (iv) How, if at all, was any such copyright used or available for use by the Trustee for the purpose of producing assessable income, and whether any works in which such copyright subsisted were used for that purpose? | (i) Did copyright subsist in the patient records of the practices acquired by the Trustee? (ii) Did the Trustee acquire ownership of any copyright or a licence to use any such copyright? (iii) Did the Trustee give any consideration for any acquisition of copyright from a vendor? (iv) How, if at all, was any such copyright used or available for use by the Trustee for the purpose of producing assessable income, and whether any works in which such copyright subsisted were used for that purpose?", "Issues_Decided": "In relation to each of the sample sale of practice agreements, the Court considered the following preliminary questions: (i) Did copyright subsist in the patient records of the practices acquired by the Trustee? (ii) Did the Trustee acquire ownership of any copyright or a licence to use any such copyright? (iii) Did the Trustee give any consideration for any acquisition of copyright from a vendor? (iv) How, if at all, was any such copyright used or available for use by the Trustee for the purpose of producing assessable income, and whether any works in which such copyright subsisted were used for that purpose? (i) Did copyright subsist in the patient records of the practices acquired by the Trustee? (ii) Did the Trustee acquire ownership of any copyright or a licence to use any such copyright? (iii) Did the Trustee give any consideration for any acquisition of copyright from a vendor? (iv) How, if at all, was any such copyright used or available for use by the Trustee for the purpose of producing assessable income, and whether any works in which such copyright subsisted were used for that purpose?", "ATO_View_of_Decision": "The decision of the Court supports the Commissioner's view on the meaning of goodwill as set out in TR 1999/16. | The decision also supports the Commissioner's view of the application of the capital allowance provisions to the sale of a medical practice as relevantly set out in paragraphs 1 - 8 of Taxation Determination TD 2005/1. | While favourable to the Commissioner, the reasoning of the Court differs from the view currently expressed in the explanation section of TD 2005/1. In particular the decision: 1. highlights the limitations on the copyright likely to subsist in medical or dental records; 2. clarifies that there is no implied transfer or licence to use copyright in the absence of an express contractual clause requiring the transfer of intellectual property; and 3. clarifies the amount of consideration attributable to the transfer of copyright under a contract. | 1. highlights the limitations on the copyright likely to subsist in medical or dental records; 2. clarifies that there is no implied transfer or licence to use copyright in the absence of an express contractual clause requiring the transfer of intellectual property; and 3. clarifies the amount of consideration attributable to the transfer of copyright under a contract. | The Commissioner considers that the Court's comments concerning the requirement in Division 40 to \"use\" or have \"available for use\" the copyright (if any) acquired under the contracts of sale are obiter dicta , as the Court did not have to determine this issue.", "Administrative_Treatment": "", "Related_Documents": "TD 2005/1 | TR 1999/16 | 2010 ATC 20-181 | 38-325 | 40-25(1) | 40-30(2) | Income Tax (Transitional Provisions) Act 1997 | Privacy Act 1988 (Cth) | 14ZZO | [1991] FCA 530 | (1977) 180 CLR 266 | (1996) 186 CLR 71 | 138 ALR 259 | 149 CLR 337 | 41 ALR 367 | 193 CLR 605 | 98 ATC 4585 | 96 ATC 4063 | (1988) 13 IPR 385 | [1989] AIPC 90-549 | [1982] Ch 119 | 90 ATC 4088 | 75 ATC 4257 | [1997] AIPC 91-333 | 38 IPR 359 | [2005] FCA 1521 | (1983) 2 IPR 191 | (1990) 95 ALR 275 | 80 ATC 4386 | [2008] HCA 3 | [2004] FCA 505 | 84 FLR 101 | [1964] 1 All ER 465 | [2001] HCA 70 | 79 ATC 4111 | [1999] FCA 63 | (1984) 4 FCR 1 | 55 ALR 559 | 41 ALR 255 | 150 CLR 310 | 70 ATC 4104 | [1998] 25 FSR 622 | 41 IPR 235 | 36 IPR 529 | [1997] AIPC 91-302 | [2010] FCA 44 | 264 ALR 617 | [2004] HCA 52 | 56 CLR 63 | [1916] 2 Ch 601 | 58 CLR 479", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 38-325 Copyright Act 1968 (Cth) (Copyright Act) 10(1) 32(4) 35 35(6) 82(1) 196(3) 321 Copyright Amendment Act 1984 (Cth) Income Tax Assessment Act 1936(ITAA 1936) 124L(1) Income Tax Assessment Act 1997 (ITAA 1997) 40-25(1) 40-30(2) 373-10(1) 373-15 Income Tax (Transitional Provisions) Act 1997 Privacy Act 1988 (Cth) Taxation Administration Act 1953 14ZZO", "Case_References": "Asahi Kasei Kogyo Kabushiki Kaisha v WR Grace & Co [1991] FCA 530 22 IPR 491 Autospin (Oil Seals) Ltd v Beehive Spinning [1995] RPC 683 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Breen v Williams (1996) 186 CLR 71 138 ALR 259 Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24 149 CLR 337 41 ALR 367 Commissioner of Taxation of the Commonwealth of Australia v Murry [1998] HCA 42 193 CLR 605 39 ATR 129 98 ATC 4585 Commissioner of Taxation v Krakos Investments Pty Ltd (1995) 61 FCR 489 96 ATC 4063 32 ATR 7 Décor Corporation Pty Ltd v Dart Industries Inc (1988) 13 IPR 385 [1989] AIPC 90-549 Exxon Corporation v Exxon Insurance Consultants International Ltd [1982] Ch 119 [1982] RPC 69 Federal Commissioner of Taxation v Dalco [1990] HCA 3 168 CLR 614 90 ATC 4088 20 ATR 1370 Francis Day and Hunter Ltd v Twentieth Century Fox Corporation Ltd [1940] AC 112 Gauci v Federal Commissioner of Taxation [1975] HCA 54 135 CLR 81 75 ATC 4257 5 ATR 672 General Clutch Corporation v Sbriggs Pty Limited [1997] AIPC 91-333 38 IPR 359 Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd [2005] FCA 1521 225 ALR 57 Green v Broadcasting Corporation of New Zealand (1983) 2 IPR 191 Greenfield Products Pty Ltd v Rover-Scott Bonnar Ltd (1990) 17 IPR 417 (1990) 95 ALR 275 Hollinrake v Truswell [1894] 3 Ch 420 Hope v The Council of the City Bathurst [1980] HCA 16 144 CLR 1 12 ATR 231 80 ATC 4386 IceTV Pty Ltd v Nine Network Australia Pty Ltd [2009] HCA 14 239 CLR 458 12 ATR 231 80 ATC 4386 International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3 234 CLR 151 John Brodel v Telstra Corporation [2004] FCA 505 Kalamazoo (Aust) Pty Ltd v Compact Business Systems Pty Ltd [1990] 1 Qd R 231 84 FLR 101 Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 All ER 465 Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70 210 CLR 181 McCormack v Federal Commissioner of Taxation [1979] HCA 18 143 CLR 284 9 ATR 610 79 ATC 4111 Milwell Pty Ltd v Olympic Amusements Pty Ltd [1999] FCA 63 85 FCR 436 Murray v King (1984) 4 FCR 1 55 ALR 559 Noah v Shuba [1991] FSR 14 O'Brien v Komesaroff [1982] HCA 33 41 ALR 255 150 CLR 310 Pacific Film Laboratories Pty Limited v The Commissioner of Taxation of the Commonwealth of Australia [1970] HCA 36 121 CLR 154 1 ATR 771 70 ATC 4104 Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472 Ray v Classic FM PLC [1998] 25 FSR 622 41 IPR 235 Re Dickens [1935] Ch 267 Skybase Nominees Pty Ltd v Fortuity Pty Ltd 36 IPR 529 [1997] AIPC 91-302 Telstra Corporation Limited v Phone Directories Company Pty Ltd [2010] FCA 44 264 ALR 617 Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52 219 CLR 165 211 ALR 342 Trautwein v Federal Commissioner of Taxation [1936] HCA 77 56 CLR 63 University of London Press Limited v University Tutorial Press Limited [1916] 2 Ch 601 Victoria Park Racing & Recreation Grounds Company Limited v Taylor [1937] HCA 45 58 CLR 479", "Subject_References": "Income Tax Contract - construction Contract - implied terms Intellectual Property Copyright - original literary work Copyright - patient medical and dental records Copyright - centrality of authorship", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID911/2005/00001", "Unmatched_Content": "Answers: 1. under Division 373, use of the copyright or the physical records was sufficient; and 2. under Division 40, the requirement that the copyright be available for use is satisfied by the availability of the physical records. | On the facts of each practice the Court found that some of the Medical Practices would have \"used\" the copyright in the material by copying the Patient Records to a new record or new patient database and that others would have \"used\" the Patient Records by having physically delivered the patient records to the Trustee thus making the records available for copying. | Applying the above principles to the facts of the case, the Court held that the Trustee was not entitled to deductions in respect of decline in value of copyright in patient records, either because the copyright had not been acquired, or no consideration had been provided for it. | List of Rulings and Determinations Affected: Taxation Determination TD 2005/1: Income tax: what amount of deduction is available under section 40-25 of the Income Tax Assessment Act 1997 for the decline in value of copyright in patient records in respect of arrangements similar to those described in Taxpayer Alert 2004/5? | Implications on current Public Rulings & Determinations: As noted above, the Commissioner's views as set out in the explanation section of Taxation Determination TD 2005/1 in relation to the application of the capital allowance provisions to the sale of a medical practice, differ from the reasoning of the Court. The application of the decision to TD 2005/1, specifically paragraphs 9, 22 - 25, may lead to a different outcome to that expressed in the determination. The Commissioner has reviewed TD 2005/1 and published an addendum on 29 June 2011."}
{"Case_Name": "Shin and Commissioner of Taxation", "Venue_Reference_No": "2007/2795 - 2798; 2007/2802 - 2805", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "13 December 2010", "Date_Published": "25 March 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to these cases which concerned whether shortfall penalties were payable under the former section 226G of the Income Tax Assessment Act 1936 (ITAA 1936) and Subdivision 284-B of Schedule 1 to the Taxation Administration Act 1953 (TAA), and whether any penalties should be remitted in full.", "Overview_of_Facts": "The taxpayers, a husband and wife, invested in a retirement village syndicate in the 1999 income year, each outlaying $100,000 on entering into the syndicate. Each taxpayer claimed deductions of $400,000 in their income tax returns for that year, based on the total amounts committed to the syndicate in that and future years, producing carry forward losses in the 2000 and 2001 years. On audit, the deductions allowed in the 1999 year were reduced to $100,000. Penalties were assessed on tax shortfalls said to have been caused by a failure to take reasonable care (25%), reduced by 80% to 5% for voluntary disclosures made before the taxpayers were informed of the start of the audits. | The facts concerning the syndicate were materially no different from those considered in Malouf v FCT (2008) 250 ALR 253 and (2009) 174 FCR 581. At first instance in that case, Allsop J decided that the total amount committed under the syndicate was deductible in the year of investment. On appeal, the Full Court limited the deduction to the amount paid. | After the Full Court decision in Malouf , the taxpayers accepted that they were not entitled to the extra deductions claimed, and that they had tax shortfalls for the 1999, 2000 and 2001 years. The taxpayers' evidence before the AAT was that they had relied on the advice of their tax agent in making their claims for deductions. No evidence was presented of any analysis undertaken by the tax agent of an entitlement to the deductions claimed. | Issues decided by the court or tribunal | The AAT found that the taxpayers had adopted a position on the deductions claimed that was reasonably arguable, based on the decision of Allsop J in Malouf (paragraph 8(i)). | The AAT noted that the Minister's Second Reading Speech to the Bill that introduced the former Part VII into the ITAA 1936 in 1992 indicated that the reasonably arguable position test in Part VII was a higher standard than the reasonable care standard (paragraph 17). It then found that, based on that view, if a taxpayer has adopted a reasonably arguable position, the taxpayer must be accepted as having taken reasonable care (paragraphs 18-19). | If the AAT was wrong in concluding that the taxpayers had taken reasonable care because they had adopted a reasonably arguable position on the deductions claimed, it concluded that, although the taxpayers had taken reasonable care because they had acted on advice from their tax agent, they had not discharged their burden because there was no evidence of the care that was taken by their tax agent. | Nevertheless, the AAT remitted the penalty in full on the basis that any level of penalty would be harsh because the taxpayers had adopted a position in their returns that was consistent with the decision of Allsop J in Malouf (paragraph 21).", "Issues_Decided": "The AAT found that the taxpayers had adopted a position on the deductions claimed that was reasonably arguable, based on the decision of Allsop J in Malouf (paragraph 8(i)). The AAT noted that the Minister's Second Reading Speech to the Bill that introduced the former Part VII into the ITAA 1936 in 1992 indicated that the reasonably arguable position test in Part VII was a higher standard than the reasonable care standard (paragraph 17). It then found that, based on that view, if a taxpayer has adopted a reasonably arguable position, the taxpayer must be accepted as having taken reasonable care (paragraphs 18-19). If the AAT was wrong in concluding that the taxpayers had taken reasonable care because they had adopted a reasonably arguable position on the deductions claimed, it concluded that, although the taxpayers had taken reasonable care because they had acted on advice from their tax agent, they had not discharged their burden because there was no evidence of the care that was taken by their tax agent. Nevertheless, the AAT remitted the penalty in full on the basis that any level of penalty would be harsh because the taxpayers had adopted a position in their returns that was consistent with the decision of Allsop J in Malouf (paragraph 21).", "ATO_View_of_Decision": "The ATO accepts that there was no error of law in the AAT's finding that the taxpayers had adopted a position on the deductions claimed that was reasonably arguable. | However, the ATO considers that the view of the AAT, that a taxpayer who has a reasonably arguable position on an income tax law, must be taken to have met the reasonable care standard, is inconsistent with both the key features of Part VII identified in the Explanatory Memorandum to the Taxation Laws Amendment (Self Assessment) Bill 1992 , and with the comments of Hill J in Walstern , at 138 FCR 25-27, and of Finn J in R & D Holdings [2006] FCA 981, at [182]. | Those key features recognise that all taxpayers are required to exercise reasonable care in conducting their tax affairs, and that taxpayers with large claims are required, in addition, to ensure that the positions they adopt on the law are reasonably arguable. The ATO considers that the AAT erred in automatically assuming that a reasonably arguable position on the law means that a taxpayer and/or the taxpayer's tax agent has taken reasonable care. The AAT should have found that issues in relation to the taking of reasonable care need to be determined separately from issues about the adoption of a reasonably arguable position. | The Commissioner did not appeal these decisions to the Federal Court because there were no clear errors of law in the AAT's discretion to remit the 5% penalty to nil.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The ATO will continue to apply the principles in Miscellaneous Taxation Rulings MT 2008/1 and 2008/2 to the administration of Subdivision 284-B. Those Rulings recognise that issues relating to the taking of reasonable care are determined separately from those about whether a taxpayer has a reasonably arguable position.", "Related_Documents": "MT 2008/1 | MT 2008/2 | 2010 ATC 10-166 | 284-75(2) | 284-85 | 284-90 | 298-20 | 2009 ATC 20-099 | 2003 ATC 5076 | 2002 ATC 5045 | 2006 ATC 4472 | 2008 ATC 20-015 | [2005] AATA 1027 | 2005 ATC 2351", "Legislative_References": "Income Tax Assessment Act 1936 226G 226K 227(3) Taxation Administration Act 1953 284-75(2) 284-85 284-90 298-20", "Case_References": "Malouf v FCT [2009] FCAFC 44 250 ALR 253 174 FCR 581 2009 ATC 20-099 75 ATR 335 Walstern v FCT [2003] FCA 1428 54 ATR 423 2003 ATC 5076 Prebble v FCT 2002 ATC 5045 [2002] FCA 1434 51 ATR 459 R & D Holdings Pty Ltd v FCT [2006] FCA 981 2006 ATC 4472 64 ATR 71 Dixon as trustee for the Dixon Holdsworth Superannuation Fund v FCT [2008] FCAFC 54 167 FCR 287 2008 ATC 20-015 69 ATR 627 Re Hobart Central Child Care Pty Ltd and FCT [2005] AATA 1027 60 ATR 1314 2005 ATC 2351", "Subject_References": "Penalties Reasonable care Reasonably arguable position Remission of penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/2795/00001", "Unmatched_Content": ""}
{"Case_Name": "Sills and Commissioner of Taxation", "Venue_Reference_No": "2009/2940-2941", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 October 2010", "Date_Published": "21 February 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether certificates provided by medical practitioners satisfy the legislative requirements for determining whether any part of an eligible termination payment or an employment termination payment contains an invalidity component which is exempt from income tax.", "Overview_of_Facts": "1. The Applicant joined the NSW Police Force in 1996 where he progressed to become a Senior Constable. As a result of an injury suffered in 2005, the Applicant undertook restricted duties in the role of Assistant Station Manager and was medically discharged from the NSW Police Force on 23 February 2007. On 16 July 2007, the Applicant commenced employment as a Development Compliance Officer - Building with Lake Macquarie Council. | 2. Upon discharge from the NSW Police Force, the Applicant received lump sum payments of $136,632 on 23 February 2007, and $336,116 on 16 January 2008, as he had stopped being gainfully employed because of ill health and was below retirement age at the time. He contended that the payments contained, respectively, an invalidity payment for the purposes of s27G of the Income Tax Assessment Act 1936 , and an invalidity segment for the purposes of s82-150 of the Income Tax Assessment Act 1997 . | 3. The Commissioner disallowed the Applicant's objection on the basis that the medical certificates provided by the Applicant did not satisfy the requirements of s27G(b)(i)(B) of the Income Tax Assessment Act 1936 for the 2007 payment, and s82-150(1)(d) of the Income Tax Assessment Act 1997 for the 2008 payment, as the certificates did not properly address the capacity of the taxpayer to be employed, his qualifications, training and other relevant factors which were mandatory considerations. | 4. The Tribunal had before it new material which was not previously before the Commissioner, being a medical certificate of Professor Ghabrial, dated 8 September 2010, and an updated medical certificate of Dr Matalani, dated 23 February 2010. | Issues decided by the tribunal | 1. Whether the medical certificates of Dr Ghabrial dated 8 September 2009 and of Dr Matalani dated 23 February 2010 satisfied the respective requirements of s27G(b)(i)(B) of the Income Tax Assessment Act 1936 and s82-150(1)(d) of the Income Tax Assessment Act 1997 to gain concessional tax treatment. | The legislation requires, in summary, that two legally qualified medical practitioners have certified that, because of the ill-health of the person, it is unlikely he or she can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience of training. | The Tribunal confirmed that the power to certify reposes in the medical practitioners and not the Commissioner or the Tribunal. Although there was no oral evidence called at the hearing, the Applicant's education, experience and training as a labourer, shop fitter and police officer were in written documents before the doctors and the Tribunal. It is for the Tribunal to rely on the doctors' opinions, not to go behind them. The subsections do not impose additional requirements that each medical certificate set out the evidence on which the doctor's opinion is based. The medical certificates properly answered the questions posed by the two subsections, and, therefore, the payments received in 2007 and 2008 respectively contained an invalidity payment and an invalidity segment. | The Tribunal considered the Applicant's subsequent training undertaken for his employment with Lake Macquarie Council, in the context that the possibility can exist that a taxpayer by training or education undertaken after the former employment terminated, has become qualified for employment in a capacity not available when the earlier termination occurred. | Although statements contained in the relevant Explanatory Memorandum are that a person able to undertake other appropriate employment does not have access to the concession, the Tribunal held that it is bound by the legislation and not by extraneous material. | 2. Whether the Tribunal can take into account new material not before the decision maker | As the Tribunal hearing is de novo , the Tribunal can take into account medical certificates that are not before the Commissioner at the time of his decision.", "Issues_Decided": "1. Whether the medical certificates of Dr Ghabrial dated 8 September 2009 and of Dr Matalani dated 23 February 2010 satisfied the respective requirements of s27G(b)(i)(B) of the Income Tax Assessment Act 1936 and s82-150(1)(d) of the Income Tax Assessment Act 1997 to gain concessional tax treatment. The legislation requires, in summary, that two legally qualified medical practitioners have certified that, because of the ill-health of the person, it is unlikely he or she can ever be gainfully employed in a capacity for which he or she is reasonably qualified because of education, experience of training. The Tribunal confirmed that the power to certify reposes in the medical practitioners and not the Commissioner or the Tribunal. Although there was no oral evidence called at the hearing, the Applicant's education, experience and training as a labourer, shop fitter and police officer were in written documents before the doctors and the Tribunal. It is for the Tribunal to rely on the doctors' opinions, not to go behind them. The subsections do not impose additional requirements that each medical certificate set out the evidence on which the doctor's opinion is based. The medical certificates properly answered the questions posed by the two subsections, and, therefore, the payments received in 2007 and 2008 respectively contained an invalidity payment and an invalidity segment. The Tribunal considered the Applicant's subsequent training undertaken for his employment with Lake Macquarie Council, in the context that the possibility can exist that a taxpayer by training or education undertaken after the former employment terminated, has become qualified for employment in a capacity not available when the earlier termination occurred. Although statements contained in the relevant Explanatory Memorandum are that a person able to undertake other appropriate employment does not have access to the concession, the Tribunal held that it is bound by the legislation and not by extraneous material. 2. Whether the Tribunal can take into account new material not before the decision maker As the Tribunal hearing is de novo , the Tribunal can take into account medical certificates that are not before the Commissioner at the time of his decision.", "ATO_View_of_Decision": "The decision was open to the Tribunal on the particular facts of the case. | The decision confirms that the Tribunal will not look behind the conclusion expressed in a medical certificate where the medical practitioner has properly answered the questions raised by the relevant legislation.", "Administrative_Treatment": "", "Related_Documents": "N/a | 2010 ATC 10-164 | 82-140 | 82-150 | 46 FLR 409 | [2008] HCA 31 | 2005 ATC 4813 | (1997) 48 ALD 632 | [1999] FCA 117 | [2002] FCA 482 | [2010] HCA 23", "Legislative_References": "Income Tax Assessment Act 1936 27CB 27G Income Tax Assessment Act 1997 82-140 82-150", "Case_References": "Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 46 FLR 409 Shi v Migration Agents Registration Authority [2008] HCA 31 235 CLR 286 248 ALR 390 235 CLR 286 Commissioner of Taxation v Pitcher [2005] FCA 1154 146 FCR 344 2005 ATC 4813 60 ATR 424 Manokian v Minister for Immigration and Multicultural Affairs (1997) 48 ALD 632 Minister for Immigration and Multicultural Affairs v Seligman [1999] FCA 117 85 FCR 115 Meroka v Minister for Immigration and Multicultural Affairs [2002] FCA 482 117 FCR 251 Saeed v Minister for Immigration and Citizenship [2010] HCA 23 241 CLR 252 115 ALD 493", "Subject_References": "Income tax Eligible Termination Payment Employment Termination Payment Invalidity payment Invalidity segment Medical certificate", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/2940-2941/00001", "Unmatched_Content": ""}
{"Case_Name": "Sunchen Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 159 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "8 December 2010", "Date_Published": "21 February 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Taxpayer's appeal dismissed", "Summary_of_Decision": "", "Overview_of_Facts": "The taxpayer purchased a property located at 117 Bridge Street, Port Macquarie, pursuant to a contract for the sale of land exchanged on 8 August 2006. The completion date was 20 September 2006. | At the time of settlement a single storey house with carport was located on the property and the property was being occupied by a tenant pursuant to a residential tenancy agreement. The contract provided that the sale to the taxpayer was subject to the existing tenancy. The tenancy continued until at least 29 November 2006. | The property was also the subject of a development approval allowing the construction of a five-storey residential building with strata sub-division. The benefit of the vendor's interest in the development approval was assigned to the taxpayer under the contract of sale. The taxpayer gave evidence that at the time of settlement the taxpayer intended to develop the property in accordance with that development approval. | Issues decided by the court | The Court held that the phrase 'to be used predominantly for residential accommodation' in subsection 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 is only concerned with the attributes of the property at the time it is supplied, and to what use those attributes or characteristics are suited. Given this, it was concluded that in determining whether a property is 'residential premises to be used predominantly for residential accommodation' the intention of the future owner is irrelevant. In so concluding the Court clarified that the approach adopted in the decision in Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83, which involved a prediction as to future use which could include consideration of subjective intention, is not correct. | In reaching its decision, the Court considered whether the use of 'intended to be occupied' in the definition of residential premises or the use of 'to be used' in subsection 40-65(1) meant that the subjective intention of the purchaser was relevant. The Court concluded that 'intended to be occupied' and 'to be used' were, in the context, synonymous and both were used in the sense of suitable or apt and hence were directed at determining the characteristics of the property rather than the subjective intention of any party.", "Issues_Decided": "The Court held that the phrase 'to be used predominantly for residential accommodation' in subsection 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 is only concerned with the attributes of the property at the time it is supplied, and to what use those attributes or characteristics are suited. Given this, it was concluded that in determining whether a property is 'residential premises to be used predominantly for residential accommodation' the intention of the future owner is irrelevant. In so concluding the Court clarified that the approach adopted in the decision in Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83, which involved a prediction as to future use which could include consideration of subjective intention, is not correct. In reaching its decision, the Court considered whether the use of 'intended to be occupied' in the definition of residential premises or the use of 'to be used' in subsection 40-65(1) meant that the subjective intention of the purchaser was relevant. The Court concluded that 'intended to be occupied' and 'to be used' were, in the context, synonymous and both were used in the sense of suitable or apt and hence were directed at determining the characteristics of the property rather than the subjective intention of any party.", "ATO_View_of_Decision": "The decision confirms the long-held ATO view that subsection 40-65(1) requires an objective assessment of the nature of the premises rather than a prediction of future use or consideration of the subjective intention of the future owner.", "Administrative_Treatment": "As the decision confirms the ATO view, there will be no changes to ATO administrative practice as a result of the decision. | Implications on current Public Rulings & Determinations | Reference to the decision will be included in GSTR 2000/20 as part of the current review of that Ruling. No other implications for Public Rulings or Determinations have been identified.", "Related_Documents": "GSTR 2000/20 | N/A | 2010 ATC 20-229 | Income Tax Assessment Act 1936 | 40-65(1) | 82 ATC 4302 | 84 ATC 4295 | 2004 ATC 5068 | 82 ATC 4240 | 2006 ATC 4160 | [1999] 1 VR 64 | A New Tax System (Goods and Services Tax) Bill 1998 (Cth) Explanatory Memorandum", "Legislative_References": "Income Tax Assessment Act 1936 A New Tax System (Goods and Services Tax) Act 1999 (Cth) 40-65(1)", "Case_References": "Hamilton Island Enterprises Pty Ltd v Federal Commissioner of Taxation 82 ATC 4302 13 ATR 220 Kearney v Federal Commissioner of Taxation (1984) 68 FLR 316 15 ATR 564 84 ATC 4295 Marana Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 307 141 FCR 299 2004 ATC 5068 57 ATR 521 Smith (W) v Federal Commissioner of Taxation (1982) 41 ALR 315 13 ATR 115 82 ATC 4240 Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 197 FLR 74 2006 ATC 4160 62 ATR 73 Transport Accident Commission v Ball [1999] 1 VR 64", "Subject_References": "goods and services tax (GST) meaning of 'residential premises' whether property was residential premises 'to be used predominately for residential accommodation' whether the test is to be determined by reference to the use to which the purchaser intends to put the property, or the characteristics of the property at the time of the supply", "Other_References": "A New Tax System (Goods and Services Tax) Bill 1998 (Cth) Explanatory Memorandum", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD159of2010/00001", "Unmatched_Content": "Precis for the web page index: Whether property purchased was residential premises 'to be used predominantly for residential accommodation' within the meaning of subsection 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999, so that the supply of the property would be input taxed."}
{"Case_Name": "Tagget v Commissioner of Taxation", "Venue_Reference_No": "NSD 165 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "8 September 2010", "Date_Published": "22 December 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "The issue in this case is whether or not the taxpayer should be assessed on the value of land transferred to him at the time of transfer, or the value of the land at an earlier time when the taxpayer acquired a conditional right to have the land transferred to him.", "Overview_of_Facts": "In November 1998 the taxpayer entered into a deed with Hillpalm Pty Ltd (Hillpalm). | Clause 2 of that deed provided that Hillpalm may appoint the taxpayer to perform certain services relating to the development of Stage 5 of the Tanglewood development (Stage 5). This appointment was, by that clause, required to be formalised by entering into an agreement. | The deed required Hillpalm to subdivide and transfer proposed lot 157 to the taxpayer for nominal consideration of $10 (clause 3.1), upon Hillpalm realising $3.2 million in gross sale proceeds from the Stage 5 development (clause 3.2). Or should that, for any reason beyond the control of Hillpalm, not occur, the taxpayer was to be paid the value of the land (to be determined by a valuer appointed by the President of the Institute of Valuers) (clause 3.3). | This deed was executed in November 1998. The taxpayer did perform services for Hillpalm, but not in the sense described by clause 2. | A dispute arose between Hillpalm and the applicant. Ultimately, the taxpayer commenced litigation in District Court of Lismore seeking $750,000 for alleged breaches of the deed. That dispute was resolved by deed of release in March 2004. | Pursuant to that deed of release, the property was transferred to the taxpayer by transfer dated 20 September 2005 (which was registered 18 October 2005). | Issues decided by the court | • In relation to the point of derivation, the Court found that the parcel of land transferred to the taxpayer was ordinary income derived in the year ended 30 June 2006, because, as the taxpayer accounted on a cash receipts basis, the income was derived when received. • In relation to the amount to be assessment to the taxpayer, the land was said to be \"consideration\" within the meaning of s21(1) of the Income Tax Assessment Act 1936 , and to have been \"paid or given\" in the year ended 30 June 2006. It followed, therefore, that the money value of the land was $1.2 million (the value of the land itself when transferred), not $450,000, being the value of the land at the time the taxpayer entered into the deed. • In deciding the above, the Court was of the view that the taxpayer's case was not analogous to Abbott v Philbin . | • In relation to the point of derivation, the Court found that the parcel of land transferred to the taxpayer was ordinary income derived in the year ended 30 June 2006, because, as the taxpayer accounted on a cash receipts basis, the income was derived when received. • In relation to the amount to be assessment to the taxpayer, the land was said to be \"consideration\" within the meaning of s21(1) of the Income Tax Assessment Act 1936 , and to have been \"paid or given\" in the year ended 30 June 2006. It followed, therefore, that the money value of the land was $1.2 million (the value of the land itself when transferred), not $450,000, being the value of the land at the time the taxpayer entered into the deed. • In deciding the above, the Court was of the view that the taxpayer's case was not analogous to Abbott v Philbin .", "Issues_Decided": "• In relation to the point of derivation, the Court found that the parcel of land transferred to the taxpayer was ordinary income derived in the year ended 30 June 2006, because, as the taxpayer accounted on a cash receipts basis, the income was derived when received. • In relation to the amount to be assessment to the taxpayer, the land was said to be \"consideration\" within the meaning of s21(1) of the Income Tax Assessment Act 1936 , and to have been \"paid or given\" in the year ended 30 June 2006. It followed, therefore, that the money value of the land was $1.2 million (the value of the land itself when transferred), not $450,000, being the value of the land at the time the taxpayer entered into the deed. • In deciding the above, the Court was of the view that the taxpayer's case was not analogous to Abbott v Philbin . • In relation to the point of derivation, the Court found that the parcel of land transferred to the taxpayer was ordinary income derived in the year ended 30 June 2006, because, as the taxpayer accounted on a cash receipts basis, the income was derived when received. • In relation to the amount to be assessment to the taxpayer, the land was said to be \"consideration\" within the meaning of s21(1) of the Income Tax Assessment Act 1936 , and to have been \"paid or given\" in the year ended 30 June 2006. It followed, therefore, that the money value of the land was $1.2 million (the value of the land itself when transferred), not $450,000, being the value of the land at the time the taxpayer entered into the deed. • In deciding the above, the Court was of the view that the taxpayer's case was not analogous to Abbott v Philbin .", "ATO_View_of_Decision": "This case was decided on its facts, and it is not considered that the decision will have any broader implications.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "None | 2010 ATC 20-210 | 21 | 21A | 6-5 | [1961] AC 352 | (1938) 63 CLR 108 | 92 ATC 4275 | 74 ATC 4192 | 89 ATC 4141 | 89 ATC 4051", "Legislative_References": "Income Tax Assessment Act 1936 21 21A Income Tax Assessment Act 1997 6-5 Income Tax Act 1952 (UK)", "Case_References": "Abbott v Philbin [1961] AC 352 [1960] 2 All ER 763 Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd [1938] HCA 69 (1938) 63 CLR 108 Barratt v Commissioner of Taxation [1992] FCA 271 (1992) 36 FCR 222 23 ATR 339 92 ATC 4275 Donaldson v Federal Commissioner of Taxation (1974) 3 ALR 516 4 ATR 530 74 ATC 4192 Federal Commissioner of Taxation v Dunn (1989) 85 ALR 244 20 ATR 356 89 ATC 4141 Federal Commissioner of Taxation v McArdle (1988) 19 ATR 1901 89 ATC 4051", "Subject_References": "Taxation Income tax whether land transferred to the taxpayer constituted ordinary income whether the land should be valued as at the date the taxpayer acquired a conditional right to the land or as at the date of the actual transfer.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD165of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Tanti and Commissioner of Taxation", "Venue_Reference_No": "2009/2970", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "23 July 2010", "Date_Published": "6 October 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether interest incurred on funds borrowed by the taxpayer from his mother, and, in the main, on-lent interest free to a company of which he was the sole shareholder and director, was deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).", "Overview_of_Facts": "On September 2004, the taxpayer formed a company, of which he was sole shareholder and director. The company borrowed funds from a bank in carrying on its business and paid interest. The taxpayer borrowed funds from his mother, and, in the main, on-lent them interest free to the company. No written loan agreement existed between the taxpayer and the company. The company used the funds to repay the loans from the bank. The funds borrowed by the taxpayer from his mother were covered by written loan agreements that provided for the payment of interest at rates lower than bank interest rates. The taxpayer used part of the funds borrowed from his mother to repay the company moneys advanced to him to purchase shares in an unrelated private company. | The taxpayer sold the company's business in May 2006, and the proceeds were used to partly repay the loans that he made to the company. In his return for the 2007 income year, the taxpayer disclosed salary or wages received from unrelated employers, but did not disclose any income received from the company. In his objection to his assessment for the 2007 year, he claimed a deduction for the interest paid to his mother in that year. | Issues decided by the tribunal | The Tribunal agreed with the concession made by the Commissioner that a deduction was allowable for the interest paid on the funds borrowed by the taxpayer that related to the purchase of shares in the unrelated company (paragraph 15). That concession was made after the taxpayer provided further evidence during the conduct of the case. | However, he Tribunal decided that the remainder of the interest was not allowable under section 8-1 of the ITAA 1997 (paragraph 19). The Tribunal found that there was no relevant connection between the interest paid or payable by the taxpayer to his mother and the receipt of any income from his company during the 2006 or 2007 income years (paragraph 16). The decision in FC of T v Total Holdings (Aust) P/L 79 ATC 4279 is distinguishable because there was no prospect of the taxpayer deriving income from the company in the future. The company's business was not profitable and was sold prior to the 2007 income year (paragraph 18).", "Issues_Decided": "The Tribunal agreed with the concession made by the Commissioner that a deduction was allowable for the interest paid on the funds borrowed by the taxpayer that related to the purchase of shares in the unrelated company (paragraph 15). That concession was made after the taxpayer provided further evidence during the conduct of the case. However, he Tribunal decided that the remainder of the interest was not allowable under section 8-1 of the ITAA 1997 (paragraph 19). The Tribunal found that there was no relevant connection between the interest paid or payable by the taxpayer to his mother and the receipt of any income from his company during the 2006 or 2007 income years (paragraph 16). The decision in FC of T v Total Holdings (Aust) P/L 79 ATC 4279 is distinguishable because there was no prospect of the taxpayer deriving income from the company in the future. The company's business was not profitable and was sold prior to the 2007 income year (paragraph 18).", "ATO_View_of_Decision": "Subject to the concession made by the Commissioner based on the evidence provided by the taxpayer during the conduct of the case, the Tribunal found that the interest incurred by the Applicant was not deductible. This case was decided on its own facts.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations / Implications on Law Administration Practice Statements | None", "Related_Documents": "N/A | 2010 ATC 10-144 | 8-1 | 14ZZK(b) | 91 ATC 4950 | 92 ATC 4380 | 79 ATC 4279 | 87 ATC 780 | 94 ATC 258 | 97 ATC 500 | 97 ATC 543", "Legislative_References": "Income Tax Assessment Act 1997 8-1 Taxation Administration Act 1953 14ZZK(b)", "Case_References": "Fletcher & Ors v FC of T [1991] HCA 42 91 ATC 4950 22 ATR 613 FC of T v JD Roberts & Smith 92 ATC 4380 37 FCR 246 23 ATR 494 FC of T v Total Holdings (Aust) Pty Ltd [1979] FCA 30 79 ATC 4279 9 ATR 885 Case U134 87 ATC 780 18 ATR 3646 Case 26/94 94 ATC 258 28 ATR 1133 Case 48/97 97 ATC 500 37 ATR 1208 Case 51/97 97 ATC 543 38 ATR 1019", "Subject_References": "Income Tax Allowable deductions Interest expense", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2009/2970/00001", "Unmatched_Content": ""}
{"Case_Name": "Tingari Village North Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "2008/4646 & 2008/4647", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 March 2010", "Date_Published": "12 October 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "The decision under review was varied by reducing the penalty imposed in respect of the tax shortfall to 25%.", "Summary_of_Decision": "This case considered whether the taxpayer was entitled to small business capital gains relief under Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the sale of a mobile home park; and whether the main use of the mobile home park was to 'derive rent' under paragraph 152-40(4)(e) of the ITAA 1997.", "Overview_of_Facts": "1. The taxpayer was the owner and operator of the Tingari Village North Mobile Home Park ('the Park') in Terrigal, New South Wales. | 2. The taxpayer acquired the land and improvements constituting the Park on 6 February 1996. | 3. On 30 November 2005, the taxpayer sold the Park. In its income tax return for the 2006 income year, the taxpayer disclosed a net capital gain of $70,646 as a result of the sale of the Park. The taxpayer had claimed the small business 50% reduction under Subdivision 152-C of the ITAA 1997 and the small business retirement exemption under Subdivision 152-D of the ITAA 1997. | 4. The Park contained 77 mobile home sites at the time of the sale. All but one of the sites were occupied by mobile (or \"moveable\") homes. The structures of the moveable homes were manufactured off the site before being transported and installed on steel bearers on a designated site in the Park. Each mobile home was fully self-contained, plumbed and connected to mains electricity. | 5. Under the Residential Parks Act 1998 (NSW) a moveable dwelling on a residential site is not regarded as a fixture and the resident is able to sell it separately from the site. The site continues to be owned by the park owner. | 6. The taxpayer entered into a site agreement with each of the residents of the Park. Each site agreement was in the form of the standard agreement contained in the Residential Parks Regulation 1999 (NSW). | Issues decided by the tribunal | The Tribunal decided that: | 1. The site agreement entered into between the taxpayer and each resident of the Park conferred on the resident a right to exclusive possession of the site and thus amounted to a lease. Accordingly, the main use of the Park was to 'derive rent' (per paragraph 152-40(4)(e) of the ITAA 1997). The Park was therefore not an 'active asset' under section 152-40 of the ITAA 1997. | 2. The taxpayer did not satisfy the maximum net asset value test in section 152-15 of the ITAA 1997. The sum of the net values of the CGT assets of the taxpayer and its 'connected entities' exceeded $5m. | 3. The taxpayer was not entitled to small business relief under Division 152 of the ITAA 1997 in relation to the capital gain it made on the sale of the mobile home park. | 4. An administrative penalty should be imposed at 25% (failure to take reasonable care) of the shortfall amount due to the taxpayer's misapplication of the maximum net asset value test. The commissioner had conceded this point prior to the hearing.", "Issues_Decided": "The Tribunal decided that: 1. The site agreement entered into between the taxpayer and each resident of the Park conferred on the resident a right to exclusive possession of the site and thus amounted to a lease. Accordingly, the main use of the Park was to 'derive rent' (per paragraph 152-40(4)(e) of the ITAA 1997). The Park was therefore not an 'active asset' under section 152-40 of the ITAA 1997. 2. The taxpayer did not satisfy the maximum net asset value test in section 152-15 of the ITAA 1997. The sum of the net values of the CGT assets of the taxpayer and its 'connected entities' exceeded $5m. 3. The taxpayer was not entitled to small business relief under Division 152 of the ITAA 1997 in relation to the capital gain it made on the sale of the mobile home park. 4. An administrative penalty should be imposed at 25% (failure to take reasonable care) of the shortfall amount due to the taxpayer's misapplication of the maximum net asset value test. The commissioner had conceded this point prior to the hearing.", "ATO_View_of_Decision": "The Tax Office agrees with the Tribunal's decision.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The Tribunal's decision is consistent with Taxation Determination TD 2006/78.", "Related_Documents": "TD 2006/78 | 2010 ATC 10-131 | Div 152 | 152-15 | 152-20 | 152-35 | 152-40 | 152-40(4)(e) | 152-50 | 152-60 | 152-305 | 52-325 | 995-1 | 166A | 250-5 | 250-10 | 255-1 | 280-100 | 280-160 | 284-75 | 284-85 | 284-90 | 298-20 | Sections 3, 4, 9, 10, 41, 62, 63, 127 | Schedule 1, Schedule 2 | 101 CLR 209 | 74 CLR 327 | [1964] 1 All ER 838 | [1998] 1 Qd R 1 | 95 ATC 4756 | (1985) 1 NSWLR 731 | 57 ALR 609 | [1977] 2 All ER 62", "Legislative_References": "Income Tax Assessment Act 1997 (\"ITAA 1997\") Div 152 152-15 152-20 152-25 152-30 152-35 152-40 152-40(4)(e) 152-50 152-60 152-305 52-325 995-1 Income Tax Assessment Act 1936 (\"ITAA 1936\") 166A 204(1A) Tax Administration Act 1953 (\"TAA\") 250-5 250-10 255-1 280-100 280-160 284-75 284-85 284-90 298-20 Residential Parks Act 1998 (NSW) Sections 3, 4, 9, 10, 41, 62, 63, 127 Residential Parks Regulation 1999 (NSW) Schedule 1, Schedule 2", "Case_References": "Radaich v Smith [1959] HCA 45 101 CLR 209 Addiscombe Garden Estates Ltd v Crabbe [1958] Ch 513 [1958] 1 All ER 550 Amad v Grant [1947] HCA 9 74 CLR 327 Appah v Farncliffe Investments Ltd [1964] 1 All ER 838 Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1 Bowen v Anderson [1894] 1 QB 164 Bruton v London & Quadrant Housing Trust [2000] 1 AC 406 CSD v Commonwealth Funds Management Ltd (1993) 38 NSWLR 173 31 ATR 457 95 ATC 4756 Gandy v Jubber (1865) 9 B & S 15 122 ER 914 Hamilton Enterprises Ltd v Croycom Pty Ltd (1998) Q Con R 54 - 509 [1998] ANZ ConvR 615 Lewis v Bell (1985) 1 NSWLR 731 Mellows v Low [1923] 1 KB 522 Progressive Mailing House Ltd v Tabali Pty Ltd [1985] HCA 14 157 CLR 17 57 ALR 609 Street v Mountford [1985] AC 809 United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 [1977] 2 All ER 62", "Subject_References": "CGT Small business 50% reduction Small business retirement exemption Active asset Main use to derive rent Maximum net asset value test Tax shortfall penalty Lack of reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/4646/00001", "Unmatched_Content": ""}
{"Case_Name": "Travelex Ltd v Commissioner of Taxation", "Venue_Reference_No": "S79 of 2010", "Venue": "High Court", "Judgment_Date": "29 September 2010", "Date_Published": "13 June 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Taxpayer's appeal allowed", "Summary_of_Decision": "Outlines the ATO response to the decision of the High Court in respect of the GST treatment of the supply of foreign bank notes by Travelex to a customer on the departures side of the Customs barrier at Sydney International Airport.", "Overview_of_Facts": "Travelex Ltd ('Travelex') operates a shopfront on the departure side of the Customs barrier at Sydney International Airport. One of the transactions conducted at this shopfront is the sale of foreign currency to outgoing travellers. To access the shopfront, travellers need to have a valid boarding pass for an outbound international flight and must have cleared the Customs barrier, or must have arrived in Australia on an international flight and be awaiting an outbound international flight. | Travelex sought a declaration that the sale by Travelex of 400 Fijian dollars in bank notes to Mr Urquhart, an employee of Travelex, on the departures side of the Customs barrier at Sydney International Airport, was a supply of or in relation to rights and, therefore, a GST-free supply by reason of item 4(a) of the table in s38-190(1) of the A New Tax System (Good and Services Tax) Act 1999 ('the GST Act'). Just prior to his departure for Fiji, Mr Urquhart purchased 400 Fijian dollars for A$339.65 including an A$8 dollar commission. | At first instance, Emmett J found that the supply was not GST-free. Travelex's appeal to the Full Federal Court was dismissed. Travelex appealed against that decision to the High Court. | Issues decided by the court | The High Court decided that the supply of the Fijian banknotes was a GST-free supply on the basis that it was 'a supply that is made in relation to rights' within the meaning of item 4(a) in the table in subsection 38-190(1) of the GST Act. | It was common ground between the parties that the supply of the Fijian bank notes was a financial supply as defined in regulation 40-5.09 of A New Tax System (Good and Services Tax) Regulations 1999 and that the notes were for use outside Australia. | A supply that is made in relation to rights | The majority decision | The majority held that the supply of Fijian banknotes (a financial supply) was 'a supply that is made in relation to rights.' | French CJ and Hayne J found that the relevant financial supply, being the disposal (by Travelex) of an interest in (here, the ownership of) the currency of a foreign country, was not sufficiently described as a sale of the particular tokens. Those tokens had value because they are currency and currency has value only because of the rights that attach to it. The rights that attach to currency are passed upon negotiation of the currency by delivery. In transferring the currency to the acquirer, the seller disposes of the rights that attach to the currency by transferring those rights to the acquirer. This is the evident purpose of the transaction. | Because the supply is a supply of property in the currency, their Honours found that the supply is a supply in relation to the rights that attach to the foreign currency, without which property in the currency would be worthless. | French CJ and Hayne J considered whether a supply that is made in relation to rights required, as found by Emmett J at first instance, that the supply of rights must bind the parties in some way. Their Honours considered that the consequence of such a requirement appeared to be that there could be a supply, 'in relation to' rights, only where the supplier can, and does, transfer the rights in question to the acquirer. Their Honours noted that a distinction of this kind might be made more readily if the requirement was that there be a supply \"of\" rights, as distinct from a supply \"in relation to\" rights. Their Honours went on to say that: [w]hether a distinction of the kind posited must always be made in deciding whether there is a supply \"in relation to\" rights may be a large question, but it is not one which must be decided in the present case. For present purposes, it is sufficient to observe that, when a seller of foreign currency transfers the currency to the acquirer, the seller transfers (that is, \"disposes\" of or \"supplies\") title to the currency tokens to the acquirer by delivering the tokens (be they notes or coins) to the acquirer. And the seller disposes of the rights that attach to the currency by transferring those rights to the acquirer. At least in that sense, the supply \"binds\" the parties. | Heydon J found that Mr Urquhart acquired an interest in property (namely ownership of those statutory rights of action and negotiation). That interest in property was identical with, evidenced by, and not capable of disaggregation from, an interest in or under the currency of a foreign country. To acquire an interest in the currency was to acquire an interest in the intangible rights connected with it, and vice versa. | Thus, Heydon J held that the transaction should be characterised as the supply of rights, being the rights enjoyed by the holder of the currency as created by the statute law of Fiji. Those rights constituted the 'pith and substance' of the transaction. The transfer of bank notes being a supply of rights fell within the wider expression 'supply that is made in relation to rights'. | Rights for use outside Australia | As noted above, it was common ground between the parties that the supply of the Fijian banknotes by Travelex to Mr Urquhart was for use outside Australia. | French CJ and Hayne J stated that where it is evident that the currency is to be used overseas, the rights that attach to the currency are for use outside Australia. Heydon J stated that the rights evidenced by the currency were for use outside Australia: Mr Urquhart acquired the currency with the intention of spending it in Fiji, and that intention was confirmed by the fact that he did spend it there.", "Issues_Decided": "The High Court decided that the supply of the Fijian banknotes was a GST-free supply on the basis that it was 'a supply that is made in relation to rights' within the meaning of item 4(a) in the table in subsection 38-190(1) of the GST Act. It was common ground between the parties that the supply of the Fijian bank notes was a financial supply as defined in regulation 40-5.09 of A New Tax System (Good and Services Tax) Regulations 1999 and that the notes were for use outside Australia. | A supply that is made in relation to rights: The majority decision The majority held that the supply of Fijian banknotes (a financial supply) was 'a supply that is made in relation to rights.' French CJ and Hayne J found that the relevant financial supply, being the disposal (by Travelex) of an interest in (here, the ownership of) the currency of a foreign country, was not sufficiently described as a sale of the particular tokens. Those tokens had value because they are currency and currency has value only because of the rights that attach to it. The rights that attach to currency are passed upon negotiation of the currency by delivery. In transferring the currency to the acquirer, the seller disposes of the rights that attach to the currency by transferring those rights to the acquirer. This is the evident purpose of the transaction. Because the supply is a supply of property in the currency, their Honours found that the supply is a supply in relation to the rights that attach to the foreign currency, without which property in the currency would be worthless. French CJ and Hayne J considered whether a supply that is made in relation to rights required, as found by Emmett J at first instance, that the supply of rights must bind the parties in some way. Their Honours considered that the consequence of such a requirement appeared to be that there could be a supply, 'in relation to' rights, only where the supplier can, and does, transfer the rights in question to the acquirer. Their Honours noted that a distinction of this kind might be made more readily if the requirement was that there be a supply \"of\" rights, as distinct from a supply \"in relation to\" rights. Their Honours went on to say that: [w]hether a distinction of the kind posited must always be made in deciding whether there is a supply \"in relation to\" rights may be a large question, but it is not one which must be decided in the present case. For present purposes, it is sufficient to observe that, when a seller of foreign currency transfers the currency to the acquirer, the seller transfers (that is, \"disposes\" of or \"supplies\") title to the currency tokens to the acquirer by delivering the tokens (be they notes or coins) to the acquirer. And the seller disposes of the rights that attach to the currency by transferring those rights to the acquirer. At least in that sense, the supply \"binds\" the parties. Heydon J found that Mr Urquhart acquired an interest in property (namely ownership of those statutory rights of action and negotiation). That interest in property was identical with, evidenced by, and not capable of disaggregation from, an interest in or under the currency of a foreign country. To acquire an interest in the currency was to acquire an interest in the intangible rights connected with it, and vice versa. Thus, Heydon J held that the transaction should be characterised as the supply of rights, being the rights enjoyed by the holder of the currency as created by the statute law of Fiji. Those rights constituted the 'pith and substance' of the transaction. The transfer of bank notes being a supply of rights fell within the wider expression 'supply that is made in relation to rights'. | Rights for use outside Australia: As noted above, it was common ground between the parties that the supply of the Fijian banknotes by Travelex to Mr Urquhart was for use outside Australia. French CJ and Hayne J stated that where it is evident that the currency is to be used overseas, the rights that attach to the currency are for use outside Australia. Heydon J stated that the rights evidenced by the currency were for use outside Australia: Mr Urquhart acquired the currency with the intention of spending it in Fiji, and that intention was confirmed by the fact that he did spend it there.", "ATO_View_of_Decision": "Supply that is made in relation to rights | The Commissioner considers that the decision of the High Court means that the expression 'a supply that is made in relation to rights' in item 4 in the table in subsection 38-190(1) of the GST Act covers the supply of a thing (other than goods or real property) such as foreign currency where the thing supplied only has value because of rights that attach to it and those rights are transferred. | While the supply of that thing does not need to be characterised as a supply of rights, nevertheless, the supply has to encompass the transfer of rights and the value of the supply needs to be in the rights. As per French CJ and Hayne J at paragraphs 26-27: ... Currency has value only because of the rights that attach to it. When the supplier sells the foreign currency to the acquirer, the acquirer obtains the rights that attach to, or are constituted by, the ability to use the currency. | As the High Court decision is different in this respect from the ATO view expressed in public ruling GSTR 2003/8 that a supply that is made in relation to rights only covers a supply that is the creation, grant, transfer, assignment, or surrender of a right, the Commissioner has issued an addendum to GSTR 2003/8 on 21 December 2011. | The addendum to GSTR 2003/8, which takes into account the High Court's decision, adopts a broader view of the range of supplies that fit within the expression 'a supply that is made in relation to rights' (and which may therefore qualify for GST-free treatment) to also include: • supplies of 'things' that derive their value exclusively, or almost exclusively, from attached rights (for example, shares), or • supplies of services that are directly connected with rights (for example, brokerage services supplied in relation to shares). | • supplies of 'things' that derive their value exclusively, or almost exclusively, from attached rights (for example, shares), or • supplies of services that are directly connected with rights (for example, brokerage services supplied in relation to shares). | For use outside Australia | Whether rights are for use outside Australia is a question of fact. French CJ and Hayne J stated that where it is evident that the foreign currency is to be used overseas, the rights that attach to the currency are for use outside Australia (at paragraph 35). | Foreign currency | The decision of the High Court means that a supply of foreign currency may be characterised as a supply that is made in relation to rights for the purposes of item 4 in the table in subsection 38-190(1). | The Commissioner accepts that the decision of the High Court is not confined to supplies of foreign currency in a currency conversion transaction that takes place on the departures side of the Customs barrier: a supply of foreign currency in a currency conversion transaction that takes places elsewhere in Australia is GST-free, if the foreign currency is for use outside Australia. Whether the foreign currency is for use outside Australia in any particular transaction is a question of fact. | The decision of the High Court is in respect of supplies of foreign currency in a currency conversion transaction effected by the delivery of the foreign currency in the form of notes. The Commissioner is currently considering what the decision means for a currency conversion transaction that is effected in electronic form. The views of industry and tax practitioners will be sought in the course of determining our position in relation to this issue. | Money | The Commissioner considers that the High Court decision, while only relating to supplies of foreign currency, may have wider application in respect of other forms of money and financial instruments. However, the Commissioner does not accept as a general proposition that all supplies of other forms of money (as defined in the GST Act) are necessarily characterised as a 'supply that is made in relation to rights' for the purpose of item 4 in the table in subsection 38-190(1). Whether that characterisation can be made in respect of any particular transaction depends on the nature and substance of that transaction. The views of industry and tax practitioners are being sought in respect of the characterisation of particular transactions. | Acquisition-supplies | The Commissioner notes that when supplying foreign currency in a currency conversion transaction in Australia, the supplier of the foreign currency also makes an acquisition of an interest in Australian currency. This acquisition will be a financial supply that is input taxed where the acquisition is made for consideration. However, the Commissioner considers that, to the extent acquisitions relate to this transaction, they may be treated as relating solely to the GST-free supply of the foreign currency and are therefore fully creditable. See GSTD 2012/5.", "Administrative_Treatment": "The ATO has reviewed and amended GSTR 2003/8 and GSTR 2002/2, taking into account the reasoning of the High Court in Travelex . | The ATO has also now published GSTD 2012/5 which provides the ATO view on whether acquisitions related to an entity's retail foreign currency exchange transactions with customers in Australia are made solely for a creditable purpose. | Where it is necessary for the Commissioner to form and publish a view about the application of the High Court decision to other transactions involving foreign currency and other forms of money, that view will be developed in consultation with industry and tax practitioners in the usual way. | Implications on current Public Rulings & Determinations | The ATO has reviewed and amended GSTR 2003/8 and GSTR 2002/2, taking into account the reasoning of the High Court in Travelex .", "Related_Documents": "GSTR 2002/2 | GSTR 2003/8 | Land product supplied to non-residents (as principal) | 2010 ATC 20-214 | 9-5 | 9-10(2) | 9-10(4) | 9-30 | 38-190 | 40-5 | 195-1 | 40-5.02 | 40-5.09(1) | 40-5.09(3) | 40-5.11 | 2005 ATC 4571 | ATO ID 2006/65 | ATO ID 2006/202 | ATO ID 2006/203", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-5 9-10(2) 9-10(4) 9-30 38-190 40-5 195-1 A New Tax System (Goods and Services Tax) Regulations 40-5.02 40-5.09(1) 40-5.09(3) 40-5.11", "Case_References": "HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 60 ATR 106", "Subject_References": "Goods and services tax (GST) GST-free supplies Financial supply Supply of foreign currency to overseas traveller for use outside Australia Meaning of 'supply that is made in relation to rights' Whether supply of foreign currency for use outside Australia is a supply in relation to rights", "Other_References": "ATO ID 2006/65 ATO ID 2006/202 ATO ID 2006/203", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S79of2010/00001", "Unmatched_Content": ""}
{"Case_Name": "Uratoriu v Commissioner of Taxation", "Venue_Reference_No": "WAD 242 of 2007", "Venue": "Federal Court of Australia", "Judgment_Date": "27 October 2010", "Date_Published": "18 February 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly adverse", "Summary_of_Decision": "Outlines the ATO's response to this case, which concerned the assessability of a number of payments received by the applicant, and whether legal fees incurred by the taxpayer in defending his proprietary interest in a property formed part of the cost base of that property under subsection 110-25(6) of the Income Tax Assessment Act 1997 (ITAA 1997).", "Overview_of_Facts": "An audit of the taxpayer's affairs for the 1997 to 2004 income years identified substantial payments made to him which had not been returned as income. | Following the audit, the Commissioner assessed the taxpayer to additional income of about $5.2 million over the relevant income years (the applicant had returned income of about $127,000 for those years). By the time of the hearing, the taxpayer had conceded that his income for those years should have been about $3.1 million. | Of the amounts totalling about $2.2 million still in dispute at the hearing, the bulk involved payments made to the taxpayer by associated companies. He claimed that these payments, which he admitted receiving, were either repayments of advances made, or should not otherwise be characterised as income in his hands. | The assessments also included amounts which represented the value of liquor said to have been taken by the taxpayer for his personal use from an associated company which operated a liquor store. The taxpayer denied that he had not paid for the liquor. | The taxpayer purchased a residential property in 1986 for $113,500 and sold it in 2002 for $852,000, giving rise to a taxable capital gain. He argued that the amount of the gain assessed should be reduced by various expenses which were said to have increased the cost base of the property. | Issues decided by the court | His Honour found that the taxpayer had not discharged the burden of proving that the amounts received from related companies were not in the nature of income and that he did not take alcohol for personal use from the related company. | Of the expenses that the taxpayer claimed should form part of the cost base of the property, his Honour was prepared to accept that $33,078 was actually paid by the taxpayer in legal expenses. His Honour found that those expenses were incurred in defending in the Supreme Court of New South Wales a proprietary interest that the taxpayer had in the property, and were part of the cost base of the property under subsection 110-25(6) of the ITAA 1997.", "Issues_Decided": "His Honour found that the taxpayer had not discharged the burden of proving that the amounts received from related companies were not in the nature of income and that he did not take alcohol for personal use from the related company. Of the expenses that the taxpayer claimed should form part of the cost base of the property, his Honour was prepared to accept that $33,078 was actually paid by the taxpayer in legal expenses. His Honour found that those expenses were incurred in defending in the Supreme Court of New South Wales a proprietary interest that the taxpayer had in the property, and were part of the cost base of the property under subsection 110-25(6) of the ITAA 1997.", "ATO_View_of_Decision": "The Court was not satisfied that the taxpayer had discharged his onus of proving that various amounts assessed to him were not his income. Based on the limited evidence presented by the taxpayer at the hearing, it was open to the Court to find that the legal expenses were incurred by the taxpayer in defending his proprietary interest in the property, and were part of the cost base of the property.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations and Implications on Law Administration Practice Statements | None", "Related_Documents": "N/a | [2010] ATC 20-219 | 167 | 264 | 110-25(6) | 121-20(1) | 14ZZO(b)(i) | 90 ATC 4088 | (1959) 101 CLR 298 | [1959] HCA 8 | (1936) 56 CLR 63 | [1994] NSWRT 55", "Legislative_References": "Income Tax Assessment Act 1936 167 264 222AOB 222AOC 222AOE 222AOG Income Tax Assessment Act 1997 110-25(6) 121-20(1) Taxation Administration Act 1953 14ZZO(b)(i)", "Case_References": "Commissioner of Taxation v Dalco (1990) 168 CLR 614 [1990] HCA 3 90 ATC 4088 20 ATR 1370 Danmark Pty Ltd v Commissioner of Taxation (1944) 7 ATD 333 Davies v Uratoriou; Davies v Residential Tenancies Tribunal and Anor (1995) 6 BPR 13,917 Jones v Dunkel (1959) 101 CLR 298 [1959] HCA 8 Trautwein v Commissioner of Taxation (1936) 56 CLR 63 [1936] HCA 77 Uratoriou v Davies [1994] NSWRT 55", "Subject_References": "Undeclared Income Capital Gains Cost Base Legal Expenses", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD242of2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Vidler v Commissioner of Taxation", "Venue_Reference_No": "NSD 1480/2009", "Venue": "Federal Court of Australia", "Judgment_Date": "1 June 2010", "Date_Published": "13 July 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether land that is zoned for residential use but which contains no shelter or basic living facilities is 'residential premises' as that term is defined in section 195-1 of the GST Act.", "Overview_of_Facts": "The appellant bought and subsequently sold two blocks of land. Each block was zoned residential, did not contain any buildings or living facilities and was either connected to, or had access at the boundary of the property to, utilities such as sewerage, water, gas or electricity. The appellant treated each sale as an input taxed sale of residential premises under subsection 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Issues decided by the court | The issue was whether land that is zoned for residential use and has access to utilities but which contains no shelter or basic living facilities (i.e. vacant land) is 'residential premises' as defined in section 195-1 of the GST Act. In particular, whether it came within paragraph (b) of the definition - 'land or a building that...is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation'. | The Full Federal Court considered the earlier cases of Marana Holdings Pty Ltd v C of T (2004) 141 FCR 299 and South Steyne Hotel Pty Ltd v Co T (2009) 180 FCR 409 and in a joint judgement affirmed the decision of the primary judge (Stone J) that, to satisfy the definition of residential premises (more particularly, in this case, paragraph (b) of the definition), land must contain some shelter and basic living facilities at the time of sale. The Court (at [29]), noting that the definition of residential premises had been amended following Marana although not to remove the requirement of a residence, stated that \"in disagreeing with some aspects of Marana but not with others, the Parliament is to be taken to have approved the latter\". | Conformably with Marana , the Court [32] found that the word 'capable' in the expression 'capable of being occupied, as a residence or for residential accommodation' must involve more than an ability in the future (i.e. after the supply) to make the land or building suitable for occupation as a residence or for residential accommodation. | In agreeing with Stone J at first instance, the Court rejected the argument that land is \"capable\" of being occupied as a residence, even if it is vacant, if it is able to be connected to water and sewerage facilities. The Court [31] held that the word \"occupied\" in the phrase \"capable of being occupied\" connotes living within or inhabiting a structure and said that \"[i]t is . . . quite artificial to speak of someone 'occupying' vacant land 'as a residence or for residential accommodation'\". | The Court [37] accepted the Commissioner's argument that it would be absurd if the mere existence of a tap in the middle of an acre of vacant land transforms the land into \"residential premises\" for the purposes of GST Act. | The Court's [38] ultimate conclusion was that no error has been shown in the primary judge's conclusion that, at the time of sale, neither parcel of vacant land was 'residential premises' within the meaning of s 40-65(1) of the GST Act because it was not capable of being occupied as a residence or for residential accommodation. As was the case before the primary judge, the Court said it was not necessary to determine whether, at the time of sale, the properties were 'intended to be occupied as a residence or for residential accommodation'.", "Issues_Decided": "The issue was whether land that is zoned for residential use and has access to utilities but which contains no shelter or basic living facilities (i.e. vacant land) is 'residential premises' as defined in section 195-1 of the GST Act. In particular, whether it came within paragraph (b) of the definition - 'land or a building that...is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation'. The Full Federal Court considered the earlier cases of Marana Holdings Pty Ltd v C of T (2004) 141 FCR 299 and South Steyne Hotel Pty Ltd v Co T (2009) 180 FCR 409 and in a joint judgement affirmed the decision of the primary judge (Stone J) that, to satisfy the definition of residential premises (more particularly, in this case, paragraph (b) of the definition), land must contain some shelter and basic living facilities at the time of sale. The Court (at [29]), noting that the definition of residential premises had been amended following Marana although not to remove the requirement of a residence, stated that \"in disagreeing with some aspects of Marana but not with others, the Parliament is to be taken to have approved the latter\". Conformably with Marana , the Court [32] found that the word 'capable' in the expression 'capable of being occupied, as a residence or for residential accommodation' must involve more than an ability in the future (i.e. after the supply) to make the land or building suitable for occupation as a residence or for residential accommodation. In agreeing with Stone J at first instance, the Court rejected the argument that land is \"capable\" of being occupied as a residence, even if it is vacant, if it is able to be connected to water and sewerage facilities. The Court [31] held that the word \"occupied\" in the phrase \"capable of being occupied\" connotes living within or inhabiting a structure and said that \"[i]t is . . . quite artificial to speak of someone 'occupying' vacant land 'as a residence or for residential accommodation'\". The Court [37] accepted the Commissioner's argument that it would be absurd if the mere existence of a tap in the middle of an acre of vacant land transforms the land into \"residential premises\" for the purposes of GST Act. The Court's [38] ultimate conclusion was that no error has been shown in the primary judge's conclusion that, at the time of sale, neither parcel of vacant land was 'residential premises' within the meaning of s 40-65(1) of the GST Act because it was not capable of being occupied as a residence or for residential accommodation. As was the case before the primary judge, the Court said it was not necessary to determine whether, at the time of sale, the properties were 'intended to be occupied as a residence or for residential accommodation'.", "ATO_View_of_Decision": "The decision confirms the Commissioner's view, as expressed in GST Ruling GSTR 2000/20 (paragraph 25), that vacant land of itself can never have sufficient physical characteristics to mark it out as being able to be, or intended to be, occupied as a residence or for residential accommodation.", "Administrative_Treatment": "None | Implications on current Public Rulings & Determinations | None, other than to confirm the Commissioner's view as expressed in GST Ruling GSTR 2000/20 (paragraph 25)", "Related_Documents": "GSTR 2000/20 | 2010 ATC 20-186 | (1997) 187 CLR 384 | (1997) 141 ALR 618 | [2004] HCA 40 | 2004 ATC 5068 | 2009 ATC 20-145 | 2009 ATC 20-090", "Legislative_References": "", "Case_References": "CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 (1997) 141 ALR 618 Electrolux Home Products Pty Ltd v Australian Workers' Union (2004) 221 CLR 309 [2004] HCA 40 Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR 299 2004 ATC 5068 57 ATR 521 South Steyne Hotel Pty Ltd v Commissioner of Taxation (2009) 180 FCR 409 2009 ATC 20-145 74 ATR 41 South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation (2009) 71 ATR 228 2009 ATC 20-090 [2009] FCA 13", "Subject_References": "Goods and services tax Residential premises Whether vacant land without living facilities can be residential premises Whether residential zoning and access to services sufficient.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1480/200/00001", "Unmatched_Content": ""}
{"Case_Name": "Virgin Blue Airlines Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 852 of 2010", "Venue": "Federal Court of Australia", "Judgment_Date": "30 November 2010", "Date_Published": "21 May 2014", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Whether car parking facilities provided to employees at Melbourne Airport were subject to fringe benefits tax because they were at, or in the vicinity of the primary place of employment of those employees.", "Overview_of_Facts": "The case proceeded on the basis of agreed facts. The taxpayer leases part of Terminal 3 at Melbourne Airport (the primary place of employment), and has an arrangement for its employees to be issued passes to access a car park (the Melrose Car Park), owned by a third party. The taxpayer pays the third party a monthly fee for each pass. The Melrose Car Park is within the boundaries of Melbourne Airport but is at a distance of between 1.9 and 2km by road from Terminal 3. A shuttle bus service operates between the Melrose Car Park and Terminals 2 and 4 at the Airport. The shuttle bus trip between the Melrose Car Park and Terminal 3 takes 15 to 20 minutes one way excluding waiting time. | For the years ended 31 March 2006, 2007 and 2008, the Commissioner issued fringe benefits tax assessments to the taxpayer on the basis that the Melrose Car Park was \"at, or in the vicinity of\" the primary place of employment, within the meaning of paragraph 39A(1)(f) of the Fringe Benefits Tax Assessment Act 1986 . | At first instance, Jagot J decided the matter in favour of the Commissioner. | Issues decided by the court | The Full Federal Court held that, while the expression \"in the vicinity of\" is capable of wide application, its meaning must be considered in the statutory context before application to the facts. The statutory context concerns the imposition of tax upon car parking benefits provided to employees who use their cars to commute to and from work. The criteria for imposition of the tax (including the vicinity requirement) operates as a carve-out from the general FBT exemption for car parking benefits provided by employers to employees. | The expression 'in the vicinity of' refers to places which are near, meaning in close spatial proximity, to each other. In this context, vicinity could not accommodate the concept of \"same functional space\" or neighbourhood which otherwise might allow the meaning of vicinity to expand or contract according to the circumstances of individual cases. The circumstances of the individual case may be relevant to the application, as opposed to the meaning, of the 'vicinity' test to the extent that physical features or obstacles might render the car park and primary place of employment close to each other as the crow flies but not by the shortest practical route between them. | The Court considered that the application of this meaning of 'vicinity' is ultimately a matter of evaluative judgment, and held that a car park which is approximately 2 kms away from the primary place of employment is not near, proximate or close to that place.", "Issues_Decided": "The Full Federal Court held that, while the expression \"in the vicinity of\" is capable of wide application, its meaning must be considered in the statutory context before application to the facts. The statutory context concerns the imposition of tax upon car parking benefits provided to employees who use their cars to commute to and from work. The criteria for imposition of the tax (including the vicinity requirement) operates as a carve-out from the general FBT exemption for car parking benefits provided by employers to employees. The expression 'in the vicinity of' refers to places which are near, meaning in close spatial proximity, to each other. In this context, vicinity could not accommodate the concept of \"same functional space\" or neighbourhood which otherwise might allow the meaning of vicinity to expand or contract according to the circumstances of individual cases. The circumstances of the individual case may be relevant to the application, as opposed to the meaning, of the 'vicinity' test to the extent that physical features or obstacles might render the car park and primary place of employment close to each other as the crow flies but not by the shortest practical route between them. The Court considered that the application of this meaning of 'vicinity' is ultimately a matter of evaluative judgment, and held that a car park which is approximately 2 kms away from the primary place of employment is not near, proximate or close to that place.", "ATO_View_of_Decision": "The decision clarifies the meaning of the phrase \"in the vicinity of\" in paragraph 39A (1) (f) of the Fringe Benefits Tax Assessment Act 1986. In its statutory context, the expression refers to places which are near, meaning in close spatial proximity, to each other. It was open to the Court to conclude that a distance of approximately 2 km is too far for a car park to be considered in the vicinity of the primary place of employment in terms of paragraph 39A(1)(f). | The decision also confirms that the application of the vicinity test requires evaluative judgment. The legislation does not specify an absolute measure of distance between a car park and the place of employment as the relevant criterion for liability.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The Commissioner's views in respect of car parking fringe benefits are currently contained in Taxation Ruling TR 96/26 Fringe benefits tax: car parking fringe benefits. The ATO has reviewed TR 96/26 following the decision of the Full Federal Court in this matter, which did not espouse any new principle. As such no further amendments were required to be made.", "Related_Documents": "TR 96/26 | 2010 ATC 20-226 | 5 | 5B | 5C | 39A(1)(a)(ii) | 39A(1)(f) | 58G | 136(1) | 23L | The Act | [1973] AC 854 | (1997) 187 CLR 384 | [1998] HCA 28 | (1998) 194 CLR 355", "Legislative_References": "Fringe Benefits Tax Act 1986 (Cth) 5 Fringe Benefits Tax Assessment Act 1986 (Cth) 5B 5C 39A(1)(a)(ii) 39A(1)(f) 58G 136(1) Income Tax Assessment Act 1936 (Cth) 23L Taxation Laws Amendment (Car Parking) Act 1992 (Cth) The Act Taxation Laws Amendment (Fringe Benefits and Substantiation) Act 1987 (Cth) 34", "Case_References": "Abley v District Council of Yankalilla (1979) 22 SASR 147 Brutus v Cozens [1972] UKHL 6 [1973] AC 854 CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCATrans 242 (1997) 187 CLR 384 Coleman v Power [2004] HCA 39 (2004) 220 CLR 1 Harrison v The Darling to Glen Waverley Railway Construction Trust [1934] HCA 55 (1934) 52 CLR 68 Moyna v Secretary of State for Work and Pensions [2003] UKHL 44 [2003] 1 WLR 1929 Pollock v Ciccone (1988) 34 A Crim R 257 Project Blue Sky Inc v Australia Broadcasting Authority [1998] HCA 28 (1998) 194 CLR 355 Sea Swift Pty Ltd v Waterside Workers Federation of Australia (1989) 29 IR 391", "Subject_References": "Fringe benefits tax Car parking benefit Interpretation of 'in the vicinity of'", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD852of2010/00001", "Unmatched_Content": "Updated to advise TR 96/26 has been reviewed."}
{"Case_Name": "Watson v Deputy Commissioner of Taxation", "Venue_Reference_No": "SAD 76 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "4 March 2010", "Date_Published": "25 May 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "", "Overview_of_Facts": "At all relevant times the taxpayer carried on a financial planning business. In the income year ended 30 June 2004 he was an authorised representative of Financial Lifestyle Solutions (\"FLS\"). He had previously been an authorised representative of AXA Financial Planning (\"AXA\"). | Since 3 January 1996 the taxpayer has held an income protection insurance policy with The National Mutual Life Association of Australasia Limited (\"the Policy\"). The Policy expires on 2 January 2025. | Relevantly, the Policy provides for the payment of benefits: • in consideration of the payment of premiums, and upon suffering total disability from injury or sickness, benefits will be paid in the form of weekly benefits, nursing care and rehabilitation expenses, and upon suffering partial disability, benefits will be paid in the form of weekly benefits; • total disability means inability to do at least one of the income producing duties of his or her occupation, partial disability (following a period of total disability) means an ability to do one or more income producing duties of his or her occupation but not all of them, or he or she is working in another occupation, and because of the disability is earning less than pre-disability income; • Weekly benefits for total disability are up to 75% of average income at the time the policy was applied for; weekly benefits for partial disability reduce to take into account income earned while the person is partially disabled; • If the person insured owns part, or all, of a business or practice, income is money generated by the business due to the insured person's own activity, after all expenses in earning that income have been deducted; • Pre-disability income means the insured person's highest average weekly income in any 12 month period over the 3 years immediately before he or she became totally disabled. | • in consideration of the payment of premiums, and upon suffering total disability from injury or sickness, benefits will be paid in the form of weekly benefits, nursing care and rehabilitation expenses, and upon suffering partial disability, benefits will be paid in the form of weekly benefits; • total disability means inability to do at least one of the income producing duties of his or her occupation, partial disability (following a period of total disability) means an ability to do one or more income producing duties of his or her occupation but not all of them, or he or she is working in another occupation, and because of the disability is earning less than pre-disability income; • Weekly benefits for total disability are up to 75% of average income at the time the policy was applied for; weekly benefits for partial disability reduce to take into account income earned while the person is partially disabled; • If the person insured owns part, or all, of a business or practice, income is money generated by the business due to the insured person's own activity, after all expenses in earning that income have been deducted; • Pre-disability income means the insured person's highest average weekly income in any 12 month period over the 3 years immediately before he or she became totally disabled. | In 1996 the taxpayer underwent major brain surgery for the removal of a tumour. Consequently, he received benefits under the Policy. Since May 1997 he has received partial disability benefits. | In the taxpayer's income tax return for the year ended 30 June 2004 he: • included as assessable income the following amounts: Amounts received from AXA and FLS (acknowledged to be from the financial planning business activity) $9,896 Amounts received under the Policy $25,719 Eligible termination payment $9,946 • showed an amount of $14,834 for expenses incurred in carrying on his financial planning business activity; • showed a deferred non-commercial business loss of $4,938 (being the excess of the amount of $14,834 for expenses incurred in carrying on his financial planning business activity over the income of $9,896 received from AXA and FLS); | • included as assessable income the following amounts: Amounts received from AXA and FLS (acknowledged to be from the financial planning business activity) $9,896 Amounts received under the Policy $25,719 Eligible termination payment $9,946 • showed an amount of $14,834 for expenses incurred in carrying on his financial planning business activity; • showed a deferred non-commercial business loss of $4,938 (being the excess of the amount of $14,834 for expenses incurred in carrying on his financial planning business activity over the income of $9,896 received from AXA and FLS); | The Commissioner assessed the taxpayer's taxable income as $35,665. The amount of $4,938, shown as a deferred non-commercial business loss in the return, was not deducted from the taxpayer's total assessable income of $35,665 (being the total of the amounts received under the Policy and the eligible termination payment) to arrive at his taxable income. Instead, that amount was treated as if it was not incurred in the income year ended 30 June 2004, but was an amount attributable to the taxpayer's business activity that could be deducted from assessable income from the activity for the next income year in which the activity was carried on (ie., the loss deferral rule in subsection 35-10(2) was applied). | The taxpayer objected against this assessment and the Commissioner subsequently disallowed that objection. | The taxpayer appealed against the objection decision to the Federal Court which dismissed the appeal. He subsequently appealed against the decision of the primary judge. | Issues decided by the court | The only issue raised by the appeal was whether the policy income was assessable income 'from' the taxpayer's business activity for the relevant year. The appeal was dismissed. | The Full Federal Court unanimously agreed with the primary judge that the payments made under the insurance policy were not assessable income 'from' the taxpayer's business activity, for the purposes of the non-commercial loss rules in Division 35 of the Income Tax Assessment Act 1997 . | The Court considered that the policy income was received because the taxpayer was not able to carry on the business activity to the same extent as before he became ill. As such, the policy income had its origin in the policy and '... was derived from his incapacity to conduct business activity, not from the [business] activity which he actually undertook'.", "Issues_Decided": "The only issue raised by the appeal was whether the policy income was assessable income 'from' the taxpayer's business activity for the relevant year. The appeal was dismissed. The Full Federal Court unanimously agreed with the primary judge that the payments made under the insurance policy were not assessable income 'from' the taxpayer's business activity, for the purposes of the non-commercial loss rules in Division 35 of the Income Tax Assessment Act 1997 . The Court considered that the policy income was received because the taxpayer was not able to carry on the business activity to the same extent as before he became ill. As such, the policy income had its origin in the policy and '... was derived from his incapacity to conduct business activity, not from the [business] activity which he actually undertook'.", "ATO_View_of_Decision": "The decision is consistent with the ATO view. The Court held that income will be 'from' a particular business activity where it has its starting point, or source, or origin, in that activity. To determine whether this is so required the 'extent and the nature of that business activity' to be identified. | Although the legislation does not use the expression 'causative connection' the Court acknowledged the use by the primary Judge of these words as 'an alternative description of the relationship implicit in the word \"from\".' | We consider that an amount of assessable income will have its starting point or source or origin in a particular business activity where, having regard to the nature and extent of that activity, there is some part of it that gives rise to, or produces, that income.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The decision is consistent with the ATO view expressed in TR 2001/14. This view, broadly, is that for assessable income to be 'from' a particular business activity, that income must have a causative connection to that activity. This will be because the activity is the source or origin of that income. | An addendum for TR 2001/14 was published on 27 April 2011 to note the decision of the Full Federal Court.", "Related_Documents": "TR 2001/14 | 2010 ATC 20-167 | 35-10 | 35-30 | 35-35 | 35-55 | 28 ATR 16", "Legislative_References": "Income Tax Assessment Act 1997 35-10 35-30 35-35 35-55", "Case_References": "BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources (1994) 49 FCR 155 28 ATR 16", "Subject_References": "Non commercial losses business assessable income from the business activity income protection policy", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/SAD76of2009/00001", "Unmatched_Content": "Precis: The issue in this case was whether or not insurance proceeds paid to the taxpayer under an income protection policy were assessable income 'from' his business activity for the purposes of section 35-10 of the Income Tax Assessment Act 1997 ."}
{"Case_Name": "Aitken & Langford and Commissioner of Taxation", "Venue_Reference_No": "QT2005/52; QT2007/15", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "10 February 2009", "Date_Published": "4 August 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "The Tax Office's response to these cases which concerned whether amounts paid to shareholders of a company, being the proceeds from the sale of company assets and paid to the shareholders by the purchaser, are dividends assessable under s. 44 ITAA 1936", "Overview_of_Facts": "The applicants were directors and shareholders of an Australian resident company which conducted timber logging operations in Papua New Guinea (PNG) from 1989 to 1995. Initially the company carried out operations on its own behalf, but by 1995 the company had ceased its own logging operations and its major activity was the management of the PNG logging operations of a second company of which it was a 40% shareholder. | In the 1995 financial year, the company terminated its management agreement with the second company and sold its 40% shareholding to a third party for approximately US$1.2 million, effectively ceasing its business operations in PNG. | Pursuant to the sale contract, the proceeds of the sale were to be paid directly to Mr Langford and Mr Aitken by way of their solicitor in Singapore. That is, the sale proceeds were to be paid to the shareholders rather than the company. The Tribunal found that the consideration was received by the applicants under an implied trust, with the funds in question being held and used by the applicants for the benefit of the company (to pay out accruing liabilities of the company, etc). | Issues decided by the court or tribunal | The Tribunal found that the receipts in question were the beneficial property of the company, rather than the applicants and were accordingly not dividends assessable under section 44 of the Income Tax Assessment Act 1936 .", "Issues_Decided": "The Tribunal found that the receipts in question were the beneficial property of the company, rather than the applicants and were accordingly not dividends assessable under section 44 of the Income Tax Assessment Act 1936 .", "ATO_View_of_Decision": "The Tribunal found the payments to the applicants were held by them on trust and used for the benefit of the company. This finding of fact was based on oral evidence which was neither supported by, nor inconsistent with, the documentary evidence. It was a finding of fact open on the evidence. The Tribunal's decision accordingly does not disclose an error of law.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Nil", "Related_Documents": "None | 2009 ATC 10-077 | Section 44", "Legislative_References": "Income Tax Assessment Act 1936 Section 44", "Case_References": "", "Subject_References": "Taxation Assessable income Dividends Burden of proof", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QT2005/52/00001", "Unmatched_Content": ""}
{"Case_Name": "Asciano Services Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 841 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "13 March 2009", "Date_Published": "21 May 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether the applicant was entitled to an off-road credit under the Energy Grants (Credits) Scheme Act 2003 for diesel fuel purchased for off-rail uses incidental to use in rail transport.", "Overview_of_Facts": "The case arose from the taxpayer's objection to an assessment issued by the Commissioner of Taxation reducing the taxpayer's claim for an off-road credit under the Energy Grants Credits Scheme (EGCS) for diesel fuel purchased for use in equipment that operated off-rail in carrying out activities ancillary to its rail transport enterprise for the period 1 July 2003 to 30 June 2006. | The taxpayer objected on the grounds that it was entitled to an off-road credit under s.53 of the Energy Grants Credit Scheme Act 2003 (EG(C)S Act) and, therefore, an energy grant under s.56 as the diesel fuel was purchased for use in equipment for a purpose incidental to using a rail vehicle in rail transport as defined by s.38, in particular s.38(5). | In this case, some of the equipment was used to load and unload bulk freight containers onto the rolling stock to transport the containers between various terminals throughout Australia. Other equipment was used for safety testing, including the testing of brakes of the rolling stock using compressors. All of this equipment operated adjacent to the rail tracks; none of it operated in or on a rail vehicle. | On 14 December 2007, the taxpayer commenced proceedings in the Federal Court under Part IVC of the Taxation Administration Act 1953 in respect of the Commissioner's assessment. | Legislative History | Prior to the period under review in this case there were two fuel rebate schemes, namely, the Diesel Fuel Rebate Scheme (DFRS) (commonly known as the off-road scheme) administered under the Customs Act and the Excise Act 1901 (Cth) and the Diesel and Alternative Fuels Grant Scheme (DAFGS) (commonly known as the on-road scheme) administered under the Diesel and Alternative Fuels Grant Scheme Act 1999 (Cth) (DAFGS Act). The DFRS (effective as at 1 July 2000) included a rebate for diesel and like fuels used in, among other things, rail and marine transport (otherwise than for the purpose of propelling a road vehicle on a public road) in the course of carrying on an enterprise. | The EG(C)S Act replaced the DFRS and DAFGS entitlement provisions with a single entitlement with effect 1 July 2003. The EG(C)S Act established the EGCS which, among other things, replicated the existing entitlement provisions in the DAFGS Act, the Customs Act and the Excise Act to create an on-road credit and off-road credit. The new expressions 'use in rail transport' (section 38) and 'use in marine transport' (section 36) were also introduced into the EG(C)S Act to set out clearly in the legislation which activities in these categories qualified for the off-road credit (refer to clause 1.41 of the Explanatory Memorandum to the Energy Grants (Credits) Scheme Bill 2003 (the EM). Paragraphs 1.47 to 1.51 of the EM also provide an overview of the general and specific definitions of 'use in rail transport' and 'rail vehicle' for the purposes of the EG(C)S Act. The Product Grants Benefits Administration Act 2000 provides the administrative and compliance framework for the EGCS. | Issues decided by the court | The precise issue that required determination by the Full Federal Court was the statutory interpretation of s.38(5) of the EG(C)S Act and whether the taxpayer was eligible for an off-road credit under the EGCS for diesel fuel purchased for off-rail uses incidental to use in rail transport. | The Full Federal Court adopted a natural construction of s.38(5), which was also preferred by the primary judge and who found in favour of the Commissioner (refer to [2008] FCA 1401). The Full Court held that s.38(5) of the EG(C)S Act does not include off-rail uses incidental to use in rail transport. Rather, all subsections of s.38 are expressly limited to circumstances in which diesel fuel is used in or on a rail vehicle or in equipment in or on a rail vehicle, including loading and unloading anything onto or from a rail vehicle: s.38(3)(a) and (b)). | The Full Court held that a broad construction of the legislation under review should not be adopted to include off-rail activities because the term \"use in rail transport\" was expressly and narrowly defined under s.38 and, therefore, must be construed according to its terms.", "Issues_Decided": "The precise issue that required determination by the Full Federal Court was the statutory interpretation of s.38(5) of the EG(C)S Act and whether the taxpayer was eligible for an off-road credit under the EGCS for diesel fuel purchased for off-rail uses incidental to use in rail transport. The Full Federal Court adopted a natural construction of s.38(5), which was also preferred by the primary judge and who found in favour of the Commissioner (refer to [2008] FCA 1401). The Full Court held that s.38(5) of the EG(C)S Act does not include off-rail uses incidental to use in rail transport. Rather, all subsections of s.38 are expressly limited to circumstances in which diesel fuel is used in or on a rail vehicle or in equipment in or on a rail vehicle, including loading and unloading anything onto or from a rail vehicle: s.38(3)(a) and (b)). The Full Court held that a broad construction of the legislation under review should not be adopted to include off-rail activities because the term \"use in rail transport\" was expressly and narrowly defined under s.38 and, therefore, must be construed according to its terms.", "ATO_View_of_Decision": "The decision confirms the Commissioner's view that off-rail activities do not qualify as eligible activities under s.38 of the EG(C)S Act and therefore there is no entitlement to an off-road credit under the EGCS. Note : The off-road credit entitlements under the ECGS have been replaced by fuel tax credit entitlements under the Fuel Tax Act 2006 (Cth) with effect from 1 July 2006.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "No relevant rulings and determinations considered. | [2009] FCAFC 28 | 174 FCR 140 | 75 ATR 283 | 38 | 39 | 53 | 56 | (1997) 44 ALD 531 | (1997) 24 AAR 353 | (1993) 43 FCR 280 | (1993) 115 ALR 1 | [2008] FCAFC 99 | (2001) 113 FCR 67 | [2001] FCA 1082 | (2006) 153 FCR 524 | [2006] FCA 816 | [2007] ALMD 1421 | [1994] HCA 34 | [2003] AATA 737 | (2002) 50 ATR 1106 | (1991) 172 CLR 1", "Legislative_References": "Energy Grants (Credits) Scheme Act 2003 38 39 53 56", "Case_References": "Australian Native Landscapes Pty Ltd v Collector of Customs (1997) 44 ALD 531 (1997) 24 AAR 353 Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 (1993) 18 AAR 9 (1993) 115 ALR 1 Federal Commissioner of Taxation v Ostwald Bros Civil Pty Ltd (2008) 167 FCR 588 [2008] FCAFC 99 (2008) 70 ATR 893 Kowalski v Domestic Violence Crisis Service Inc (2001) 113 FCR 67 [2001] FCA 1082 Queensland Rail v Commissioner of Taxation (2006) 153 FCR 524 [2006] FCA 816 [2007] ALMD 1421 Re Alcan Australia Ltd; ex parte Federation of Industrial, Manufacturing and Engineering Employees (1994) 181 CLR 96 (1994) 68 ALJR 626 (1994) 123 ALR 193 [1994] HCA 34 Re Serco Australia Pty Ltd and Chief Executive Officer of Customs (2003) 76 ALD 223 [2003] AATA 737 Riviera Nautic Pty Ltd v Federal Commissioner of Taxation (2002) 68 ALD 581 [2002] AATA 657 (2002) 50 ATR 1106 Saraswati v Queen (1991) 172 CLR 1 (1991) 65 ALJR 402 [1991] HCA 21", "Subject_References": "entitlement to energy grant off-road credit off-road diesel fuel use in rail transport rail vehicle use in equipment in or on a rail vehicle off-rail use for a purpose incidental to rail transport", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID841of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Bruton Holdings Pty Ltd (in liquidation) v Commissioner of Taxation", "Venue_Reference_No": "S158/2009", "Venue": "High Court", "Judgment_Date": "26 August 2009", "Date_Published": "7 February 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned a section 260-5 notice issued to a third party which held, on trust, assets of the Trust. The notice required payment to the Commissioner of those assets. The former trustee of the Trust was a company that had been put into voluntary liquidation.", "Overview_of_Facts": "Bruton Holdings Pty Limited (\"Bruton\"), as trustee of the Bruton Educational Trust (\"the Trust\"), deposited funds totalling $470,000 in the trust account of Piper Alderman, a firm of lawyers (\"the firm\"). These funds were to be used by the firm to represent Bruton in Federal Court proceedings commenced by Bruton on behalf of the Trust. The proceedings were an appeal against a decision by the Commissioner disallowing the Trust's endorsement as a tax exempt charity. | On 28 February 2007, Bruton ceased to be the trustee as a result of the appointment of administrators. | On 26 March 2007 the Commissioner issued an assessment to Bruton for the Trust's tax liability in the sum of $7,715,873.73. | On 30 April 2007 Bruton was placed into liquidation. The winding-up of the company commenced on 28 February, the day on which the administration began. | On 9 May 2007 the Commissioner served notices on the firm under section 260-5 of Subdivision 260-A, Schedule 1 to the Taxation Administration Act 1953 (Cth) (\"TAA\") (\"section 260-5 notice\"). The effect of these notices was to require the firm to pay to the Commissioner the amounts remaining in its trust account and owed to the Trust, up to the liability of Bruton for the tax liability of the Trust. | The liquidators of Bruton then sought a declaration from the Federal Court that the s 260-5 notices were invalid. In his judgement of 2 November 2007, Allsop J decided (amongst other things) as follows: a. The funds in the trust account were owed by the firm directly to Bruton as the payer of the money to that firm; b. A notice pursuant to s 260-5 of the TAA is an 'attachment' for the purposes of s 500 of the Corporations Act 2001 ; and c. In consequence the notice issued to Bruton was 'void'. | a. The funds in the trust account were owed by the firm directly to Bruton as the payer of the money to that firm; b. A notice pursuant to s 260-5 of the TAA is an 'attachment' for the purposes of s 500 of the Corporations Act 2001 ; and c. In consequence the notice issued to Bruton was 'void'. | The Commissioner appealed to the Full Federal Court. The Full Court held that: a. Bruton had the legal title to the debt owed to it by Piper Alderman (i.e. the right to be paid); b. Bruton had a lien over that property arising from its right to indemnity for debts incurred by it as trustee; and c. the notice was not an 'attachment' for the purposes of s 500 of the Corporations Act and was therefore valid. | a. Bruton had the legal title to the debt owed to it by Piper Alderman (i.e. the right to be paid); b. Bruton had a lien over that property arising from its right to indemnity for debts incurred by it as trustee; and c. the notice was not an 'attachment' for the purposes of s 500 of the Corporations Act and was therefore valid. | The liquidators of Bruton sought special leave to appeal to the High Court. Leave was granted. The appeal was heard on 4 August 2009. The High Court delivered its judgment on 26 August 2009. | Issues decided by the High Court | Bruton was owed money by Piper Alderman under s 255 of the Legal Profession Act 2004 (NSW) (at [46]). | Bruton had rights of recoupment and exoneration in respect of liabilities, costs and expenses properly incurred by it in the administration of the Trust. The amounts so secured were yet to be determined (at [43]). These rights were supported by a lien over the whole of the trust assets, amounting to a proprietary interest therein, including over Piper Alderman's obligation to account to Bruton under s 255 (at [47]). | As held by the primary judge and the Full Court, Bruton's proprietary interest in Piper Alderman's obligation to account under s 255 appeared to be 'property' of Bruton's such as was protected by s 500(1) of the Corporations Act against any attachment put in force against it during the winding up. | The notice under s260-5 was void because a liquidator had been appointed to the company prior to the issuance of the notice. In those circumstances s 260-45 superseded the operation of s 260-5 (at [10]): '[T]he Commissioner's general power to issue a notice under s260-5 is not available if a liquidator has been appointed to a company. In that latter circumstance, only the more particular provisions of s260-45 of the Administration Act are engaged. That being so, there is no disruption of the operation of Ch 5 of the Corporations Act, and, in particular, no attachment to be rendered void by s500(1)'. | Put differently (at [51]): 'the remedy available to the Commissioner on the facts of this case was that under the regime for liquidations (s 260-45), not the garnishee regime provided by s 260-5' | Construed in that way, there was no conflict between the operation of s 260-5 and s 500(1). | That said, their Honours, in obiter dicta, indicated that an examination of s 500(1) and Ch 5 of the Corporations Act of which it forms part, did not reveal any reason to restrict the meaning of the expression 'any attachment' to curial attachments (at [38]). Accordingly, and contrary to the holding by the Full Court, the High Court held that the power conferred on the Commissioner by s 260-5 does not extend to debts owed to a company in liquidation (at [39]).", "Issues_Decided": "Bruton was owed money by Piper Alderman under s 255 of the Legal Profession Act 2004 (NSW) (at [46]). Bruton had rights of recoupment and exoneration in respect of liabilities, costs and expenses properly incurred by it in the administration of the Trust. The amounts so secured were yet to be determined (at [43]). These rights were supported by a lien over the whole of the trust assets, amounting to a proprietary interest therein, including over Piper Alderman's obligation to account to Bruton under s 255 (at [47]). As held by the primary judge and the Full Court, Bruton's proprietary interest in Piper Alderman's obligation to account under s 255 appeared to be 'property' of Bruton's such as was protected by s 500(1) of the Corporations Act against any attachment put in force against it during the winding up. The notice under s260-5 was void because a liquidator had been appointed to the company prior to the issuance of the notice. In those circumstances s 260-45 superseded the operation of s 260-5 (at [10]): '[T]he Commissioner's general power to issue a notice under s260-5 is not available if a liquidator has been appointed to a company. In that latter circumstance, only the more particular provisions of s260-45 of the Administration Act are engaged. That being so, there is no disruption of the operation of Ch 5 of the Corporations Act, and, in particular, no attachment to be rendered void by s500(1)'. Put differently (at [51]): 'the remedy available to the Commissioner on the facts of this case was that under the regime for liquidations (s 260-45), not the garnishee regime provided by s 260-5' Construed in that way, there was no conflict between the operation of s 260-5 and s 500(1). That said, their Honours, in obiter dicta, indicated that an examination of s 500(1) and Ch 5 of the Corporations Act of which it forms part, did not reveal any reason to restrict the meaning of the expression 'any attachment' to curial attachments (at [38]). Accordingly, and contrary to the holding by the Full Court, the High Court held that the power conferred on the Commissioner by s 260-5 does not extend to debts owed to a company in liquidation (at [39]).", "ATO_View_of_Decision": "Operation of s 260-5 | It had been the longstanding view of the Commissioner that a notice under s 260-5 should not be issued to third party debtors in respect of tax related liabilities of a company in liquidation, other than tax related liabilities incurred by a company in the capacity of a trustee of a trust. | Following the High Court's decision in this matter, the Commissioner will cease to issue notices under s 260-5 in respect of tax related liabilities of companies in liquidation that have incurred their tax related liabilities in the capacity of a trustee of a trust. | Operation of s 260-45 | Consistent with the Court's view that the remedy available to the Commissioner in respect of a trustee company in liquidation is the regime for liquidations (s 260-45) and not the garnishee regime (s 260-5), the Commissioner will seek to apply s 260-45 in respect of all of the tax related liabilities of such a company, whether they are liabilities incurred by the company in the proper administration of the trust or wholly in its personal capacity. | The Commissioner is of the view that section 260-45 requires the liquidator to notify the Commissioner of his appointment, and upon receipt of such notification, the Commissioner must notify the total outstanding tax-related liabilities of the company at the time of the notice. | Between appointment and receipt of the notification by the Commissioner, the liquidator must not disperse any of the company's assets, except to pay secured or preferred debtors. Upon receipt of the notification, the liquidator must set aside assets sufficient to pay the Commissioner out of a sum calculated by a formula set out in ss 260-45(5) and (6). Should the liquidator fail to so comply, then the liquidator is personally liable to the Commissioner to the extent of that value. | The Commissioner considers that where the company is assessed on trust income, under ss 98, 99 or 99A of the ITAA 1936 , the amounts assessed (together with any other tax-related debts) are outstanding tax-related liabilities that may be the subject of a s 260-45 notice. | The Commissioner further considers that in applying the formula in s 260-45(5) and (6) the 'assets available to pay ordinary debts' will include the company's proprietary interest in any trust assets arising from the company's rights, as trustee, to be indemnified out of the trust estate for the liabilities and expenses incurred by the trustee in administering the trust. This will be the case irrespective of whether the company's right of indemnity is a right of recoupment or a right of exoneration. | As explained by the Full Federal Court (at [47] - [57]), there is a fundamental distinction between rights of recoupment and rights of exoneration. So far as a company is entitled to recoupment from trust assets, the proceeds of the indemnity are available for division among the bankrupt's creditors generally. The position with respect to a right of exoneration is less clear. There are conflicting authorities as to whether the proceeds of the indemnity can be used to discharge third party business creditors as well as trust creditors. The High Court indicated that it did not need to resolve those questions.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "N/A | 2009 ATC 20-125 | Sch1 | 260-5 | 260-15 | 260-45 | 260-50 | 5A(2) | 9 | 468(4) | 500(1) | 500(2) | 501 | 555 | 569 | s 255 | 2008 ATC 20-045 | 108 CLR 84 | 2007 ATC 5302 | 177 ALR 611 | 81 ATC 4280 | 81 ATC 4429 | 88 ATC 4443 | 79 ATC 4687 | 89 ATC 5071 | 2000 ATC 4015 | 98 ATC 4097", "Legislative_References": "Taxation Administration Act 1953 (Cth) Sch1 260-5 260-15 260-45 260-50 Corporations Act 2001 (Cth) 5A(2) 9 468(4) 500(1) 500(2) 501 555 569 Legal Profession Act 2004 (NSW) s 255", "Case_References": "Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 82 ALJR 1411 248 ALR 693 69 ATR 357 2008 ATC 20-045 Hall v Richards [1961] HCA 34 108 CLR 84 Bluebottle UK Ltd v Deputy Commissioner of Taxation [2007] HCA 54 232 CLR 598 67 ATR 1 2007 ATC 5302 FJ Bloemen Pty Ltd v Federal Commissioner of Taxation [1981] HCA 27 177 ALR 611 147 CLR 360 11 ATR 914 81 ATC 4280 Clyne v Deputy Commissioner of Taxation [1981] HCA 40 150 CLR 1 12 ATR 173 81 ATC 4429 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 82 ALJR 1411 248 ALR 693 69 ATR 357 2008 ATC 20-045 Deputy Commissioner of Taxation v Moorebank Pty Ltd [1988] HCA 29 165 CLR 55 19 ATR 1156 88 ATC 4443 The State of Victoria v The Commonwealth [1957] HCA 54 99 CLR 575 Bank of New South Wales v Federal Commissioner of Taxation [1979] HCA 64 145 CLR 438 10 ATR 482 79 ATC 4687 Commissioner of Taxation v Donnelly (1989) 25 FCR 432 89 ATC 5071 20 ATR 1331 Macquarie Health Corp Ltd v Commissioner of Taxation [1999] FCA 1819 96 FCR 238 43 ATR 650 2000 ATC 4015 Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4 (1998) 192 CLR 226 37 ATR 393 98 ATC 4097", "Subject_References": "Recovery of tax debts Trustee company Administration Liquidation Remedies against trustees in liquidation Trust property Attachments", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S158/2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Clarke v Commissioner of Taxation & Anor", "Venue_Reference_No": "A35/2008", "Venue": "High Court", "Judgment_Date": "2 September 2009", "Date_Published": "26 May 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Whether the superannuation contributions tax was constitutionally valid in its application to members of Parliament who were members of Constitutionally Protected Superannuation Funds.", "Overview_of_Facts": "The case concerned whether the Commonwealth law imposing superannuation contributions tax (commonly known as \"superannuation surcharge\") validly applied to a former Member of Parliament of South Australia who was a member of certain public sector superannuation schemes that were Constitutionally Protected Superannuation Funds (CPSFs) for surcharge purposes. | The taxpayer attracted liability to pay surcharge by being an accruing member of three South Australian CPSFs at various times due to being a Member of Parliament: the Parliamentary Superannuation Scheme (the \"PS Scheme\"), the State Superannuation Benefit Scheme and the Southern State Superannuation Scheme (the \"SSS Scheme\"). These schemes had differing features. In particular, under the PS Scheme, the taxpayer was to become entitled to a defined benefit pension (which he had a limited ability to commute to a lump sum). Under the SSS by contrast, he was to become entitled to a lump sum benefit based on accumulated contributions and earnings in the fund. | The taxpayer relied on the decision of the High Court in Austin v The Commonwealth (2003) 215 CLR 185, in which a majority of the High Court held that the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 and the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment And Collection Act 1997 were constitutionally invalid in their application to a New South Wales Supreme Court Judge on the ground that it placed such a particular burden on the operations of the State of New South Wales as to be beyond the legislative power of the Commonwealth. | The taxpayer argued that such an impermissible burden was also placed on South Australia in relation to his membership of the relevant CPSFs. Several of the State Attorneys-General intervened in support of the taxpayer's arguments. In response the Commonwealth Attorney-General (whose submissions the Commissioner of Taxation adopted) argued that there were grounds to distinguish the taxpayer's position from that of the taxpayer in the Austin case. | Issues decided by the court | The surcharge legislation cited above was invalid in its application to the taxpayer on the ground that it so discriminated against the State of South Australia, or so placed a particular disability or burden on the operations and activities of that State, as to be beyond the Commonwealth's legislative power.", "Issues_Decided": "The surcharge legislation cited above was invalid in its application to the taxpayer on the ground that it so discriminated against the State of South Australia, or so placed a particular disability or burden on the operations and activities of that State, as to be beyond the Commonwealth's legislative power.", "ATO_View_of_Decision": "It follows from the High Court's decision that the superannuation surcharge legislation is invalid in its application to each member of a CPSF who was at the higher levels of government, whatever the member's individual superannuation entitlements and whatever the particular features of the CPSF in question (for example, whether or not the fund offered defined benefits; whether the benefits were pensions or lump sums; whether the member was already able to elect to commute a pension benefit into a lump sum). | Most CPSFs were in South Australia and Western Australia. The majority of taxpayers affected by the Clarke decision are likely to be in those two States. The full list of CPSFs appeared in Schedule 14 to the Income Tax Regulations 1936 (now revoked). | The decision has no impact on members of funds that are not CPSFs. For taxpayers who were members of both CPSFs and of other superannuation funds, the decision affects only so much of their surcharge liability as related to their membership of CPSFs. | The decision has no impact on Commonwealth or Territory officials, or on members of private sector superannuation funds. | \"Higher levels of government\" | The Tax Office has previously considered the question of who was at the \"higher levels of government\" in dealing with objections following the Austin decision. We maintain the view that not all members of CPSFs are at the \"higher levels of government\", but only a relatively restricted range of officials with certain high level responsibilities relevant to the constitutional functioning of the relevant State. | Officials at the \"higher levels\" of State government include Governors and their assistants and advisors, Members of Parliament, Ministers and ministerial advisors, judges, magistrates and heads of public service departments or similar instrumentalities. Also included are certain statutory officers with high-level responsibilities such as Directors of Public Prosecutions, Commissioners of Police, Auditors-General and the like. | However, government officials and employees in general are not at the higher levels of government. The mere fact that a taxpayer's adjusted taxable income was high enough to attract superannuation surcharge in a given year under the impugned legislation does not of itself entail that that taxpayer was at the higher levels of government.", "Administrative_Treatment": "None PO Box 3100 PENRITH NSW 2740 Attention Sue Burton, Interpretative Assistance, Superannuation.", "Related_Documents": "N/A | [2009] HCA 33 | 7 | 8 | 9 | 11 | 12 | 14 | 38 | 4 | 2003 ATC 4042", "Legislative_References": "Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment And Collection Act 1997 7 8 9 11 12 14 38 Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 4", "Case_References": "Austin v Commonwealth of Australia 215 CLR 185 2003 ATC 4042 51 ATR 654", "Subject_References": "constitutional law superannuation contributions surcharge superannuation contributions tax", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/A35/2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Barnes Development Pty Ltd", "Venue_Reference_No": "WAD 215 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "7 August 2009", "Date_Published": "28 January 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly adverse", "Summary_of_Decision": "Outlines the ATO's response to this case concerning whether an action in debt arises under general law to recover an amount required to be paid to the Commissioner by a notice given under s 260-5 of the Tax Administration Act 1953.", "Overview_of_Facts": "1. Subdivision 260-A of the Taxation Administration Act 1953 (\"TAA\") provides a regime for a form of statutory garnishee. A notice served under s 260-5 gives the Commissioner the right to recover from a third party an amount that the third party owes or may later owe to a taxpayer who is indebted to the Commonwealth for tax. 2. On 22 June 2007, the Commissioner served notices pursuant to s 260-5 to the respondent, Barnes Development Pty Ltd as trustee for the Barnes Family Trust (\"the respondent\"), requiring payment in respect of tax-related liabilities said to be payable by Mr Barnes and Mrs Barnes at the time. 3. As at 22 June 2007, the amount due by the respondent to Mrs Barnes was $383,451.31 and Mr Barnes at that time owed the respondent $236,782.66. 4. After 30 June 2007, a journal entry was made in the General Ledger in which an amount of $309,609.31 was credited to the loan account of Mr Barnes, converting the debit balance as at 30 June 2007 to a credit balance of $73,842 (rounded). The same figure of $309,609.31 was applied as a debit to the loan account of Mrs Barnes, reducing her loan account to a credit balance of $73,842 (rounded). 5. The Commissioner filed civil recovery proceedings against the respondent seeking payment of $383,451.31 allegedly due by the respondent to Mrs Barnes on the date of the issue of the s 260-5 notices and, in the case of Mr Barnes, the amount of $73,842 which became due subsequently. 6. After the Court reserved its decision, the Commissioner advised the Court that the claim for $73,842.00 in respect of Mr Barnes was no longer pressed, although the position that he was entitled to relief to this sum was maintained. | 1. Subdivision 260-A of the Taxation Administration Act 1953 (\"TAA\") provides a regime for a form of statutory garnishee. A notice served under s 260-5 gives the Commissioner the right to recover from a third party an amount that the third party owes or may later owe to a taxpayer who is indebted to the Commonwealth for tax. 2. On 22 June 2007, the Commissioner served notices pursuant to s 260-5 to the respondent, Barnes Development Pty Ltd as trustee for the Barnes Family Trust (\"the respondent\"), requiring payment in respect of tax-related liabilities said to be payable by Mr Barnes and Mrs Barnes at the time. 3. As at 22 June 2007, the amount due by the respondent to Mrs Barnes was $383,451.31 and Mr Barnes at that time owed the respondent $236,782.66. 4. After 30 June 2007, a journal entry was made in the General Ledger in which an amount of $309,609.31 was credited to the loan account of Mr Barnes, converting the debit balance as at 30 June 2007 to a credit balance of $73,842 (rounded). The same figure of $309,609.31 was applied as a debit to the loan account of Mrs Barnes, reducing her loan account to a credit balance of $73,842 (rounded). 5. The Commissioner filed civil recovery proceedings against the respondent seeking payment of $383,451.31 allegedly due by the respondent to Mrs Barnes on the date of the issue of the s 260-5 notices and, in the case of Mr Barnes, the amount of $73,842 which became due subsequently. 6. After the Court reserved its decision, the Commissioner advised the Court that the claim for $73,842.00 in respect of Mr Barnes was no longer pressed, although the position that he was entitled to relief to this sum was maintained. | Issues decided by the court or tribunal | There was a threshold legal issue as to whether civil recovery proceedings are available to the Commissioner. The respondent contended that s 260-5 does not enable the Commissioner to pursue civil recovery proceedings, as it is a penal provision, and that non-compliance with this provision does not entitle the Commissioner to recover from it the amount specified in the notices. | After consideration of the relevant authorities, the Court rejected the taxpayer's various arguments and concluded that there is nothing to displace the ordinary rule that, where a statute creates an obligation to pay money, an action in debt will lie to enforce the obligation. Therefore, the Commissioner may sue in debt to recover an amount that is required to be paid by a notice under s 260-5, when the time for payment of that amount as specified in s 260-5(5) has arrived. | Although the Commissioner advised his Honour, after the decision was reserved, that the claim of $73,842 in respect of Mr Barnes was no longer pressed, whilst maintaining the position that the Commissioner was entitled to relief in that sum, his Honour considered it appropriate to explain in his reasons why he had come to an opposite conclusion. In relation to the amounts allegedly owed by the Respondent to Mr & Mrs Barnes, his Honour decided that to accept the Commissioner's argument that attributing the benefit of the subsequent journal entry to Mr Barnes' loan account, but not to Mrs Barnes' loan account would work an injustice on the respondent by artificially increasing the loan account of Mrs Barnes, viewed on a joint basis. | His Honour was satisfied that the Commissioner had established the claim in respect to the monies owed by the respondent to Mrs Barnes in the amount of $383,451 but not at all in respect to the monies allegedly owed by the respondent to Mr Barnes. His Honour found that Mr Barnes was indebted to the respondent during the relevant period.", "Issues_Decided": "There was a threshold legal issue as to whether civil recovery proceedings are available to the Commissioner. The respondent contended that s 260-5 does not enable the Commissioner to pursue civil recovery proceedings, as it is a penal provision, and that non-compliance with this provision does not entitle the Commissioner to recover from it the amount specified in the notices. After consideration of the relevant authorities, the Court rejected the taxpayer's various arguments and concluded that there is nothing to displace the ordinary rule that, where a statute creates an obligation to pay money, an action in debt will lie to enforce the obligation. Therefore, the Commissioner may sue in debt to recover an amount that is required to be paid by a notice under s 260-5, when the time for payment of that amount as specified in s 260-5(5) has arrived. Although the Commissioner advised his Honour, after the decision was reserved, that the claim of $73,842 in respect of Mr Barnes was no longer pressed, whilst maintaining the position that the Commissioner was entitled to relief in that sum, his Honour considered it appropriate to explain in his reasons why he had come to an opposite conclusion. In relation to the amounts allegedly owed by the Respondent to Mr & Mrs Barnes, his Honour decided that to accept the Commissioner's argument that attributing the benefit of the subsequent journal entry to Mr Barnes' loan account, but not to Mrs Barnes' loan account would work an injustice on the respondent by artificially increasing the loan account of Mrs Barnes, viewed on a joint basis. His Honour was satisfied that the Commissioner had established the claim in respect to the monies owed by the respondent to Mrs Barnes in the amount of $383,451 but not at all in respect to the monies allegedly owed by the respondent to Mr Barnes. His Honour found that Mr Barnes was indebted to the respondent during the relevant period.", "ATO_View_of_Decision": "Whether the Commissioner can alternatively sue under Subdivision 250-A | In an alternative argument, the Commissioner relied on s 255-5 as a means of recovering the amounts due under the notices. Section 255-5 provides that a \"tax-related liability\" that is due and payable, is a debt due to the Commonwealth and the Commissioner may sue to recover that debt in a court of competent jurisdiction. A \"tax-related liability\" is defined by s 255-1 as \"a pecuniary liability to the Commonwealth arising directly under a taxation law\". | The Commissioner's alternative argument was not decided by the Court. The Commissioner's position on this provision is that if an obligation comes within the statutory description in s 255-1(1), it is a \"tax-related liability\" for the purposes of the TAA, notwithstanding that the provision creating the obligation is not listed in s 250-10: Muc v Deputy Federal Commissioner of Taxation [2008] NSWCA 96 at [41]-[57] per Mason P (Beazley and Giles JJA agreeing). It is not necessary to rely on the provision to sue in debt for recovery of amounts due under a s 260-5 notice where the Commissioner can sue in debt at general law. | The amount due to Mr Barnes | His Honour did not order in the Commissioner's favour on the notice issued in respect of the amount said to be due from the respondent to Mr Barnes after the journal entry was made that resulted in Mr Barnes being owed $73,842. | Importantly, the Court summed up its reasons on this point at [50] where it was said: \"I am satisfied that the Commissioner has established its claim in respect to monies owed by the respondent to Mrs Barnes in the amount of $383,451.31 but not at all in respect to monies alleged owed by the respondent to Mr Barnes. I find that as from 22 June 2007 to 9 April 2008, Mr Barnes was indebted to the respondent. \" (underlining added) | The Commissioner accepts this factual finding as being available in the circumstances of this particular case.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "N/A | [2009] ATC 20-121 | 260-5 | 2007 ATC 5302 | 81 ATC 4429 | 28 CLR 66 | [1920] HCA 51 | 26 ALR 225 | 2008 ATC 20-032", "Legislative_References": "Taxation Administration Act 1953 (Cth) 260-5 Income Tax Assessment Act 1936 (Cth) 218", "Case_References": "Bluebottle UK Ltd v Deputy Commissioner of Taxation 232 CLR 598 [2007] HCA 54 67 ATR 1 2007 ATC 5302 Clyne v Deputy Commissioner of Taxation 150 CLR 1 81 ATC 4429 12 ATR 173 Mallinson v Scottish Australian Investment Co Ltd 28 CLR 66 [1920] HCA 51 26 ALR 225 Muc v Deputy Federal Commissioner of Taxation [2008] NSWCA 96 2008 ATC 20-032 72 ATR 369", "Subject_References": "Collection and recovery Notices for payment under s 260-5 of the Taxation Administration Act 1953 Tax-related liability Default in payment Entitlement to sue Action in debt", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD215of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Malouf", "Venue_Reference_No": "NSD 674, 675 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "2 April 2009", "Date_Published": "22 October 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the issue of whether the taxpayer's obligation to pay, upon settlement, the balance of his share of the amount payable under a contract for the purchase of land and development of a retirement village was incurred at the time of entering into the contract.", "Overview_of_Facts": "The taxpayer was an investor in a retirement village syndicate set up to obtain the benefit of Taxation Ruling TR 94/24 . He had a share in a partnership (TPC), which was a partner in another partnership (Cresthaven). Cresthaven entered into arrangements, through a nominee company, to purchase a property from PrimeLife that would be developed as a retirement village. The contract was entered into on 25 June 1999 with a deposit paid of $6,500,000 and the residue of $33,250,000 payable fourteen days after completion of stage 1 of the development. Each of the investors in the syndicate financed their share of the $6,500,000 deposit separately. When Cresthaven lodged its partnership return for the 1999 year, it reported a partnership loss of $40,830,260, which included a deduction of $39,750,000 for the full purchase price of the property. The taxpayer claimed a deduction of $474,457, as his share of the partnership loss. | The Australian Taxation Office view expressed in Taxation Ruling TR94/24 was that expenditure incurred in acquiring and developing retirement villages would be allowed on revenue account and would be deductible in the year in which the expenditure was incurred. The Commissioner accepted that the partnership was entitled to a deduction for the amount of $6,500,000 paid as a deposit, but not the unpaid balance of $33,250,000 and allowed the taxpayer a deduction for the amount he had paid, being $94,891, and disallowed the balance of the deduction claimed in the 1999 year. | No significant development work was carried out on the property, and in February 2006 the contract was terminated and the deposit was refunded, with interest. | The issue in this case was whether the partnership was entitled to claim a deduction of $33,350,000 in the 1999 income year, being the unpaid balance of the purchase price of the property. The ATO view was that, under the terms of the contract, only the deposit was incurred in the 1999 year. | The taxpayer in this case was provided with funding under the test case litigation program at both the Federal Court and Full Federal Court stages of the appeal process. | Issues decided by the court | 1. The primary judge (Allsop J) allowed the taxpayer's appeal and held that the taxpayer's obligation to pay the residue of the purchase price under a contract for the purchase of land and the development of a retirement village (settlement taking place in a later year of income), and which was agreed to be on revenue account, was incurred in and was referable to the year of income in which the contract was entered into. His Honour considered that he was clearly bound by the decisions of the Full Federal Court in Woolcombers and Raymor. | 2. Allsop, J. also made some remarks concerning the conduct of Mr Malouf and whether this constituted reasonable care for penalty purposes. Having found in favour of the taxpayer, it was not necessary for Allsop, J. to decide the penalty matter. Nevertheless, he expressed the view that a penalty was not legally warranted in the circumstances of this case, because Mr Malouf had exhibited reasonable care. | 3. The Commissioner appealed to the Full Federal Court on the basis that the contract remained executory until settlement when a transfer of the property would occur, that there is no liability or debt due to the vendor until settlement, and that, accordingly, there was not, during the 1999 income year, a debt or pecuniary liability due by the taxpayer for the residue of the purchase price. The Commissioner did not challenge the views of Allsop J in respect of the penalty issue. | 4. In their unanimous decision, the Full Federal Court (Sundberg, Jessup and Middleton JJ) set aside the decision of the primary judge and found in favour of the Commissioner. The Full Court said that 'every contract must be construed according to the intention of the parties, and upon taking a legal or jurisprudential approach, the contractual arrangements and surrounding circumstances must be considered in determining when the loss or outgoing has been incurred' . | 5. The Court distinguished Raymor on the basis that the terms of the arrangements in that case are materially different from the contract in this case, which meant that the primary judge fell into error by adopting the result in Raymor . | 6. Their Honours also distinguished Woolcombers on the basis that, although the contract terms in both cases were of a similar nature, in Woolcombers the Full Federal Court had treated the agreement as unconditional, subject to defeasance as a result of an event that would give rise to frustration of the agreement; whereas, in this case, the contract was not an unconditional agreement subject to defeasance by unforeseen events. | 7. As a result of its analysis, the Court held that the pecuniary liability for the balance of the purchase price was not incurred at the time of entering into the contract, but would only be incurred upon settlement. At the same time, the vendor would deliver a transfer and title of the land. The Court also concluded that the obligation to pay the residue was not referable to the 1999 year of income.", "Issues_Decided": "1. The primary judge (Allsop J) allowed the taxpayer's appeal and held that the taxpayer's obligation to pay the residue of the purchase price under a contract for the purchase of land and the development of a retirement village (settlement taking place in a later year of income), and which was agreed to be on revenue account, was incurred in and was referable to the year of income in which the contract was entered into. His Honour considered that he was clearly bound by the decisions of the Full Federal Court in Woolcombers and Raymor. 2. Allsop, J. also made some remarks concerning the conduct of Mr Malouf and whether this constituted reasonable care for penalty purposes. Having found in favour of the taxpayer, it was not necessary for Allsop, J. to decide the penalty matter. Nevertheless, he expressed the view that a penalty was not legally warranted in the circumstances of this case, because Mr Malouf had exhibited reasonable care. 3. The Commissioner appealed to the Full Federal Court on the basis that the contract remained executory until settlement when a transfer of the property would occur, that there is no liability or debt due to the vendor until settlement, and that, accordingly, there was not, during the 1999 income year, a debt or pecuniary liability due by the taxpayer for the residue of the purchase price. The Commissioner did not challenge the views of Allsop J in respect of the penalty issue. 4. In their unanimous decision, the Full Federal Court (Sundberg, Jessup and Middleton JJ) set aside the decision of the primary judge and found in favour of the Commissioner. The Full Court said that 'every contract must be construed according to the intention of the parties, and upon taking a legal or jurisprudential approach, the contractual arrangements and surrounding circumstances must be considered in determining when the loss or outgoing has been incurred' . 5. The Court distinguished Raymor on the basis that the terms of the arrangements in that case are materially different from the contract in this case, which meant that the primary judge fell into error by adopting the result in Raymor . 6. Their Honours also distinguished Woolcombers on the basis that, although the contract terms in both cases were of a similar nature, in Woolcombers the Full Federal Court had treated the agreement as unconditional, subject to defeasance as a result of an event that would give rise to frustration of the agreement; whereas, in this case, the contract was not an unconditional agreement subject to defeasance by unforeseen events. 7. As a result of its analysis, the Court held that the pecuniary liability for the balance of the purchase price was not incurred at the time of entering into the contract, but would only be incurred upon settlement. At the same time, the vendor would deliver a transfer and title of the land. The Court also concluded that the obligation to pay the residue was not referable to the 1999 year of income.", "ATO_View_of_Decision": "• Deductions | 1. No new principle emerges from this decision. The contract in this case was found to be distinguishable from the contracts considered in Raymor and Woolcombers . | 2. Retirement village investors will be entitled to a deduction for the balance of purchase price when paid at settlement. At the same time, the vendor would provide delivery of a transfer and title of the land. | • Penalties | 1. Although it was not necessary for him to do so, Allsop J, at first instance, expressed the view that Mr Malouf should not be subject to any penalty, because he had exhibited sufficient care and displayed no impropriety. The Commissioner accepts his Honour's views in respect of the penalty issue in this case. | 2. The Commissioner considers that penalty matters should be decided having regard to the individual circumstances of each taxpayer and their actions. | 3. Consideration will be given to penalty remission requests by retirement village investors who have commenced proceedings in the Federal Court or the AAT. In making such a request, retirement village investors will be expected to outline their own particular circumstances and actions which they consider constitutes reasonable care.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None. [TR 94/24 has been withdrawn]", "Related_Documents": "Taxation Ruling TR 94/24 [now withdrawn] | 2009 ATC 20-099 | 284-90(1) | 8-1 | 93 ATC 5170 | 90 ATC 4461 | [1946] ALR 390 | 93 ATC 4214 | (1944) 71 CLR 596 | 2006 ATC 4404 | 88 CLR 492 | 94 ATC 4280 | 48 CLR 457 | 2001 ATC 4541 | 81 ATC 4031 | 166 CLR 245 | 77 ALR 205 | 90 ATC 4836", "Legislative_References": "Income Tax Assessment Act 1936 226G Taxation Administration Act 1953 284-90(1) item 3 of Part 4-25 Income Tax Assessment Act 1997 8-1", "Case_References": "Commissioner of Taxation v Woolcombers (WA) Pty Limited 47 FCR 561 27 ATR 302 93 ATC 5170 Commissioner of Taxation v Raymor (NSW) Pty Limited 24 FCR 90 21 ATR 458 90 ATC 4461 Automatic Fire Sprinklers Pty Ltd v Watson 72 CLR 435 [1946] ALR 390 Coles Myer Finance Ltd v FC of T [1993] HCA 29 93 ATC 4214 176 CLR 640 25 ATR 95 Emu Bay Railway Co Ltd v FC of T (1944) 71 CLR 596 FC of T v Citylink Melbourne Ltd [2006] HCA 35 2006 ATC 4404 62 ATR 648 228 CLR 1 FC of T v James Flood Pty Ltd [1953] HCA 65 88 CLR 492 [1953] ALR 903 Gasparin v FC of T 50 FCR 73 28 ATR 130 94 ATC 4280 McDonald v Dennys Lascelles Ltd [1933] HCA 25 48 CLR 457 39 ALR 381 Merrill Lynch International (Australia) Ltd v FC of T 113 FCR 79 2001 ATC 4541 47 ATR 611 Nilsen Development Laboratories Pty Ltd v FC of T [1981] HCA 6 81 ATC 4031 11 ATR 505 144 CLR 616 Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11 166 CLR 245 77 ALR 205 Ogilvy & Mather Pty Ltd v FC of T 95 ALR 663 21 ATR 841 90 ATC 4836", "Subject_References": "Deductions Penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD674of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Paul Andrew Burness & Anor (As Trustee for the Property of Robert Bottazzi, A Bankrupt)", "Venue_Reference_No": "VID 905 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "14 September 2009", "Date_Published": "5 March 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO response to this case which concerned whether the Administrative Appeals Tribunal (AAT) erred in exercising its discretion under subsection 227(3) of the Income Tax Assessment Act 1936 (ITAA 1936) to remit a tax shortfall penalty. | Decisions Outcome | Commissioner's appeal dismissed", "Overview_of_Facts": "Before the AAT [2008] AATA 890, the taxpayer argued that the capital gain on a sale of property was not assessable to him because he held the property on trust for a friend. In the alternative, he also argued that the cost base of the property should be increased to recognise improvements, and that the purchase of the property from his friend was not a dealing at arm's length, such that the cost base should be the higher market value of the property at the time that he became the registered owner. | The AAT was not satisfied that the taxpayer had discharged his burden of proving that the capital gain on the sale was not properly assessable to him. The AAT also accepted that there was an avoidance of tax due to evasion for the purposes of paragraph 170(2)(a) of the ITAA 1936, and that tax shortfall penalty was correctly imposed at 75% under section 226J of the ITAA 1936 because the shortfall was caused by the intentional disregard by the taxpayer of the law. However, the AAT then chose to exercise the discretion under subsection 227(3) of the ITAA 1936 to remit the tax shortfall penalty to 25%. | The Commissioner appealed to the Federal Court on the basis that the AAT had erred in law in taking into account five irrelevant considerations in deciding to remit the penalty, being four factors related to the conduct of the AAT hearing (findings were made against the taxpayer primarily due to his failure to discharge the burden of proof; the taxpayer was not legally represented at the hearing; the purchase price of the property was possibly less than its true market value: and the sale of the property occurred 10 years ago), and that the taxpayer was also liable for the general interest charge (GIC) liability over which the AAT had no jurisdiction. | At the time of the hearing of the appeal, the taxpayer was a bankrupt and his trustees were substituted as respondents. The trustees argued that the first three matters (failure to discharge the burden of proof, taxpayer unrepresented at the hearing and acquisition cost possibly less than true market value) were relevant to the exercise of the discretion and that the other two matters were not part of the AAT's remission decision. | Issues decided by the court | Gordon J rejected the Commissioner's argument that any of the five matters identified was an irrelevant consideration taken into account by the AAT in exercising its discretion to remit the tax shortfall penalty payable. Her Honour held that the discretion to remit is expressly unconfined, and it is relevant for the AAT to consider the particular circumstances of the taxpayer to determine if there would be a harsh outcome if the penalty were not remitted - a task that the AAT properly undertook (paragraphs 25 to 27). | Having regard to the subject matter, scope and purpose of the ITAA 1936, none of the first three considerations was extraneous to the power to remit (paragraph 28). In particular, her Honour found that: • the failure to discharge the onus of proof is not extraneous to the power to remit because the 'particular circumstances of the taxpayer' refer to the conduct of the taxpayer at all stages, including the conduct of his appeal before the AAT (paragraph 31); • the fact that the taxpayer was unrepresented before the AAT is not extraneous because it relates to the onus of proof and the ability of the taxpayer, for example, to show whether the amount of the capital gain should have been less because the cost base should have been higher (paragraphs 34 and 35); and • the possible non arm's length dealing is related to the first two considerations, and the AAT was able to assess that the taxpayer's conduct was not as culpable as might otherwise have been inferred had he been represented (paragraph 38). | • the failure to discharge the onus of proof is not extraneous to the power to remit because the 'particular circumstances of the taxpayer' refer to the conduct of the taxpayer at all stages, including the conduct of his appeal before the AAT (paragraph 31); • the fact that the taxpayer was unrepresented before the AAT is not extraneous because it relates to the onus of proof and the ability of the taxpayer, for example, to show whether the amount of the capital gain should have been less because the cost base should have been higher (paragraphs 34 and 35); and • the possible non arm's length dealing is related to the first two considerations, and the AAT was able to assess that the taxpayer's conduct was not as culpable as might otherwise have been inferred had he been represented (paragraph 38). | Her Honour found that the fact that the sale of the property occurred 10 years ago was not taken into account by the AAT in deciding to remit. However, even if this matter was taken into account by the AAT, it was relevant to the particular circumstances of the taxpayer because it related to the power of the Commissioner to amend the taxpayer's assessment under section 170 based on a finding of an avoidance of tax due to evasion (paragraphs 44 and 45). | Finally, her Honour found that the AAT's reference to GIC was a mere afterthought and was not a finding that another provision of the taxation law imposed a further liability on the taxpayer. If the reference to GIC had have been part of the AAT's decision, it would have been irrelevant, based on the Full Court's decision in Dixon , and would have warranted the setting aside of the decision (paragraphs 50-53).", "Issues_Decided": "Gordon J rejected the Commissioner's argument that any of the five matters identified was an irrelevant consideration taken into account by the AAT in exercising its discretion to remit the tax shortfall penalty payable. Her Honour held that the discretion to remit is expressly unconfined, and it is relevant for the AAT to consider the particular circumstances of the taxpayer to determine if there would be a harsh outcome if the penalty were not remitted - a task that the AAT properly undertook (paragraphs 25 to 27). Having regard to the subject matter, scope and purpose of the ITAA 1936, none of the first three considerations was extraneous to the power to remit (paragraph 28). In particular, her Honour found that: • the failure to discharge the onus of proof is not extraneous to the power to remit because the 'particular circumstances of the taxpayer' refer to the conduct of the taxpayer at all stages, including the conduct of his appeal before the AAT (paragraph 31); • the fact that the taxpayer was unrepresented before the AAT is not extraneous because it relates to the onus of proof and the ability of the taxpayer, for example, to show whether the amount of the capital gain should have been less because the cost base should have been higher (paragraphs 34 and 35); and • the possible non arm's length dealing is related to the first two considerations, and the AAT was able to assess that the taxpayer's conduct was not as culpable as might otherwise have been inferred had he been represented (paragraph 38). • the failure to discharge the onus of proof is not extraneous to the power to remit because the 'particular circumstances of the taxpayer' refer to the conduct of the taxpayer at all stages, including the conduct of his appeal before the AAT (paragraph 31); • the fact that the taxpayer was unrepresented before the AAT is not extraneous because it relates to the onus of proof and the ability of the taxpayer, for example, to show whether the amount of the capital gain should have been less because the cost base should have been higher (paragraphs 34 and 35); and • the possible non arm's length dealing is related to the first two considerations, and the AAT was able to assess that the taxpayer's conduct was not as culpable as might otherwise have been inferred had he been represented (paragraph 38). Her Honour found that the fact that the sale of the property occurred 10 years ago was not taken into account by the AAT in deciding to remit. However, even if this matter was taken into account by the AAT, it was relevant to the particular circumstances of the taxpayer because it related to the power of the Commissioner to amend the taxpayer's assessment under section 170 based on a finding of an avoidance of tax due to evasion (paragraphs 44 and 45). Finally, her Honour found that the AAT's reference to GIC was a mere afterthought and was not a finding that another provision of the taxation law imposed a further liability on the taxpayer. If the reference to GIC had have been part of the AAT's decision, it would have been irrelevant, based on the Full Court's decision in Dixon , and would have warranted the setting aside of the decision (paragraphs 50-53).", "ATO_View_of_Decision": "The Court applied the principles set out in Elias and Dixon to find that the AAT had not taken irrelevant considerations into account in exercising the discretion to remit shortfall penalty imposed. Those principles are consistent with the ATO view on how the exercise of the remission discretion is currently administered.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 94/4 | TR 94/7 | PS LA 2006/2 | 2009 ATC 20-135 | 170 | 14ZZK | 44(1) | 162 CLR 24 | 2008 ATC 20-015 | 2007 ATC 5071 | 2002 ATC 4579 | 2005 ATC 2173", "Legislative_References": "Income Tax Assessment Act 1936 Part VII 226J 227(3) 170 170AA Taxation Administration Act 1953 Div 1 of Part IIA 14ZZK Administrative Appeals Tribunal Act 1975 44(1)", "Case_References": "Minister for Aboriginal Affairs v Peko-Wallsend Ltd 162 CLR 24 [1986] HCA 40 Dixon v FCT 167 FCR 287 2008 ATC 20-015 69 ATR 627 BHP Billiton Direct Reduced Iron Pty Ltd v DFC of T [2007] FCA 1528 2007 ATC 5071 67 ATR 578 Elias v Commissioner of Taxation 123 FCR 499 2002 ATC 4579 50 ATR 253 Nyack Investments Pty Ltd v FCT [2005] AATA 468 2005 ATC 2173 59 ATR 1116", "Subject_References": "Remission of administrative penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID905of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Star City Pty Ltd (No 2)", "Venue_Reference_No": "VID 1155 of 2007", "Venue": "Federal Court of Australia", "Judgment_Date": "10 September 2009", "Date_Published": "19 July 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to the decision of the Full Federal Court that neither s 226L of the Income Tax Assessment Act 1936 nor s 284-145 of Schedule 1 to the Taxation Administration Act 1953 (s 284-145) applied to impose penalties in respect of the relevant years.", "Overview_of_Facts": "The applicant was the successful bidder for a casino licence in Sydney. It claimed a deduction for $120 million being rent for the casino site for the first 10 years of a 99 year lease. It made a pro-rated claim for deductions in accordance with s 82KZM of the ITAA 36; that is, a deduction for 1/10th of the outlay per year. The Commissioner disallowed each deduction. Penalties were imposed under s 226L and s 284-145 for the respective years at the rate of 50%. No other penalties were imposed. | The taxpayer objected and the Commissioner determined the objections unfavourably to the taxpayer. The taxpayer then appealed to the Federal Court. The matter was the subject of the decision reported at Star City Pty Limited v Commissioner of Taxation [2007] FCA 1701. | At first instance, Gordon J held that the outgoing was deductible under s 8-1, being on revenue account. She also held that Part IVA did not apply. | Whilst her Honour's conclusion as to deductibility of the payment precluded the question of penalties and interest arising, her Honour nevertheless went on to address the question of penalties. In doing so, she found that if Part IVA applied, a penalty would not have been imposed under s 226L because Star City's actual sole or dominant intention was not to obtain a tax benefit, being a precondition for the operation of the section; rather, its sole or dominant purpose was to be the successful bidder for the casino licence. Her Honour also held that no penalty was imposed under s 284-145 because Part IVA did not apply. However, if Part IVA had applied, the penalty imposed under that section would have been 25% because Star City's position on the application of Part IVA was reasonably arguable. | On the Commissioner's appeal, the Full Federal Court heard the substantive matter and held that the deductions were not allowable. That decision is reported as Commissioner of Taxation v Star City Pty Limited [2009] FCAFC 19. The Full Court (per Goldberg J, Jessup and Dowsett JJ in agreement) held that the effect of the decision was to reinstate the penalties. But because the imposition of penalties depended on a finding that Part IVA operates to deny the deductions, further submissions were required as to the order to be made in relation to penalties. After consideration of further submissions the Full Federal Court handed down its decision in relation to penalties. | Issues decided by the court | Goldberg & Jessup JJ held that neither s 226L nor s 284-145 applied to impose a penalty in the relevant years. | Dowsett J agreed with the majority in respect of the application of s 226L, but dissented in respect of the application of s 284-145. | The majority observed that s 226L would apply if there was a tax avoidance scheme that comes within the provisions of Part IVA but it was ineffective because the claim was disallowed under another taxation provision. The majority referred to Krampel Newman Partners Pty Ltd v Commissioner of Taxation (No 2 ) (2003) 126 FCR 561 as authority for their proposition. | Their Honours then went on to conclude that s 226L did not impose a penalty for the relevant income years because a condition of its application was not satisfied; namely, that the actual sole or dominant purpose of the scheme was to enable a person to pay no tax or less tax. The majority observed that while the Commissioner had challenged the objective finding of Gordon J in relation to s 177D as to sole or dominant purpose, the finding that there was no actual sole or dominant purpose was unchallenged in submissions by the Commissioner on the appeal. The Court noted that the Commissioner had instead argued that for the s 226L penalties to be set aside there had to be a finding from the Court that there was not a 'scheme entered into for the sole or dominant purpose of avoiding tax' within the meaning of s 226L. While their Honours agreed with the Commissioner that Federal Commissioner of Taxation v Starr (2007) 164 FCR 436 was authority for the proposition that the test in s 226L is a subjective test, they disagreed with the Commissioner that the requisite finding for the purpose of s 226L had not been made. The Court concluded that there had been a finding as to subjective purpose in the lower court and Star City was entitled to rely on it in the appeal. | The majority held that, unlike s 226L, s 284-145 does not apply to an ineffective scheme. They held that s 226L and s 284-145 \"are not equivalent provisions and do not operate in the same way\". They took note of the Revised Explanatory Memorandum for the Bill which was enacted as Act No 91 of 2000 which inserted the new penalty regime, including Division 284. They held that while the intention might have been that s 284-145 had the same effect as s 226L, this intention has not been carried into effect. They held that s 284-145(1)(a), read together with the definition of \"scheme benefit\" had the effect that the provision would apply only to a scheme which had been effective to obtain a scheme benefit. | The majority made no comment as to the nature of the test in terms of \"sole or dominant purpose\" under s 284-145(1)(b)(i); that is, whether it is subjective or objective. Having determined there was no effective scheme for the purpose of s 284-145(1)(a), it was not necessary to do so. | Dowsett J agreed with the majority's conclusion and largely concurred with their reasoning on the application of s 226L. However, he held that s 284-145 could have imposed a penalty in the relevant years. He held that s 284-145 applies not only to a scheme benefit actually derived but also those which are reasonably expected to be derived. The words \"get a scheme benefit from a scheme\" have an extended meaning whereby, pursuant to s 284-150(1) an entity \"gets\" a scheme benefit if a tax related liability is or could reasonably be expected to be less than it would be apart from the scheme. | Dowsett J then considered whether the test for determining sole or dominant purpose for the purposes of s 284-145 was subjective and concluded that it was not. He concluded that Starr is not authority for the proposition that the test pursuant to s 284-145 is subjective. Finally, Dowsett J noted that the primary Judge held that as Part IVA had not operated to negate any scheme benefit, no question of penalty pursuant to s 284-145 arose. In making such a finding the primary Judge did not consider the operation of s 284-145 in the event that the scheme benefit was negated pursuant to s 8-1, rather than Part IVA. As a result he found that the matter should be remitted for further consideration of that question.", "Issues_Decided": "Goldberg & Jessup JJ held that neither s 226L nor s 284-145 applied to impose a penalty in the relevant years. Dowsett J agreed with the majority in respect of the application of s 226L, but dissented in respect of the application of s 284-145. The majority observed that s 226L would apply if there was a tax avoidance scheme that comes within the provisions of Part IVA but it was ineffective because the claim was disallowed under another taxation provision. The majority referred to Krampel Newman Partners Pty Ltd v Commissioner of Taxation (No 2 ) (2003) 126 FCR 561 as authority for their proposition. Their Honours then went on to conclude that s 226L did not impose a penalty for the relevant income years because a condition of its application was not satisfied; namely, that the actual sole or dominant purpose of the scheme was to enable a person to pay no tax or less tax. The majority observed that while the Commissioner had challenged the objective finding of Gordon J in relation to s 177D as to sole or dominant purpose, the finding that there was no actual sole or dominant purpose was unchallenged in submissions by the Commissioner on the appeal. The Court noted that the Commissioner had instead argued that for the s 226L penalties to be set aside there had to be a finding from the Court that there was not a 'scheme entered into for the sole or dominant purpose of avoiding tax' within the meaning of s 226L. While their Honours agreed with the Commissioner that Federal Commissioner of Taxation v Starr (2007) 164 FCR 436 was authority for the proposition that the test in s 226L is a subjective test, they disagreed with the Commissioner that the requisite finding for the purpose of s 226L had not been made. The Court concluded that there had been a finding as to subjective purpose in the lower court and Star City was entitled to rely on it in the appeal. The majority held that, unlike s 226L, s 284-145 does not apply to an ineffective scheme. They held that s 226L and s 284-145 \"are not equivalent provisions and do not operate in the same way\". They took note of the Revised Explanatory Memorandum for the Bill which was enacted as Act No 91 of 2000 which inserted the new penalty regime, including Division 284. They held that while the intention might have been that s 284-145 had the same effect as s 226L, this intention has not been carried into effect. They held that s 284-145(1)(a), read together with the definition of \"scheme benefit\" had the effect that the provision would apply only to a scheme which had been effective to obtain a scheme benefit. The majority made no comment as to the nature of the test in terms of \"sole or dominant purpose\" under s 284-145(1)(b)(i); that is, whether it is subjective or objective. Having determined there was no effective scheme for the purpose of s 284-145(1)(a), it was not necessary to do so. Dowsett J agreed with the majority's conclusion and largely concurred with their reasoning on the application of s 226L. However, he held that s 284-145 could have imposed a penalty in the relevant years. He held that s 284-145 applies not only to a scheme benefit actually derived but also those which are reasonably expected to be derived. The words \"get a scheme benefit from a scheme\" have an extended meaning whereby, pursuant to s 284-150(1) an entity \"gets\" a scheme benefit if a tax related liability is or could reasonably be expected to be less than it would be apart from the scheme. Dowsett J then considered whether the test for determining sole or dominant purpose for the purposes of s 284-145 was subjective and concluded that it was not. He concluded that Starr is not authority for the proposition that the test pursuant to s 284-145 is subjective. Finally, Dowsett J noted that the primary Judge held that as Part IVA had not operated to negate any scheme benefit, no question of penalty pursuant to s 284-145 arose. In making such a finding the primary Judge did not consider the operation of s 284-145 in the event that the scheme benefit was negated pursuant to s 8-1, rather than Part IVA. As a result he found that the matter should be remitted for further consideration of that question.", "ATO_View_of_Decision": "The decision in relation to s 226L is dependent on the finding of fact by Gordon J, at first instance, that the taxpayer had no actual sole or dominant purpose of tax avoidance for the purpose of that provision. | The Commissioner also accepts the decision of the majority that s 284-145 does not apply if there was a tax avoidance scheme that comes within the provisions of Part IVA but was ineffective because the claim was disallowed under another taxation provision. The Commissioner agrees that such a construction is open on the words of the section. A legislative amendment would be necessary to ensure that s 284-145 is consistent in its operation with s 226L. | Where income tax provisions are invoked to disallow deductions, the general penalty provisions of Part VII of the ITAA 1936 or Subdivision 284B of the TAA 1953 may be used to impose a penalty in appropriate circumstances. Penalties may thus apply in the alternative where scheme penalties also apply. However in cases such as the present, no penalties under s 226J or s 226K would apply.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "None | 2009 ATC 20-129 | 2007 ATC 5447 | 2003 ATC 4304", "Legislative_References": "Income Tax Assessment Act 1936 226L Taxation Administration Act 1953", "Case_References": "Federal Commissioner of Taxation v Starr (2007) 164 FCR 436 2007 ATC 5447 67 ATR 923 Krampel Newman Partners Pty Ltd v Commissioner of Taxation (No 2) (2003) 126 FCR 561 [2003] FCA 123 2003 ATC 4304 52 ATR 239", "Subject_References": "Income tax Deductions Capital or revenue Penalties Scheme penalties Actual sole or dominant purpose.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1155of2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Sydney Refractive Surgery Centre Pty Ltd", "Venue_Reference_No": "NSD 601 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "18 December 2008", "Date_Published": "15 December 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the assessability under section 6-5 of the Income Tax Assessment Act 1997 of an amount in relation to damages awarded to a corporate taxpayer as a result of defamation proceedings.", "Overview_of_Facts": "This was an appeal to the Full Federal Court from a decision of a single judge. | On 18 March 2004, the Supreme Court of New South Wales entered judgment in favour of the taxpayer for $844,624.00 following the jury verdict in favour of the taxpayer against the respondent for publishing false and misleading statements as to the nature and quality of laser eye surgery services provided by the taxpayer. The Commissioner included that amount (less $31,898 allowed as costs) in the taxpayer's assessable income in the year it was paid. The taxpayer objected and the objection was disallowed. The taxpayer subsequently appealed. | The Supreme Court assessed damages on a lost profits basis. The formula applied was the actual number of surgical procedures which did not occur as a result of the adverse impact of the defamatory publications, multiplied by the average gross revenue per procedure then subtracted the costs which would have been incurred in performing those procedures and subtracted the amount of tax that would have been levied. | The judge and parties to the Supreme Court proceedings all assumed that the damages award itself would not be assessable as ordinary income. The Court relied on the English view described by the primary judge as the Gourley principle (referring to British Transport Commission v Gourley ) which was approved by the High Court. The principle is that notional tax savings must be taken into consideration when calculating damages in order to ensure that the plaintiff is not overcompensated for its loss. Applying this principle, the Supreme Court reduced the damages awarded by 36 percent, representing the estimated tax payable on the additional surgical procedures. | Issues decided by the court or tribunal | The Full Federal Court held that the proper test is to look at the character of the payment in the hands of the taxpayer. For an award of damages, that test requires an examination of the nature of the claim or cause of action, in respect of which the payment was made, and not how the payment was formulated. In this case, the damage was to the corporation's reputation which is part of what enables it to earn money. An injury to that reputation diminishes its capacity to earn because it reduces the corporation's ability to induce others to do business with it. The Court said that an award of damages for that injury is therefore no different from an award for the loss of an arm or any other injury impairing earning capacity.", "Issues_Decided": "The Full Federal Court held that the proper test is to look at the character of the payment in the hands of the taxpayer. For an award of damages, that test requires an examination of the nature of the claim or cause of action, in respect of which the payment was made, and not how the payment was formulated. In this case, the damage was to the corporation's reputation which is part of what enables it to earn money. An injury to that reputation diminishes its capacity to earn because it reduces the corporation's ability to induce others to do business with it. The Court said that an award of damages for that injury is therefore no different from an award for the loss of an arm or any other injury impairing earning capacity.", "ATO_View_of_Decision": "The ATO did not seek special leave to appeal as the decision of the Full Federal Court was open to it on the facts of the case. In addition, its application to corporations needs to be considered in light of amendments subsequently made to the defamation laws in all of the states and territories. An example is to be found at section 9 of the Defamation Act 2005 (NSW) where certain corporations do not have a cause of action for defamation.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "Nil | 2008 ATC 20-081 | 6-5 | [1956] AC 185 | 80 ATC 4185 | (1996) 96 ATC 4425 | [1964] AC 234 | [2008] ATC 20-036 | 2007 ATC 4420", "Legislative_References": "Income Tax Assessment Act 1997 6-5", "Case_References": "British Transport Commission v Gourley [1955] UKHL 4 [1956] AC 185 Cullen v Trappell [1980] HCA 10 (1980) 146 CLR 1 80 ATC 4185 (1980) 10 ATR 772 Eisner v Macomber [1919] USSC 119 (1920) 252 US 189 Liftronic Pty Ltd v Commissioner of Taxation (1996) 66 FCR 175 (1996) 32 ATR 557 (1996) 96 ATC 4425 London and Thames Haven Oil Wharves Ltd v Attwooll [1967] 2 All ER 124 Polone v Commissioner of Internal Revenue 505 F3d 966 (9th Cir 2007) Roemer v Commissioner of Internal Revenue [1983] USCA9 1596 716 F2d 693 (9th Cir 1983) Rubber Improvement Ltd v Daily Telegraph Ltd [1964] AC 234 [1963] 2 All ER 151 [1963] 2 WLR 1063 Sydney Refractive Eye Surgery Centre Pty Ltd v Beaumont [2004] NSWSC 164 Sydney Refractive Surgery Centre Pty Ltd v Commissioner of Taxation [2008] FCA 454 (2008) 247 ALR 313 (2008) 70 ATR 874 [2008] ATC 20-036 Tourism Holdings Australia Pty Ltd v Commissioner of Taxes [2007] NTSC 22 (2007) 210 FLR 80 2007 ATC 4420 (2007) 66 ATR 262 United States v Kaiser [1960] USSC 93 (1960) 363 US 299 Upenieks v Canada [1995] 1 CTC 8D Welch v Helvering [1933] USSC 140 (1933) 290 US 111 Whyte v Morin [2008] BCWLD 3470 Z-Tel Communications Inc v SBC Communications Inc 331 FSupp2d 513 (ED Tex 2004)", "Subject_References": "Income tax Derivation of Income Compensation receipts Character of receipts", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD601of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Tasman Group Services Pty Ltd", "Venue_Reference_No": "164 of 2008; 165 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "22 October 2009", "Date_Published": "12 August 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The application of the commercial debt forgiveness provisions in Division 245 of Schedule 2C of the Income Tax Assessment Act 1936 to debts of a resident subsidiary company forgiven by its non-resident parent.", "Overview_of_Facts": "The taxpayer, a wholly owned subsidiary of a Japanese resident company (the parent ), operated an Australian meat processing and exporting business. Between November 1996 and January 1997, three loans were made by the parent to the taxpayer to fund, in part, the acquisition of the business. The business suffered substantial trading losses and subsequent loans were made by the parent to the taxpayer between June 1999 and February 2002 to finance the taxpayer's ongoing operations. Each of the loans was made under a written agreement. The law of Japan was specified as the law governing each loan contract. The loan agreements were prepared and executed by the parent in Japan. Initially, the loan agreements provided for the payment of interest and for withholding tax on the interest payment to be deducted by the taxpayer and paid to the taxation authority. From June 2000, the parent agreed to exempt the taxpayer from interest on the earlier loans and subsequent loans were interest free. Amending agreements were made to extend the time of repayment of the loans, which were all eventually repayable on 31 March 2002. | From November 1996, three executives from the parent were assigned to the taxpayer to take an active role in the day to day business operations and management of the taxpayer. They occupied offices at the taxpayer's head office at Altona in Victoria. The executives remained employees of the parent, but two were appointed as directors of the taxpayer. The taxpayer paid a fee to the parent under a formal agreement for the services of the executives. Decisions concerning matters such as capital expenditure, payroll, staffing levels, repairs and maintenance and export marketing were subject to approval by the parent, based on submissions and recommendations by the three executives. | After the acquisition of the business by the taxpayer various proposals were discussed between the taxpayer's bankers, the ANZ, and the parent. The ANZ had initially requested that the parent loans be subordinated, but accepted instead legally enforceable undertakings given by the parent that the loans would not be withdrawn without ANZ's consent. Based on that undertaking, the ANZ agreed to treat the loans as shareholder funds for lending covenant purposes. | In April 1999, the taxpayer's auditors required a letter of comfort from the parent before they would sign the accounts. The parent provided letters of comfort on 25 May 1999 and again on 20 November 2001. The letters of comfort provided that the parent would not call for repayment of the loans prior to 30 November 2001 and 30 September 2003 respectively, and that it would continue to provide ongoing financial support to enable the taxpayer to meet its liabilities as and when they fell due. | Pursuant to an agreement dated 27 February 2002, the parent sold its shares in the taxpayer to Tasman Group Holding Pty Ltd. It was a term of the sale agreement that the parent was to ensure \" no amount of financial indebtedness exists .\" Financial indebtedness was defined to include the amount owed by the taxpayer to the parent. Minutes of a meeting of directors of the taxpayer held on 1 March 2002 recorded that the parent had agreed to cancel the loans and, following completion of the sale, entries in the taxpayer's accounts recorded a forgiveness of the amount owing to the parent of $118,696,459. | At first instance, Heerey J held that the amounts owed under the loans were debts, Division 245 commercial debts and that they had been forgiven. However, Heerey J also held that the debts had been \" used \" by the parent in carrying on a business through a permanent establishment in Australia. That business was said by his Honour to have been carried on by the parent through its wholly owned subsidiary, the taxpayer, at the head office and plant at Altona and at other plants at Longford in Tasmania and on King Island. In that case, in working out the notional value of the debt forgiven for the purposes of Division 245 of Schedule 2C to the Income Tax Assessment Act 1936, the assumption of solvency in ss.245-55(2)(a) and (3)(a)(i) did not apply. | The Commissioner appealed the last aspect of the judgment of Heerey J. The taxpayer cross-appealed his Honour's conclusion that the loans were debts, division 245 commercial debts and that they had been forgiven. | Issues decided by the court | The amounts owed by the taxpayer under the loans from the parent were debts within the meaning of s.245-15. The extension of time for repayment of the loans and the covenants in the letters of comfort altered the time for performance, but did not relieve the taxpayer of the legal obligation to repay. | The debts were commercial debts within the meaning of s.245-25 because interest initially payable on the loans by the taxpayer was an allowable deduction and had interest been payable subsequently from June 2000, it would also have been an allowable deduction. The taxpayer's submission that any interest payable on the acquisition and subsequent loans was, or would have been, an outgoing of capital or of a capital nature was rejected. Instead, the Full Federal Court held that the taxpayer's purpose of entering into the loans is determinative of the nature of the outgoing. Here the evidence established that the taxpayer entered into the loans for the purpose of earning assessable income, albeit that it was not successful in doing so. | Pursuant to s.245-35(1), the taxpayer's obligation to pay the debt was released or waived, or otherwise extinguished. Contrary to the taxpayer's submission, the Full Federal Court held that there was no requirement that the debt be expressly forgiven. The evidence established that there was a clear intention that the debt be waived. Both the parent and the taxpayer were parties to the share sale agreement, which provided that there be \" no amount of financial indebtedness \" on the completion date, the parent had agreed to cancel all of the loans and the taxpayer's financial records recorded the debt forgiveness. Moreover, waiver by implication is permissible under Japanese law, which governed each loan contract. | The forgiveness of the debt did not have the necessary connection with Australia as required by s.245-55(4)(a)(ii). Contrary to what Heerey J held below, the Full Federal Court found that the [meat processing and exporting] business was that of the taxpayer, not the parent. It was the Commissioner's submission that the business conducted by the parent in Australia was the supply of executives to the taxpayer, and that the permanent establishment for that business was at the head office at Altona where accommodation was provided to the executives. The taxpayer submitted that the parent carried on business through a permanent establishment in Australia as a holding company, managing and financing its subsidiary in Australia. On either characterisation, the Full Federal Court did not accept that the parent carried on a business through a permanent establishment in Australia and said that the proper question was how the debts were used by the parent. Consistent with the Commissioner's argument that no use of the debt in a business carried on by the parent at a permanent establishment in Australia arises on the facts, the Full Federal Court found that the use of the debts consisted of receiving interest payments or debiting the taxpayer in respect of its liability and extending from time to time the date for repayment of principal and interest. That use occurred in Japan and not Australia. Consequently, the assumption of solvency applied in calculating the notional value of debt forgiven by the parent.", "Issues_Decided": "The amounts owed by the taxpayer under the loans from the parent were debts within the meaning of s.245-15. The extension of time for repayment of the loans and the covenants in the letters of comfort altered the time for performance, but did not relieve the taxpayer of the legal obligation to repay. The debts were commercial debts within the meaning of s.245-25 because interest initially payable on the loans by the taxpayer was an allowable deduction and had interest been payable subsequently from June 2000, it would also have been an allowable deduction. The taxpayer's submission that any interest payable on the acquisition and subsequent loans was, or would have been, an outgoing of capital or of a capital nature was rejected. Instead, the Full Federal Court held that the taxpayer's purpose of entering into the loans is determinative of the nature of the outgoing. Here the evidence established that the taxpayer entered into the loans for the purpose of earning assessable income, albeit that it was not successful in doing so. Pursuant to s.245-35(1), the taxpayer's obligation to pay the debt was released or waived, or otherwise extinguished. Contrary to the taxpayer's submission, the Full Federal Court held that there was no requirement that the debt be expressly forgiven. The evidence established that there was a clear intention that the debt be waived. Both the parent and the taxpayer were parties to the share sale agreement, which provided that there be \" no amount of financial indebtedness \" on the completion date, the parent had agreed to cancel all of the loans and the taxpayer's financial records recorded the debt forgiveness. Moreover, waiver by implication is permissible under Japanese law, which governed each loan contract. The forgiveness of the debt did not have the necessary connection with Australia as required by s.245-55(4)(a)(ii). Contrary to what Heerey J held below, the Full Federal Court found that the [meat processing and exporting] business was that of the taxpayer, not the parent. It was the Commissioner's submission that the business conducted by the parent in Australia was the supply of executives to the taxpayer, and that the permanent establishment for that business was at the head office at Altona where accommodation was provided to the executives. The taxpayer submitted that the parent carried on business through a permanent establishment in Australia as a holding company, managing and financing its subsidiary in Australia. On either characterisation, the Full Federal Court did not accept that the parent carried on a business through a permanent establishment in Australia and said that the proper question was how the debts were used by the parent. Consistent with the Commissioner's argument that no use of the debt in a business carried on by the parent at a permanent establishment in Australia arises on the facts, the Full Federal Court found that the use of the debts consisted of receiving interest payments or debiting the taxpayer in respect of its liability and extending from time to time the date for repayment of principal and interest. That use occurred in Japan and not Australia. Consequently, the assumption of solvency applied in calculating the notional value of debt forgiven by the parent.", "ATO_View_of_Decision": "The decision is consistent with the Commissioner's view that amounts owed under the loans were commercial debts that were forgiven by the parent. It is true that the conclusion of the Full Federal Court that the parent did not carry on a business through a permanent establishment in Australia is inconsistent with the concession made by the Commissioner that the parent's business in Australia was the supply of executives at a permanent establishment at the taxpayer's head office. However, the Commissioner agrees with the finding of the Full Federal Court that on the facts of this particular case the parent did not use the debts in carrying on any business through a permanent establishment in Australia. | The assumption of solvency in the commercial debt forgiveness provisions has the effect that the amount to be treated as forgiven is, broadly speaking, the full (nominal) amount of the debt. However, s.245-55(4) displaces the assumption in certain cases where the debt, from the point of view of a non-resident creditor, has the necessary connection with Australia . This ensures a fair outcome overall, after the Australian CGT position of the creditor is taken into account. In this case the debts did not have the necessary connection with Australia , the consequence of which is that the assumption of solvency applied in calculating the notional value of the debts forgiven. | Subparagraph 245-55(4)(a)(ii) was amended so as to apply to CGT events happening on or after 12 December 2006, by substituting \" that was taxable Australian property \" for \" having the necessary connection with Australia \". Pursuant to Item 3 of the table at s.855-15 of the Income Tax Assessment Act 1997 taxable Australian property includes a CGT asset \" used at any time in carrying on a business through a permanent establishment (within the meaning of section 23AH of the Income Tax Assessment Act 1936) in Australia \". Notwithstanding the amendment to s.245-55(4)(a)(ii), the decision of the Full Federal Court will continue to be relevant to the application of the commercial debt forgiveness provisions, including in the case of non-arm's length debts forgiven by non-resident creditors.", "Administrative_Treatment": "None", "Related_Documents": "N/A | 2009 ATC 20-138 | 6 | 104-25 | 108-5 | 71 CLR 596 | 2003 ATC 5099 | 90 ATC 4413 | [1920] HCA 64 | (1937) 59 CLR 641 | [1937] HCA 58 | (1990) 170 CLR 394 | 80 ATC 4386", "Legislative_References": "Income Tax Assessment Act 1936 6 Div. 245 of Sch. 2C Income Tax Assessment Act 1997 104-25 108-5 136-25", "Case_References": "Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 71 CLR 596 Spassked Pty Ltd v Commissioner of Taxation [2003] FCAFC 282 2003 ATC 5099 54 ATR 546 GP International Pipecoaters Proprietary Limited v Federal Commissioner of Taxation [1990] HCA 25 170 CLR 124 21 ATR 1 90 ATC 4413 Craine v The Colonial Mutual Fire Insurance Company Limited [1920] HCA 64 28 CLR 305 Grundt v The Great Boulder Proprietary Gold Mines Limited (1937) 59 CLR 641 [1937] HCA 58 The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Hope v The Council of the City of Bathurst [1980] HCA 16 144 CLR 1 12 ATR 231 80 ATC 4386", "Subject_References": "debt commercial debt forgiveness of debt CGT asset necessary connection with Australia use of debt in carrying on a business through a permanent establishment", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/164of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "ConnectEast Management Ltd (as Trustee for the ConnectEast Investment Trust 2) v Commissioner of Taxation", "Venue_Reference_No": "VID 347 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "5 March 2009", "Date_Published": "16 November 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerns how the words 'each of one or more trusts of a higher level' in ss.272-127(1) of Schedule 2F to the Income Tax Assessment Act 1936 are to be interpreted | The taxpayer's application for special leave to appeal to the High Court was refused on 4 September 2009", "Overview_of_Facts": "ConnectEast Management Limited is the trustee of three trusts which are referred to in the judgment as the Subsidiary Trust, the Holding Trust and the Investment Trust. ConnectEast Management Limited and other related companies and trusts form the ConnectEast Group which is responsible for constructing and operating the Eastlink Tollway in Melbourne. | The case arose from an objection to a private binding ruling issued by the Commissioner which ruled that the Subsidiary Trust (an unlisted widely held trust (UWHT)) did not acquire the status of a listed widely held trust (LWHT) - a status of higher level - even though all its units were owned by two listed widely held trusts being the Holding Trust and the Investment Trust. | In this case, the taxpayer sought to be reclassified from an UWHT to a LWHT in order to gain access to tests in the trust loss measures unavailable to UWHTs which, if satisfied, would allow for losses from past years to be offset against income from a current year. In particular, the taxpayer sought to be reclassified to ensure that if continuity of ownership ceased to be maintained, the trust would nonetheless still be able to recoup its carry forward losses by relying on the same business test. | Appeals | At first instance, the Federal Court (Heerey J) (2008) ATC 20-024 dismissed the taxpayer's appeal holding that the preconditions for subsection 272-127(1) to be engaged were not satisfied. | The taxpayer appealed to the Full Federal Court. The Full Federal Court (Sundberg, Jessup and Middleton JJ) (2009) ATC 20-095 dismissed the taxpayer's appeal and unanimously agreed with the primary judge's construction of section 272-127. | The taxpayer applied for special leave to appeal from the Full Federal Court to the High Court but leave was refused by Hayne and Crennan JJ on the basis that the taxpayer had insufficient prospects of success. | Issue decided by the Court | The precise issue that fell to be determined by the courts was whether it was possible for paragraph 272-127(1)(b) to apply when two higher level trusts together, but neither individually, had fixed entitlements to all of the income and capital of a subsidiary trust. | At first instance, Heerey J held that section 272-127 requires each of the relevant trusts of a higher level to hold, directly or indirectly (i.e. via interposed entities), fixed entitlements to all of the income and capital of the taxpayer. In this case, neither of the higher level trusts owned, directly or indirectly, 100% of the subsidiary. | His Honour also held that the language of subsection 272-127(1) did not require that where there is more than one trust of a higher level than the subsidiary trust which owns directly or indirectly all of the income of capital of the subsidiary, the higher level trusts must all be of the same level. Rather, the only requirement of the subsection is that the parent trusts must each be \"of a higher level\" than the subsidiary. | The Full Federal Court agreed with the reasoning of the primary judge and held that subsection 272-127(1) does not permit reclassification of a subsidiary trust in cases of collective ownership. Instead, the subsection only finds operation where fixed entitlements to all of the income and capital of the subsidiary trust are held (directly or indirectly) by a single trust of a higher level. | The Full Court held that this interpretation was consistent with the clear language of the subsection and its clearly expressed purpose, as set out in the relevant passages from the Explanatory Memorandum which accompanied the introduction of Schedule 2F as a schedule to the ITAA 1936.", "Issues_Decided": "The precise issue that fell to be determined by the courts was whether it was possible for paragraph 272-127(1)(b) to apply when two higher level trusts together, but neither individually, had fixed entitlements to all of the income and capital of a subsidiary trust. At first instance, Heerey J held that section 272-127 requires each of the relevant trusts of a higher level to hold, directly or indirectly (i.e. via interposed entities), fixed entitlements to all of the income and capital of the taxpayer. In this case, neither of the higher level trusts owned, directly or indirectly, 100% of the subsidiary. His Honour also held that the language of subsection 272-127(1) did not require that where there is more than one trust of a higher level than the subsidiary trust which owns directly or indirectly all of the income of capital of the subsidiary, the higher level trusts must all be of the same level. Rather, the only requirement of the subsection is that the parent trusts must each be \"of a higher level\" than the subsidiary. The Full Federal Court agreed with the reasoning of the primary judge and held that subsection 272-127(1) does not permit reclassification of a subsidiary trust in cases of collective ownership. Instead, the subsection only finds operation where fixed entitlements to all of the income and capital of the subsidiary trust are held (directly or indirectly) by a single trust of a higher level. The Full Court held that this interpretation was consistent with the clear language of the subsection and its clearly expressed purpose, as set out in the relevant passages from the Explanatory Memorandum which accompanied the introduction of Schedule 2F as a schedule to the ITAA 1936.", "ATO_View_of_Decision": "The decision confirms the Commissioner's view that for the operation of subsection 272-127(1) to be engaged it must be the case that there is at least one trust of a higher level which, in its own right, holds directly or indirectly fixed entitlements to all of the income and capital of the subsidiary trust seeking reclassification: see also ATO ID 2006/317.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "No relevant rulings and determinations considered. | 2009 ATC 20-095 | 272-127 of Schedule 2F | 272-120 of Schedule 2F | 272-125 of Schedule 2F | (1990) 90 ATC 4472 | (1998) 40 ATR 512 | [2001] NSWSC 1101 | (2001) 54 NSWLR 122 | [1998] HCA 28 | (1998) 194 CLR 355 | (1998)153 ALR 490", "Legislative_References": "Income Tax Assessment Act 1936 272-127 of Schedule 2F 272-120 of Schedule 2F 272-125 of Schedule 2F", "Case_References": "Commissioner of Taxation v Cooling (1990) 22 FCR 42 (1990) 90 ATC 4472 (1990) 21 ATR 13 Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 83 FCR 511 (1998) 40 ATR 512 Ganter v Whalland [2001] NSWSC 1101 (2001) 54 NSWLR 122 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28 (1998) 194 CLR 355 (1998)153 ALR 490", "Subject_References": "income tax trust losses and other deductions fixed trusts unlisted widely held trust listed widely held trust whether classification affected by a higher level trust", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID347of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Electrical Goods Importer and Commissioner of Taxation", "Venue_Reference_No": "2008/4523", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "6 November 2009", "Date_Published": "17 November 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned a cash back payment by an importer of electrical goods to a domestic purchaser of those goods. The issue was whether the payment changes the consideration for any supply by the importer for GST purposes.", "Overview_of_Facts": "The taxpayer imports electrical goods, and sells them to retailers. The retailers then on-sell the electrical goods to their customers. | In 2004, 2005 and 2007, the taxpayer ran a promotion to give \"cash back\" to domestic purchasers of some of its products in the promotional period. | Under the cash back promotion, the taxpayer provided retailers with advertising material and cash back vouchers. The taxpayer would also visit retailers to brief them on the terms of the cash back promotion. | Retailers that sold qualifying products to customers would provide their customers with cash back vouchers. A customer would send the voucher to the taxpayer together with the original tax invoice. The taxpayer would assess the claim against the qualifying criteria, and if the claim was valid, send the customer a cheque for the appropriate cash back amount. The amount of cash back provided was no greater than $400. | The cash back promotion was instigated, and to a large extent managed, by the taxpayer. | The taxpayer claimed that the payment of the cash back amount reduced its net amount by either reducing the consideration for the supply of the electrical good to the retailer if the payment was in the same tax period as the supply of the electrical good, or gave rise to an adjustment event if it occurred in a subsequent period. | Issues decided by the court or tribunal | The Tribunal considered that cash back payments by the importer did not have the effect of changing the consideration for the supplies by the taxpayer to retailers. | The Tribunal held that the words \"in connection with\" in the definition of consideration must be construed by reference to a supply. When the customer claims the amount of his cash back entitlement and payment is made by the taxpayer, that payment is not made in connection with either the supply by the taxpayer to the retailer, or the supply by the retailer to the customer. The consideration for each of those supplies remains unaltered.", "Issues_Decided": "The Tribunal considered that cash back payments by the importer did not have the effect of changing the consideration for the supplies by the taxpayer to retailers. The Tribunal held that the words \"in connection with\" in the definition of consideration must be construed by reference to a supply. When the customer claims the amount of his cash back entitlement and payment is made by the taxpayer, that payment is not made in connection with either the supply by the taxpayer to the retailer, or the supply by the retailer to the customer. The consideration for each of those supplies remains unaltered.", "ATO_View_of_Decision": "The decision supports the view in paragraph 40 of GSTR 2000/19 (as amended by an addendum issued on 17 December 2003): | An entity (such as a manufacturer) may offer to make a payment to a third party end user if the end user acquires a thing from another entity (such as a retailer). Typically, the manufacturer will make the payment directly to the end user independently of the retailer. The payment is made pursuant to a separate agreement between the end user and the manufacturer but not involving the retailer. A payment made in these circumstances cannot give rise to an adjustment event. It does not change the consideration received by the retailer for the supply by the retailer to the end user, nor does it change the consideration received by the manufacturer for the supply by the manufacturer to the retailer. A change in the consideration for these supplies cannot occur independently of the retailer. [footnotes omitted] | There was some argument as to whether the payment was made independently of the retailer. However, the Tax Office considers that in this case the administrative assistance provided by retailers did not provide a sufficiently strong link to the supplies from the taxpayer to retailers for the cash back to constitute a price adjustment for those supplies. In this respect, it is relevant that the Tribunal found that the cash back promotion was instigated, and to a large extent managed, by the taxpayer.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The decision is consistent with the Tax Office's existing rulings. | However, since the decision was handed down, the GST Act has been amended to provide for adjustments for third party rebates. These amendments operate in relation to payments made on or after 1 July 2010. If the relevant criteria in section 134-5 of the GST Act are met, an entity in the position of the taxpayer making a payment on or after 1 July 2010 will be entitled to a decreasing adjustment. The Tax Office updated GSTR 2000/19 by issuing an addendum on 21 September 2011 to take account of this legislative amendment.", "Related_Documents": "GSTR 2000/19 | GSTR 2000/11 | 2009 ATC 1-018 | 74 ATR 982 | 9-15 | 19-10 | 2005 ATC 4571 | 2009 ATC 20-110 | 2008 ATC 20-028 | (1987) 15 FCR 487", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 9-15 19-10", "Case_References": "HP Mercantile Pty Ltd v FCT (2005) 143 FCR 453 60 ATR 106 2005 ATC 4571 TT-Line Company Pty Limited v FCT [2009] FCA 658 2009 ATC 20-110 72 ATR 982 FCT v Reliance Carpet Co Pty Ltd [2008] HCA 22 68 ATR 158 2008 ATC 20-028 Hatfield v Health Insurance Commission (1987) 15 FCR 487 Elida Gibbs Ltd v Customs and Excise Commissioners [1997] All ER 53 [1996] ECR I-5339", "Subject_References": "Third party rebates Adjustment events Consideration", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/4523/00001", "Unmatched_Content": ""}
{"Case_Name": "Employee Investment Co Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2007/1401", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 May 2009", "Date_Published": "23 October 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially unfavourable", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether amounts deposited into a taxpayer's bank account represented consideration for taxable supplies. Whether a penalty for recklessly failing to declare the taxable supply was correctly applied.", "Overview_of_Facts": "• In each of its BASs for the quarterly tax periods 1 July 2001 to 31 December 2003 ('the relevant tax periods') the Applicant declared nil activity. • The Respondent issued Notices of Assessment of Net Amount on the basis that amounts deposited to the Applicant's bank account were consideration received for making taxable supplies. The Respondent assessed a shortfall for each quarter, with the total shortfall amounting to $341,040. • Additionally, the Respondent issued a Notice of Assessment of penalty of 50% of the shortfall amounts for each of the relevant tax periods, for recklessness as to the operation of a taxation law, pursuant to item 2 of s 284-90(1) of the Taxation Administration Act 1953. The base penalty amount of 50% was increased by 20%. (This 20% increase in penalty was abandoned by the Respondent in the course of the hearing before the Tribunal.) • The Applicant objected to the GST assessments and the penalty assessment. • The Respondent allowed the objection in part for the quarter ending 31 December 2003 by reducing the tax shortfall by $228,573, but disallowed the remainder. The penalty percentage rate was not reduced but the total penalty payable was reduced from $204,624 to $67,470.20 as a consequence of the reduction in net amount. • The Applicant applied to the Tribunal for a review of the objection decision. • The Applicant contended that a significant proportion of amounts received were not consideration for taxable supplies and were not subject to GST (being loans, damages paid arising from litigation, rent received from commercial premises, reimbursements made to the Applicant and consideration arising from the refinancing of a mortgage). The Applicant also claimed that, in any event, it was entitled to input tax credits (ITCs) which would offset any GST payable on supplies. • The Respondent contended that the Applicant had not discharged its onus to establish that the GST assessments were excessive and that by failing to declare any amounts in its BASs, the Applicant had approached its tax obligations in a reckless manner. | • In each of its BASs for the quarterly tax periods 1 July 2001 to 31 December 2003 ('the relevant tax periods') the Applicant declared nil activity. • The Respondent issued Notices of Assessment of Net Amount on the basis that amounts deposited to the Applicant's bank account were consideration received for making taxable supplies. The Respondent assessed a shortfall for each quarter, with the total shortfall amounting to $341,040. • Additionally, the Respondent issued a Notice of Assessment of penalty of 50% of the shortfall amounts for each of the relevant tax periods, for recklessness as to the operation of a taxation law, pursuant to item 2 of s 284-90(1) of the Taxation Administration Act 1953. The base penalty amount of 50% was increased by 20%. (This 20% increase in penalty was abandoned by the Respondent in the course of the hearing before the Tribunal.) • The Applicant objected to the GST assessments and the penalty assessment. • The Respondent allowed the objection in part for the quarter ending 31 December 2003 by reducing the tax shortfall by $228,573, but disallowed the remainder. The penalty percentage rate was not reduced but the total penalty payable was reduced from $204,624 to $67,470.20 as a consequence of the reduction in net amount. • The Applicant applied to the Tribunal for a review of the objection decision. • The Applicant contended that a significant proportion of amounts received were not consideration for taxable supplies and were not subject to GST (being loans, damages paid arising from litigation, rent received from commercial premises, reimbursements made to the Applicant and consideration arising from the refinancing of a mortgage). The Applicant also claimed that, in any event, it was entitled to input tax credits (ITCs) which would offset any GST payable on supplies. • The Respondent contended that the Applicant had not discharged its onus to establish that the GST assessments were excessive and that by failing to declare any amounts in its BASs, the Applicant had approached its tax obligations in a reckless manner. | Issues decided by the tribunal | Deposits that the Applicant contended were loans | • The Tribunal accepted that deposits totalling $29,500 were amounts loaned to the Applicant by Ms Turberville (a director and shareholder of the Applicant) and were not subject to GST. The Tribunal accepted Ms Turberville's evidence that she deposited amounts of $500 into the Applicant's account every fortnight from her salary by way of an interest free loan that was repayable on demand. A backdated document evidencing the loan was considered unreliable, but Commonwealth Bank (CBA) statements verified the source of the payments as being from Ms Turberville. The form regularity of the fortnightly payments as well as the CBA bank statements constituted independent confirmatory evidence. The evidence satisfied the Tribunal that, on the balance of probabilities, the Applicant had established that the amounts were deposited by Ms Turberville as loans to the Applicant. • The Tribunal accepted that deposits totalling $60,000 were amounts loaned to the Applicant by Mrs Fitton, interest free and payable on demand and were not subject to GST. The Tribunal accepted Mrs Fitton's evidence, supported by confirmation in the CBA bank statements that the drawer of the cheques deposited was 'JM Fitton'. An acknowledgement of the loan, prepared by Mrs Fitton and signed by both Mr and Mrs Fitton, was also produced. • In relation to deposits totalling $227,230.56: - Deposits in the amount of $38,491 were held to represent consideration received for taxable supplies and were subject to GST. There was no supporting documentation, such as a loan agreement, or receipt or acknowledgement issued by the Applicant, to show that the amounts were in fact loans to the Applicant. - The Tribunal found that a deposit in the amount of $188,739.56 made on 26 November 2003 represented a deposit by way of loan made by Mr Fitton and therefore did not represent a taxable supply. Mr Marotta from the National Australia Bank (NAB) gave evidence that the money came from Mr Fitton's own funds. The timing of the deposit suggested that it was connected with the repayment of a debt owed to the NAB. • The Tribunal was satisfied that an amount of $186,242.60 was a loan made to the Applicant in order to repay amounts outstanding to the NAB and did not represent consideration for a taxable supply. Letters confirmed the existence of an ongoing facility which was related to two deposits (of $1,514,303.36 and $186,242.60 on 26 November 2003) made from the CBA and its subsidiary as part of a refinancing arrangement with the NAB (the deposit of $1,514,303.36 having been accepted by the Respondent as being made for this purpose). The Applicant's CBA account for that date also recorded establishment fees and other costs being debited to the Applicant's account, as well as a payment to the NAB of $1,932,982.65. | • The Tribunal accepted that deposits totalling $29,500 were amounts loaned to the Applicant by Ms Turberville (a director and shareholder of the Applicant) and were not subject to GST. The Tribunal accepted Ms Turberville's evidence that she deposited amounts of $500 into the Applicant's account every fortnight from her salary by way of an interest free loan that was repayable on demand. A backdated document evidencing the loan was considered unreliable, but Commonwealth Bank (CBA) statements verified the source of the payments as being from Ms Turberville. The form regularity of the fortnightly payments as well as the CBA bank statements constituted independent confirmatory evidence. The evidence satisfied the Tribunal that, on the balance of probabilities, the Applicant had established that the amounts were deposited by Ms Turberville as loans to the Applicant. • The Tribunal accepted that deposits totalling $60,000 were amounts loaned to the Applicant by Mrs Fitton, interest free and payable on demand and were not subject to GST. The Tribunal accepted Mrs Fitton's evidence, supported by confirmation in the CBA bank statements that the drawer of the cheques deposited was 'JM Fitton'. An acknowledgement of the loan, prepared by Mrs Fitton and signed by both Mr and Mrs Fitton, was also produced. • In relation to deposits totalling $227,230.56: - Deposits in the amount of $38,491 were held to represent consideration received for taxable supplies and were subject to GST. There was no supporting documentation, such as a loan agreement, or receipt or acknowledgement issued by the Applicant, to show that the amounts were in fact loans to the Applicant. - The Tribunal found that a deposit in the amount of $188,739.56 made on 26 November 2003 represented a deposit by way of loan made by Mr Fitton and therefore did not represent a taxable supply. Mr Marotta from the National Australia Bank (NAB) gave evidence that the money came from Mr Fitton's own funds. The timing of the deposit suggested that it was connected with the repayment of a debt owed to the NAB. • The Tribunal was satisfied that an amount of $186,242.60 was a loan made to the Applicant in order to repay amounts outstanding to the NAB and did not represent consideration for a taxable supply. Letters confirmed the existence of an ongoing facility which was related to two deposits (of $1,514,303.36 and $186,242.60 on 26 November 2003) made from the CBA and its subsidiary as part of a refinancing arrangement with the NAB (the deposit of $1,514,303.36 having been accepted by the Respondent as being made for this purpose). The Applicant's CBA account for that date also recorded establishment fees and other costs being debited to the Applicant's account, as well as a payment to the NAB of $1,932,982.65. | - Deposits in the amount of $38,491 were held to represent consideration received for taxable supplies and were subject to GST. There was no supporting documentation, such as a loan agreement, or receipt or acknowledgement issued by the Applicant, to show that the amounts were in fact loans to the Applicant. - The Tribunal found that a deposit in the amount of $188,739.56 made on 26 November 2003 represented a deposit by way of loan made by Mr Fitton and therefore did not represent a taxable supply. Mr Marotta from the National Australia Bank (NAB) gave evidence that the money came from Mr Fitton's own funds. The timing of the deposit suggested that it was connected with the repayment of a debt owed to the NAB. | Deposits that the Applicant contended were damages | The Tribunal held that the Applicant did not discharge its onus of proof; it did not produce any documentation which substantiated the deposits as arising from damages paid from the settlement of a NSW Supreme Court action as asserted by the Applicant. However, in relation to a deposit of $50,000 made into the Applicant's account on 11 September 2002, the Tribunal found that it was not consideration for a taxable supply, as it represented either a loan from Mr Fitton or payment of damages awarded to the Applicant. This was supported by evidence of a bank cheque dated 9 September 2002 payable to Mr Fitton and an accompanying email from Mr Fitton requesting that the cheque be paid to the Applicant. | Legal expenses that the applicant contended were incurred by it and therefore gave rise to an entitlement to input tax credits | The Tribunal was unable to accept that the cost of litigation undertaken in the Supreme Court of NSW was incurred by Mr Fitton on behalf of the Applicant and that he was acting as the undisclosed agent for the Applicant in those proceedings. | Deposits that the Applicant contended were reimbursements for costs | The Applicant did not discharge its onus of proof - noting that it did not produce sufficient evidence, such as receipts or claim forms - to substantiate that these amounts represented reimbursement of costs met by the Applicant on behalf of companies which marketed the Applicant's services. | Deposits that the Applicant contended were rental payments | The Applicant conceded that the payment of commercial rent totalling $54,318.82 amounted to consideration for an undeclared taxable supply. | The Applicant's concession regarding the value of consideration for taxable supplies | The Applicant accepted at the hearing that an amount of $632,245.13 was received as consideration for taxable supplies and that gave rise to a GST liability of $57,476.83. | Assessment of Penalty | • The Tribunal determined that the Applicant was reckless in declaring nil activity in its BASs during the relevant tax periods. • The Tribunal decided that no part of the 50% penalty should be remitted. | • The Tribunal determined that the Applicant was reckless in declaring nil activity in its BASs during the relevant tax periods. • The Tribunal decided that no part of the 50% penalty should be remitted.", "Issues_Decided": "Deposits that the Applicant contended were loans • The Tribunal accepted that deposits totalling $29,500 were amounts loaned to the Applicant by Ms Turberville (a director and shareholder of the Applicant) and were not subject to GST. The Tribunal accepted Ms Turberville's evidence that she deposited amounts of $500 into the Applicant's account every fortnight from her salary by way of an interest free loan that was repayable on demand. A backdated document evidencing the loan was considered unreliable, but Commonwealth Bank (CBA) statements verified the source of the payments as being from Ms Turberville. The form regularity of the fortnightly payments as well as the CBA bank statements constituted independent confirmatory evidence. The evidence satisfied the Tribunal that, on the balance of probabilities, the Applicant had established that the amounts were deposited by Ms Turberville as loans to the Applicant. • The Tribunal accepted that deposits totalling $60,000 were amounts loaned to the Applicant by Mrs Fitton, interest free and payable on demand and were not subject to GST. The Tribunal accepted Mrs Fitton's evidence, supported by confirmation in the CBA bank statements that the drawer of the cheques deposited was 'JM Fitton'. An acknowledgement of the loan, prepared by Mrs Fitton and signed by both Mr and Mrs Fitton, was also produced. • In relation to deposits totalling $227,230.56: - Deposits in the amount of $38,491 were held to represent consideration received for taxable supplies and were subject to GST. There was no supporting documentation, such as a loan agreement, or receipt or acknowledgement issued by the Applicant, to show that the amounts were in fact loans to the Applicant. - The Tribunal found that a deposit in the amount of $188,739.56 made on 26 November 2003 represented a deposit by way of loan made by Mr Fitton and therefore did not represent a taxable supply. Mr Marotta from the National Australia Bank (NAB) gave evidence that the money came from Mr Fitton's own funds. The timing of the deposit suggested that it was connected with the repayment of a debt owed to the NAB. • The Tribunal was satisfied that an amount of $186,242.60 was a loan made to the Applicant in order to repay amounts outstanding to the NAB and did not represent consideration for a taxable supply. Letters confirmed the existence of an ongoing facility which was related to two deposits (of $1,514,303.36 and $186,242.60 on 26 November 2003) made from the CBA and its subsidiary as part of a refinancing arrangement with the NAB (the deposit of $1,514,303.36 having been accepted by the Respondent as being made for this purpose). The Applicant's CBA account for that date also recorded establishment fees and other costs being debited to the Applicant's account, as well as a payment to the NAB of $1,932,982.65. • The Tribunal accepted that deposits totalling $29,500 were amounts loaned to the Applicant by Ms Turberville (a director and shareholder of the Applicant) and were not subject to GST. The Tribunal accepted Ms Turberville's evidence that she deposited amounts of $500 into the Applicant's account every fortnight from her salary by way of an interest free loan that was repayable on demand. A backdated document evidencing the loan was considered unreliable, but Commonwealth Bank (CBA) statements verified the source of the payments as being from Ms Turberville. The form regularity of the fortnightly payments as well as the CBA bank statements constituted independent confirmatory evidence. The evidence satisfied the Tribunal that, on the balance of probabilities, the Applicant had established that the amounts were deposited by Ms Turberville as loans to the Applicant. • The Tribunal accepted that deposits totalling $60,000 were amounts loaned to the Applicant by Mrs Fitton, interest free and payable on demand and were not subject to GST. The Tribunal accepted Mrs Fitton's evidence, supported by confirmation in the CBA bank statements that the drawer of the cheques deposited was 'JM Fitton'. An acknowledgement of the loan, prepared by Mrs Fitton and signed by both Mr and Mrs Fitton, was also produced. • In relation to deposits totalling $227,230.56: - Deposits in the amount of $38,491 were held to represent consideration received for taxable supplies and were subject to GST. There was no supporting documentation, such as a loan agreement, or receipt or acknowledgement issued by the Applicant, to show that the amounts were in fact loans to the Applicant. - The Tribunal found that a deposit in the amount of $188,739.56 made on 26 November 2003 represented a deposit by way of loan made by Mr Fitton and therefore did not represent a taxable supply. Mr Marotta from the National Australia Bank (NAB) gave evidence that the money came from Mr Fitton's own funds. The timing of the deposit suggested that it was connected with the repayment of a debt owed to the NAB. • The Tribunal was satisfied that an amount of $186,242.60 was a loan made to the Applicant in order to repay amounts outstanding to the NAB and did not represent consideration for a taxable supply. Letters confirmed the existence of an ongoing facility which was related to two deposits (of $1,514,303.36 and $186,242.60 on 26 November 2003) made from the CBA and its subsidiary as part of a refinancing arrangement with the NAB (the deposit of $1,514,303.36 having been accepted by the Respondent as being made for this purpose). The Applicant's CBA account for that date also recorded establishment fees and other costs being debited to the Applicant's account, as well as a payment to the NAB of $1,932,982.65. - Deposits in the amount of $38,491 were held to represent consideration received for taxable supplies and were subject to GST. There was no supporting documentation, such as a loan agreement, or receipt or acknowledgement issued by the Applicant, to show that the amounts were in fact loans to the Applicant. - The Tribunal found that a deposit in the amount of $188,739.56 made on 26 November 2003 represented a deposit by way of loan made by Mr Fitton and therefore did not represent a taxable supply. Mr Marotta from the National Australia Bank (NAB) gave evidence that the money came from Mr Fitton's own funds. The timing of the deposit suggested that it was connected with the repayment of a debt owed to the NAB. Deposits that the Applicant contended were damages The Tribunal held that the Applicant did not discharge its onus of proof; it did not produce any documentation which substantiated the deposits as arising from damages paid from the settlement of a NSW Supreme Court action as asserted by the Applicant. However, in relation to a deposit of $50,000 made into the Applicant's account on 11 September 2002, the Tribunal found that it was not consideration for a taxable supply, as it represented either a loan from Mr Fitton or payment of damages awarded to the Applicant. This was supported by evidence of a bank cheque dated 9 September 2002 payable to Mr Fitton and an accompanying email from Mr Fitton requesting that the cheque be paid to the Applicant. Legal expenses that the applicant contended were incurred by it and therefore gave rise to an entitlement to input tax credits The Tribunal was unable to accept that the cost of litigation undertaken in the Supreme Court of NSW was incurred by Mr Fitton on behalf of the Applicant and that he was acting as the undisclosed agent for the Applicant in those proceedings. Deposits that the Applicant contended were reimbursements for costs The Applicant did not discharge its onus of proof - noting that it did not produce sufficient evidence, such as receipts or claim forms - to substantiate that these amounts represented reimbursement of costs met by the Applicant on behalf of companies which marketed the Applicant's services. Deposits that the Applicant contended were rental payments The Applicant conceded that the payment of commercial rent totalling $54,318.82 amounted to consideration for an undeclared taxable supply. The Applicant's concession regarding the value of consideration for taxable supplies The Applicant accepted at the hearing that an amount of $632,245.13 was received as consideration for taxable supplies and that gave rise to a GST liability of $57,476.83. Assessment of Penalty • The Tribunal determined that the Applicant was reckless in declaring nil activity in its BASs during the relevant tax periods. • The Tribunal decided that no part of the 50% penalty should be remitted. • The Tribunal determined that the Applicant was reckless in declaring nil activity in its BASs during the relevant tax periods. • The Tribunal decided that no part of the 50% penalty should be remitted.", "ATO_View_of_Decision": "This Tax Office accepts that the various decisions were open on the basis of the evidence accepted by the Tribunal. The decision does not have any implications for other cases. | Implications on current Public Rulings and Determinations and Law Administration Practice Statements | None", "Administrative_Treatment": "", "Related_Documents": "MT 2008/1 | 2009 ATC 10-089 | 284-85 | 284-90 | 284-220 | 2001 ATC 4111", "Legislative_References": "Taxation Administration Act 1953 284-85 284-90 284-220", "Case_References": "BRK (Bris) Pty Ltd v Commissioner of Taxation 2001 ATC 4111 [2001] FCA 164 46 ATR 347", "Subject_References": "Taxation Administration Act whether applicant received consideration for taxable supplies whether input tax credits should be allowed penalty whether the applicant acted recklessly in preparing its business activity statements", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/1401/00001", "Unmatched_Content": ""}
{"Case_Name": "Federal Commissioner of Taxation v Swansea Services Pty Ltd", "Venue_Reference_No": "WAD 139 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "24 April 2009", "Date_Published": "28 September 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines whether the applicant was carrying on an enterprise for the purposes of s. 9-20 of the GST Act.", "Overview_of_Facts": "This was an appeal from the decision of the AAT that the applicant was at relevant times carrying on an enterprise and thus entitled to GST registration. The unchallenged evidence was that: 1. All of the shares in the applicant were owned by an individual who controls a group of companies (\"the group\") which has a successful and substantial real estate development business. 2. The applicant's only activity since 1997 has been the acquisition of paintings and antiques. From 1997 to November 2005 approximately $4.8 million had been spent. This comprised 225 antique items and 87 paintings. 3. Sales were very minor. None occurred until Nov 2002. Only 3 items were sold in the period 1997 to Nov 2005. In that same period painting sales totalled $46,000 and antique sales totalled $60,000. 4. Most artworks were kept at either of two private residences which were owned by the group. A small number were on display at the group's business premises. 5. The applicant had no written business plan but evidence was given that: • the purpose and intention of acquiring artworks had always been based on the view that the artworks were to have an inherent appreciating value; • the investment may be turned to account when it was appropriate to do so at a profit; • artwork was not purchased as a hobby or recreational pursuit; • the Swansea Collection has been built up as a sound financial investment, all the works in which were for sale at the right price; • the applicant was striving to improve the quality of the collection to museum quality; and • as better quality paintings came on the market, the Applicant would sell the B grade paintings in order continually to raise the quality of the collection as a whole. This was to be done by way of off-market transactions or by way of purchase at auctions. 6. Evidence was also given that the policy was to build one of the finest collections of art in Australia and that the strategy included an expectation that items would double in value every 7 years. If they failed that test, they would be disposed of and replaced with better quality items. 7. It was admitted in evidence on behalf of the Applicant that except in the case of the few specific items actually sold, no active steps had been taken to market or sell any artwork. 8. The applicant did not have any employees and did not have a bank account. 9. Comprehensive accounting records were maintained. These records were maintained by \"group\" employees. 10. Until 2004, the applicant's purchases were funded by interest free loans from the Applicant's director and the group. In that year, those borrowings were supplemented by a $1 million commercial bill facility secured by the group. | 1. All of the shares in the applicant were owned by an individual who controls a group of companies (\"the group\") which has a successful and substantial real estate development business. 2. The applicant's only activity since 1997 has been the acquisition of paintings and antiques. From 1997 to November 2005 approximately $4.8 million had been spent. This comprised 225 antique items and 87 paintings. 3. Sales were very minor. None occurred until Nov 2002. Only 3 items were sold in the period 1997 to Nov 2005. In that same period painting sales totalled $46,000 and antique sales totalled $60,000. 4. Most artworks were kept at either of two private residences which were owned by the group. A small number were on display at the group's business premises. 5. The applicant had no written business plan but evidence was given that: • the purpose and intention of acquiring artworks had always been based on the view that the artworks were to have an inherent appreciating value; • the investment may be turned to account when it was appropriate to do so at a profit; • artwork was not purchased as a hobby or recreational pursuit; • the Swansea Collection has been built up as a sound financial investment, all the works in which were for sale at the right price; • the applicant was striving to improve the quality of the collection to museum quality; and • as better quality paintings came on the market, the Applicant would sell the B grade paintings in order continually to raise the quality of the collection as a whole. This was to be done by way of off-market transactions or by way of purchase at auctions. 6. Evidence was also given that the policy was to build one of the finest collections of art in Australia and that the strategy included an expectation that items would double in value every 7 years. If they failed that test, they would be disposed of and replaced with better quality items. 7. It was admitted in evidence on behalf of the Applicant that except in the case of the few specific items actually sold, no active steps had been taken to market or sell any artwork. 8. The applicant did not have any employees and did not have a bank account. 9. Comprehensive accounting records were maintained. These records were maintained by \"group\" employees. 10. Until 2004, the applicant's purchases were funded by interest free loans from the Applicant's director and the group. In that year, those borrowings were supplemented by a $1 million commercial bill facility secured by the group. | • the purpose and intention of acquiring artworks had always been based on the view that the artworks were to have an inherent appreciating value; • the investment may be turned to account when it was appropriate to do so at a profit; • artwork was not purchased as a hobby or recreational pursuit; • the Swansea Collection has been built up as a sound financial investment, all the works in which were for sale at the right price; • the applicant was striving to improve the quality of the collection to museum quality; and • as better quality paintings came on the market, the Applicant would sell the B grade paintings in order continually to raise the quality of the collection as a whole. This was to be done by way of off-market transactions or by way of purchase at auctions. | Issues decided by the court | 1. Whether an enterprise, for the purposes of s.9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), is being carried on is not a pure question of law sufficient to attract the jurisdiction of the Federal Court, pursuant to s.44 of the Administrative Appeals Tribunal Act. | 2. There was evidence on which the Tribunal could properly base its decision that the applicant was carrying on an enterprise and thus entitled to be registered for GST purposes. Although there was no dispute in relation to most of the factual background, the one contentious primary factual issue (i.e. whether the Applicant intended to sell the artwork for a profit) was decided by the Tribunal in the Applicant's favour. It was entitled to do this even if reasonable minds might disagree. | 3. As to investment activity, there is nothing in the legislation that indicates that investment activities would not amount to the carrying on of an enterprise. Accordingly, even if the activities of the applicant can be properly characterised as being in relation to a strategy of \" long term investment \" that does not necessarily preclude those activities from amounting to the carrying on of an enterprise. | 4. The words \" in the form of \" in the definition of \"enterprise\" in s.9-20 of the GST Act do not support the suggestion that \"form\" will prevail over \"substance\". Rather they just extend the reach of \"enterprise\" to activities which are in the form of a business but would not, in the ordinary meaning of \"business\", be considered such. His Honour stated that: \" But the activity must still be reasonably intended to be profit making in the case of an individual and cannot for any entity simply be a private recreational pursuit or hobby. \"", "Issues_Decided": "1. Whether an enterprise, for the purposes of s.9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), is being carried on is not a pure question of law sufficient to attract the jurisdiction of the Federal Court, pursuant to s.44 of the Administrative Appeals Tribunal Act. 2. There was evidence on which the Tribunal could properly base its decision that the applicant was carrying on an enterprise and thus entitled to be registered for GST purposes. Although there was no dispute in relation to most of the factual background, the one contentious primary factual issue (i.e. whether the Applicant intended to sell the artwork for a profit) was decided by the Tribunal in the Applicant's favour. It was entitled to do this even if reasonable minds might disagree. 3. As to investment activity, there is nothing in the legislation that indicates that investment activities would not amount to the carrying on of an enterprise. Accordingly, even if the activities of the applicant can be properly characterised as being in relation to a strategy of \" long term investment \" that does not necessarily preclude those activities from amounting to the carrying on of an enterprise. 4. The words \" in the form of \" in the definition of \"enterprise\" in s.9-20 of the GST Act do not support the suggestion that \"form\" will prevail over \"substance\". Rather they just extend the reach of \"enterprise\" to activities which are in the form of a business but would not, in the ordinary meaning of \"business\", be considered such. His Honour stated that: \" But the activity must still be reasonably intended to be profit making in the case of an individual and cannot for any entity simply be a private recreational pursuit or hobby. \"", "ATO_View_of_Decision": "The Commissioner has decided not to appeal this decision generally on the basis that: \"...it was open for the Tribunal to take into account the entirety of the transactional history together with explanations regarding that history, its context and statements (both contemporaneously with the events in question and in the hearing) as to the corporate objective. ... the conclusion that it reached was open to it with or without the subjective evidence of purpose. As there was a reasonable basis for the factual finding reached and no other error is demonstrated, the conclusion should not be disturbed.\" (paragraph 4 of the Federal Court decision) | The decision in this case does not mean that in every situation involving companies engaged in collection of artworks or other valuable items, a conclusion would be reached that an enterprise was being carried on and that the entity would be entitled to register. | As is commonly the case with the question of whether a business or adventure or concern in the nature of trade is being carried on, it is necessary to weigh up all the facts and evidence in each case having regard to a range of factors. The Commissioner considers it unlikely that there would be many entities engaged in the kind of activity carried out and on the scale and with the degree of sophistication of the Applicant in this case. In this regard McKerracher J's comment at paragraph 101 of the decision that \" Had the Commissioner succeeded in establishing that Swansea was simply a vehicle for [the director's] hobby, the position may have been different ....\" should be noted.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The Commissioner has reviewed and amended MT 2006/1, taking into account this decision.", "Related_Documents": "Miscellaneous Taxation Ruling MT 2006/1 | 2009 ATC 20-100 | 9-20 | 23-10 | 23-15 | 44(1) | 2005 ATC 4571 | 91 ATC 4396 | 2006 ATC 4160 | 2003 ATC 5099", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-20 23-10 23-15 23-55(2) Administrative Appeals Tribunal Act 1975 44(1)", "Case_References": "HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126 2005 ATC 4571 60 ATR 106 FCT v Cooper (1991) 29 FCR 177 21 ATR 1616 91 ATC 4396 Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 2006 ATC 4160 62 ATR 73 Spassked v Commissioner of Taxation (2003) 136 FCR 441 2003 ATC 5099 54 ATR 546", "Subject_References": "GST Enterprise GST Registration", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD139of2009/00001", "Unmatched_Content": ""}
{"Case_Name": "GXCX v Commissioner of Taxation", "Venue_Reference_No": "2008/2901", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "31 July 2009", "Date_Published": "23 October 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office response to the Tribunal's decision in this matter which was concerned with, for GST purposes, adjustments arising in relation to changes in extent of creditable purpose and new residential premises.", "Overview_of_Facts": "1. The applicant was registered for the GST. | 2. The property subject to these proceedings was purchased by the holding company in early 2000. | 3. Funds in excess of $12 million were expended in converting the premises to individual residential apartments and on associated costs. | 4. The work was completed in late December 2001. | 5. The applicant claimed input tax credits in excess of $1.2 million on the basis that once completed the apartments were to be sold as new residential premises. | 6. The development consisted of the construction of 91 new residential apartments. | 7. Before and during construction 69 apartments had been sold. | 8. When the development was completed 22 apartments remained unsold. | 9. In December 2001 the applicant rented the first of these remaining 22 apartments. | 10. By June 2002 all of the remaining 22 apartments had been tenanted. They remained tenanted or available to be tenanted thereafter. | 11. The apartments were tenanted under 6 monthly leases at a time. Accordingly the 22 apartments were used to make input taxed supplies. | 12. Ten of these 22 apartments were sold between April 2008 and January 2009 and the remaining 12 apartments had not been sold as at the date of the hearing in 2009. | Issues decided by the court or tribunal | 1. Whether the applicant had discharged its onus in evidencing that it held the \"dual purpose\" of renting and selling with regard to the 22 rented apartments. | The Tribunal was satisfied that the holding company held two concurrent intentions with respect to the 22 rented apartments. In the short term the holding company intended to rent the apartments but in the medium to long term the intention was to sell the apartments. The time at which the apartments would be sold was not set but would be determined by market conditions. The apartments would be sold when the market provided the opportunity for the holding company to realise the anticipated substantial capital growth in the future. [paragraph 27 of decision] | 2. Whether, if the applicant had that dual purpose, an intention to sell in the future amounted to an \"actual application\" for the purposes of the method statement in section 129-40 of the GST Act. | No | The Tribunal referred to the language of the statute and how it focused upon the application during the relevant period of review. The method statement in section 129-40 of the GST Act directs attention to \"the extent (if any) to which you have applied the thing acquired ... for a credible purpose\". [paragraph 34 of decision] | The Tribunal found the application of the acquisitions during the relevant period was entirely for a non-creditable purpose. Whilst Deputy President Hack accepted that the holding company held the intention to sell at some time in the future, he did not regard the holding of that intention, without more, as amounting to an application of the goods and services. [paragraph 35 of decision]", "Issues_Decided": "1. Whether the applicant had discharged its onus in evidencing that it held the \"dual purpose\" of renting and selling with regard to the 22 rented apartments. The Tribunal was satisfied that the holding company held two concurrent intentions with respect to the 22 rented apartments. In the short term the holding company intended to rent the apartments but in the medium to long term the intention was to sell the apartments. The time at which the apartments would be sold was not set but would be determined by market conditions. The apartments would be sold when the market provided the opportunity for the holding company to realise the anticipated substantial capital growth in the future. [paragraph 27 of decision] 2. Whether, if the applicant had that dual purpose, an intention to sell in the future amounted to an \"actual application\" for the purposes of the method statement in section 129-40 of the GST Act. No The Tribunal referred to the language of the statute and how it focused upon the application during the relevant period of review. The method statement in section 129-40 of the GST Act directs attention to \"the extent (if any) to which you have applied the thing acquired ... for a credible purpose\". [paragraph 34 of decision] The Tribunal found the application of the acquisitions during the relevant period was entirely for a non-creditable purpose. Whilst Deputy President Hack accepted that the holding company held the intention to sell at some time in the future, he did not regard the holding of that intention, without more, as amounting to an application of the goods and services. [paragraph 35 of decision]", "ATO_View_of_Decision": "Between the date of the objection decision and the hearing of the application by the AAT, the Tax Office revised its view with respect to the determination of adjustments for changes in extent of creditable purpose relating to new residential premises. In accordance with the revised view set out in GSTR 2009/4 the Tax Office now accepts that an acquisition can be applied to some extent for a creditable purpose, whilst concurrently being applied to some extent for a non-creditable purpose. The Tax Office also now accepts that the holding of something for the purpose of sale is an application of the thing for the purposes of Division 129 of the GST Act. | The decision is consistent with the Tax Office view in GSTR 2009/4 that an intention to sell new residential premises in the future, on its own, does not mean that the new residential premises are being held for the purpose of sale and will not constitute an application of the new residential premises for the creditable purpose of sale, for the purposes of Division 129 of the GST Act. It was not necessary for the Tribunal to consider whether the position would be different where attempts are made to sell a property contemporaneously with the rental of the property, as that was not the case in this matter (see GSTR 2009/4, paragraphs 48-57).", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "GSTR 2009/4 - Goods and services tax: new residential premises and adjustments for change in the extent of creditable purpose | 2009 ATC 1-012 | Division 129", "Legislative_References": "A New System (Goods and Services Tax) Act 1999 Division 129", "Case_References": "", "Subject_References": "Change in extent of creditable purpose", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/2901/00001", "Unmatched_Content": ""}
{"Case_Name": "Handbury Holdings Pty Ltd v Federal Commissioner of Taxation", "Venue_Reference_No": "VID 1021 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "9 October 2009", "Date_Published": "7 July 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable Taxpayer's application for special leave to appeal to the High Court refused on 23 April 2010", "Summary_of_Decision": "Outlines the ATO's response to the decision of the Full Federal Court in Handbury Holdings Pty Ltd v FC of T [2009] FCAFC 141, following the High Court's refusal of the taxpayer's application for special leave to appeal the decision to the High Court. At issue was how a head company of a consolidated group works out its allocable cost amount for a leaving entity. The case turned on whether the allocable cost amount had to be reduced to recognise liabilities of the leaving entity just before the leaving time or only to recognise liabilities that the leaving entity took with it.", "Overview_of_Facts": "Handbury Holdings Pty Ltd was the head company of a consolidated group from 1 July 2003. Murdoch Magazines Pty Ltd was a subsidiary member of that group from 1 July 2003 to 30 July 2004. | On 29 July 2004 Murdoch Magazines Pty Ltd was indebted to two external creditors for amounts totalling $26,140,360. | On 30 July 2004 Murdoch Magazines Pty Ltd left the consolidated group when these liabilities converted to shares in a debt for equity swap. | On 30 July 2004 Handbury Holdings Pty Ltd transferred its shares in Murdoch Magazines Pty Ltd to a third party. | The Commissioner assessed Handbury Holdings Pty Ltd on a capital gain of $16,934,891 under CGT event L5 pursuant to section 104-520 of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that its allocable cost amount in Murdoch Magazines Pty Ltd was negative when that company ceased to be a subsidiary member of the consolidated group. | The Commissioner also assessed Handbury Holdings Pty Ltd on a capital gain of $50,226,752 under CGT event A1 pursuant to section 104-10 of the ITAA 1997 on the sale of its shares in Murdoch Magazines Pty Ltd to the third party. | These capital gains were calculated on the basis that Handbury Holdings Pty Ltd's allocable cost amount for Murdoch Magazines Pty Ltd had to be worked out by subtracting the amounts of liabilities owed to the two external creditors just before the leaving time under step 4 in the table in subsection 711-20(1) of the ITAA 1997. | Handbury Holdings Pty Ltd objected on the basis that no capital gain arose under CGT event L5 and the capital gain that arose under CGT event A1 was overstated by $9,205,469 because these liabilities were extinguished at the leaving time and were not \"liabilities that the leaving entity takes with it when it ceases to be a subsidiary member\" for the purpose of subsection 711-20(1). | The Commissioner disallowed the objection and Handbury Holdings Pty Ltd appealed to have this decision set aside by allowing the objection and reducing its assessable income by $26,140,360. | Appeals | At first instance, the Federal Court (Kenny J) [2008] FCA 1787 dismissed the appeal holding that the language used in step 4 in subsection 711-20(1) was not determinative. The phrase \"liabilities that the leaving entity takes with it when it ceases to be a subsidiary member\" in step 4 in subsection 711-20(1) is a descriptive rather than an operative statement which does not modify or qualify the terms of subsection 711-45(1) of the ITAA 1997. On a proper construction of subsection 711-45(1) a liability of the leaving entity at the leaving time meant a liability of the leaving entity just before it ceases to be a subsidiary member of the consolidated group. The object of Division 711 as stated in subsection 711-5(2) is to preserve an alignment between a head company's costs for its membership interests in a subsidiary member and the assets of that subsidiary member. This object is achieved by recognising the head company's cost for those membership interests just before the leaving time (subsection 711-5(3) of the ITAA 1997). | The taxpayer appealed to the Full Federal Court. The Full Federal Court (Finn, Sundberg and Perram JJ) [2009] FCAFC 141 dismissed the taxpayer's appeal and unanimously agreed that the proper relation between the steps in the table in subsection 711-20(1) and the sections referred to in those steps is that the latter are paramount over the former. Section 711-45 prevails over step 4 in the table in subsection 711-20(1). The same meaning should be given to the phrase \"at the leaving time\" in section 711-45 as the meaning given to that phrase in other sections referred to in the steps such as subsection 711-25(1) of the ITAA 1997. Consequently it was 'preferable to read \"at the leaving time\" in section 711-45 as \"just before the leaving time\" and to read the words in step 4 as a reference to the liabilities of the leaving entity just before the leaving time'. | The taxpayer applied for special leave to appeal from the Full Federal Court to the High Court but leave was refused by Hayne and Crennan JJ on the basis that there were insufficient reasons to doubt the correctness of the decision of the Full Federal Court. | Issue decided by the Court | At issue was how a head company of a consolidated group works out its allocable cost amount for a leaving entity. The case turned on whether step 4 in the table in subsection 711-20(1) required a subtraction of an amount worked out under section 711-45 in respect of liabilities owed to two external creditors that were extinguished by the debt for equity swap that caused the leaving entity to cease to be a subsidiary member of the consolidated group. | The courts had to determine whether the words \"a liability of the leaving entity at the leaving time\" in subsection 711-45(1) and the words \"the liabilities that the leaving entity takes with it when it ceases to be a subsidiary member\" in the description of what section 711-45 is about in the second column of step 4 in the table in subsection 711-20(1) should be construed in accordance with their ordinary meaning or in accordance with their statutory context. | At first instance and on appeal to the Full Federal Court, the courts concluded that the phrase \"at the leaving time\" in subsection 711-45(1) had to be interpreted as meaning \"just before the leaving time\". This meant that the liabilities of the leaving entity owed to external creditors just before the leaving time had to be subtracted in working out the old group's allocable cost amount.", "Issues_Decided": "At issue was how a head company of a consolidated group works out its allocable cost amount for a leaving entity. The case turned on whether step 4 in the table in subsection 711-20(1) required a subtraction of an amount worked out under section 711-45 in respect of liabilities owed to two external creditors that were extinguished by the debt for equity swap that caused the leaving entity to cease to be a subsidiary member of the consolidated group. The courts had to determine whether the words \"a liability of the leaving entity at the leaving time\" in subsection 711-45(1) and the words \"the liabilities that the leaving entity takes with it when it ceases to be a subsidiary member\" in the description of what section 711-45 is about in the second column of step 4 in the table in subsection 711-20(1) should be construed in accordance with their ordinary meaning or in accordance with their statutory context. At first instance and on appeal to the Full Federal Court, the courts concluded that the phrase \"at the leaving time\" in subsection 711-45(1) had to be interpreted as meaning \"just before the leaving time\". This meant that the liabilities of the leaving entity owed to external creditors just before the leaving time had to be subtracted in working out the old group's allocable cost amount.", "ATO_View_of_Decision": "The decision is consistent with the object in subsection 701-15(2) of the ITAA 1997 to preserve the alignment of the head company's costs for membership interests in a leaving entity with the costs of the leaving entity's assets reduced by the amounts of its liabilities. | Tax Laws Amendment (2010 Measures No. 1) Act 2010 clarifies that when an entity leaves a consolidated group on or after 10 February 2010 the liabilities to be subtracted under step 4 in the table in subsection 711-20(1) in working out the old group's allocable cost amount are the liabilities held just before the leaving time. | The decision of the Full Federal Court in Handbury Holdings Pty Ltd v FC of T [2009] FCAFC 141 in respect of which special leave to appeal was refused by the High Court of Australia confirms that when an entity left a consolidated group before 10 February 2010 the liabilities to be subtracted under step 4 in the table in subsection 711-20(1) in working out the old group's allocable cost amount are the liabilities held just before the leaving time.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | 2009 ATC 20-136 | 15AA | 254V(2) | 104-10 | 104-520 | 701-1 | 701-5 | 701-15 | 701-60 | 711-1 | 711-5 | 711-10 | 711-15 | 711-20 | 711-25 | 711-30 | 711-35 | 711-45 | 81 ATC 4292 | (1998) 194 CLR 355 | [1998] HCA 28 | 153 ALR 490 | 2009 ATC 20-134 | 76 ATC 4225 | 92 ATC 4013 | (1949) 78 CLR 594 | 81 ATC 4040 | (2001) 49 ATR 324 | ATO ID 2007/118", "Legislative_References": "Acts Interpretation Act 1901 15AA Corporations Act 2001 254V(2) Income Tax Assessment Act 1997 104-10 104-520 701-1 701-5 701-15 710-55 701-60 711-1 711-5 711-10 711-15 711-20 711-25 711-30 711-35 711-45", "Case_References": "Cooper Brookes (Wollongong) Pty Ltd v FC of T (1981) 147 CLR 297 81 ATC 4292 11 ATR 949 Envestra Ltd v C of T [2008] FCA 249 70 ATR 115 169 FCR 300 Institute of Patent Agents v Lockwood [1894] AC 347 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28 153 ALR 490 Re Columbian Fireproofing Co Ltd [1910] 1 Ch 758 Re Port Supermarket Ltd (in liquidation) [1978] 1 NZLR 330 Sakhuja v Allen [1973] AC 152 [1972] 2 All ER 311 Carr v Western Australia (2007) 232 CLR 138 Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 2009 ATC 20-134 73 ATR 256 Institute of Patent Agents v Lockwood [1894] AC 347 Federal Commissioner of Taxation v Patcorp Investments (1973) 140 CLR 247 76 ATC 4225 6 ATR 420 Hepples v Federal Commissioner of Taxation (1992) 173 CLR 492 22 ATR 852 92 ATC 4013 [1992] HCA 3 Anderson v Commissioner of Taxes (Vic) (1937) 57 CLR 233 Doe d Ellis v Owens (1843) 12 LJ Ex 53 Tio v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 126 FCR 185 [2003] FCAFC 53 Whim Creek Consolidated (NL) v FC of T (1977) 17 ALR 421 Commonwealth Homes and Investment Company Ltd v Smith (1937) 59 CLR 443 [1937] HCA 73 Central Piggery Co Ltd v McNicoll and Hurst (1949) 78 CLR 594 [1949] HCA 19 Spitzel v Chinese Corporation (1899) 80 LT 347 F C of T v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 336 11 ATR 544 81 ATC 4040 [1981] HCA 4 Pilmer v Duke Group Ltd (In Liq) (2001) 207 CLR 165 [2001] HCA 31 (2001) 49 ATR 324", "Subject_References": "income tax consolidated group exit tax cost setting rules leaving time allocable cost amount for a leaving entity liabilities at Step 4 capital gain CGT event L5 CGT event A1", "Other_References": "ATO ID 2007/118", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1021of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Horner v Commissioner of Taxation", "Venue_Reference_No": "2008/3558-3559", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 July 2009", "Date_Published": "4 December 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially unfavourable. Decision under review varied to the extent of the Commissioner's concessions.", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the income of a company, which was attributable to the personal services of the applicant, was assessable to the applicant under section 86-15 of the Income Tax Assessment Act 1997 (\"ITAA 97\")", "Overview_of_Facts": "The applicant was the sole director, shareholder and employee of Torville Pty Ltd during the 2004 and 2005 income years. Torville provided computer consultancy services to its clients and derived all of its income in the relevant years as a result of the services provided by the applicant. | The applicant was originally assessed, based on his returns, on amounts of salary, director's fees, interest, franked dividends and other income. The Commissioner amended those assessments by excluding the dividends and attributing income of Torville to the applicant as personal services income. | The Commissioner conceded before the hearing in the AAT that certain motor vehicle expenses of Torville could be offset under section 86-20 against the applicant's personal services income. | The applicant argued before the AAT that his personal services income could not be assessed to him under section 86-15 because section 86-10 imposed a threshold test that required there to be an overall reduction in income tax payable when the income was assessed to Torville, as compared to when it was assessable to him. | In written submissions provided to the AAT after the hearing, the Commissioner conceded that the income for the 2004 year was not attributable to the applicant because Torville conducted a personal services business in that year (Torville met the unrelated clients test under section 87-20 in that year). The Commissioner also accepted that the Medicare levy surcharge had not been included for the 2005 year. | Issues decided by the tribunal | Division 86 of the ITAA 97 does not contain a 'threshold test' requiring a demonstrated deferral or reduction of income tax under an arrangement before the provisions can apply. Once it had been determined that the applicant was providing personal services, then section 86-15 applies, and, subject to any offset claimable under section 86-20, the amount of personal services income is attributable to the applicant (paragraph 40). | The Tribunal agreed with the applicant that the Medicare Levy surcharge had been omitted for the 2005 year and that an adjustment to include that amount should be made (paragraph 44).", "Issues_Decided": "Division 86 of the ITAA 97 does not contain a 'threshold test' requiring a demonstrated deferral or reduction of income tax under an arrangement before the provisions can apply. Once it had been determined that the applicant was providing personal services, then section 86-15 applies, and, subject to any offset claimable under section 86-20, the amount of personal services income is attributable to the applicant (paragraph 40). The Tribunal agreed with the applicant that the Medicare Levy surcharge had been omitted for the 2005 year and that an adjustment to include that amount should be made (paragraph 44).", "ATO_View_of_Decision": "The decision affirmed the Commissioner's interpretation of Division 86 and confirmed that no 'threshold test' is contained in section 86-10 as contended by the applicant. The decision was adverse only to the extent of the Commissioner's concessions which were made by the Commissioner as soon as errors not in dispute before the Tribunal were identified.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "TR 2003/6 | 2009 ATC 10-097 | 84-5 | Division 86 | 86-10 | 86-15 | 86-20 | 86-35 | 86-75 | Division 87 | 87-5 | 87-15 | 87-18 | 87-20", "Legislative_References": "Income Tax Assessment Act 1997 84-5 Division 86 86-10 86-15 86-20 86-35 86-75 Division 87 87-5 87-15 87-18 87-20", "Case_References": "", "Subject_References": "Personal services income Personal services entity Medicare levy", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/3558-3559/00001", "Unmatched_Content": ""}
{"Case_Name": "Jetaway Logistics Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "3880 of 2008", "Venue": "Supreme Court", "Judgment_Date": "23 December 2009", "Date_Published": "4 May 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether the Commissioner had notice of the fact that a company was insolvent pursuant to section 553C(2) of the Corporations Act 2001 .", "Overview_of_Facts": "A company in liquidation, and its liquidators, brought proceedings in the Supreme Court of Victoria under section 588FF of the Corporations Act 2001 (\" the Act \"), seeking to recover six credits, in the total sum of $875,542.06, given by the company to the Commissioner during the relation-back period referred to in subsection 588FE(2) of the Act, on the ground that, as unfair preferences, they were voidable transactions. | The credits related to diesel fuel grants to which the company was entitled under the Energy Grants (Credits) Scheme Act 2003 (\" the diesel fuel grants \"). The Commissioner received written authority from the company to offset the diesel fuel grants against outstanding taxation debts of the company. | At first instance, Robson J accepted that the Commissioner did not receive any unfair preferences over other creditors because, in applying the test under paragraph 588FA(1)(b) of the Act, if the Commissioner proved in the winding up, he would be entitled to set-off the credits against the company's taxation liabilities under section 553C of the Act. The Commissioner's position, and the position of the general body of creditors, would be unaltered. | His Honour also decided that section 553C was available to the Commissioner because the liquidators could not satisfy the onus of proof under subsection 553C(2) that, although it was common ground that the company was, in fact, insolvent when the set-offs occurred, the Commissioner had notice of the fact of insolvency at that time. | The company and its liquidators ultimately sought to appeal only the finding of Robson J that they had not established that the Commissioner had notice of the fact of insolvency under subsection 553C(2). | Issues decided by the court or tribunal | The Court, Maxwell P, Byrne and Williams AJA allowed the appeal. Their Honours held that: • 'Notice' of the fact of insolvency in subsection 553C(2) means actual, and does not include constructive notice of insolvency (paragraph 18); • Subsection 553C(2) is concerned with notice of the fact of insolvency, not with notice of any of the matters set out in subsection 459C(2) of the Act that establish only a presumption of insolvency, and only for the purposes of section 459C(1) (paragraph 19); • The test in subsection 553C(2) requires more than the 'reasonable grounds for suspecting' insolvency referred to in section 588FG of the Act. The test requires proof, not that the creditor knew the company to be insolvent, but that the creditor had actual notice of facts that would have indicated to a reasonable person in the position of the particular creditor that the company was insolvent (paragraphs 20, 21 and 26); • The only inference reasonably open to the Commissioner from the facts known to him at the relevant times, based on the state of the company's indebtedness for tax, the information in its taxation returns, and the dealings between ATO officers and officers of the company, was that the company was insolvent (paragraphs 22, 26 and 41). • As set-off under section 553C was not available in respect of each credit given, they were unfair preferences and recoverable by the liquidator under section 588FF. | • 'Notice' of the fact of insolvency in subsection 553C(2) means actual, and does not include constructive notice of insolvency (paragraph 18); • Subsection 553C(2) is concerned with notice of the fact of insolvency, not with notice of any of the matters set out in subsection 459C(2) of the Act that establish only a presumption of insolvency, and only for the purposes of section 459C(1) (paragraph 19); • The test in subsection 553C(2) requires more than the 'reasonable grounds for suspecting' insolvency referred to in section 588FG of the Act. The test requires proof, not that the creditor knew the company to be insolvent, but that the creditor had actual notice of facts that would have indicated to a reasonable person in the position of the particular creditor that the company was insolvent (paragraphs 20, 21 and 26); • The only inference reasonably open to the Commissioner from the facts known to him at the relevant times, based on the state of the company's indebtedness for tax, the information in its taxation returns, and the dealings between ATO officers and officers of the company, was that the company was insolvent (paragraphs 22, 26 and 41). • As set-off under section 553C was not available in respect of each credit given, they were unfair preferences and recoverable by the liquidator under section 588FF.", "Issues_Decided": "The Court, Maxwell P, Byrne and Williams AJA allowed the appeal. Their Honours held that: • 'Notice' of the fact of insolvency in subsection 553C(2) means actual, and does not include constructive notice of insolvency (paragraph 18); • Subsection 553C(2) is concerned with notice of the fact of insolvency, not with notice of any of the matters set out in subsection 459C(2) of the Act that establish only a presumption of insolvency, and only for the purposes of section 459C(1) (paragraph 19); • The test in subsection 553C(2) requires more than the 'reasonable grounds for suspecting' insolvency referred to in section 588FG of the Act. The test requires proof, not that the creditor knew the company to be insolvent, but that the creditor had actual notice of facts that would have indicated to a reasonable person in the position of the particular creditor that the company was insolvent (paragraphs 20, 21 and 26); • The only inference reasonably open to the Commissioner from the facts known to him at the relevant times, based on the state of the company's indebtedness for tax, the information in its taxation returns, and the dealings between ATO officers and officers of the company, was that the company was insolvent (paragraphs 22, 26 and 41). • As set-off under section 553C was not available in respect of each credit given, they were unfair preferences and recoverable by the liquidator under section 588FF. • 'Notice' of the fact of insolvency in subsection 553C(2) means actual, and does not include constructive notice of insolvency (paragraph 18); • Subsection 553C(2) is concerned with notice of the fact of insolvency, not with notice of any of the matters set out in subsection 459C(2) of the Act that establish only a presumption of insolvency, and only for the purposes of section 459C(1) (paragraph 19); • The test in subsection 553C(2) requires more than the 'reasonable grounds for suspecting' insolvency referred to in section 588FG of the Act. The test requires proof, not that the creditor knew the company to be insolvent, but that the creditor had actual notice of facts that would have indicated to a reasonable person in the position of the particular creditor that the company was insolvent (paragraphs 20, 21 and 26); • The only inference reasonably open to the Commissioner from the facts known to him at the relevant times, based on the state of the company's indebtedness for tax, the information in its taxation returns, and the dealings between ATO officers and officers of the company, was that the company was insolvent (paragraphs 22, 26 and 41). • As set-off under section 553C was not available in respect of each credit given, they were unfair preferences and recoverable by the liquidator under section 588FF.", "ATO_View_of_Decision": "The Commissioner did not apply to the High Court for special leave to appeal the decision. The ATO accepts that the Court correctly stated the test for what is notice of the fact of insolvency of a company in subsection 553C(2) of the Act, and that the application of that test by the Court turned on the particular facts of the case.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "n/a | 459C | 553C | 588FA | 588FE | 588FF | 588FG", "Legislative_References": "Corporations Act 2001 459C 553C 588FA 588FE 588FF 588FG", "Case_References": "", "Subject_References": "Unfair preference Set-off Notice of insolvency", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/3880of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "JHDY and Commissioner of Taxation", "Venue_Reference_No": "2008/1457-1460", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "18 May 2009", "Date_Published": "3 August 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly favourable", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether omitted trust distributions, including profits derived from the promotion of tax avoidance scheme arrangements, were assessable. Whether tax shortfall penalties were correctly imposed.", "Overview_of_Facts": "• The taxpayer was a registered tax agent who was involved in the promotion of 3 tax avoidance schemes. The schemes were financed and managed by companies of which the taxpayer was a director, and accounted for through the taxpayer's family trust, of which he was a beneficiary. • The Commissioner assessed the taxpayer on omitted distributions from his family trust, which included profits derived from the promotion of the tax avoidance schemes. In relation to the profits from scheme promotion, the Commissioner adopted alternative bases of assessment i.e., either net increases in the taxpayer's loan account with the family trust in the 1999 and 2000 years of income, or reductions in the loan account in the 2001 and 2002 years of income. • Tax shortfall penalties were imposed at 75% (shortfalls caused by intentional disregard) in relation to the scheme profits, and at 50% for the balance of the omitted family trust distributions. | • The taxpayer was a registered tax agent who was involved in the promotion of 3 tax avoidance schemes. The schemes were financed and managed by companies of which the taxpayer was a director, and accounted for through the taxpayer's family trust, of which he was a beneficiary. • The Commissioner assessed the taxpayer on omitted distributions from his family trust, which included profits derived from the promotion of the tax avoidance schemes. In relation to the profits from scheme promotion, the Commissioner adopted alternative bases of assessment i.e., either net increases in the taxpayer's loan account with the family trust in the 1999 and 2000 years of income, or reductions in the loan account in the 2001 and 2002 years of income. • Tax shortfall penalties were imposed at 75% (shortfalls caused by intentional disregard) in relation to the scheme profits, and at 50% for the balance of the omitted family trust distributions. | Issues decided by the court or tribunal | • The Tribunal found that the omitted distributions from the family trust for the 2000 and 2001 years were properly assessable to the taxpayer. In relation to the distributions for the 2002 year of income, and consistent with a concession made by the Commissioner about the application of the decision in the Zeta Force Pty Ltd case, the Tribunal reduced the amount assessable to the taxpayer to his proportional entitlement to the net income of the trust estate (paragraphs 31 to 36). • The Tribunal did not accept that the taxpayer was not assessable in relation to the scheme profits. It found that the appropriate basis of assessment was by reference to the reductions in the taxpayer's loan account with the family trust in the 2001 and 2002 years of income. On the evidence available, the Tribunal concluded that the taxpayer had not discharged the onus of proving that the assessments for those years in relation to the scheme profits were excessive (paragraphs 40 to 49). • The Tribunal agreed that tax shortfall penalty of 75% was correctly applied by the Commissioner in relation to the assessments of scheme profits. It also agreed that penalty of 50% was correctly applied in respect of the omitted trust distribution for the 2001 year. However, the Tribunal reduced the penalty imposed from 50% to 25% in relation to the adjusted trust distribution for the 2002 year, and, given the mitigating circumstances referred to in paragraph 31 of the decision, remitted in full the penalty imposed in respect of the omitted trust distribution for the 2000 year of income (paragraphs 52 and 53). | • The Tribunal found that the omitted distributions from the family trust for the 2000 and 2001 years were properly assessable to the taxpayer. In relation to the distributions for the 2002 year of income, and consistent with a concession made by the Commissioner about the application of the decision in the Zeta Force Pty Ltd case, the Tribunal reduced the amount assessable to the taxpayer to his proportional entitlement to the net income of the trust estate (paragraphs 31 to 36). • The Tribunal did not accept that the taxpayer was not assessable in relation to the scheme profits. It found that the appropriate basis of assessment was by reference to the reductions in the taxpayer's loan account with the family trust in the 2001 and 2002 years of income. On the evidence available, the Tribunal concluded that the taxpayer had not discharged the onus of proving that the assessments for those years in relation to the scheme profits were excessive (paragraphs 40 to 49). • The Tribunal agreed that tax shortfall penalty of 75% was correctly applied by the Commissioner in relation to the assessments of scheme profits. It also agreed that penalty of 50% was correctly applied in respect of the omitted trust distribution for the 2001 year. However, the Tribunal reduced the penalty imposed from 50% to 25% in relation to the adjusted trust distribution for the 2002 year, and, given the mitigating circumstances referred to in paragraph 31 of the decision, remitted in full the penalty imposed in respect of the omitted trust distribution for the 2000 year of income (paragraphs 52 and 53).", "Issues_Decided": "• The Tribunal found that the omitted distributions from the family trust for the 2000 and 2001 years were properly assessable to the taxpayer. In relation to the distributions for the 2002 year of income, and consistent with a concession made by the Commissioner about the application of the decision in the Zeta Force Pty Ltd case, the Tribunal reduced the amount assessable to the taxpayer to his proportional entitlement to the net income of the trust estate (paragraphs 31 to 36). • The Tribunal did not accept that the taxpayer was not assessable in relation to the scheme profits. It found that the appropriate basis of assessment was by reference to the reductions in the taxpayer's loan account with the family trust in the 2001 and 2002 years of income. On the evidence available, the Tribunal concluded that the taxpayer had not discharged the onus of proving that the assessments for those years in relation to the scheme profits were excessive (paragraphs 40 to 49). • The Tribunal agreed that tax shortfall penalty of 75% was correctly applied by the Commissioner in relation to the assessments of scheme profits. It also agreed that penalty of 50% was correctly applied in respect of the omitted trust distribution for the 2001 year. However, the Tribunal reduced the penalty imposed from 50% to 25% in relation to the adjusted trust distribution for the 2002 year, and, given the mitigating circumstances referred to in paragraph 31 of the decision, remitted in full the penalty imposed in respect of the omitted trust distribution for the 2000 year of income (paragraphs 52 and 53). • The Tribunal found that the omitted distributions from the family trust for the 2000 and 2001 years were properly assessable to the taxpayer. In relation to the distributions for the 2002 year of income, and consistent with a concession made by the Commissioner about the application of the decision in the Zeta Force Pty Ltd case, the Tribunal reduced the amount assessable to the taxpayer to his proportional entitlement to the net income of the trust estate (paragraphs 31 to 36). • The Tribunal did not accept that the taxpayer was not assessable in relation to the scheme profits. It found that the appropriate basis of assessment was by reference to the reductions in the taxpayer's loan account with the family trust in the 2001 and 2002 years of income. On the evidence available, the Tribunal concluded that the taxpayer had not discharged the onus of proving that the assessments for those years in relation to the scheme profits were excessive (paragraphs 40 to 49). • The Tribunal agreed that tax shortfall penalty of 75% was correctly applied by the Commissioner in relation to the assessments of scheme profits. It also agreed that penalty of 50% was correctly applied in respect of the omitted trust distribution for the 2001 year. However, the Tribunal reduced the penalty imposed from 50% to 25% in relation to the adjusted trust distribution for the 2002 year, and, given the mitigating circumstances referred to in paragraph 31 of the decision, remitted in full the penalty imposed in respect of the omitted trust distribution for the 2000 year of income (paragraphs 52 and 53).", "ATO_View_of_Decision": "Once the Tribunal accepted that the taxpayer was assessable in relation to the scheme profits, it was open to the Tribunal, on the evidence available, to find that the profits were assessable to the taxpayer in the 2001 and 2002 years, rather than in the earlier years on the alternative basis adopted by the Commissioner. | It was also open to the Tribunal, on the evidence presented, to reduce the penalties payable in relation to some of the tax shortfalls. However, the Tax Office notes that the Tribunal accepted that 75% penalty was correctly imposed in relation to the assessment of scheme profits.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "None | 2009 ATC 1-006 | 97(1) | 6-5 | 6-10 | 6-15 | 14ZL(1) | 14ZL(2) | 14ZQ | 14ZZK(b) | 90 ATC 4088 | 98 ATC 4681", "Legislative_References": "Income Tax Assessment Act 1936 97(1) 226H 226J 227 Income Tax Assessment Act 1997 6-5 6-10 6-15 Tax Administration Act 1953 14ZL(1) 14ZL(2) 14ZQ 14ZZK(b)", "Case_References": "FC of T v Dalco [1990] HCA 3 168 CLR 614 90 ATC 4088 20 ATR 1370 Zeta Force Pty Ltd v FC of T (1998) 84 FCR 70 98 ATC 4681 39 ATR 277", "Subject_References": "Omitted income Burden of proof Penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/1457-1460/00001", "Unmatched_Content": ""}
{"Case_Name": "LeasePlan Australia Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 252/2009", "Venue": "Federal Court of Australia", "Judgment_Date": "13 November 2009", "Date_Published": "16 June 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office response to this matter which concerned whether the applicant was entitled to input tax credits on the purchase of second-hand motor vehicles from unregistered persons to be leased back and then sold.", "Overview_of_Facts": "1. The applicant (LeasePlan) carried on the business of motor vehicle fleet leasing and management. 2. In the ordinary course of carrying on that business, LeasePlan purchased, leased, managed and sold second-hand motor vehicles. 3. Private individual employees sold their vehicles to LeasePlan. As none of the employees were registered, or were required to be registered, for GST purposes, the sale by each employee to LeasePlan was not a taxable supply for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). 4. LeasePlan in turn leased the vehicles to the employees under either an operating lease or a finance lease. 5. At the end of each lease, LeasePlan sold the vehicles. In accordance with the terms of the agreements, if the sale price was less than the agreed residual value, the employees were required to pay the difference to LeasePlan. If the sale price exceeded the residual value, LeasePlan was required to pay the difference to the employees. 6. LeasePlan claimed input tax credits in respect of each purchase from the employees pursuant to subsection 66-5(1) of the GST Act. 7. The Commissioner assessed LeasePlan on the basis that it was not entitled to the input tax credits. 8. LeasePlan objected to the assessments and, upon its objections being disallowed, appealed to the Federal Court against the objection decision. | 1. The applicant (LeasePlan) carried on the business of motor vehicle fleet leasing and management. 2. In the ordinary course of carrying on that business, LeasePlan purchased, leased, managed and sold second-hand motor vehicles. 3. Private individual employees sold their vehicles to LeasePlan. As none of the employees were registered, or were required to be registered, for GST purposes, the sale by each employee to LeasePlan was not a taxable supply for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). 4. LeasePlan in turn leased the vehicles to the employees under either an operating lease or a finance lease. 5. At the end of each lease, LeasePlan sold the vehicles. In accordance with the terms of the agreements, if the sale price was less than the agreed residual value, the employees were required to pay the difference to LeasePlan. If the sale price exceeded the residual value, LeasePlan was required to pay the difference to the employees. 6. LeasePlan claimed input tax credits in respect of each purchase from the employees pursuant to subsection 66-5(1) of the GST Act. 7. The Commissioner assessed LeasePlan on the basis that it was not entitled to the input tax credits. 8. LeasePlan objected to the assessments and, upon its objections being disallowed, appealed to the Federal Court against the objection decision. | Issues decided by the court | 1 At issue in the proceeding was whether subsection 66-5(1) of the GST Act was satisfied; in particular, whether LeasePlan purchased the vehicles 'for the purposes of sale'. 2 The Commissioner submitted that LeasePlan's acquisition of the vehicles was actuated by lease rather than sale. 3 The Court decided that LeasePlan did purchase the vehicles for a purpose of sale and, there being no other issue between the parties, allowed LeasePlan's appeal. 4 In so deciding, the Court noted that the case turned on the evidence (see [25]). The Court noted evidence that: 4.1 in each contract under which LeasePlan acquired a vehicle, it entered into an obligation to sell the vehicle, with the respective rights and obligations of the parties being determined by reference to the actual sale price only once the vehicle was sold [29]; 4.2 LeasePlan monitored expected sale proceeds for each type of vehicle proposed to be leased in order to determine the residual value [30]; 4.3 each vehicle was in fact sold immediately upon termination of the leases (on average within 19 days) [30]; 4.4 sale of the vehicles was necessary to provide the forecasted financial returns to LeasePlan's business [39]. 5 Having regard to this evidence, the Court concluded that contractual arrangements were for a 'composite transaction' in which LeasePlan acquired the vehicles for lease and sale. | 1 At issue in the proceeding was whether subsection 66-5(1) of the GST Act was satisfied; in particular, whether LeasePlan purchased the vehicles 'for the purposes of sale'. 2 The Commissioner submitted that LeasePlan's acquisition of the vehicles was actuated by lease rather than sale. 3 The Court decided that LeasePlan did purchase the vehicles for a purpose of sale and, there being no other issue between the parties, allowed LeasePlan's appeal. 4 In so deciding, the Court noted that the case turned on the evidence (see [25]). The Court noted evidence that: 4.1 in each contract under which LeasePlan acquired a vehicle, it entered into an obligation to sell the vehicle, with the respective rights and obligations of the parties being determined by reference to the actual sale price only once the vehicle was sold [29]; 4.2 LeasePlan monitored expected sale proceeds for each type of vehicle proposed to be leased in order to determine the residual value [30]; 4.3 each vehicle was in fact sold immediately upon termination of the leases (on average within 19 days) [30]; 4.4 sale of the vehicles was necessary to provide the forecasted financial returns to LeasePlan's business [39]. 5 Having regard to this evidence, the Court concluded that contractual arrangements were for a 'composite transaction' in which LeasePlan acquired the vehicles for lease and sale. | 4.1 in each contract under which LeasePlan acquired a vehicle, it entered into an obligation to sell the vehicle, with the respective rights and obligations of the parties being determined by reference to the actual sale price only once the vehicle was sold [29]; 4.2 LeasePlan monitored expected sale proceeds for each type of vehicle proposed to be leased in order to determine the residual value [30]; 4.3 each vehicle was in fact sold immediately upon termination of the leases (on average within 19 days) [30]; 4.4 sale of the vehicles was necessary to provide the forecasted financial returns to LeasePlan's business [39].", "Issues_Decided": "1 At issue in the proceeding was whether subsection 66-5(1) of the GST Act was satisfied; in particular, whether LeasePlan purchased the vehicles 'for the purposes of sale'. 2 The Commissioner submitted that LeasePlan's acquisition of the vehicles was actuated by lease rather than sale. 3 The Court decided that LeasePlan did purchase the vehicles for a purpose of sale and, there being no other issue between the parties, allowed LeasePlan's appeal. 4 In so deciding, the Court noted that the case turned on the evidence (see [25]). The Court noted evidence that: 4.1 in each contract under which LeasePlan acquired a vehicle, it entered into an obligation to sell the vehicle, with the respective rights and obligations of the parties being determined by reference to the actual sale price only once the vehicle was sold [29]; 4.2 LeasePlan monitored expected sale proceeds for each type of vehicle proposed to be leased in order to determine the residual value [30]; 4.3 each vehicle was in fact sold immediately upon termination of the leases (on average within 19 days) [30]; 4.4 sale of the vehicles was necessary to provide the forecasted financial returns to LeasePlan's business [39]. 5 Having regard to this evidence, the Court concluded that contractual arrangements were for a 'composite transaction' in which LeasePlan acquired the vehicles for lease and sale. 1 At issue in the proceeding was whether subsection 66-5(1) of the GST Act was satisfied; in particular, whether LeasePlan purchased the vehicles 'for the purposes of sale'. 2 The Commissioner submitted that LeasePlan's acquisition of the vehicles was actuated by lease rather than sale. 3 The Court decided that LeasePlan did purchase the vehicles for a purpose of sale and, there being no other issue between the parties, allowed LeasePlan's appeal. 4 In so deciding, the Court noted that the case turned on the evidence (see [25]). The Court noted evidence that: 4.1 in each contract under which LeasePlan acquired a vehicle, it entered into an obligation to sell the vehicle, with the respective rights and obligations of the parties being determined by reference to the actual sale price only once the vehicle was sold [29]; 4.2 LeasePlan monitored expected sale proceeds for each type of vehicle proposed to be leased in order to determine the residual value [30]; 4.3 each vehicle was in fact sold immediately upon termination of the leases (on average within 19 days) [30]; 4.4 sale of the vehicles was necessary to provide the forecasted financial returns to LeasePlan's business [39]. 5 Having regard to this evidence, the Court concluded that contractual arrangements were for a 'composite transaction' in which LeasePlan acquired the vehicles for lease and sale. 4.1 in each contract under which LeasePlan acquired a vehicle, it entered into an obligation to sell the vehicle, with the respective rights and obligations of the parties being determined by reference to the actual sale price only once the vehicle was sold [29]; 4.2 LeasePlan monitored expected sale proceeds for each type of vehicle proposed to be leased in order to determine the residual value [30]; 4.3 each vehicle was in fact sold immediately upon termination of the leases (on average within 19 days) [30]; 4.4 sale of the vehicles was necessary to provide the forecasted financial returns to LeasePlan's business [39].", "ATO_View_of_Decision": "The Tax Office view in respect of section 66-5 is set out in GSTR 2005/3: 43. Section 66-5 requires that the second-hand goods are acquired for the purposes of sale or exchange in the ordinary course of business. We consider that this means that the acquirer must be in the business of buying and selling these goods. If second-hand goods are acquired for any other purpose, for example, for use and eventual sale in the course of business, the acquisition of the goods does not meet this requirement. 44. Further, section 66-5 was amended to ensure that input tax credits for acquisitions of second-hand goods from unregistered suppliers can only be claimed where those goods are acquired for sale or exchange in the ordinary course of business (excluding materials used in manufacture).15 This is confirmed by paragraph 1.26 of the Explanatory Memorandum to the A New Tax System (Indirect Tax and Consequential Amendments) Bill (No. 2) 1999 which says: Item 77 amends section 66-5 to ensure that input tax credits for acquisitions of second-hand goods from unregistered suppliers can only be claimed where those goods are acquired as trading stock (excluding materials used in manufacture). 45. Although 'trading stock' is not mentioned in Division 66, the words in section 66-5 that are similar to the meaning of trading stock in the Income Tax Assessment Act 1997, reflect this intention of Parliament. That is, to limit the application of the Division to second-hand goods acquired by entities in the business of trading in those goods. | 43. Section 66-5 requires that the second-hand goods are acquired for the purposes of sale or exchange in the ordinary course of business. We consider that this means that the acquirer must be in the business of buying and selling these goods. If second-hand goods are acquired for any other purpose, for example, for use and eventual sale in the course of business, the acquisition of the goods does not meet this requirement. 44. Further, section 66-5 was amended to ensure that input tax credits for acquisitions of second-hand goods from unregistered suppliers can only be claimed where those goods are acquired for sale or exchange in the ordinary course of business (excluding materials used in manufacture).15 This is confirmed by paragraph 1.26 of the Explanatory Memorandum to the A New Tax System (Indirect Tax and Consequential Amendments) Bill (No. 2) 1999 which says: Item 77 amends section 66-5 to ensure that input tax credits for acquisitions of second-hand goods from unregistered suppliers can only be claimed where those goods are acquired as trading stock (excluding materials used in manufacture). 45. Although 'trading stock' is not mentioned in Division 66, the words in section 66-5 that are similar to the meaning of trading stock in the Income Tax Assessment Act 1997, reflect this intention of Parliament. That is, to limit the application of the Division to second-hand goods acquired by entities in the business of trading in those goods. | The Tax Office accepts that vehicle leasing companies that regularly purchase vehicles from unregistered parties on terms that provide for a period of leasing followed by sale by reference to an agreed residual value that reflects an estimate of the value of the vehicle at the end of the lease are entitled to input tax credits under Division 66 on the acquisition of the vehicles if the other requirements of that Division are satisfied. The same principles would apply if other second-hand goods are acquired in similar circumstances. | As the Court specifically noted that the case was decided on the evidence, the Tax Office does not consider that the decision is authority for the broader proposition that input tax credits are available under section 66-5 in any case where there is an intention that the goods will ultimately be sold. | For instance, a tradesperson may purchase a second-hand vehicle (from an unregistered person) for use in his or her business but also with a view to selling it at some future time. In those circumstances, the Tax Office view remains that it would not be accurate to characterise the tradesperson as purchasing with the purpose of sale. On these facts, the purpose is to use the vehicle in the business of the tradesperson. An entity that purchases second-hand goods for use in its enterprise and sells those goods after they are no longer required is not a trader in second-hand goods and is not entitled to input tax credits under section 66-5. | It has been suggested to us that this decision is relevant to questions of apportionment under section 11-15 and adjustments under Division 129. Those provisions are concerned with 'creditable purpose' which in turn is concerned with the extent to which an acquisition is acquired in carrying on your enterprise or relates to making supplies that would be input taxed or is of a private or domestic nature. In contrast, this decision was concerned with determining the purposes of the acquisition for the purposes of section 66-5. We do not consider the case to be relevant to the interpretation of the differently-worded provisions of Divisions 11 and 129.", "Administrative_Treatment": "The Tax Office will implement the decision in accordance with the views set out under the immediately preceding section. | Taxpayers who consider that they have overpaid GST on comparable transactions may seek a refund of the overpayment to the requirements of sections 105-55 and 105-65 of Schedule 1 to the Taxation Administration Act 1953 . | Implications on current Public Rulings & Determinations | An Addendum to GSTR 2005/3 was published on 13 October 2010 to reflect this decision.", "Related_Documents": "GSTR 2005/3 - Goods and services tax: arrangements of the kind described in Taxpayer Alert TA 2004/9 - exploitation of the second-hand goods provisions to obtain input tax credits | 2009 ATC 20-144 | Division 11 | 11-15 | Division 66 | 66-5 | 66-5(1) | Division 129 | 89 ATC 4101", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 Division 11 11-15 Division 66 66-5 66-5(1) Division 129 Taxation Administration Act 1953 105-55 105-65", "Case_References": "John v Federal Commissioner of Taxation (1989) 166 CLR 417 [1989] HCA 5 89 ATC 4101 20 ATR 1", "Subject_References": "Input tax credits Second-hand goods Division 66", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID252/2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Lilyvale Hotel Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD1193/2008", "Venue": "Federal Court of Australia", "Judgment_Date": "6 March 2009", "Date_Published": "10 September 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the application of the same business test to a taxpayer who, following a change in ownership, assumed control of the day to day running of its hotel previously conducted by a related entity.", "Overview_of_Facts": "The appeal concerned the disallowance of a deduction, on the basis that the taxpayer did not satisfy the same business test under ss165-13 and 165-210 of ITAA97 for the income period 1 January 2002 to 31 March 2003 (in lieu of the year ended 30 June 2003). | In relation to the continuity of ownership test, it was common ground between the parties that the taxpayer would not satisfy it and, consequently, it was not considered in the appeal. | From 1993, the taxpayer had been the leasehold owner of land on which it had constructed a hotel in the Rocks area of Sydney. The hotel had commenced operation in September 1992. In 1989, by way of a management agreement, the taxpayer appointed another Australian resident company, ANA Enterprises Australia Pty Limited (\"Enterprises Australia\") as operator and manager of the hotel for a term of 20 years. Essentially, under the terms of the management agreement, Enterprises Australia received a management fee and in return ran the hotel. | Until August 2002, both the taxpayer and Enterprises Australia were members of the ANA group which was ultimately owned by a Japanese resident company. In August 2002, the taxpayer was acquired by a subsidiary of the Government of Singapore Investment Corporation. From this time until 31 March 2003, being the end of the relevant time period for this appeal, the business of the hotel continued unchanged. However, from August 2002, the taxpayer commenced to operate and manage the hotel as well as own it. The management agreement was terminated accordingly. | At all material times the taxpayer's income was derived from the hotel business. | At first instance Stone J decided the appeal in favour of the Commissioner on the basis that: a. The taxpayer as owner of the hotel and Enterprises Australia as the manager of the operations of the hotel, engaged in very different activities. b. Applying Federal Commissioner of Taxation v Murry (1998) 193 CLR 605, the taxpayer's involvement in the business of the hotel was so distant from the day-to-day activities of the hotel that the repetitive and continuous conduct of running a hotel could not be said to be the business activity of the taxpayer. c. Although Enterprises Australia was expressed as the agent of the taxpayer under the management agreement, that did not mean the activities of Enterprises Australia should be attributed to the taxpayer. d. Following the change in ownership of the taxpayer and the termination of the management agreement, the taxpayer assumed the conduct of activities previously carried out by Enterprises Australia. This constituted a change in the business of the taxpayer. Accordingly, the assessment was not excessive as the deductions were properly denied on the basis that the taxpayer failed the same business test. | a. The taxpayer as owner of the hotel and Enterprises Australia as the manager of the operations of the hotel, engaged in very different activities. b. Applying Federal Commissioner of Taxation v Murry (1998) 193 CLR 605, the taxpayer's involvement in the business of the hotel was so distant from the day-to-day activities of the hotel that the repetitive and continuous conduct of running a hotel could not be said to be the business activity of the taxpayer. c. Although Enterprises Australia was expressed as the agent of the taxpayer under the management agreement, that did not mean the activities of Enterprises Australia should be attributed to the taxpayer. d. Following the change in ownership of the taxpayer and the termination of the management agreement, the taxpayer assumed the conduct of activities previously carried out by Enterprises Australia. This constituted a change in the business of the taxpayer. Accordingly, the assessment was not excessive as the deductions were properly denied on the basis that the taxpayer failed the same business test. | The taxpayer appealed to the Full Federal Court and the appeal was allowed. | The Commissioner did not apply for special leave to appeal to the High Court. | Issues decided by the Full Federal Court | Same business test and agency | The Commissioner argued that the termination of the management agreement after the change in ownership, with the consequence that the taxpayer commenced to operate and manage the hotel as well as own it, was sufficient to amount to a change in the business of the taxpayer. Accordingly, the taxpayer failed the same business test. | The taxpayer argued that the activities of Enterprises Australia as manager of the taxpayer's hotel business until August 2002 were attributable to the taxpayer under the law of agency. Further, the activities of an agent being attributable to its principal, are to be properly taken into account in characterising the business of the principal for the purposes of the same business test. Accordingly in this case, the taxpayer, as principal, should be taken to have been carrying on the same business during the relevant period of (as the taxpayer described) ' owning and operating ...[ a ] hotel to derive revenue from its guests and profits from its operation' . | The Full Court found that: a. The business of the taxpayer was the same business in the relevant period and the losses carried forward were deductible. b. The proper test was Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97, under which at all relevant times the taxpayer derived its income from the business activity of operating the hotel it owned, which activity was identical prior to, and after, the change in ownership of the taxpayer:. c. Enterprises Australia was the agent of the taxpayer under the proper construction of the management agreement. Consequently, there was no impediment to attributing the day to day activities of operating the hotel as those of the taxpayer. d. Where the activities giving rise to the source of income of the taxpayer are carried out by its agent, such activities are to be taken into account in the characterisation of the appellant's business. For the purposes of the 'same business test' whether or not a business is conducted through a manager is not determinative of what is the proper characterisation of that business. | a. The business of the taxpayer was the same business in the relevant period and the losses carried forward were deductible. b. The proper test was Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97, under which at all relevant times the taxpayer derived its income from the business activity of operating the hotel it owned, which activity was identical prior to, and after, the change in ownership of the taxpayer:. c. Enterprises Australia was the agent of the taxpayer under the proper construction of the management agreement. Consequently, there was no impediment to attributing the day to day activities of operating the hotel as those of the taxpayer. d. Where the activities giving rise to the source of income of the taxpayer are carried out by its agent, such activities are to be taken into account in the characterisation of the appellant's business. For the purposes of the 'same business test' whether or not a business is conducted through a manager is not determinative of what is the proper characterisation of that business.", "Issues_Decided": "Same business test and agency: The Commissioner argued that the termination of the management agreement after the change in ownership, with the consequence that the taxpayer commenced to operate and manage the hotel as well as own it, was sufficient to amount to a change in the business of the taxpayer. Accordingly, the taxpayer failed the same business test. The taxpayer argued that the activities of Enterprises Australia as manager of the taxpayer's hotel business until August 2002 were attributable to the taxpayer under the law of agency. Further, the activities of an agent being attributable to its principal, are to be properly taken into account in characterising the business of the principal for the purposes of the same business test. Accordingly in this case, the taxpayer, as principal, should be taken to have been carrying on the same business during the relevant period of (as the taxpayer described) ' owning and operating ...[ a ] hotel to derive revenue from its guests and profits from its operation' . The Full Court found that: a. The business of the taxpayer was the same business in the relevant period and the losses carried forward were deductible. b. The proper test was Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97, under which at all relevant times the taxpayer derived its income from the business activity of operating the hotel it owned, which activity was identical prior to, and after, the change in ownership of the taxpayer:. c. Enterprises Australia was the agent of the taxpayer under the proper construction of the management agreement. Consequently, there was no impediment to attributing the day to day activities of operating the hotel as those of the taxpayer. d. Where the activities giving rise to the source of income of the taxpayer are carried out by its agent, such activities are to be taken into account in the characterisation of the appellant's business. For the purposes of the 'same business test' whether or not a business is conducted through a manager is not determinative of what is the proper characterisation of that business. a. The business of the taxpayer was the same business in the relevant period and the losses carried forward were deductible. b. The proper test was Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97, under which at all relevant times the taxpayer derived its income from the business activity of operating the hotel it owned, which activity was identical prior to, and after, the change in ownership of the taxpayer:. c. Enterprises Australia was the agent of the taxpayer under the proper construction of the management agreement. Consequently, there was no impediment to attributing the day to day activities of operating the hotel as those of the taxpayer. d. Where the activities giving rise to the source of income of the taxpayer are carried out by its agent, such activities are to be taken into account in the characterisation of the appellant's business. For the purposes of the 'same business test' whether or not a business is conducted through a manager is not determinative of what is the proper characterisation of that business.", "ATO_View_of_Decision": "Same business test | The Commissioner considers the case has been decided on its facts in accordance with established principles governing the operation of the same business test. The joint judgment acknowledges the authority of Avondale Motors and the general principle that the same business test requires a continuing identity (as opposed to similarity) of the taxpayer's business which is to be determined by an evaluation of all relevant facts.. It does not follow that changes to the manner in which a taxpayer's business is carried on, will necessarily manifest a change in the actual business carried on by a taxpayer. The outcome of the case is not expected to have significant implications for the operation of the law in this area. | Agency | The Commissioner accepts that the Full Court's conclusion that Enterprises Australia carried on the business of managing the hotel as agent for the taxpayer is an application of the general law of agency to the facts of this case. As the Court observed, there was no evidence of sham or any other matter to suggest that the management agreement could not be regarded as giving effect to the intention of the parties to establish a relationship of principal and agent. | The litigation essentially involves the application of established principles to particular facts and the outcome of the case is not expected to have significant implications for the Commissioner's Rulings on the same business test, Taxation Rulings TR 1999/9 and TR 2007/2.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "None considered. | 2009 ATC 20-094 | 165-10 | 165-13 | 165-210 | 71 ATC 4101 | 100 CLR 644 | 77 ATC 4311 | [2000] FCA 1541 | 177 ALR 611", "Legislative_References": "Income Assessment Tax Act 1936 (Cth) 80A 80E Income Assessment Tax Act 1997 165-10 165-13 165-210", "Case_References": "Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation [1971] HCA 17 124 CLR 97 71 ATC 4101 2 ATR 312 International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co [1958] HCA 16 100 CLR 644 32 ALJR 160 J Hammond Investments Pty Ltd v Federal Commissioner of Taxation (1977) 31 FLR 349 7 ATR 633 77 ATC 4311 South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541 177 ALR 611", "Subject_References": "whether prior year losses deductible application of 'same business test' question of fact whether applicant carried on the same business before and after the relevant test time", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1193/2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Meridien Marinas Horizon Shores Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "QUD 68/2009", "Venue": "Federal Court of Australia", "Judgment_Date": "24 December 2009", "Date_Published": "12 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable. | Taxpayer filed a notice of discontinuance of its appeal to the Full Federal Court on 14 July 2010.", "Summary_of_Decision": "The case concerns whether s 87-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) applies to the supply of a leasehold interest over marina berths for a period of 20 years. Division 87 provides concessional GST treatment for a supply of commercial accommodation that is provided to an individual as long-term accommodation in commercial residential premises.", "Overview_of_Facts": "1. The appellant owns and operates a marina facility. In carrying on its enterprise, it entered into 118 leases, each for a term of 20 years, over berths in the marina. | 2. There were five versions of the lease instrument. While the initial version of the lease prohibited the lessee using the berth as a residence, the lessee was also required to comply with rules made from time to time. Under those rules, the lessee had to ensure that a vessel moored at the berth was not used as a permanent place for human habitation without first obtaining the written consent of the appellant. Subsequent versions of the lease provided that the lessee must not use the berth as a residence without obtaining the written consent of the appellant which would not be unreasonably withheld. | 3. It was a condition of the leases that the total amount of rent was payable upfront. Lessees also pay ongoing maintenance fees. | 4. Lessees are able to enter into a letting agreement with the appellant to have their berths included in the appellant's \"rental pool\", which are available for short term rentals. Under the letting agreement, the lessee exclusively appointed the appellant for the relevant period to manage the berth and exercise \"absolute control\" over the berth as the lessee's duly authorised agent for the purposes of negotiating and entering into rental arrangements in respect of the berth and to allocate the use of the berth to visitors to the marina on a temporary or intermittent basis. | 5. The lessees included corporations, corporate trustees, individuals, and individuals as trustees. Two leases were made with a company and individual jointly. | 6. The Commissioner determined that section 87-5 of the GST Act did not apply to the supply of the leasehold interest over the berths and issued a notice of assessment. The appellant objected against the assessment, the Commissioner disallowed the objection and the taxpayer appealed against the objection decision to the Federal Court. | 7. On 24 December 2009, Greenwood J gave judgment for the Commissioner. | 8. On 4 February 2010, the appellant filed an appeal to the Full Federal Court. | 9. On 14 July 2010, the appellant filed a notice of discontinuance of the appeal. | Issues decided by the court | Subsection 87-5(1) of the GST Act provides that the value of a taxable supply of commercial accommodation that: (a) is provided in commercial residential premises that are predominantly for long-term accommodation; and (b) is provided to an individual as long-term accommodation; is 50% of what would be the price of the supply would otherwise have been under the basic rules of the GST Act. | (a) is provided in commercial residential premises that are predominantly for long-term accommodation; and (b) is provided to an individual as long-term accommodation; is 50% of what would be the price of the supply would otherwise have been under the basic rules of the GST Act. | Section 87-15 provides that 'commercial accommodation' means the right to occupy the whole or any part of commercial presidential premises. | Subsection 87-20(1) of the GST Act provides that 'Long-term accommodation' is provided to an individual if commercial accommodation is provided, for a continuous period of 28 days or more, in the same premises: (a) to that individual alone; or (b) to that individual, together with one or more other individuals who: (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). | (a) to that individual alone; or (b) to that individual, together with one or more other individuals who: (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). | (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). | The Court found at [85] that the appellant failed to establish that it supplied commercial accommodation in commercial residential premises for the purposes of the GST Act. | In that regard, the Court concluded at [75] that the \"right to occupy\" contemplated by the definition of commercial accommodation is properly understood as a right to occupy the marina or a berth in the marina as a residence, in the sense of a right to stay rather than in any sense of permanent or long-term residence. This is consistent with the notion that a marina satisfying the description of commercial residential premises is a marina at which one or more of the berths are occupied, or to be occupied, by ships used as residences. The Court further held at [83] that the right to occupy must be conferred at the time of the taxable supply and cover the period of the lease (see [85] and [89]). | The Court also concluded at [38] that those lessees who had taken up the rental pool opportunity involving the potential for 'liveaboard' use enjoyed a consent or permission, either actually or constructively, from the appellant for the use of their berths for the mooring of a vessel for use as a residence. However, the Court found at [84] that there was no evidence to establish which of the long-term lessees acquired, at the date of the grant of each lease, a right to occupy a berth with a vessel for use throughout the period of the lease as a residence. | In addressing the Commissioner's argument concerning the requirement that the commercial accommodation be provided to an individual, the Court noted at [88] that paragraphs 87-5(1)(a) and (b) of the GST Act are concerned with the provision of commercial accommodation to an individual in the sense that ultimately a natural person will occupy the whole or a part of the commercial residential premises. However, the Court concluded that section 87-5 does not require the lease to be struck between the supplier and an individual. There may be a taxable supply of commercial accommodation to a range of entities, provided in commercial residential premises that are predominantly for long-term accommodation, in circumstances where a natural person exercises the right.", "Issues_Decided": "Subsection 87-5(1) of the GST Act provides that the value of a taxable supply of commercial accommodation that: (a) is provided in commercial residential premises that are predominantly for long-term accommodation; and (b) is provided to an individual as long-term accommodation; is 50% of what would be the price of the supply would otherwise have been under the basic rules of the GST Act. (a) is provided in commercial residential premises that are predominantly for long-term accommodation; and (b) is provided to an individual as long-term accommodation; is 50% of what would be the price of the supply would otherwise have been under the basic rules of the GST Act. Section 87-15 provides that 'commercial accommodation' means the right to occupy the whole or any part of commercial presidential premises. Subsection 87-20(1) of the GST Act provides that 'Long-term accommodation' is provided to an individual if commercial accommodation is provided, for a continuous period of 28 days or more, in the same premises: (a) to that individual alone; or (b) to that individual, together with one or more other individuals who: (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). (a) to that individual alone; or (b) to that individual, together with one or more other individuals who: (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). The Court found at [85] that the appellant failed to establish that it supplied commercial accommodation in commercial residential premises for the purposes of the GST Act. In that regard, the Court concluded at [75] that the \"right to occupy\" contemplated by the definition of commercial accommodation is properly understood as a right to occupy the marina or a berth in the marina as a residence, in the sense of a right to stay rather than in any sense of permanent or long-term residence. This is consistent with the notion that a marina satisfying the description of commercial residential premises is a marina at which one or more of the berths are occupied, or to be occupied, by ships used as residences. The Court further held at [83] that the right to occupy must be conferred at the time of the taxable supply and cover the period of the lease (see [85] and [89]). The Court also concluded at [38] that those lessees who had taken up the rental pool opportunity involving the potential for 'liveaboard' use enjoyed a consent or permission, either actually or constructively, from the appellant for the use of their berths for the mooring of a vessel for use as a residence. However, the Court found at [84] that there was no evidence to establish which of the long-term lessees acquired, at the date of the grant of each lease, a right to occupy a berth with a vessel for use throughout the period of the lease as a residence. In addressing the Commissioner's argument concerning the requirement that the commercial accommodation be provided to an individual, the Court noted at [88] that paragraphs 87-5(1)(a) and (b) of the GST Act are concerned with the provision of commercial accommodation to an individual in the sense that ultimately a natural person will occupy the whole or a part of the commercial residential premises. However, the Court concluded that section 87-5 does not require the lease to be struck between the supplier and an individual. There may be a taxable supply of commercial accommodation to a range of entities, provided in commercial residential premises that are predominantly for long-term accommodation, in circumstances where a natural person exercises the right.", "ATO_View_of_Decision": "The Court's conclusion that the term 'commercial accommodation' as defined in s87-15 of the GST Act requires that the right to occupy the commercial residential premises must be for residential purposes confirms the ATO view. The right to occupy in this context must be conferred at the time the supply is made and extend for the full term of the supply (i.e. in this case the full term of the 20 year leasehold interest). | The Court also confirmed at [88] the ATO's view that commercial accommodation may be supplied to one entity (e.g. a company) but provided to a second entity (e.g. an individual). | Although not explicitly stated, it may be inferred from the Court's comments at [88] to [89] that the Court would have found that the requirements of subsection 87-20(1) would be satisfied where a supply of commercial accommodation is for 28 days or more and is able, under the terms of the agreement, to be taken up by an individual. It would not be necessary for the commercial accommodation to be actually taken up by an individual.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The Commissioner issued GSTR 2012/7 on 19 December 2012 which sets out the Commissioner's views on how Division 87 and section 40-35 of the GST Act apply to supplies of long-term accommodation in commercial residential premises. The views set out in GSTR 2012/7 apply the Court's decision. | Goods and Services Tax Bulletin GSTB 2003/2 Goods and Services Tax: Long-term accommodation at marinas was withdrawn on 19 December 2012.", "Related_Documents": "GSTR 2012/7 | N/A | 2009 ATC 20-158 | 7-1 | 9-5 | 9-10 | 9-15 | 9-20 | 9-30 | 40-35(1) | 87-1 | 87-5 | 87-15 | 87-20 | 87-25 | 184-1 | 195-1 | 2005 ATC 4571 | (1997) 187 CLR 384 | 2006 ATC 4841 | 191 CLR 85 | (1998) 194 CLR 355 | [1998] HCA 28 | [2004] HCA 14 | 2009 ATC 20-090 | 2009 ATC 20-145 | 2004 ATC 5068", "Legislative_References": "New Tax System (Goods and Services Tax) Act 1999 (GST Act) 7-1 9-5 9-10 9-15 9-20 9-30 40-35(1) 87-1 87-5 87-15 87-20 87-25 184-1 195-1", "Case_References": "HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 (2005) 60 ATR 106 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Saga Holidays Ltd v Commissioner of Taxation (2005) 149 FCR 41 2006 ATC 4001 (2005) 61 ATR 384 Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191 (2006) 156 FCR 256 2006 ATC 4841 (2006) 64 ATR 602 Newcastle City Council v GIO General Ltd ( 1997) 191 CLR 85 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28 Network Ten Pty Limited v TCN Channel Nine Pty Limited (2004) 218 CLR 273 [2004] HCA 14 South Steyne Hotel Pty Ltd v Commissioner of Taxation (2009) 71 ATR 228 2009 ATC 20-090 [2009] FCA 13 71 ATR 228 South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation [2009] FCAFC 155 2009 ATC 20-145 (2009) 74 ATR 41 Marana Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 307 (2004) 141 FCR 299 2004 ATC 5068 57 ATR 521", "Subject_References": "Goods & Services Tax (GST) Supply of commercial accommodation to an individual Long term accommodation Commercial residential premises Right to occupy", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD68/2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Mezrani and Commissioner of Taxation", "Venue_Reference_No": "2008/2748, 2008/2751 & 2008/2752", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "1 September 2009", "Date_Published": "15 December 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly Adverse", "Summary_of_Decision": "Outlines the Tax Office response to this case, which concerned whether the failure to include profits from the sale of property owned by the Applicants in their income tax returns was a result of recklessness by them or their tax agent, and whether the penalty was correctly applied.", "Overview_of_Facts": "1. In 2002, the Applicants, with a group of family members, purchased properties for the purpose of constructing residential units ('the project'). | 2. The project was undertaken during the 2002 and 2003 years. | 3. The Applicants' accountant for these transactions was Mr Moses who was a close personal friend. There was also a project accountant. | 4. After completion of the project (which comprised of 10 two bedroom units) the units were divided between the participants. On this basis, Mr Mezrani became the registered owner of units 1 and 3 and Mrs Mezrani became the registered owner of units 2 and 4. | 5. The Applicants intended to retain the units as long term investments; however, subsequently the bank required the Applicants to sell the units to reduce their overall level of mortgage. | 6. Units 1 and 2 were sold on or about 30 June 2004 and units 3 and 4 were sold in December 2004 and September 2004, respectively. | 7. As a result of the death of Mr Moses in October 2004, the Applicants' nephew, Sammy Mezrani ('Sammy'), took over the responsibility of the Applicants' financial affairs. Sammy lived with the Applicants at one point helping to look after their children. Sammy and the Applicants were very close. | 8. In May 2006, Sammy passed away. | 9. Mr Mezrani took Sammy's death very hard and on his evidence was devastated and rarely left the house. This condition prevailed for seven to eight months. As a result of the combination of the deaths of Mr Moses and Sammy, the recording of the Applicants' finances was inadequate. | 10. Mrs Mezrani stated that she relied on Mr Mezrani for their financial affairs. After prompting by the Tax Office to file the 2004 and 2005 income tax returns, Mr Mezrani engaged new tax agents - Gateway Partners. These agents had purchased the accounting practice of Mr Moses. | 11. In his haste of compiling the returns and the combination of the deaths of Mr Moses and Sammy, Mr Mezrani did not recall the sales of the properties for inclusion in the income tax returns for himself and his wife. In addition, he did not notify his accountants of the sales. | 12. The Commissioner imposed a penalty in relation to recklessness for both of the Applicants. The bases relied on were that as company directors with experience in the business of property developments in the past, they were aware that sales of property at a profit resulted in taxation consequences which needed to be reported to the Tax Office. They also received a letter from the project accountants for the joint venture dated 20 March 2006 which should have sounded a warning to them to include the capital gains in their relevant taxation returns. | 13. The Applicants accepted that they acted negligently and agreed that a penalty of 25% of the shortfall amount was appropriate but denied that their behaviour was reckless. | Issues decided by the court or tribunal | 1. Whether Mr Mezrani is liable to an administrative penalty for recklessness under sections 284-75(1) and 284-90(1), Item 2 of Schedule 1 of the TAA, for the income years ended 30 June 2004 and 30 June 2005? | 2. Whether Mrs Mezrani is liable to an administrative penalty for recklessness under sections 284-75(1) and 284-90(1), Item 2 of Schedule 1 of the TAA, for the income year ended 30 June 2005? | 3. Should all or a part of the penalty imposed on the Applicants be remitted under section 298-20(1) of Schedule 1 to the TAA 1953? | Answers to the issues | 1. No. The Applicant is liable to an administrative penalty for lack of reasonable care. | 2. No. The Applicant is liable to an administrative penalty for lack of reasonable care. | 3. No.", "Issues_Decided": "1. Whether Mr Mezrani is liable to an administrative penalty for recklessness under sections 284-75(1) and 284-90(1), Item 2 of Schedule 1 of the TAA, for the income years ended 30 June 2004 and 30 June 2005? 2. Whether Mrs Mezrani is liable to an administrative penalty for recklessness under sections 284-75(1) and 284-90(1), Item 2 of Schedule 1 of the TAA, for the income year ended 30 June 2005? 3. Should all or a part of the penalty imposed on the Applicants be remitted under section 298-20(1) of Schedule 1 to the TAA 1953? | Answers to the issues: 1. No. The Applicant is liable to an administrative penalty for lack of reasonable care. 2. No. The Applicant is liable to an administrative penalty for lack of reasonable care. 3. No.", "ATO_View_of_Decision": "The decision of the Tribunal was open to it on the facts of the case. The Tribunal accepted that Mr Mezrani was in charge of the financial affairs of both Applicants. | The Tribunal gave consideration to the effect that the deaths of Mr Moses and Sammy had on the Applicants during the period the tax returns were being compiled. In relation to the death of Sammy, it was only at the hearing that evidence was led from Mr Mezrani as to the effect of the death of his nephew. | The Tribunal acknowledged the Applicants' record keeping was unsatisfactory. However, the Tribunal found the Applicants overall conduct amounted to negligence rather than satisfying the threshold required to make a finding of recklessness.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "N/A | 2009 ATC 10-103 | 14ZZK | 284-75 | 284-90 | 298-20 | 2001 ATC 4111 | 2003 ATC 4665 | 2007 ATC 2143 | 2003 ATC 2024", "Legislative_References": "Taxation Administration Act (TAA) 14ZZK 284-75 284-90 298-20", "Case_References": "BRK (Bris) Pty Ltd v Federal Commissioner of Taxation [2001] FCA 164 2001 ATC 4111 (2001) 46 ATR 347 Hart v Commissioner of Taxation (2003) 131 FCR 203 2003 ATC 4665 53 ATR 371 Re Ajami and Commissioner of Taxation [2007] AATA 1231 2007 ATC 2143 (2007) 65 ATR 957 Re Jones and Commissioner of Taxation [2003] AATA 84 2003 ATC 2024 (2003) 52 ATR 1063", "Subject_References": "Income tax Penalties Tax shortfall Negligence Reasonable care Recklessness", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/2748/00001", "Unmatched_Content": ""}
{"Case_Name": "National Mutual Life Association of Australia Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 1082 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "21 August 2009", "Date_Published": "11 March 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether capital expenditure incurred to enhance the value of shares formed part of the reduced cost base under former paragraph 160ZH(3)(c) of the ITAA 1936.", "Overview_of_Facts": "1. The applicant carries on a business of life insurance which until 1993 included the selling of life insurance policies in the UK. The UK business was established in the late 19th century and was carried on through the applicant's No.6 statutory fund which operated as a self contained entity subject to UK regulation. | 2. The applicant conceived of a plan whereby it would grow its UK business by buying another UK life insurance company. It decided that it should acquire three subsidiaries of Schroder plc, namely Schroder Financial Management Ltd, Schroder Life Assurance Ltd (later called National Mutual Schroder Life Assurance Limited or \"NMSLAL\") and Schroder Unit Trust Management Ltd. NMSLAL wrote unit linked policies, which at the time were popular in the UK. NMSLAL had, for that reason, expanded greatly in the 1980s, but needed further capital to keep growing. The applicant's plan was to use the surplus in its No.6 fund to provide that capital. It would do so by merging the assets and liabilities of that fund with NMSLAL. | 3. NMSLAL was ultimately acquired on 19 December 1986 by the applicant's UK resident subsidiary, NMUK. | 4. Between December 1986 and March 1988 the applicant took steps to merge the business of its No.6 fund with that of NMSLAL. | 5. Under the arrangement agreed with the Department of Trade, that part of the surplus which could be used to grow NMSLAL's business would be paid as contributed capital by the applicant to the shareholders' funds of NMSLAL, and thereafter be transferred to NMSLAL's Long Term Business Fund (\"LTBF\"). | 6. The LTBF comprised: 34.1.1. a \" Closed Fund \" into which the liabilities of the former No.6 fund would be transferred together with assets sufficient to make good those liabilities (including part of the No.6 fund surplus as agreed with the DTI); 34.1.2. an \" Other Business Fund \" or \"OBF\" which contained all of the former unit linked business of NMSLAL. It was intended that most of the capital contribution would be used to fund new business for this fund; and 34.1.3. a smaller \" With-Profits Business Fund \". | 34.1.1. a \" Closed Fund \" into which the liabilities of the former No.6 fund would be transferred together with assets sufficient to make good those liabilities (including part of the No.6 fund surplus as agreed with the DTI); 34.1.2. an \" Other Business Fund \" or \"OBF\" which contained all of the former unit linked business of NMSLAL. It was intended that most of the capital contribution would be used to fund new business for this fund; and 34.1.3. a smaller \" With-Profits Business Fund \". | 7. Pursuant to the arrangement the applicant transferred an amount to the shareholders' funds of NMSLAL and subsequently that amount was transferred to NMSLAL's Long Term Business Fund | 8. The amount allocated to the LTBF was allocated partly to the Closed Business Fund and the balance to the OBF. It was accepted that of the amount allocated to the OBF, £42.912 million increased the surplus in the fund and was used to grow the business by NMSLAL. | 9. The £42.912 million was not credited to NMSLAL's share capital account, no issue of scrip accompanied the expenditure and the expenditure did not effect any change to the memorandum or the articles of association of NMSLAL or NMUK | 10. The £42.912 million remained in NMSLAL's OBF and was not dissipated or transferred prior to the sale in 1993 of NMUK to Friends. Neither NMUK nor NMSLAL paid dividends or returned capital from 1988 until the sale to Friends. | 11. In early December 1993 the applicant sold its shares in NMUK to Friends for £113 million. | 12. It is accepted by the parties that the amount equal to the Capital Contribution Amount paid by the applicant to NMSLAL, to the extent of £42.912 million, was incurred by the applicant for the purpose of enhancing the value of the shares in NMUK, the parent of NMSLAL. Moreover, at the time of the sale of the NMUK shares to Friends the £42.912 million was: 34.1.1. reflected in the \"embedded value\" of NMSLAL; 34.1.2. reflected in the \"embedded value\" of NMUK; and 34.1.3. reflected in the value of the shares and the shareholders' equity in NMUK. | 34.1.1. reflected in the \"embedded value\" of NMSLAL; 34.1.2. reflected in the \"embedded value\" of NMUK; and 34.1.3. reflected in the value of the shares and the shareholders' equity in NMUK. | Issues decided by the court | The issue before the Court was whether capital expenditure in the amount of £42.912 million that was incurred by the Applicant and added value to the shares that it held in its subsidiary, NMUK, was reflected in the state or nature of those shares upon disposal.", "Issues_Decided": "The issue before the Court was whether capital expenditure in the amount of £42.912 million that was incurred by the Applicant and added value to the shares that it held in its subsidiary, NMUK, was reflected in the state or nature of those shares upon disposal.", "ATO_View_of_Decision": "The Commissioner accepts the Full Federal Court's interpretation of paragraph 160ZH(3)(c) of the ITAA 1936, as it applied to the non-scrip share capital contribution made by the taxpayer in this case. | The majority of the Full Federal Court concluded that the added 'value' of a share, in this case reflected by way of an increase in shareholders' equity, could not be separated from the rights that made up that share, and the 'state' of those rights reflected the enhanced value at the time of disposal of the share. | Therefore, for the purposes of paragraph 160ZH(3)(c) of the ITAA 1936, the non-scrip capital contribution by the Applicant was reflected in the 'state or nature' of the shares at the time of disposal and consequentially included in the reduced cost base. | The decision will also apply to the calculation of cost base under former paragraphs 160ZH(1)(c) and 160ZH(2)(c) of the ITAA 1936. | However, the decision will have limited application as, for CGT events occurring on or after 1 July 2005, the equivalent provisions in the ITAA 1997 have been amended (subsections 110-25(5) and 110-55(2)). There is no longer a requirement that the expenditure be reflected in the 'state or nature' of the asset at the time of the CGT event in order for the expenditure to be included in the cost base or reduced cost base. | Taxation Determination TD 2004/2 expressed the Commissioner's view as to what extent a non-scrip share capital contribution to a company could be included in the cost base or reduced cost base of a share in that company for the purposes of subsections 110-25(5) and 110-55(2) of the ITAA 1997 and former paragraphs 160ZH(1)(c), 160ZH(2)(c), an 160ZH(3)(c) of the ITAA 1936. | As the view expressed in TD 2004/2 is contrary to the view of the Full Federal Court, TD 2004/2 has been withdrawn. | As stated above, for CGT events occurring on or after 1 July 2005, the amendments made to subsections 110-25(5) (cost base) and 110-55(2) (reduced cost base) of the ITAA 1997 no longer require that expenditure be reflected in the 'state or nature' of the asset at the time of the CGT event in order for the expenditure to be included in the cost base or reduced cost base. Therefore, a replacement for TD 2004/2 is not required.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations and Law Administration Practice Statements | None", "Related_Documents": "TD 2004/2 | 2009 ATC 20-124 | Former paragraph 160ZH(1)(c) | Former paragraph 160ZH(2)(c) | Former paragraph 160ZH(3)(c) | 110-25(5) | 110-55(5) | [1978] AC 885 | 77 CLR 143 | 2005 ATC 101", "Legislative_References": "Income Tax Assessment Act 1936 Former paragraph 160ZH(1)(c) Former paragraph 160ZH(2)(c) Former paragraph 160ZH(3)(c) Income Tax Assessment Act 1997 110-25(5) 110-55(5)", "Case_References": "Aberdeen Construction Group Ltd v Commissioners of Inland Revenue 52 TC 281 [1978] AC 885 Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) 77 CLR 143 [1948] HCA 28 Re Taxpayer and Federal Commissioner of Taxation 58 ATR 1172 2005 ATC 101 The Trustees of the FD Fenston Will Trusts v The Commissioners of Her Majesty's Revenue and Customs (unreported, Special Commissioners, 7 February 2007) [2007] SWTI 556", "Subject_References": "Capital Loss reduced cost base state or nature shares", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1082of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Ovens and Federal Commissioner of Taxation", "Venue_Reference_No": "2007/2844", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "13 March 2009", "Date_Published": "13 October 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially adverse", "Summary_of_Decision": "Outlines the Tax Office's response to a case which concerned deductions claimed for work related car and home office expenses and whether an administrative penalty imposed by the Commissioner for failure to take reasonable care should be remitted.", "Overview_of_Facts": "1. The Applicant was employed as a sales manager in outplacement services. His employer provided him with an office in the city. However, due to his wife's ill health, he had a working arrangement with his employer which allowed him to work extensively at or from home, setting up what he described as a home office. | 2. The Applicant also travelled extensively for his work and kept a log book for his car for a period of at least 12 weeks during the relevant year. | 3. In his income tax return for the income year ended 30 June 2005, the Applicant claimed deductions for work related car expenses and other work related expenses (in relation to the home office). | 4. The Commissioner considered that the expenditure claimed by the Applicant in relation to his home office fell into two broad categories: 'occupancy costs' and 'running costs'. | 5. 'Occupancy costs' included a portion of the interest charged on the Applicant's home mortgage, a portion of the home building insurance premiums, a portion of the amount of local council rates and water rates paid, and costs relating to repairs and maintenance of the home (including painting). | 6. 'Running costs' included items of expenditure such as a portion of the household gas and electricity bills, a portion of the household contents insurance premiums, a portion of the telephone bills, and depreciation on furniture, equipment, carpets, etc. | 7. The Commissioner disallowed the Applicant's claims for the home office occupancy costs but accepted that some of the running costs were deductible. The Commissioner disallowed the Applicant's claim for car expenses as he was not satisfied that the log book accurately reflected the use that the Applicant had made of his car for income-producing activities. The Commissioner also imposed administrative penalties pursuant to section 284-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) at 25% of the shortfall amount for failure to take reasonable care to comply with a taxation law. | Issues decided by the tribunal | 1. Home office expenses | • The Tribunal found that the Applicant used his home office for income-producing purposes but the question to be asked in relation to the Applicant's entitlement to deductions for the home office was 'is the occasion of the outgoings found in whatever is productive of actual or expected income?' | • The Tribunal found that the Applicant used his home office for income-producing purposes but the question to be asked in relation to the Applicant's entitlement to deductions for the home office was 'is the occasion of the outgoings found in whatever is productive of actual or expected income?' | 'Occupancy costs | • The Tribunal found that the occasion of the 'occupancy costs' is not to be found in the work that the Applicant undertook in his home office, as there was no nexus between the occasion of the Applicant's expenses to his income-producing activity. • At paragraph 48, Member Frost states: 'It was not by reason of his working in the home office so as to earn income that Mr Ovens incurred the various items of expenditure described as \"occupancy costs\". Those items of expenditure - in their entirety - were incurred by reason of his and his wife's ownership of the home. They were incidents of home ownership, and of the desire (or need) to insure their family home. Mr Ovens is not entitled to a deduction for \"occupancy costs\"'. | • The Tribunal found that the occasion of the 'occupancy costs' is not to be found in the work that the Applicant undertook in his home office, as there was no nexus between the occasion of the Applicant's expenses to his income-producing activity. • At paragraph 48, Member Frost states: 'It was not by reason of his working in the home office so as to earn income that Mr Ovens incurred the various items of expenditure described as \"occupancy costs\". Those items of expenditure - in their entirety - were incurred by reason of his and his wife's ownership of the home. They were incidents of home ownership, and of the desire (or need) to insure their family home. Mr Ovens is not entitled to a deduction for \"occupancy costs\"'. | 'Running costs' | • At paragraph 51, the Tribunal found that the 'running costs' are items of expenditure, the occasion of which is the work that Mr Ovens undertook in his home office. It is by reason of his working in the home office that he would switch on the gas heater in that area. It is by reason of his working in the home office that he would turn on the lights, and consume electricity through the use of the various items of electronic equipment that he had deployed in that room. It is by reason of his working in the home office that he incurred that part of his home contents insurance expenditure that related to the equipment in his office.' • However, the Tribunal found that in some cases, the proportion of an item of expenditure claimed was excessive. Accordingly, the Tribunal only allowed part of the deduction claimed for those items, to be recalculated by the Commissioner (ie electricity, gas and household contents insurance). | • At paragraph 51, the Tribunal found that the 'running costs' are items of expenditure, the occasion of which is the work that Mr Ovens undertook in his home office. It is by reason of his working in the home office that he would switch on the gas heater in that area. It is by reason of his working in the home office that he would turn on the lights, and consume electricity through the use of the various items of electronic equipment that he had deployed in that room. It is by reason of his working in the home office that he incurred that part of his home contents insurance expenditure that related to the equipment in his office.' • However, the Tribunal found that in some cases, the proportion of an item of expenditure claimed was excessive. Accordingly, the Tribunal only allowed part of the deduction claimed for those items, to be recalculated by the Commissioner (ie electricity, gas and household contents insurance). | Depreciation | • The Commissioner disallowed the Applicant's claims for depreciation in relation to a notebook, a fax machine and a pocket PC. • The Tribunal found that the percentages claimed by the Applicant of use of each of the items were reasonable. However, there was some confusion over the amounts allowable for depreciation. • The Tribunal remitted the items to the Commissioner to allow the Applicant further time to quantify his claims. | • The Commissioner disallowed the Applicant's claims for depreciation in relation to a notebook, a fax machine and a pocket PC. • The Tribunal found that the percentages claimed by the Applicant of use of each of the items were reasonable. However, there was some confusion over the amounts allowable for depreciation. • The Tribunal remitted the items to the Commissioner to allow the Applicant further time to quantify his claims. | 2. Car expenses - the \"log book\" method | • The Tribunal was not satisfied that the Applicant's log book complied with the requirements of section 28-125(2) of the Income Tax Assessment Act 1997 (ITAA 1997) and therefore found that the Applicant could not use the log book method to claim his car expenses for the relevant year. • The Commissioner had indicated a preparedness to accept a claim based on whichever of the other methods set out in Division 28 is of greatest advantage to Mr Ovens. The Tribunal remitted the matter back to the Commissioner to allow that to be done. | • The Tribunal was not satisfied that the Applicant's log book complied with the requirements of section 28-125(2) of the Income Tax Assessment Act 1997 (ITAA 1997) and therefore found that the Applicant could not use the log book method to claim his car expenses for the relevant year. • The Commissioner had indicated a preparedness to accept a claim based on whichever of the other methods set out in Division 28 is of greatest advantage to Mr Ovens. The Tribunal remitted the matter back to the Commissioner to allow that to be done. | 3. Penalty | • Administrative penalties were imposed on the Applicant by the Commissioner at 25% of the shortfall amount, for a failure to take reasonable care to comply with a taxation law. The \"statements\" were in respect of: (i) the claim for deductions in relation to 'occupancy costs' of the home office; (ii) the claim for deductions in relation to 'running costs' of the home office; (iii) the claim for depreciation in respect of equipment in the home office; and (iv) the claim for car expenses based on the log book method. • The Tribunal found that the base penalty amount of 25% was appropriate in relation to matters (ii) to (iv). • However, in relation to matter (i), the Tribunal found that the Applicant and his agent, to some extent, took reasonable care in making the statement that he was entitled to a deduction for 'occupancy costs'. • At paragraph 103, the Tribunal said that: '... Mr Ovens and his agent took reasonable care in making the statements (even though I have found the statements to be wrong) that he was entitled to a deduction for those items of expenditure set out at [49] of these reasons, provided that the amount claimed in relation to his employment was no more than 11% of the total expenditure for the particular item. If more than 11% was claimed in his return, then it is not the case that Mr Ovens and his agent took reasonable care in making the statement.' • The administrative penalty matter was remitted to the Commissioner for recalculation in accordance with the following directions: (a) As to any item in respect of which the claim for deduction in Mr Ovens' tax return did not exceed 11% of the total expenditure for that item - no penalty imposed because of the exception in section 284-215(2) of Schedule 1 to the TAA 1953; and (b) As to any item in respect of which the claim for deduction in Mr Ovens' tax return exceeded 11% of the total expenditure for that item - administrative penalty at 25% of the shortfall amount arising from the percentage claimed in excess of 11%, with no remission. | • Administrative penalties were imposed on the Applicant by the Commissioner at 25% of the shortfall amount, for a failure to take reasonable care to comply with a taxation law. The \"statements\" were in respect of: (i) the claim for deductions in relation to 'occupancy costs' of the home office; (ii) the claim for deductions in relation to 'running costs' of the home office; (iii) the claim for depreciation in respect of equipment in the home office; and (iv) the claim for car expenses based on the log book method. • The Tribunal found that the base penalty amount of 25% was appropriate in relation to matters (ii) to (iv). • However, in relation to matter (i), the Tribunal found that the Applicant and his agent, to some extent, took reasonable care in making the statement that he was entitled to a deduction for 'occupancy costs'. • At paragraph 103, the Tribunal said that: '... Mr Ovens and his agent took reasonable care in making the statements (even though I have found the statements to be wrong) that he was entitled to a deduction for those items of expenditure set out at [49] of these reasons, provided that the amount claimed in relation to his employment was no more than 11% of the total expenditure for the particular item. If more than 11% was claimed in his return, then it is not the case that Mr Ovens and his agent took reasonable care in making the statement.' • The administrative penalty matter was remitted to the Commissioner for recalculation in accordance with the following directions: (a) As to any item in respect of which the claim for deduction in Mr Ovens' tax return did not exceed 11% of the total expenditure for that item - no penalty imposed because of the exception in section 284-215(2) of Schedule 1 to the TAA 1953; and (b) As to any item in respect of which the claim for deduction in Mr Ovens' tax return exceeded 11% of the total expenditure for that item - administrative penalty at 25% of the shortfall amount arising from the percentage claimed in excess of 11%, with no remission. | (i) the claim for deductions in relation to 'occupancy costs' of the home office; (ii) the claim for deductions in relation to 'running costs' of the home office; (iii) the claim for depreciation in respect of equipment in the home office; and (iv) the claim for car expenses based on the log book method. | (a) As to any item in respect of which the claim for deduction in Mr Ovens' tax return did not exceed 11% of the total expenditure for that item - no penalty imposed because of the exception in section 284-215(2) of Schedule 1 to the TAA 1953; and (b) As to any item in respect of which the claim for deduction in Mr Ovens' tax return exceeded 11% of the total expenditure for that item - administrative penalty at 25% of the shortfall amount arising from the percentage claimed in excess of 11%, with no remission.", "Issues_Decided": "1. Home office expenses: • The Tribunal found that the Applicant used his home office for income-producing purposes but the question to be asked in relation to the Applicant's entitlement to deductions for the home office was 'is the occasion of the outgoings found in whatever is productive of actual or expected income?' • The Tribunal found that the Applicant used his home office for income-producing purposes but the question to be asked in relation to the Applicant's entitlement to deductions for the home office was 'is the occasion of the outgoings found in whatever is productive of actual or expected income?' | 'Occupancy costs: • The Tribunal found that the occasion of the 'occupancy costs' is not to be found in the work that the Applicant undertook in his home office, as there was no nexus between the occasion of the Applicant's expenses to his income-producing activity. • At paragraph 48, Member Frost states: 'It was not by reason of his working in the home office so as to earn income that Mr Ovens incurred the various items of expenditure described as \"occupancy costs\". Those items of expenditure - in their entirety - were incurred by reason of his and his wife's ownership of the home. They were incidents of home ownership, and of the desire (or need) to insure their family home. Mr Ovens is not entitled to a deduction for \"occupancy costs\"'. • The Tribunal found that the occasion of the 'occupancy costs' is not to be found in the work that the Applicant undertook in his home office, as there was no nexus between the occasion of the Applicant's expenses to his income-producing activity. • At paragraph 48, Member Frost states: 'It was not by reason of his working in the home office so as to earn income that Mr Ovens incurred the various items of expenditure described as \"occupancy costs\". Those items of expenditure - in their entirety - were incurred by reason of his and his wife's ownership of the home. They were incidents of home ownership, and of the desire (or need) to insure their family home. Mr Ovens is not entitled to a deduction for \"occupancy costs\"'. | 'Running costs': • At paragraph 51, the Tribunal found that the 'running costs' are items of expenditure, the occasion of which is the work that Mr Ovens undertook in his home office. It is by reason of his working in the home office that he would switch on the gas heater in that area. It is by reason of his working in the home office that he would turn on the lights, and consume electricity through the use of the various items of electronic equipment that he had deployed in that room. It is by reason of his working in the home office that he incurred that part of his home contents insurance expenditure that related to the equipment in his office.' • However, the Tribunal found that in some cases, the proportion of an item of expenditure claimed was excessive. Accordingly, the Tribunal only allowed part of the deduction claimed for those items, to be recalculated by the Commissioner (ie electricity, gas and household contents insurance). • At paragraph 51, the Tribunal found that the 'running costs' are items of expenditure, the occasion of which is the work that Mr Ovens undertook in his home office. It is by reason of his working in the home office that he would switch on the gas heater in that area. It is by reason of his working in the home office that he would turn on the lights, and consume electricity through the use of the various items of electronic equipment that he had deployed in that room. It is by reason of his working in the home office that he incurred that part of his home contents insurance expenditure that related to the equipment in his office.' • However, the Tribunal found that in some cases, the proportion of an item of expenditure claimed was excessive. Accordingly, the Tribunal only allowed part of the deduction claimed for those items, to be recalculated by the Commissioner (ie electricity, gas and household contents insurance). | Depreciation: • The Commissioner disallowed the Applicant's claims for depreciation in relation to a notebook, a fax machine and a pocket PC. • The Tribunal found that the percentages claimed by the Applicant of use of each of the items were reasonable. However, there was some confusion over the amounts allowable for depreciation. • The Tribunal remitted the items to the Commissioner to allow the Applicant further time to quantify his claims. • The Commissioner disallowed the Applicant's claims for depreciation in relation to a notebook, a fax machine and a pocket PC. • The Tribunal found that the percentages claimed by the Applicant of use of each of the items were reasonable. However, there was some confusion over the amounts allowable for depreciation. • The Tribunal remitted the items to the Commissioner to allow the Applicant further time to quantify his claims. | 2. Car expenses - the \"log book\" method: • The Tribunal was not satisfied that the Applicant's log book complied with the requirements of section 28-125(2) of the Income Tax Assessment Act 1997 (ITAA 1997) and therefore found that the Applicant could not use the log book method to claim his car expenses for the relevant year. • The Commissioner had indicated a preparedness to accept a claim based on whichever of the other methods set out in Division 28 is of greatest advantage to Mr Ovens. The Tribunal remitted the matter back to the Commissioner to allow that to be done. • The Tribunal was not satisfied that the Applicant's log book complied with the requirements of section 28-125(2) of the Income Tax Assessment Act 1997 (ITAA 1997) and therefore found that the Applicant could not use the log book method to claim his car expenses for the relevant year. • The Commissioner had indicated a preparedness to accept a claim based on whichever of the other methods set out in Division 28 is of greatest advantage to Mr Ovens. The Tribunal remitted the matter back to the Commissioner to allow that to be done. | 3. Penalty: • Administrative penalties were imposed on the Applicant by the Commissioner at 25% of the shortfall amount, for a failure to take reasonable care to comply with a taxation law. The \"statements\" were in respect of: (i) the claim for deductions in relation to 'occupancy costs' of the home office; (ii) the claim for deductions in relation to 'running costs' of the home office; (iii) the claim for depreciation in respect of equipment in the home office; and (iv) the claim for car expenses based on the log book method. • The Tribunal found that the base penalty amount of 25% was appropriate in relation to matters (ii) to (iv). • However, in relation to matter (i), the Tribunal found that the Applicant and his agent, to some extent, took reasonable care in making the statement that he was entitled to a deduction for 'occupancy costs'. • At paragraph 103, the Tribunal said that: '... Mr Ovens and his agent took reasonable care in making the statements (even though I have found the statements to be wrong) that he was entitled to a deduction for those items of expenditure set out at [49] of these reasons, provided that the amount claimed in relation to his employment was no more than 11% of the total expenditure for the particular item. If more than 11% was claimed in his return, then it is not the case that Mr Ovens and his agent took reasonable care in making the statement.' • The administrative penalty matter was remitted to the Commissioner for recalculation in accordance with the following directions: (a) As to any item in respect of which the claim for deduction in Mr Ovens' tax return did not exceed 11% of the total expenditure for that item - no penalty imposed because of the exception in section 284-215(2) of Schedule 1 to the TAA 1953; and (b) As to any item in respect of which the claim for deduction in Mr Ovens' tax return exceeded 11% of the total expenditure for that item - administrative penalty at 25% of the shortfall amount arising from the percentage claimed in excess of 11%, with no remission. • Administrative penalties were imposed on the Applicant by the Commissioner at 25% of the shortfall amount, for a failure to take reasonable care to comply with a taxation law. The \"statements\" were in respect of: (i) the claim for deductions in relation to 'occupancy costs' of the home office; (ii) the claim for deductions in relation to 'running costs' of the home office; (iii) the claim for depreciation in respect of equipment in the home office; and (iv) the claim for car expenses based on the log book method. • The Tribunal found that the base penalty amount of 25% was appropriate in relation to matters (ii) to (iv). • However, in relation to matter (i), the Tribunal found that the Applicant and his agent, to some extent, took reasonable care in making the statement that he was entitled to a deduction for 'occupancy costs'. • At paragraph 103, the Tribunal said that: '... Mr Ovens and his agent took reasonable care in making the statements (even though I have found the statements to be wrong) that he was entitled to a deduction for those items of expenditure set out at [49] of these reasons, provided that the amount claimed in relation to his employment was no more than 11% of the total expenditure for the particular item. If more than 11% was claimed in his return, then it is not the case that Mr Ovens and his agent took reasonable care in making the statement.' • The administrative penalty matter was remitted to the Commissioner for recalculation in accordance with the following directions: (a) As to any item in respect of which the claim for deduction in Mr Ovens' tax return did not exceed 11% of the total expenditure for that item - no penalty imposed because of the exception in section 284-215(2) of Schedule 1 to the TAA 1953; and (b) As to any item in respect of which the claim for deduction in Mr Ovens' tax return exceeded 11% of the total expenditure for that item - administrative penalty at 25% of the shortfall amount arising from the percentage claimed in excess of 11%, with no remission. (i) the claim for deductions in relation to 'occupancy costs' of the home office; (ii) the claim for deductions in relation to 'running costs' of the home office; (iii) the claim for depreciation in respect of equipment in the home office; and (iv) the claim for car expenses based on the log book method. (a) As to any item in respect of which the claim for deduction in Mr Ovens' tax return did not exceed 11% of the total expenditure for that item - no penalty imposed because of the exception in section 284-215(2) of Schedule 1 to the TAA 1953; and (b) As to any item in respect of which the claim for deduction in Mr Ovens' tax return exceeded 11% of the total expenditure for that item - administrative penalty at 25% of the shortfall amount arising from the percentage claimed in excess of 11%, with no remission.", "ATO_View_of_Decision": "Based on the facts found by the Tribunal, the decision is consistent with established general principles of deductibility under section 8-1 and Division 40 of the ITAA 1997, in relation to expenses incurred by employees. | In addition, it was open to the Tribunal to make its findings and partially remit the penalty in respect of the home office 'occupancy costs'.", "Administrative_Treatment": "None", "Related_Documents": "N/A | 2009 ATC 10-081 | 8-1 | 28-12 | 28-90 | 28-100 | 28-110 | 28-125 | 284-75 | 284-80 | 284-90 | 298-20 | [1949] HCA 15 | 8 ATD 431 | 81 ATC 4165 | 81 ATC 4157 | 84 ATC 4803 | 100 CLR 478 | 11 ATD 404 | [1958] HCA 5 | 87 ATC 4963 | 91 ATC 4950 | 2004 ATC 4866 | 2007 ATC 5280 | 2008 ATC 20-064 | 2001 ATC 4027", "Legislative_References": "Income Tax Assessment Act 1997 8-1 28-12 28-90 28-100 28-110 28-125 Taxation Administration Act 1953 284-75 284-80 284-90 298-20", "Case_References": "Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15 78 CLR 74 8 ATD 431 Handley v Commissioner of Taxation 81 ATC 4165 148 CLR 183 11 ATR 644 Commissioner of Taxation v Forsyth 81 ATC 4157 148 CLR 203 11 ATR 657 Swinford v Commissioner of Taxation 84 ATC 4803 [1984] 3 NSWLR 118 15 ATR 1154 Lunney v Federal Commissioner of Taxation 100 CLR 478 11 ATD 404 [1958] HCA 5 Commissioner of Taxation v Brixius 16 FCR 359 19 ATR 506 87 ATC 4963 Fletcher v Federal Commissioner of Taxation 173 CLR 1 22 ATR 613 91 ATC 4950 Macquarie Finance Limited v Commissioner of Taxation 2004 ATC 4866 [2004] FCA 1170 57 ATR 115 Spriggs v Federal Commissioner of Taxation [2007] FCA 1817 68 ATR 740 2007 ATC 5280 Commissioner of Taxation v Day [2008] HCA 53 70 ATR 14 2008 ATC 20-064 Commissioner of Taxation v Payne 202 CLR 93 46 ATR 228 2001 ATC 4027", "Subject_References": "Taxation income tax allowable deductions home office expenses 'occupancy costs' 'running costs' 'essential character' of the expenditure 'occasion' of the expenditure occupancy costs occasioned by home ownership, not income-producing activities running costs occasioned by income-producing activities car expenses log book method requirements that need to be satisfied records not substantially complying with requirements administrative penalty failure to take reasonable care to comply with taxation law question of remission decisions under review mostly affirmed some issues remitted to Commissioner", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/2844/00001", "Unmatched_Content": "Summary: (a) Certain home office expenses allowed, as set out in [53] - to be recalculated by the Commissioner; (b) Depreciation claims as set out in [55] and [56] - for reconsideration by the Commissioner, taxpayer allowed 21 days to provide further information; (c) Car expenses - for reconsideration by the Commissioner, with a direction that Mr Ovens cannot rely on the log book method; (d) Administrative penalty - for recalculation by the Commissioner, in relation to 'occupancy costs', in accordance with [104]."}
{"Case_Name": "Port of Portland Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VT2006/349-352", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "23 December 2008", "Date_Published": "3 August 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether two man-made breakwaters were \"plant\" for the purpose of the taxpayer being entitled to claim depreciation or decline in value deductions in respect of the breakwaters", "Overview_of_Facts": "• The taxpayer is a privatised port authority, who derives income from providing port facilities for shipping vessels at the Port of Portland. It also derives rent from the occupation by a fertilizer factory of reclaimed land adjoining the Port. • The Portland harbour is formed by two man-made breakwaters owned by the taxpayer; the Main Breakwater and the Lee Breakwater (\"the Breakwaters\"). The southern part of the Main Breakwater, the Pivot Groyne, runs adjacent to, and protects reclaimed land occupied by the fertilizer factory. • In August 2005, the taxpayer notified the Commissioner that it had claimed depreciation or decline in value deductions for its Breakwaters and the Groyne for each of the income years ended 30 June 2001 to 30 June 2004. • The Commissioner disallowed the deductions for the depreciation or decline in value of the Breakwaters and the Groyne as the Commissioner was not satisfied that they constituted plant. | • The taxpayer is a privatised port authority, who derives income from providing port facilities for shipping vessels at the Port of Portland. It also derives rent from the occupation by a fertilizer factory of reclaimed land adjoining the Port. • The Portland harbour is formed by two man-made breakwaters owned by the taxpayer; the Main Breakwater and the Lee Breakwater (\"the Breakwaters\"). The southern part of the Main Breakwater, the Pivot Groyne, runs adjacent to, and protects reclaimed land occupied by the fertilizer factory. • In August 2005, the taxpayer notified the Commissioner that it had claimed depreciation or decline in value deductions for its Breakwaters and the Groyne for each of the income years ended 30 June 2001 to 30 June 2004. • The Commissioner disallowed the deductions for the depreciation or decline in value of the Breakwaters and the Groyne as the Commissioner was not satisfied that they constituted plant. | Issues decided by the tribunal | • The heart of the business of the taxpayer is the provision of the port facilities. An inseparable part of those activities is the provision of a safe harbour, in which the Breakwaters play an important role (paragraphs 19, 20 and 29). • The Breakwaters are plant, as they are integral to, and form a significant part of, the means by which the taxpayer carries on its business, rather than merely providing a setting in which the taxpayer's business is carried on (paragraphs 1, 22, 23, 29 and 30). • The Tribunal was not satisfied that the function of the Groyne is sufficiently associated with the taxpayer's port operations for it to be classified as plant (paragraph 32). | • The heart of the business of the taxpayer is the provision of the port facilities. An inseparable part of those activities is the provision of a safe harbour, in which the Breakwaters play an important role (paragraphs 19, 20 and 29). • The Breakwaters are plant, as they are integral to, and form a significant part of, the means by which the taxpayer carries on its business, rather than merely providing a setting in which the taxpayer's business is carried on (paragraphs 1, 22, 23, 29 and 30). • The Tribunal was not satisfied that the function of the Groyne is sufficiently associated with the taxpayer's port operations for it to be classified as plant (paragraph 32).", "Issues_Decided": "• The heart of the business of the taxpayer is the provision of the port facilities. An inseparable part of those activities is the provision of a safe harbour, in which the Breakwaters play an important role (paragraphs 19, 20 and 29). • The Breakwaters are plant, as they are integral to, and form a significant part of, the means by which the taxpayer carries on its business, rather than merely providing a setting in which the taxpayer's business is carried on (paragraphs 1, 22, 23, 29 and 30). • The Tribunal was not satisfied that the function of the Groyne is sufficiently associated with the taxpayer's port operations for it to be classified as plant (paragraph 32). • The heart of the business of the taxpayer is the provision of the port facilities. An inseparable part of those activities is the provision of a safe harbour, in which the Breakwaters play an important role (paragraphs 19, 20 and 29). • The Breakwaters are plant, as they are integral to, and form a significant part of, the means by which the taxpayer carries on its business, rather than merely providing a setting in which the taxpayer's business is carried on (paragraphs 1, 22, 23, 29 and 30). • The Tribunal was not satisfied that the function of the Groyne is sufficiently associated with the taxpayer's port operations for it to be classified as plant (paragraph 32).", "ATO_View_of_Decision": "The decision applies established principles of law about what is plant to the particular facts of this case. The decision was open to the Tribunal on the evidence as presented.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "None | 2008 ATC 10-071 | Division 40 (as amended) | 40-10 | [1974] 3 All ER 159 | 69 ATC 4028 | 70 ATC 4024 | [1969] 1 All ER 732 | 69 ATC 4095", "Legislative_References": "Income Tax Assessment Act 1997 (Cth) (ITAA 1997) former section 42-15 former section 42-18 Division 40 (as amended) Income Tax (Transitional Provisions) Act 1997 (Cth) (Transition Act) 40-10 Portland Harbour Trust Act 1949 (Vic)", "Case_References": "Cooke (Inspector of Taxes) v Beach Station Caravans Ltd [1974] 1 WLR 1398 [1974] 3 All ER 159 Federal Commissioner of Taxation v Broken Hill Pty Co Ltd (1969) 120 CLR 240 at 270 1 ATR 40 69 ATC 4028 Imperial Chemical Industries of Australia and New Zealand Ltd v Federal Commissioner of Taxation [1970] HCA 9 (1970) 120 CLR 396 70 ATC 4024 1 ATR 450 Inland Revenue Commissioners v Barclay, Curle & Co Ltd [1969] 1 WLR 675 [1969] 1 All ER 732 Wangaratta Woollen Mills Ltd v Federal Commissioner of Taxation [1969] HCA 39 (1969) 119 CLR 1 69 ATC 4095 1 ATR 329 Yarmouth v France (1887) 19 QB 647", "Subject_References": "Depreciation of plant Decline in value Breakwaters Business", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VT2006/349-352/00001", "Unmatched_Content": ""}
{"Case_Name": "Queensland Harvesters Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2008/11, 2780", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "15 May 2009", "Date_Published": "17 September 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether the discretion to treat a document as a tax invoice should be exercised, whether tax shortfall resulted from intentional disregard or recklessness, whether penalty for failure to withhold should be further remitted, whether AAT bound to accept an incorrect concession by the Commissioner, and whether residual discretions should be exercised.", "Overview_of_Facts": "1. During the year ended 30 June 2005 the applicant carried on the business of supplier of labour to primary producers. | 2. Mr Brett Lu was the sole director of the applicant and was responsible for the applicant's day to day operations. Mr Lu's father, Mr Ty Lu, was an employee of the applicant. | 3. Mr Ty Lu looked after the applicant's activities in Bowen in North Queensland. Subcontractor would hand their invoices to Mr Ty Lu who would then telephone the details to Mr Brett Lu, who would write out a cash cheque for the invoiced amount, record the amount and the contractor's name on the cheque butt and forward the cheque to Mr Ty Lu by mail. Mr Ty Lu would then give the cheque to the subcontractor. | 4. Mr Ty Lu would then mail the subcontractor's invoice to Mr Brett Lu who paid no heed to them at that time. However, when it was time to prepare the applicant's activity statement (BAS), Mr Lu entered information from the cheque butts and invoices into the applicant's computer system. The applicant's tax agent used this information to prepare the BAS. | 5. In May 2005, the Commissioner's staff undertook an inspection of the applicant's records to validate invoices and to assess record keeping practices for the quarterly tax period 1 October 2004 to 31 December 2004. Deficiencies in the invoicing were pointed out. | 6. On 19 May 2005, the Commissioner forwarded a letter advising he did not intend to revise the BAS, but may re-open enquiries in the future. | 7. In June 2006, a more detailed audit for GST compliance was undertaken covering all four quarters of the 2004/05 financial year. | 8. The Commissioner concluded: • The applicant claimed input tax credits totalling $18,283 to which it was not entitled because the applicant did not hold valid tax invoices in respect of those claims; • false and misleading statements were made and an administrative penalty of 75% of the tax shortfall was payable on the basis that the shortfall resulted from intentional disregard of the tax law. • no part of the shortfall penalty would be remitted; • that there was a failure to withhold tax at a rate of 48.5% from payments to suppliers that had not quoted an ABN and therefore an administrative penalty equal to that amount was payable; and • 25% of that administrative penalty would be remitted. | • The applicant claimed input tax credits totalling $18,283 to which it was not entitled because the applicant did not hold valid tax invoices in respect of those claims; • false and misleading statements were made and an administrative penalty of 75% of the tax shortfall was payable on the basis that the shortfall resulted from intentional disregard of the tax law. • no part of the shortfall penalty would be remitted; • that there was a failure to withhold tax at a rate of 48.5% from payments to suppliers that had not quoted an ABN and therefore an administrative penalty equal to that amount was payable; and • 25% of that administrative penalty would be remitted. | 9. Assessments reflecting these conclusions were issued and the applicant objected against the assessments. | 10. The Commissioner allowed the objections to the extent of accepting that withholding was not required for some payments to suppliers, but otherwise disallowed the objections. | 11. The applicant applied to the Administrative Appeals Tribunal (AAT) for review of the objection decisions. | 12. The Commissioner subsequently issued amended assessments of net amount for the four quarterly tax periods. The overall liability reflected in the assessments remained the same, but adjustments were made to the assessments of the GST net amount for each tax period. | 13. The applicant objected against the amended assessments, the objections were disallowed and the applicant also applied to the AAT for review of these objection decisions. | Issues decided by the court or tribunal | 1. Whether the Commissioner should exercise the discretion under subsection 29-70(1) of the A New Tax System (Goods and Services) Act 1999 to treat as a tax invoice a document that is not a tax invoice? | The Tribunal found that Mr Brett Lu, as the controlling mind of the applicant had not exercised reasonable care in circumstances where even the most perfunctory scrutiny of the invoices would have demonstrated the flaws in them. The fact that none of the 36 invoices satisfied the requirements of the legislation suggested that Mr Brett Lu took no care at all. It followed that the applicant was not entitled to the input tax credits that it had claimed in the 2004-05 year. | 2. Whether the administrative penalty pursuant to Division 284 of Schedule 1 to the TAA was correctly assessed? | Although the Commissioner had initially determined during the assessment process that there had been intentional disregard on the part of the applicant, the Commissioner submitted to the Tribunal that the shortfall should be regarded as having resulted from recklessness. The Tribunal agreed and set aside that part of the objection decision that disallowed the objection to the assessment of a 75% administrative penalty and remitted the matter to the Commissioner to determine the penalty on the basis that the shortfall resulted from recklessness. | 3. Whether this penalty should be reduced by 20% pursuant to section 284-225 of Schedule 1 to the Taxation Administration Act 1953 (TAA) because of a voluntary disclosure? | The Tribunal did not consider that what was done amounted to telling the Commissioner about the shortfall; nor was the Tribunal satisfied that what was done saved the Commissioner a significant amount of time or resources. Accordingly, the Tribunal concluded that s 284-225(1)(c) was not satisfied and there was no basis for any reduction of the base penalty amount. . | 4. Whether the taxpayer was required to withhold an amount paid to the entities where there was no ABN provided or did one of the exceptions in section 12-190 of Schedule 1 to the TAA applies? | The Tribunal found that the applicant was required to withhold amounts from payments made to suppliers in relation to invoices that did not include the ABN of the suppliers. The Tribunal then went on to consider whether the Commissioner's decision on objection to accept that the exception in s 12-190(3) applied to some of the invoices was correct. The Tribunal concluded that the Commissioner's decision was wrong, and decided to substitute a decision that that part of the applicant's objection be disallowed. This has the effect of increasing the administrative penalty in respect of the failure by the applicant to withhold amounts from payments to the relevant suppliers. | In coming to this conclusion, the Tribunal held that it is not bound to accept concessions made by the parties, but has an overriding duty to consider the evidence so as to come to the correct or preferable decision. | 5. Whether the penalty for failure to withhold should be further remitted by virtue of section 16-30 in Schedule 1 to the TAA? | The Tribunal decided that no further remission of penalty for failure to withhold amounts is warranted. Mr Brett Lu had earlier experience with the requirements of the legislation when his affairs were the subject of an audit in respect of an earlier income year, but, despite his earlier experiences, he was recklessly indifferent to the requirements of the GST legislation. . | 6. Whether the Commissioner has taken into account all relevant factors in determining not to remit all or part of the administrative penalty amount under section 298-20 of Schedule 1 to the TAA? | The Tribunal decided that, particularly having regard to the Commissioner's concession that reduced the shortfall penalty from 75% to 50%, no further remission of penalty is warranted..", "Issues_Decided": "1. Whether the Commissioner should exercise the discretion under subsection 29-70(1) of the A New Tax System (Goods and Services) Act 1999 to treat as a tax invoice a document that is not a tax invoice? The Tribunal found that Mr Brett Lu, as the controlling mind of the applicant had not exercised reasonable care in circumstances where even the most perfunctory scrutiny of the invoices would have demonstrated the flaws in them. The fact that none of the 36 invoices satisfied the requirements of the legislation suggested that Mr Brett Lu took no care at all. It followed that the applicant was not entitled to the input tax credits that it had claimed in the 2004-05 year. 2. Whether the administrative penalty pursuant to Division 284 of Schedule 1 to the TAA was correctly assessed? Although the Commissioner had initially determined during the assessment process that there had been intentional disregard on the part of the applicant, the Commissioner submitted to the Tribunal that the shortfall should be regarded as having resulted from recklessness. The Tribunal agreed and set aside that part of the objection decision that disallowed the objection to the assessment of a 75% administrative penalty and remitted the matter to the Commissioner to determine the penalty on the basis that the shortfall resulted from recklessness. 3. Whether this penalty should be reduced by 20% pursuant to section 284-225 of Schedule 1 to the Taxation Administration Act 1953 (TAA) because of a voluntary disclosure? The Tribunal did not consider that what was done amounted to telling the Commissioner about the shortfall; nor was the Tribunal satisfied that what was done saved the Commissioner a significant amount of time or resources. Accordingly, the Tribunal concluded that s 284-225(1)(c) was not satisfied and there was no basis for any reduction of the base penalty amount. . 4. Whether the taxpayer was required to withhold an amount paid to the entities where there was no ABN provided or did one of the exceptions in section 12-190 of Schedule 1 to the TAA applies? The Tribunal found that the applicant was required to withhold amounts from payments made to suppliers in relation to invoices that did not include the ABN of the suppliers. The Tribunal then went on to consider whether the Commissioner's decision on objection to accept that the exception in s 12-190(3) applied to some of the invoices was correct. The Tribunal concluded that the Commissioner's decision was wrong, and decided to substitute a decision that that part of the applicant's objection be disallowed. This has the effect of increasing the administrative penalty in respect of the failure by the applicant to withhold amounts from payments to the relevant suppliers. In coming to this conclusion, the Tribunal held that it is not bound to accept concessions made by the parties, but has an overriding duty to consider the evidence so as to come to the correct or preferable decision. 5. Whether the penalty for failure to withhold should be further remitted by virtue of section 16-30 in Schedule 1 to the TAA? The Tribunal decided that no further remission of penalty for failure to withhold amounts is warranted. Mr Brett Lu had earlier experience with the requirements of the legislation when his affairs were the subject of an audit in respect of an earlier income year, but, despite his earlier experiences, he was recklessly indifferent to the requirements of the GST legislation. . 6. Whether the Commissioner has taken into account all relevant factors in determining not to remit all or part of the administrative penalty amount under section 298-20 of Schedule 1 to the TAA? The Tribunal decided that, particularly having regard to the Commissioner's concession that reduced the shortfall penalty from 75% to 50%, no further remission of penalty is warranted..", "ATO_View_of_Decision": "Other than in respect of the first matter referred to below, the Tribunal's decision accords with the submissions made by the Commissioner. | Correcting an error by the Commissioner in favour of the applicant | The Commissioner accepted that there had been a misapplication of the law in deciding on objection that the exception in s 12-190(3) of Schedule 1 to the TAA applied to some of the tax invoices held by the applicant. However, in its submission to the Tribunal, the Commissioner did not ask the Tribunal to determine this aspect of the matter, which was not in dispute between the parties, on the basis that the applicant did not mislead the Commissioner, the error was a misapplication of the law made by the Commissioner, the error was in the applicant's favour, and the misapplication of the law was limited to the penalty for failure to withhold only. | Nevertheless, the Tribunal considered that it was duty bound to reach the correct decision and therefore substituted a decision disallowing that part of the objection and remitted the matter to the Commissioner to give effect to that decision. | The Tax Office accepts that the decision of the Tribunal accords with its duty in conducting a merits review and notes that the Commissioner is required to give effect to decisions of the Tribunal in accordance with s 14ZZL(1) of the TAA. | Issuing amended assessments after application is made for review of objection decisions | Referring to the Commissioner's decision to issue amended assessments after the applicant had applied for review of the objection decisions relating to the original assessments, the Tribunal made the following observation at paragraph 20 of its reasons: | It seems likely that the Commissioner made these amendments without regard to the terms of s 26 of the Administrative Appeals Tribunal Act 1975 (Cth). In the course of the hearing, and with the agreement of the parties, I gave consent nunc pro tunc to alter the original decisions in the way reflected by the amended assessments in order to overcome any procedural irregularity. | Section 26 of the AAT Act provides that, after an application for review of a decision by the Tribunal is made, the decision may not be altered other than by the Tribunal on review. There is an exception where the parties and the Tribunal consent to the making of the alteration. | This issue was not the subject of detailed submissions to the Tribunal. It is noted that the decision before the Tribunal is an objection decision and that, in Fabry v Federal Commissioner of Taxation 2003 ATC 4885, Merkel J stated at paragraph 39, in an income tax context, that: ' In my view there is no basis for implying a legislative intention that s 26 of the AAT Act is to repeal, alter or derogate from the power of amendment of the Commissioner under s 170(1) of the ITA Act . The legislature has turned its mind to limiting the Commissioner's powers in respect of amended assessments and has done so expressly by reference to time limitations .' | Accordingly, the Commissioner considers that, despite the comments of the Tribunal in this matter, he may amend an assessment of net amount at any time, in accordance with the express power in section 105-25 of Schedule 1 to the TAA. | Discretion to treat a document as a tax invoice | In deciding whether the discretion to treat the invalid tax invoices as tax invoices should be exercised in favour of the applicant, the Tribunal noted the following statements in GSTR 2000/17 Goods and Services Tax : Tax invoices : | 39. There may be other special circumstances that arise for which the Commissioner will treat a document as a tax invoice that does not satisfy all the requirements. For example, you may claim an input tax credit without knowing that the tax invoice for the acquisition does not fully satisfy the requirements of subsection 29-70(1). For example, the ABN shown may not be the correct number. | 40. The Commissioner may treat this document as a tax invoice if you claimed the input tax credit while exercising reasonable care and acting in good faith. Reasonable care requires that you exercise the care that a reasonable, ordinary person would exercise to fulfil that person's tax obligations. A person exercising reasonable care may make an honest mistake based on reasonable grounds. | The Tribunal went on to say: | I doubt that \"special circumstances\" need be shown as the Commissioner's Ruling suggests. Nothing in the legislation suggests that that ought to be so. Nonetheless it seems to me to be consistent with the legislation to exercise the discretion favourably to a person exercising reasonable care and acting in good faith. (paragraph 30 of reasons for decision; the first sentence has a footnote reference to Dixon v Federal Commissioner of Taxation [2008] FCAFC 54; (2008) 167 FCR 287 at 21.) | GSTR 2000/17 also refers to Law Administration Practice Statement PS LA 2004/11 The Commissioner's discretions to treat a particular document as a tax invoice or adjustment note , where the Commissioner expresses the view at paragraph 4 that '[e]ach case has to be considered on its merits and on the basis of all the relevant facts'.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "GSTR 2000/17 | PS LA 2004/11 | PS LA 2006/2 | PS LA 2003/11 | 2009 ATC 10-088 | 29-10 | 29-70 | 12-190 | 16-30 | 284-90 | 284-225 | 298-20 | 2008 ATC 20-015", "Legislative_References": "Administrative Appeals Tribunal Act 1975 26 A New Tax System (Goods and Services Tax) Act 1999 29-10 29-70 Taxation Administration Act 1953 12-190 16-30 284-90 284-225 298-20 Taxation Administration Regulations 1976 Regulation 38 A New Tax System (Goods and Services Tax) Regulations 1999 (No. 1) Regulation 29-70.01", "Case_References": "Dixon v Federal Commissioner of Taxation 167 FCR 287 2008 ATC 20-015 69 ATR 627", "Subject_References": "Entitlement to input tax credits Discretion to treat as a tax invoice a document that is not a tax invoice Tax shortfall penalty for false or misleading statements Voluntary disclosure after notice of tax audit Administrative penalty for failure to withhold Amended assessments issued after application to the Tribunal for review of Commissioner's decision Tribunal not bound to accept incorrect concessions by the Commissioner", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/11/00001", "Unmatched_Content": ""}
{"Case_Name": "South Steyne Hotel Pty Ltd & Ors v Commissioner of Taxation", "Venue_Reference_No": "NSD 97/2009", "Venue": "Federal Court of Australia", "Judgment_Date": "20 November 2009", "Date_Published": "13 June 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially adverse", "Summary_of_Decision": "Outlines the Tax Office response to this matter which concerned various GST issues arising out of a strata titled hotel development, in particular whether the purchaser of a reversionary interest makes a supply by way of lease to the tenant.", "Overview_of_Facts": "(a) On 8 December 2000, the first applicant (\"South Steyne\") purchased the Sebel Complex; (b) On 10 August 2006, each apartment in the Sebel Complex was individually strata-titled; (c) On 29 September 2006, South Steyne: (i) sold the 'Management Lot' - which included the reception area, offices and car parking spaces - in the Sebel Complex to Mirvac Hotels Pty Ltd (\"MHL\"); and (ii) leased each of the 83 Apartments to Mirvac Management Pty Ltd (\"MML\") under individual lease agreements. Each lease obliged MML to operate a scheme whereby the apartment was, together with the other apartments, operated as part of a serviced apartment business; (d) From at least 29 September 2006, MHL had exclusive control of the operation of the serviced apartment business pursuant to an agreement with MML, which agreement also conferred upon MHL the benefit of MML's rights under the lease agreement; (e) Between 29 September 2006 and 31 October 2007, South Steyne sold 15 Apartments to various investors, including the second applicant (\"MBI\"). (f) Each Apartment was sold subject to the applicable lease to MML. (h) The contracts of sale to MBI included the following clause: 47.6.6 if page 1 of the Contract says that the supply is GST-free because the sale is the supply of a going concern but the supply of the Property under the Apartment Lease is a supply of residential premises (but not commercial residential premises), and the premises are also to be used predominantly for residential accommodation (regardless of the term of occupation), then the sale of the Property is a taxable supply and the parties agree that the margin scheme applies or, if completion has already occurred, the margin scheme is taken to have applied. For the avoidance of doubt, the Vendor acknowledges that if the margin scheme applies to the sale of the Property, the price is inclusive of any GST. (h) Each contract for sale permitted the purchaser to participate in a 'Management Rights Scheme', which mirrored the scheme provided for under the lease agreements. Each purchaser elected to participate in the Scheme; (i) On 17-18 October 2007, Ms Emily Young, an employee of the third applicant, stayed at Apartment 403 and made use of various services available to guests of the Sebel Complex. | (a) On 8 December 2000, the first applicant (\"South Steyne\") purchased the Sebel Complex; (b) On 10 August 2006, each apartment in the Sebel Complex was individually strata-titled; (c) On 29 September 2006, South Steyne: (i) sold the 'Management Lot' - which included the reception area, offices and car parking spaces - in the Sebel Complex to Mirvac Hotels Pty Ltd (\"MHL\"); and (ii) leased each of the 83 Apartments to Mirvac Management Pty Ltd (\"MML\") under individual lease agreements. Each lease obliged MML to operate a scheme whereby the apartment was, together with the other apartments, operated as part of a serviced apartment business; (d) From at least 29 September 2006, MHL had exclusive control of the operation of the serviced apartment business pursuant to an agreement with MML, which agreement also conferred upon MHL the benefit of MML's rights under the lease agreement; (e) Between 29 September 2006 and 31 October 2007, South Steyne sold 15 Apartments to various investors, including the second applicant (\"MBI\"). (f) Each Apartment was sold subject to the applicable lease to MML. (h) The contracts of sale to MBI included the following clause: 47.6.6 if page 1 of the Contract says that the supply is GST-free because the sale is the supply of a going concern but the supply of the Property under the Apartment Lease is a supply of residential premises (but not commercial residential premises), and the premises are also to be used predominantly for residential accommodation (regardless of the term of occupation), then the sale of the Property is a taxable supply and the parties agree that the margin scheme applies or, if completion has already occurred, the margin scheme is taken to have applied. For the avoidance of doubt, the Vendor acknowledges that if the margin scheme applies to the sale of the Property, the price is inclusive of any GST. (h) Each contract for sale permitted the purchaser to participate in a 'Management Rights Scheme', which mirrored the scheme provided for under the lease agreements. Each purchaser elected to participate in the Scheme; (i) On 17-18 October 2007, Ms Emily Young, an employee of the third applicant, stayed at Apartment 403 and made use of various services available to guests of the Sebel Complex. | (i) sold the 'Management Lot' - which included the reception area, offices and car parking spaces - in the Sebel Complex to Mirvac Hotels Pty Ltd (\"MHL\"); and (ii) leased each of the 83 Apartments to Mirvac Management Pty Ltd (\"MML\") under individual lease agreements. Each lease obliged MML to operate a scheme whereby the apartment was, together with the other apartments, operated as part of a serviced apartment business; | Issues decided by the court | At issue in the proceeding was the treatment of four categories of alleged supplies under the A New Tax System (Goods and Services Tax) Act 1999 (\"GST Act\"). Those 'supplies' are: 1. The supply by way of lease from South Steyne of each hotel room to MML (\"the first supply\"); 2. The sale of hotel rooms to investors, including the sale of rooms 111, 304 and 604 by South Steyne to MBI (\"the second supply\"); 3. The continuation of the leases of hotel rooms 111, 304 and 604 by MBI which, as purchaser of those rooms, took title subject to the ongoing lease of those rooms to MML (\"the third supply\"); and 4. The supply of accommodation in hotel room 403 to Emily Young as a guest (\"the fourth supply\"). | 1. The supply by way of lease from South Steyne of each hotel room to MML (\"the first supply\"); 2. The sale of hotel rooms to investors, including the sale of rooms 111, 304 and 604 by South Steyne to MBI (\"the second supply\"); 3. The continuation of the leases of hotel rooms 111, 304 and 604 by MBI which, as purchaser of those rooms, took title subject to the ongoing lease of those rooms to MML (\"the third supply\"); and 4. The supply of accommodation in hotel room 403 to Emily Young as a guest (\"the fourth supply\"). | The Commissioner submitted that the following GST treatment applied: 1. The first supply - input taxed pursuant to s 40-35 as a supply by way of lease of residential premises to be used predominantly for residential accommodation and which were not commercial residential premises. 2. The second supply - taxable supply, on the basis that clause 47.6.6 of the contract had the effect that the parties did not agree that the sale was a supply of a going concern. 3. The third supply - input taxed pursuant to s 40-35 as a supply by way of lease of residential premises to be used predominantly for residential accommodation and which were not commercial residential premises. 4. The fourth supply - taxable supply because the accommodation was supplied by an entity (MHL) which relevantly controlled the Sebel Complex. | 1. The first supply - input taxed pursuant to s 40-35 as a supply by way of lease of residential premises to be used predominantly for residential accommodation and which were not commercial residential premises. 2. The second supply - taxable supply, on the basis that clause 47.6.6 of the contract had the effect that the parties did not agree that the sale was a supply of a going concern. 3. The third supply - input taxed pursuant to s 40-35 as a supply by way of lease of residential premises to be used predominantly for residential accommodation and which were not commercial residential premises. 4. The fourth supply - taxable supply because the accommodation was supplied by an entity (MHL) which relevantly controlled the Sebel Complex. | The applicants' primary position was that none of the supplies is input taxed and that the second supply is GST-free. However, the applicants put two alternative propositions: (i) if the third supply is input taxed, then the second supply is also input taxed; (ii) if both the first and third supplies are input taxed, then the fourth supply is also input taxed. The applicants sought declarations reflecting these submissions. | Stone J at first instance accepted the Commissioner's submissions and dismissed the application. | On appeal by the taxpayer, the Full Court decided as follows: 1. The first supply - input taxed (Finn, Emmett and Edmonds JJ). 2. The second supply - GST-free (Finn and Emmett JJ, Edmonds J in dissent on this issue deciding that the sales of the units were taxable supplies. 3. The third supply - there is no supply by MBI to the tenant. 4. The fourth supply - taxable (Finn and Emmett JJ, Edmonds J in dissent on this issue deciding that the supply of accommodation to the guest was input taxed). | 1. The first supply - input taxed (Finn, Emmett and Edmonds JJ). 2. The second supply - GST-free (Finn and Emmett JJ, Edmonds J in dissent on this issue deciding that the sales of the units were taxable supplies. 3. The third supply - there is no supply by MBI to the tenant. 4. The fourth supply - taxable (Finn and Emmett JJ, Edmonds J in dissent on this issue deciding that the supply of accommodation to the guest was input taxed). | The Court therefore declared that the second supply was GST-free and otherwise dismissed the appeal. | Only Edmonds J considered the applicants' alternative submission that the sales of the apartments were input taxed under s 40-65(2)(b) on the basis that they were 'used for residential accommodation (regardless of the term of occupation) before 2 December 1998'. His Honour rejected that submission on the basis that the policy of the provision was to input tax supplies of residential premises where the use before 2 December 1998 is a use which, if the subject of a current supply, would be input taxed.", "Issues_Decided": "At issue in the proceeding was the treatment of four categories of alleged supplies under the A New Tax System (Goods and Services Tax) Act 1999 (\"GST Act\"). Those 'supplies' are: 1. The supply by way of lease from South Steyne of each hotel room to MML (\"the first supply\"); 2. The sale of hotel rooms to investors, including the sale of rooms 111, 304 and 604 by South Steyne to MBI (\"the second supply\"); 3. The continuation of the leases of hotel rooms 111, 304 and 604 by MBI which, as purchaser of those rooms, took title subject to the ongoing lease of those rooms to MML (\"the third supply\"); and 4. The supply of accommodation in hotel room 403 to Emily Young as a guest (\"the fourth supply\"). 1. The supply by way of lease from South Steyne of each hotel room to MML (\"the first supply\"); 2. The sale of hotel rooms to investors, including the sale of rooms 111, 304 and 604 by South Steyne to MBI (\"the second supply\"); 3. The continuation of the leases of hotel rooms 111, 304 and 604 by MBI which, as purchaser of those rooms, took title subject to the ongoing lease of those rooms to MML (\"the third supply\"); and 4. The supply of accommodation in hotel room 403 to Emily Young as a guest (\"the fourth supply\"). The Commissioner submitted that the following GST treatment applied: 1. The first supply - input taxed pursuant to s 40-35 as a supply by way of lease of residential premises to be used predominantly for residential accommodation and which were not commercial residential premises. 2. The second supply - taxable supply, on the basis that clause 47.6.6 of the contract had the effect that the parties did not agree that the sale was a supply of a going concern. 3. The third supply - input taxed pursuant to s 40-35 as a supply by way of lease of residential premises to be used predominantly for residential accommodation and which were not commercial residential premises. 4. The fourth supply - taxable supply because the accommodation was supplied by an entity (MHL) which relevantly controlled the Sebel Complex. 1. The first supply - input taxed pursuant to s 40-35 as a supply by way of lease of residential premises to be used predominantly for residential accommodation and which were not commercial residential premises. 2. The second supply - taxable supply, on the basis that clause 47.6.6 of the contract had the effect that the parties did not agree that the sale was a supply of a going concern. 3. The third supply - input taxed pursuant to s 40-35 as a supply by way of lease of residential premises to be used predominantly for residential accommodation and which were not commercial residential premises. 4. The fourth supply - taxable supply because the accommodation was supplied by an entity (MHL) which relevantly controlled the Sebel Complex. The applicants' primary position was that none of the supplies is input taxed and that the second supply is GST-free. However, the applicants put two alternative propositions: (i) if the third supply is input taxed, then the second supply is also input taxed; (ii) if both the first and third supplies are input taxed, then the fourth supply is also input taxed. The applicants sought declarations reflecting these submissions. Stone J at first instance accepted the Commissioner's submissions and dismissed the application. On appeal by the taxpayer, the Full Court decided as follows: 1. The first supply - input taxed (Finn, Emmett and Edmonds JJ). 2. The second supply - GST-free (Finn and Emmett JJ, Edmonds J in dissent on this issue deciding that the sales of the units were taxable supplies. 3. The third supply - there is no supply by MBI to the tenant. 4. The fourth supply - taxable (Finn and Emmett JJ, Edmonds J in dissent on this issue deciding that the supply of accommodation to the guest was input taxed). 1. The first supply - input taxed (Finn, Emmett and Edmonds JJ). 2. The second supply - GST-free (Finn and Emmett JJ, Edmonds J in dissent on this issue deciding that the sales of the units were taxable supplies. 3. The third supply - there is no supply by MBI to the tenant. 4. The fourth supply - taxable (Finn and Emmett JJ, Edmonds J in dissent on this issue deciding that the supply of accommodation to the guest was input taxed). The Court therefore declared that the second supply was GST-free and otherwise dismissed the appeal. Only Edmonds J considered the applicants' alternative submission that the sales of the apartments were input taxed under s 40-65(2)(b) on the basis that they were 'used for residential accommodation (regardless of the term of occupation) before 2 December 1998'. His Honour rejected that submission on the basis that the policy of the provision was to input tax supplies of residential premises where the use before 2 December 1998 is a use which, if the subject of a current supply, would be input taxed.", "ATO_View_of_Decision": "In respect of the fourth supply, it is the Tax Office's view that the decision turned upon the conclusion of the Court that, having regard to the particular terms of the agreement, MHL made the supply to the guest as principal rather than as agent. The decision does not lay down any principles of law regarding the application of GST in agency situations and, in particular, does not result in an agent being liable for GST on supplies of its principal. Rather, the Court concluded in the particular circumstances MHL made the supply in its capacity as principal for MML. | The Court rulings in respect of the first and fourth supplies are consistent with the submissions made by the Commissioner, as is the conclusion of Edmonds J rejecting the applicants' alternative submission that the sales of the units were input taxed under s 40-65(2)(b). | The Commissioner's view in respect of the second supply, as submitted to the Court, was that, because on the Commissioner's submission both the first and third supplies were input taxed, clause 47.6.6 of the contract had the effect that the parties did not agree that the supply was a supply of a going concern. | The continuing lease issue | The Commissioner's submissions to the Full Court noted previous decisions of the Full Federal Court which recall that GST is a 'practical business tax' and that transactions are to be characterised according to their social and economic reality. Taking that approach, and noting that s 40-35 requires only a supply 'by way of lease' and not 'by way of grant of lease', the Commissioner submitted that where a freehold estate is purchased subject to a continuing lease, the new owner makes a supply by way of lease to the tenant. | The Court rejected that submission. Emmett J, with whom Finn J agreed, stated that: 'there was no further supply, merely by reason of the continuation of the leases after the sale of the reversion. Rather, the situation is provided for by Division 156.' (at [32]) | His Honour then sets out the operation of aspects of Division 156, emphasising that it contains attribution rules, before reiterating that: 'there is no supply by [MBI - the new owner] to [MML - the continuing tenant]. Rather, there was a supply by South Steyne to which the attribution rules apply.' (at [34]. | Finn J also states that the sale of the apartments subject to their respective leases 'did not constitute a new or further supply' and notes that the benefit and burden of the lease covenants ran with the reversion by virtue of real property legislation 'and not by virtue of a distinct supply agreement or arrangement' (see[2]). | Similarly, Edmonds J states at [76] that 'there was no new supply by MBI to MML but merely a continuation of the first category of supply'. | It might be thought to follow from these remarks that the original grantor of a lease of premises, rather than a new owner of the premises, remains liable for GST on a continuing lease of the premises, which is attributed in accordance with Division 156. In that regard, it is noted that s156-5 refers to the attribution of 'GST payable by you' and does not expressly impose liability for GST. It is also noted that, in accordance with s 156-25, Division 156 generally does not apply to taxpayers who account for GST on a cash basis; however, Division 29 operates in respect of leases with broadly the same effect for taxpayers that account for GST on a cash basis. | On the other hand, it would be extraordinarily anomalous if the GST Act had the effect that the original owner of premises remained liable for GST on the lease when a new owner has assumed the obligations under the lease and is in receipt of the rent. Likewise, it would be anomalous if, in respect of an input taxed supply of residential premises, the continuing supply ceased to be input taxed upon a change of ownership of the reversion. If such anomalous results were to follow, it is to be expected that the Court would have made some observations in that regard. | There is nothing in any of the judgements which directly suggests such anomalous outcomes were contemplated by the Court. On the contrary, Edmonds J, without dissent from Finn J or Emmett J, concludes that the attribution provisions of Division 156 'prevent any unintended imbalance between successive reversionary owners over the term of the lease' (see [76]). | The Full Federal Court in Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 at [21] concluded that the purchaser of a reversion 'assumed the obligation of [the former owner] to honour the lease according to its terms and in that sense entered into an obligation to tolerate an act or situation and in consequence, made a 'supply' by virtue of s 9-10(2)(g)'. | Our preliminary view is that, considered together, the decisions in South Steyne and Westley Nominees lead to the conclusion that the provisions should be applied in the manner set out below.", "Administrative_Treatment": "On 22 February 2012 two GST determinations were released that outline the Tax Office's view on certain GST consequences following the sale of residential or commercial premises that are subject to a lease. | For the GST consequences following the sale of residential premises subject to a lease, see GSTD 2012/1 Goods and services tax: What are the GST consequences following the sale of residential premises that are subject to a lease? | For the GST consequences following the sale of commercial premises subject to a lease, see GSTD 2012/2 Goods and services tax: What are the GST consequences following the sale of commercial premises that are subject to a lease? | GSTD 2012/2 confirms that following a sale of commercial premises that are subject to a lease, there is a continuing supply by the purchaser to the lessee. Where the other conditions of section 9-5 are satisfied this supply will be a taxable supply. In these circumstances, the Tax Office will treat a document issued by the current owner of leased premises as a tax invoice if it otherwise qualifies as a tax invoice, including where the lease was granted by a previous owner. | Implications on current Public Rulings & Determinations | Addendums have been published to amend GSTR 2004/4 and GSTR 2008/1 to reflect the Full Federal Court decision of South Steyne. | Further, as a result of the decision in South Steyne, GSTD 2012/1 was published to provide clarity on the GST treatment when residential premises are sold subject to an existing lease. | Also, GSTD 2012/2 was published to provide clarity on the GST treatment when commercial premises are sold subject to an existing lease.", "Related_Documents": "GSTR 2000/20 | GSTR 2008/1 | 2009 ATC 20-145 | A New Tax System (Goods and Services Tax) Act 1999 (Cth) | [2007] FCAFC 194 | (1958) 100 CLR 644 | 2009 ATC 20-094 | (2004) 2004 ATC 5068 | [1990] 1 Ch 786 | 2005 ATC 4484 | 2006 ATC 4363", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (Cth)", "Case_References": "Carminco Gold and Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd [2007] FCAFC 194 (2007) 243 ALR 472 Denman College v Commissioners of Customs and Excise [1998] v & DR 399 [1998] BVC 2259 International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co [1958] HCA 16 (1958) 100 CLR 644 Lilyvale Hotel Pty Ltd v Commissioner of Taxation [2009] FCAFC 21 2009 ATC 20-094 175 FCR 491 Marana Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 307 (2004) 141 FCR 299 (2004) 2004 ATC 5068 (2004) 57 ATR 521 Owen v Elliott (Inspector of Taxes) [1990] 1 Ch 786 Urdd Gobaith Cymru v Commissioner of Customs and Excise [1997] v & DR 273 Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2005] FCA 839 2005 ATC 4484 60 ATR 52 Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 (2006) 152 FCR 461 2006 ATC 4363 (2006) 62 ATR 682", "Subject_References": "Residential premises Residential accommodation Commercial residential premises Supply by way of lease", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD97/2009/00001", "Unmatched_Content": "Application for special leave to appeal to the High Court: The Commissioner did not seek special leave to appeal to the High Court in relation to the Full Court's decision on the second issue. The taxpayer's application for special leave to appeal was dismissed by the High Court on 23 April 2010."}
{"Case_Name": "Spriggs and Anor v Commissioner of Taxation", "Venue_Reference_No": "M92 and M93 of 2008", "Venue": "High Court", "Judgment_Date": "18 June 2009", "Date_Published": "7 March 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Taxpayers' appeals allowed", "Summary_of_Decision": "Outlines the Tax Office response to these cases which concerned whether fees paid to managers to negotiate employment contracts between professional football players, football clubs, and other entities, are deductible under section 8-1 of the ITAA 97", "Overview_of_Facts": "Mr Spriggs and Mr Riddell (the taxpayers) are professional sportsmen. During the 2005 income year, Spriggs was under a contract to play in the Australian Football League (\"AFL\") competition and Riddell was under a contract to play in the National Rugby League (\"NRL\") competition. | The taxpayers claimed deductions under section 8-1 of the ITAA 1997 for fees paid to their managers in the 2005 income year under their respective player management agreements to negotiate new playing contracts. | Spriggs | Spriggs played in the AFL competition for Geelong Football Club for the 2000-2004 playing seasons. During that time, he contracted with a player manager to represent him in negotiating his AFL standard playing contract, endorsements, merchandising, appearances and media contracts. Under this agreement, the manager was entitled to 3% of Spriggs' total gross earnings for the term of any successfully negotiated AFL standard playing contract and 20% of Spriggs' total gross earnings in relation to marketing and media activities. | Spriggs' playing contract with Geelong terminated on 31 October 2004 and he was subsequently de-listed. Spriggs was then selected by the Sydney Football Club in the 2004 AFL National Draft and the manager successfully negotiated a playing contract for Spriggs with Sydney for the 2005 and 2006 playing seasons. | In December 2004, Spriggs paid fees of $2,310 under his management agreement. The only income Spriggs earned from his non-playing activities during the 2005 income year was $641 from the AFL for licensing fees from Select Player Cards for the use of his playing image. | Riddell | Riddell established his NRL professional playing career in 1998 and played for the St George Illawarra Rugby League Football Club for the 2001-2004 playing seasons. In 2001 Riddell contracted with a player manager to, among other things, advise Riddell in respect of his sporting career; negotiate playing contracts on his behalf; and negotiate product endorsements and sponsorships. Under this agreement, the manager was entitled to 7% of all contract monies paid to Riddell (excluding match payments); and 20% of all gross monies earned by Riddell for sponsorship, media contracts, endorsements, advertising and promotional work. | Prior to the end of the 2004 playing season with St George, the manager negotiated the terms of a new playing contract for Riddell with the Parramatta Club for the 2005, 2006 and 2007 playing seasons. | In November 2004, Riddell paid fees of $21,175 under his management agreement. During the 2005 income year, Riddell also earned $11,394 from sponsorships and promotional activities negotiated by his manager. | Appeals | At first instance, the Federal Court (Gordon J) (2007) ATR 740, 757 held that the fees paid by the taxpayers were deductible, as being incurred in carrying on a business of turning their football talents to account for money. Her Honour also held that the taxpayers' circumstances were factually different and distinguishable from those in FC of T v Maddalena . | The Commissioner appealed to the Full Federal Court. The Full Federal Court (Goldberg, Bennett and Edmonds JJ) (2008) 170 FCR 135 allowed the Commissioner's appeals and unanimously held that the fees were not 'working expenses' that were relevant and incidental to the taxpayers' employment income as professional footballers. The Full Court also held that the fees were not incurred by the taxpayers in the course of carrying on a business of playing football under their employment contracts, and that Maddalena was not distinguishable. | The taxpayers applied for special leave to appeal to the High Court and leave was granted. | Issues decided by the court | The High Court unanimously held in both cases that the fees were deductible under paragraph 8-1(1)(a) of the ITAA 97, being incurred by the taxpayers in the course of gaining or producing assessable income from carrying on a business of commercially exploiting their sporting prowess and associated celebrity (paragraph 73). | The Court found that each of the playing contracts was not solely a contract of employment between the taxpayers and their clubs, but was a tripartite contract involving the AFL/NRL and their player rules, which allowed for the taxpayers to receive income from non-playing activities (paragraphs 41, 43 and 49). | Accordingly, the Court rejected the Commissioner's arguments that the fees paid for the negotiation of the playing contracts were incurred only to obtain new employment contracts and had no connection with the course of the taxpayers earning income from their non-playing businesses (paragraphs 63-4). In conducting both 'a wide survey and an exact scrutiny of the taxpayers' activities', the Court found that the taxpayers were 'engaged in the business of commercially exploiting their sporting prowess and associated celebrity'. The conduct of that business involved a clear synergy between two related income producing activities, and was anticipated by the framework provided by the playing contracts and related documents (paragraphs 60, 69 and 70). | The Court also found that neither the decision in Maddalena , nor the definition of \"business\" in section 995-1 of the ITAA 97 required the conclusion that employment activities could not form part of the carrying on of a business for the purposes of paragraph 8-1(1)(a), though the Court accepted that a person, as in Maddalena , is not conducting a business merely because the person earns income under an employment contract (paragraphs 65 to 68). | The Court also unanimously held that the fees were deductible under paragraph 8-1(1)(b), being necessarily incurred by the taxpayers in carrying on their businesses (paragraph 77). | Finally, the Court found that the fees were not capital expenses under paragraph 8-1(2)(a), but, rather, were recurrent expenses incurred by the taxpayers in the course of carrying on their businesses in respect of entering into a number of playing contracts, which were revenue assets (paragraphs 82 to 84).", "Issues_Decided": "The High Court unanimously held in both cases that the fees were deductible under paragraph 8-1(1)(a) of the ITAA 97, being incurred by the taxpayers in the course of gaining or producing assessable income from carrying on a business of commercially exploiting their sporting prowess and associated celebrity (paragraph 73). The Court found that each of the playing contracts was not solely a contract of employment between the taxpayers and their clubs, but was a tripartite contract involving the AFL/NRL and their player rules, which allowed for the taxpayers to receive income from non-playing activities (paragraphs 41, 43 and 49). Accordingly, the Court rejected the Commissioner's arguments that the fees paid for the negotiation of the playing contracts were incurred only to obtain new employment contracts and had no connection with the course of the taxpayers earning income from their non-playing businesses (paragraphs 63-4). In conducting both 'a wide survey and an exact scrutiny of the taxpayers' activities', the Court found that the taxpayers were 'engaged in the business of commercially exploiting their sporting prowess and associated celebrity'. The conduct of that business involved a clear synergy between two related income producing activities, and was anticipated by the framework provided by the playing contracts and related documents (paragraphs 60, 69 and 70). The Court also found that neither the decision in Maddalena , nor the definition of \"business\" in section 995-1 of the ITAA 97 required the conclusion that employment activities could not form part of the carrying on of a business for the purposes of paragraph 8-1(1)(a), though the Court accepted that a person, as in Maddalena , is not conducting a business merely because the person earns income under an employment contract (paragraphs 65 to 68). The Court also unanimously held that the fees were deductible under paragraph 8-1(1)(b), being necessarily incurred by the taxpayers in carrying on their businesses (paragraph 77). Finally, the Court found that the fees were not capital expenses under paragraph 8-1(2)(a), but, rather, were recurrent expenses incurred by the taxpayers in the course of carrying on their businesses in respect of entering into a number of playing contracts, which were revenue assets (paragraphs 82 to 84).", "ATO_View_of_Decision": "Outgoing incurred in gaining or producing assessable income | The High Court has recognised that an individual can carry on a business, for the purposes of both paragraph 8-1(1)(a) and paragraph 8-1(1)(b), that includes activities undertaken under an employment contract as an employee. As the contractual framework under which the taxpayers carried on their businesses as football players applied to all players operating in the AFL and NRL competitions, the Tax Office accepts that the principles set out by the High Court have equal application to those other players. | However, the Court has also recognised that the facts in these cases are quite different to the facts in Maddalena , where the Court had earlier recognised that the taxpayer's employment as a footballer was not part of any business undertaken by the taxpayer. | Whether, in relation to any other sporting, artistic or professional activity, an individual would be found to be carrying on a business that includes employment activities, or would be found to be pursuing two or more activities of 'unrelated income derivation', will depend on 'a wide survey and an exact scrutiny' of the individual's activities. The Court has indicated that what is of likely relevance in coming to that conclusion is the contractual framework under which the individual operates his or her income earning activities, and the synergy, or connection, between the various activities.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | An addendum to Taxation Ruling TR 2000/5 was published on 2 March 2011.", "Related_Documents": "TR 2000/5 | 2009 ATC 20-109 | 6-5 | 8-1 | 8-1(1)(a) | 8-1(1)(b) | 8-1(2)(a) | 995-1 | (1971) 71 ATC 4161 | [1949] HCA 15 | 78 CLR 47 | 2001 ATC 4027 | 2008 ATC 20-064 | 2005 ATC 4234 | 125 CLR 353 | 46 ALJR 23 | 55 CLR 144 | 61 CLR 337", "Legislative_References": "Income Tax Assessment Act 1997 6-5 8-1 8-1(1)(a) 8-1(1)(b) 8-1(2)(a) 995-1", "Case_References": "FCT v Maddalena (1971) 71 ATC 4161 45 ALJR 426 2 ATR 541 Ronpibon Tin NL v FCT [1949] HCA 15 78 CLR 47 FCT v Payne 2001 ATC 4027 202 CLR 93 46 ATR 228 FCT v Day [2008] HCA 53 2008 ATC 20-064 70 ATR 14 (2008) 236 CLR 163 FCT v Stone 222 CLR 289 2005 ATC 4234 59 ATR 50 Buckley v Tutty 125 CLR 353 46 ALJR 23 [1972] ALR 370 Commissioner of Taxes (Vic) v Phillips [1936] HCA 11 [1936] ALR 205 55 CLR 144 Sun Newspapers Ltd v FCT [1938] HCA 73 [1938] ALR 498 61 CLR 337", "Subject_References": "Professional footballers Deductibility of management fees Definition of 'business' Business including employment", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M92of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "St George Bank v Federal Commissioner of Taxation", "Venue_Reference_No": "NSD 617-21 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "25 May 2009", "Date_Published": "11 March 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned deductions claimed for interest payments under a debenture that was connected with the raising of additional capital by the appellant to meet the capital adequacy requirements of the Reserve Bank of Australia (\"RBA\").", "Overview_of_Facts": "St George Bank Limited (\"St George\") was required by the RBA to increase its Tier 1 capital after acquiring the Advance Bank Australia Limited. | It did so by implementing an arrangement called \"US$ Tax Deductible Perpetual Preferred\". The arrangement involved establishing a special purpose company in the US (\"LLC\") which issued capital securities to US investors; the proceeds of the sale were invested in debentures issued by St George; and the interest paid on the debentures was used to fund the payment of dividends on the capital securities. | Relevant aspects of the various agreements included that: • The sole purpose of the LLC was to issue the capital securities and to invest the proceeds in the debentures. The interest obligations under the debentures mirrored the dividend obligations under the capital securities. • The obligation to pay interest under the debenture was contingent upon the appellant being solvent, which had the effect that the interest on the debenture could be subordinated to any dividend payable to shareholders of the appellant. • The obligation imposed on LLC to pay the dividend in respect of the capital securities only arose if St George had paid the corresponding amount of interest to LLC. • The effect of the agreements was that the funds advanced by the holders of the capital securities would never leave the St George Group. • The $250 million of capital raised by issue of the capital securities would satisfy the Tier 1 capital requirements of the RBA. | • The sole purpose of the LLC was to issue the capital securities and to invest the proceeds in the debentures. The interest obligations under the debentures mirrored the dividend obligations under the capital securities. • The obligation to pay interest under the debenture was contingent upon the appellant being solvent, which had the effect that the interest on the debenture could be subordinated to any dividend payable to shareholders of the appellant. • The obligation imposed on LLC to pay the dividend in respect of the capital securities only arose if St George had paid the corresponding amount of interest to LLC. • The effect of the agreements was that the funds advanced by the holders of the capital securities would never leave the St George Group. • The $250 million of capital raised by issue of the capital securities would satisfy the Tier 1 capital requirements of the RBA. | St George lodged an election that Division 974 of the Income Tax Assessment Act 1997 (ITAA 97) would apply to the debenture but subsequently argued that the election was invalid. | The Full Federal Court dismissed the appellant's appeal and the High Court refused to grant St George special leave to appeal on 3 November 2009. | Issues decided by the court or tribunal | Deductibility of the \"interest\" | Justice Perram, with whom Justices Emmett and Stone agreed, concluded that the payments of interest were of a capital nature and thus not deductible. | His Honour agreed with the trial judge about the nature of the debenture and the capital securities and held that the payments of interest were an essential element in an overall transaction to raise capital and that it was appropriate in the circumstances not to limit the focus to just the debenture, but to examine the wider context to ascertain the nature of the advantage sought by the payments for the purposes of paragraph 8-1(2)(a). His Honour concluded that the advantage sought by the payments of interest was the acquisition of permanent capital which was a structural advantage of a lasting character in accordance with the tests set out in Sun Newspapers Ltd v FCT . | Validity of the election | The Court was of the view that as the payments were denied deductibility by being of a capital nature, it was not strictly necessary to consider the election issue but as it had been argued fully before the trial judge and on appeal they would consider it. | Justice Stone, with whom Justices Emmett and Perram agreed, concluded that the election was invalid as certain information required was not provided. Her Honour agreed with the trial judge that the election was stated to be effective only if certain information was provided and, as that did not occur, the election was invalid.", "Issues_Decided": "Deductibility of the \"interest\": Justice Perram, with whom Justices Emmett and Stone agreed, concluded that the payments of interest were of a capital nature and thus not deductible. His Honour agreed with the trial judge about the nature of the debenture and the capital securities and held that the payments of interest were an essential element in an overall transaction to raise capital and that it was appropriate in the circumstances not to limit the focus to just the debenture, but to examine the wider context to ascertain the nature of the advantage sought by the payments for the purposes of paragraph 8-1(2)(a). His Honour concluded that the advantage sought by the payments of interest was the acquisition of permanent capital which was a structural advantage of a lasting character in accordance with the tests set out in Sun Newspapers Ltd v FCT . | Validity of the election: The Court was of the view that as the payments were denied deductibility by being of a capital nature, it was not strictly necessary to consider the election issue but as it had been argued fully before the trial judge and on appeal they would consider it. Justice Stone, with whom Justices Emmett and Perram agreed, concluded that the election was invalid as certain information required was not provided. Her Honour agreed with the trial judge that the election was stated to be effective only if certain information was provided and, as that did not occur, the election was invalid.", "ATO_View_of_Decision": "The decision was in accordance with established principles and is consistent with the Commissioner's view that a deduction under section 8-1 is not allowable in respect of returns paid for the raising and maintaining of Tier 1 capital for a bank. However, the decision should have little on-going importance in relation to outgoings of the kind considered in this case as the deductibility of such outgoings is now determined by reference to the rules on the tax treatment of gains and losses from financial arrangements contained in Division 230 of the ITAA 97 and debt and equity interests contained in Division 974 of the ITAA 97. | In respect of the Court's view that the election was invalid, we consider that it is confined to the facts of this case and has no impact on the interpretation of elections generally. As the election was in respect of transitional provisions, it has no ongoing impact. Accordingly, there is limited application to other cases.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 2002/15 | 2009 ATC 20-103 | 8-1 | Div 974 | Schedule 1, Item 118 | 78 ATC 4412 | 2009 ATC 20-093 | 2005 ATC 4829 | 194 CLR 355 | 153 ALR 490 | [1998] HCA 28 | 99 ATC 4242 | 61 CLR 337 | 5 ATD 87 | 81 ATC 4100", "Legislative_References": "Income Tax Assessment Act 1997 8-1 Div 974 New Business Tax System (Debt & Equity) Act 2001 Schedule 1, Item 118", "Case_References": "Commissioner of Taxation v South Australian Battery Makers Pty Ltd 140 CLR 645 52 ALJR 640 21 ALR 59 8 ATR 879 78 ATC 4412 [1978] HCA 32 Commissioner of Taxation v Star City Pty Ltd [2009] FCAFC 19 2009 ATC 20-093 72 ATR 431 175 FCR 39 Macquarie Finance Ltd v Commissioner of Taxation [2005] FCAFC 205 2005 ATC 4829 146 FCR 77 61 ATR 1 225 ALR 694 Project Blue Sky Inc v Australian Broadcasting Authority 194 CLR 355 72 ALJR 841 153 ALR 490 [1998] HCA 28 Steele v Deputy Commissioner of Taxation 197 CLR 459 73 ALJR 437 41 ATR 139 161 ALR 201 99 ATC 4242 [1999] HCA 7 Sun Newspapers Ltd v Federal Commissioner of Taxation 61 CLR 337 5 ATD 87 [1939] ALR 10 12 ALJ 411 Ure v Federal Commissioner of Taxation [1981] FCA 9 34 ALR 237 50 FLR 219 11 ATR 484 81 ATC 4100", "Subject_References": "Allowable deductions Interest payments Capital or of a capital nature Capital adequacy ratios", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD617-21of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Suntory (Aust) Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD319/2009", "Venue": "Federal Court of Australia", "Judgment_Date": "30 June 2009", "Date_Published": "22 October 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Whether the Commissioner is precluded from collecting, and required to refund moneys collected under an Excise Tariff alteration proposal where legislation giving effect to the proposal was rejected by parliament within the 12 month expiration period.", "Overview_of_Facts": "As part of the implementation of what became known as the 'alcopops' measure, on 26 April 2008 the Commissioner published a notice of intention to propose an Excise Tariff alteration increasing the rate of duty payable on \"other excisable beverages\" (Excise Tariff Proposal (No 1) 2008) from $39.36 to $66.67 per litre of alcohol. The notice said that \"the alterations operate on and from 27 April 2008\". On and from that date the Commissioner collected monies at the higher rate specified in Excise Tariff Proposal (No 1) 2008. | On 13 May 2008 the proposed Excise Tariff alteration was moved by motion in the House of Representatives. On 11 February 2009 the Federal Government introduced into the House of Representatives the Excise Tariff Amendment (2009 Measures No 1) Bill 2009 containing the Excise Tariff alteration. On 25 February 2009 the House of Representatives passed the Bill. On 18 March 2009 the Senate rejected the Bill. | The Applicant had permission under section 61C of the Excise Act 1901 (Cth) to deliver goods for home consumption without entry, including \"other excisable beverages\". The permission dated 24 December 2004 was subject to conditions, including condition 3(c) which provided that, when any Excise Tariff alteration is proposed in the Parliament or by the Commissioner, from that day the rate of duty the Applicant is required to pay is the rate specified in the tariff proposal. | On 3 April 2009, following the Senate's rejection of the Bill, the Applicant sought declaratory and injunctive relief from the Federal Court pursuant to section 39B of the Judiciary Act 1903 , to the following effect: • a declaration that that the applicant is not liable to pay the amounts of excise duty at the increased rate set out in Excise Tariff Proposal (No 1) 2008 to the extent that it exceeds the previous rate set out in item 2 of the Schedule to the Excise Tariff Act 1921 ; (\"the excess amounts\") • a declaration that the collection of the excess amounts by the Commissioner is unlawful; • an order restraining the Commissioner from collecting the excess amounts or imposing any requirement upon the Applicant to comply with any obligation to pay the excess amounts; • an order that the Commissioner refund the excess amounts collected since 27 April 2008; and • an injunction restraining the Commissioner from collecting or imposing any requirement upon the Applicant to pay the excess amounts. | • a declaration that that the applicant is not liable to pay the amounts of excise duty at the increased rate set out in Excise Tariff Proposal (No 1) 2008 to the extent that it exceeds the previous rate set out in item 2 of the Schedule to the Excise Tariff Act 1921 ; (\"the excess amounts\") • a declaration that the collection of the excess amounts by the Commissioner is unlawful; • an order restraining the Commissioner from collecting the excess amounts or imposing any requirement upon the Applicant to comply with any obligation to pay the excess amounts; • an order that the Commissioner refund the excess amounts collected since 27 April 2008; and • an injunction restraining the Commissioner from collecting or imposing any requirement upon the Applicant to pay the excess amounts. | On 6 April 2009 the Commissioner filed a Notice of Motion seeking that the proceedings be stayed until 13 May 2009 (the expiry of the 12 month period under s 114). | On 15 April 2009 Justice Jagot handed down judgment at first instance ordering that the proceedings be stayed until 13 May 2009. On 17 April 2009 the Applicant filed a notice of motion seeking leave to appeal against that interlocutory decision to the Full Federal Court. | On 4 May 2009 the Full Court granted leave to appeal and dismissed the Applicant's appeal. | On 30 June 2009 the Full Court provided written reasons for its decision. | Issues decided by the court | The Full Court noted that \"the primary judge held that s114 does not cease to operate when the Senate rejects a Bill that, if passed, would have given retrospective effect to the Excise Tariff alteration that has been proposed. Accordingly her Honour held that the present proceeding was required to be stayed during the period specified in s114\" and agreed with Jagot J's's conclusion for the reasons given by her Honour. | On appeal to the Full Court, the Applicant argued that condition 3(c) of the permission granted to it under s61C purported to impose a tax without authorisation by Parliament. | In rejecting that submission their Honours held that \"s61C(3) expressly permits the Commissioner to attach conditions to the permission subject to them being necessary for the purposes set out in the subsection. It is an exercise of statutory power that is enlivened by the decision to rely on entry of goods under s61C.\" | The Court considered that the validity of the collection of anticipated duty lay not in whether condition 3(c) imposed a tax but in whether it fell within the incidental scope of the taxation power. | The Court agreed with the Commissioner's submission that both s61C and s114 have the evident purpose of being for the \"protection of the revenue\" and therefore fall within the incidental scope of the taxation power in s51(ii) of the Constitution. | Their Honours stated that \"In our view both s61C and s114 are directed to the protection of the revenue. As such they have a 'relevant and sufficient connexion' with the taxation power and are 'appropriate to effectuate the exercise of [that] power' \" | The Court agreed with the Commissioner's submission that the relationship between s114 of the Excise Act and s75(v) of the Constitution did not need to be determined in this case as the proceedings were brought in the Federal Court and there is no doubt that Parliament has the power to limit jurisdiction in that Court. | As the Court concluded that the relevant provisions were properly characterised as being with respect to taxation they considered that the Applicant's further argument, that there was an acquisition of property on unjust terms under s51(xxxi) of the Constitution, did not arise.", "Issues_Decided": "The Full Court noted that \"the primary judge held that s114 does not cease to operate when the Senate rejects a Bill that, if passed, would have given retrospective effect to the Excise Tariff alteration that has been proposed. Accordingly her Honour held that the present proceeding was required to be stayed during the period specified in s114\" and agreed with Jagot J's's conclusion for the reasons given by her Honour. On appeal to the Full Court, the Applicant argued that condition 3(c) of the permission granted to it under s61C purported to impose a tax without authorisation by Parliament. In rejecting that submission their Honours held that \"s61C(3) expressly permits the Commissioner to attach conditions to the permission subject to them being necessary for the purposes set out in the subsection. It is an exercise of statutory power that is enlivened by the decision to rely on entry of goods under s61C.\" The Court considered that the validity of the collection of anticipated duty lay not in whether condition 3(c) imposed a tax but in whether it fell within the incidental scope of the taxation power. The Court agreed with the Commissioner's submission that both s61C and s114 have the evident purpose of being for the \"protection of the revenue\" and therefore fall within the incidental scope of the taxation power in s51(ii) of the Constitution. Their Honours stated that \"In our view both s61C and s114 are directed to the protection of the revenue. As such they have a 'relevant and sufficient connexion' with the taxation power and are 'appropriate to effectuate the exercise of [that] power' \" The Court agreed with the Commissioner's submission that the relationship between s114 of the Excise Act and s75(v) of the Constitution did not need to be determined in this case as the proceedings were brought in the Federal Court and there is no doubt that Parliament has the power to limit jurisdiction in that Court. As the Court concluded that the relevant provisions were properly characterised as being with respect to taxation they considered that the Applicant's further argument, that there was an acquisition of property on unjust terms under s51(xxxi) of the Constitution, did not arise.", "ATO_View_of_Decision": "The decision is in accordance with the Commissioner's view of the operation of section 114 of the Excise Act 1901.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | [2009] FCAFC 80 | 262 | 4 | 54 | 58 | 59 | 61C | 160B | 109 | 114 | 115 | 2 | Excise Tariff Amendment (2009 Measures No. 1) Bill 2009 (Cth) | [1922] HCA 62 | 114 CLR 1 | [1955] HCA 6 | 60 CLR 263 | [2009] FCA 348 | [2008] FCAFC 75 | 168 FCR 410 | 101 ALD 499 | 70 ALJR 680 | 138 ALR 129 | 66 IR 392", "Legislative_References": "Customs Act 1901 (Cth) 262 Commonwealth Constitution 51(ii) 51(xxxi) 75(v) Excise Act 1901 (Cth) 4 54 58 59 61C 160B 109 114 115 Excise Tariff Act 1921 (Cth) 2 Excise Tariff Amendment (2009 Measures No. 1) Bill 2009 (Cth) Federal Court of Australia Act 1976 (Cth) 24(1A) Judiciary Act 1903 (Cth) 39B War Precautions Act 1914-1916 (Cth)", "Case_References": "Bowles v Bank of England [1913] 1 Ch 57 Commonwealth v Colonial Combing, Spinning and Weaving Company Limited (Wool Tops) [1922] HCA 62 31 CLR 421 29 ALR 138 Ex parte Wallace and Co (1892) 13 NSWLR 1 Fairfax v The Commissioner of Taxation of the Commonwealth of Australia [1965] HCA 64 114 CLR 1 [1966] ALR 1073 Grannall v Marrickville Margarine Proprietary Limited [1955] HCA 6 [1955] ALR 331 93 CLR 55 Matthews v The Chicory Marketing Board (Victoria) [1938] HCA 38 [1938] ALR 370 60 CLR 263 Nationwide News Pty Limited v Wills [1992] HCA 46 177 CLR 1 Sargood Brothers v The Commonwealth [1910] HCA 45 16 ALR 483 11 CLR 258 Suntory (Aust) Pty Ltd v Commissioner of Taxation [2009] FCA 348 Szajb v Minister for Immigration and Citizenship [2008] FCAFC 75 168 FCR 410 101 ALD 499 Victoria v The Commonwealth [1996] HCA 56 187 CLR 416 70 ALJR 680 138 ALR 129 66 IR 392", "Subject_References": "Excise Tariff Proposals Excise licence conditions Exercise of powers incidental to taxation power 'Alcopops'", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD319/2009/00001", "Unmatched_Content": ""}
{"Case_Name": "Taneja and Commissioner of Taxation", "Venue_Reference_No": "2007/5830-5833", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "8 October 2009", "Date_Published": "15 December 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially Adverse", "Summary_of_Decision": "This case involved three issues that had been remitted back to the Tribunal following the first hearing of this matter in Raj Taneja v Commissioner of Taxation No 1 [2009] AATA 87 (Taneja No1). In Taneja No 1 the Tribunal found that the Applicant was not carrying on a personal services business and remitted certain issues to the Commissioner for determination. After the failure by the parties to reach an agreement on the remitter issues, the Tribunal was asked to rule upon them.", "Overview_of_Facts": "The Applicant was a computer system analyst and one of the directors of RS Consulting Group Pty Ltd (the Company). | During the 2002, 2003, 2004 and 2005 income years the Company earned income through the provision of the applicant's personal efforts or skills to third party clients. In the decision handed down on 11 February 2009 (the earlier proceedings) the Tribunal found that that the Company was not a personal services business. As a result of this decision, the matter was remitted to the Commissioner for determination of the amount of income attributable to Mr Taneja personally under Part 2-42 of the Income Tax Assessment Act 1997 . As a result of the application of Part 2-42 to the personal services income, the Applicant could not deduct certain expenses including some wages and superannuation contributions. | The Commissioner issued the Company with amended assessments for the 2002 to 2005 income years, as well as issuing amended assessments for the Applicant and imposed a shortfall penalty of 25%. | Issues decided by the court or tribunal | 1. Whether the assessments made by the Commissioner cannot be sustained as they are less favourable to the taxpayer than Taxation Ruling 2001/8 (in particular paragraphs 108, 131, 136 and 138)? | 2. Is the Applicant entitled to the tax offset in former section 159T of the Income Tax Assessment Act 1936 , for contributions made by the Company for the benefit of Mrs Taneja? | 3. Should the tax shortfall penalties imposed by the Commissioner for the 2003-04 and 2004-05 income years be remitted in whole or in part? | Answers to the issues | The Tribunal held: 1) Mr Taneja's submissions regarding the public ruling were misconceived; that the statements he relied on were not binding and as such the Commissioner was not bound to apply them. 2) The rebate under section 159T was not available to Mr Taneja as the payments were made by the Company, not by him. 3) The administrative penalty was remitted on the basis that Mr Taneja had sought the advice of the tax agent and the tax agent was incorrect in the advice he gave. The Tribunal found that a failure to understand fully the effect of Part 2-42 is not a failure to take reasonable care. | 1) Mr Taneja's submissions regarding the public ruling were misconceived; that the statements he relied on were not binding and as such the Commissioner was not bound to apply them. 2) The rebate under section 159T was not available to Mr Taneja as the payments were made by the Company, not by him. 3) The administrative penalty was remitted on the basis that Mr Taneja had sought the advice of the tax agent and the tax agent was incorrect in the advice he gave. The Tribunal found that a failure to understand fully the effect of Part 2-42 is not a failure to take reasonable care.", "Issues_Decided": "1. Whether the assessments made by the Commissioner cannot be sustained as they are less favourable to the taxpayer than Taxation Ruling 2001/8 (in particular paragraphs 108, 131, 136 and 138)? 2. Is the Applicant entitled to the tax offset in former section 159T of the Income Tax Assessment Act 1936 , for contributions made by the Company for the benefit of Mrs Taneja? 3. Should the tax shortfall penalties imposed by the Commissioner for the 2003-04 and 2004-05 income years be remitted in whole or in part? | Answers to the issues: The Tribunal held: 1) Mr Taneja's submissions regarding the public ruling were misconceived; that the statements he relied on were not binding and as such the Commissioner was not bound to apply them. 2) The rebate under section 159T was not available to Mr Taneja as the payments were made by the Company, not by him. 3) The administrative penalty was remitted on the basis that Mr Taneja had sought the advice of the tax agent and the tax agent was incorrect in the advice he gave. The Tribunal found that a failure to understand fully the effect of Part 2-42 is not a failure to take reasonable care. 1) Mr Taneja's submissions regarding the public ruling were misconceived; that the statements he relied on were not binding and as such the Commissioner was not bound to apply them. 2) The rebate under section 159T was not available to Mr Taneja as the payments were made by the Company, not by him. 3) The administrative penalty was remitted on the basis that Mr Taneja had sought the advice of the tax agent and the tax agent was incorrect in the advice he gave. The Tribunal found that a failure to understand fully the effect of Part 2-42 is not a failure to take reasonable care.", "ATO_View_of_Decision": "The Tribunal found in favour of the Tax Office on all points except the imposition of the shortfall penalty for the 2004 and 2005 income years. The decision of the Full Federal Court was open to it on the facts of the case. Whilst the Tribunal found that the tax agent had taken reasonable care, such a finding may not necessarily be made on similar facts, in relation to how personal services income is attributed to an individual who provides the services, skills, talents or efforts that gain or produce the income, during later income years.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 2001/8 | 2009 ATC 10-112 | 85-20 | 85-25 | 86-15(1) | 86-60 | 87-18(3) | 87-18(4) | 87-20 | 87-25 | 87-30 | 995-1 | 284-75(1) | 284-90 | 2003 ATC 4644 | 2008 ATC 20-022 | 2009 ATC 10-078", "Legislative_References": "Income Tax Assessment Act 1997 85-20 85-25 86-15(1) 86-60 87-18(3) 87-18(4) 87-20 87-25 87-30 995-1 Income Tax Assessment Act 1936 170BA 159T 159TC Taxation Administration Act 1953 14ZAAA 14ZAAE 14ZAAF 14ZAAG 14ZAAI 284-75(1) 284-90", "Case_References": "Commissioner of Taxation v Metaskills Pty Ltd [2003] FCA 766 2003 ATC 4644 (2003) 53 ATR 346 130 FCR 248 Fowler v Federal Commissioner of Taxation [2008] FCA 528 2008 ATC 20-022 (2008) 72 ATR 64 (2008) 167 FCR 425 Re Taneja and Commissioner of Taxation [2009] AATA 87 2009 ATC 10-078", "Subject_References": "Income Tax Personal services business Attribution Penalty Tax Rebate Superannuation contribution paid by Company", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/5830-5833/00001", "Unmatched_Content": ""}
{"Case_Name": "TT-Line Company Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 685 of 2009", "Venue": "Federal Court of Australia", "Judgment_Date": "18 December 2009", "Date_Published": "1 September 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable.", "Summary_of_Decision": "Outlines the ATO response to this matter which concerned whether payments were consideration for supplies made to third parties and whether the payments were specifically covered by an appropriation under an Australian law for GST purposes.", "Overview_of_Facts": "1. The Commonwealth Government established the Bass Strait Passenger Vehicle Equalisation Scheme (the Scheme) with the stated aim of reducing the costs associated with the transport by sea of passenger vehicles across Bass Strait. The Scheme operates under Ministerial Directions. Under the Scheme eligible passengers were entitled to a rebate in respect of the costs of transporting eligible vehicles on a Bass Strait crossing. The rebate in question was paid out of funds allocated by the Commonwealth under the Appropriation Act (No 1) 2007-2008 . | 2. The Ministerial Directions allow for the rebate under the Scheme to be paid either: a. directly to the commercial shipping service that provides the transport of the eligible passenger where that commercial shipping service provided a reduction in the eligible passenger's vehicle fare at the time of the booking of the travel; or b. directly to the eligible passenger where the eligible passenger did not receive a reduction in his or her fare. | a. directly to the commercial shipping service that provides the transport of the eligible passenger where that commercial shipping service provided a reduction in the eligible passenger's vehicle fare at the time of the booking of the travel; or b. directly to the eligible passenger where the eligible passenger did not receive a reduction in his or her fare. | 3. The matter proceeded by way of agreed facts, examining one particular transaction. Under the transaction, the appellant (\"TT-Line\") made a supply of transport service to an eligible passenger with an eligible vehicle. The fare paid by the eligible passenger for this service had been reduced by the amount of the relevant rebate. TT-Line claimed a rebate under the Scheme. | 4. TT-Line is a government related entity for the purposes of the GST provisions. | Issues decided by the court | The issues in dispute in this matter were: 1. Whether the amount received by TT-Line from the Commonwealth by way of reimbursement under the Scheme was consideration in connection with the supply of transport services to the passenger within the meaning of subsection 9-15(1) of the GST Act. 2. Whether the amount received by TT-Line from the Commonwealth by way of reimbursement under the Scheme was a payment made by one government related entity to another government related entity specifically covered by an appropriation under an Australian law within the meaning of paragraph 9-15(3)(c) of the GST Act. | 1. Whether the amount received by TT-Line from the Commonwealth by way of reimbursement under the Scheme was consideration in connection with the supply of transport services to the passenger within the meaning of subsection 9-15(1) of the GST Act. 2. Whether the amount received by TT-Line from the Commonwealth by way of reimbursement under the Scheme was a payment made by one government related entity to another government related entity specifically covered by an appropriation under an Australian law within the meaning of paragraph 9-15(3)(c) of the GST Act. | (1) Whether the payments fall within subsection 9-15(1) of the GST Act: | The Full Federal Court unanimously found that the payments were consideration under subsection 9-15(1) for the supply of transport services made by TT-Line to the eligible passenger. | (2) Whether the payments fall within paragraph 9-15(3)(c) of the GST Act: | The Full Federal Court unanimously found that the payments did not fall within paragraph 9-15(3)(c). | Emmett J. held that the object of the exemption in paragraph 9-15(3)(c) is to ensure that there will be no GST where the purpose of the relevant appropriation is to provide funds to a government related entity. To satisfy the provision, it must be clear that the appropriation is for the benefit of a government related entity. This was not the effect of the appropriation which was to provide a benefit to eligible passengers in respect of the carriage of eligible passenger vehicles (at [24]). | Edmonds J., with whom Perram J. agreed, found at [62], that paragraph 9-15(3)(c) should be interpreted by reference to the underlying policy that the GST is generally to apply to government related entities, organisations and instrumentalities - Commonwealth, State and local - in the same way as it does to non-government entities. The exclusion created by paragraph 9-15(3)(c) is only intended to operate where, by the terms of the appropriation, the services can only be supplied by a government related entity. It is not intended to extend to payments, pursuant to an appropriation, for a supply of services which can, under the terms of the appropriation, be supplied by a government related entity or a non-government related entity (even if the appropriation is otherwise specific as to amount and its particular purpose).", "Issues_Decided": "The issues in dispute in this matter were: 1. Whether the amount received by TT-Line from the Commonwealth by way of reimbursement under the Scheme was consideration in connection with the supply of transport services to the passenger within the meaning of subsection 9-15(1) of the GST Act. 2. Whether the amount received by TT-Line from the Commonwealth by way of reimbursement under the Scheme was a payment made by one government related entity to another government related entity specifically covered by an appropriation under an Australian law within the meaning of paragraph 9-15(3)(c) of the GST Act. 1. Whether the amount received by TT-Line from the Commonwealth by way of reimbursement under the Scheme was consideration in connection with the supply of transport services to the passenger within the meaning of subsection 9-15(1) of the GST Act. 2. Whether the amount received by TT-Line from the Commonwealth by way of reimbursement under the Scheme was a payment made by one government related entity to another government related entity specifically covered by an appropriation under an Australian law within the meaning of paragraph 9-15(3)(c) of the GST Act. | (1) Whether the payments fall within subsection 9-15(1) of the GST Act:: The Full Federal Court unanimously found that the payments were consideration under subsection 9-15(1) for the supply of transport services made by TT-Line to the eligible passenger. | (2) Whether the payments fall within paragraph 9-15(3)(c) of the GST Act:: The Full Federal Court unanimously found that the payments did not fall within paragraph 9-15(3)(c). Emmett J. held that the object of the exemption in paragraph 9-15(3)(c) is to ensure that there will be no GST where the purpose of the relevant appropriation is to provide funds to a government related entity. To satisfy the provision, it must be clear that the appropriation is for the benefit of a government related entity. This was not the effect of the appropriation which was to provide a benefit to eligible passengers in respect of the carriage of eligible passenger vehicles (at [24]). Edmonds J., with whom Perram J. agreed, found at [62], that paragraph 9-15(3)(c) should be interpreted by reference to the underlying policy that the GST is generally to apply to government related entities, organisations and instrumentalities - Commonwealth, State and local - in the same way as it does to non-government entities. The exclusion created by paragraph 9-15(3)(c) is only intended to operate where, by the terms of the appropriation, the services can only be supplied by a government related entity. It is not intended to extend to payments, pursuant to an appropriation, for a supply of services which can, under the terms of the appropriation, be supplied by a government related entity or a non-government related entity (even if the appropriation is otherwise specific as to amount and its particular purpose).", "ATO_View_of_Decision": "The decision of the Court supports the views of the Commissioner in relation to the application of subsection 9-15(1) as set out in GSTR 2006/9 . While favourable to the Commissioner, the reasoning of the Court in relation to the interpretation of paragraph 9-15(3)(c) differs to how the Commissioner has expressed his views on this issue in GSTR 2006/11. The view expressed in GSTR 2006/11 is that for a payment to come within paragraph 9-15(3)(c), the payment has to be of a funding nature and not commercial in character.", "Administrative_Treatment": "None affected", "Related_Documents": "GSTR 2006/11 | GSTR 2006/9 | 2009 ATC 20-157 | 9-5 | 9-15 | 9-40 | 2009 ATC 20-113 | (1953) 89 CLR 653 | [1953] HCA 70 | (2005) 224 CLR 494", "Legislative_References": "The Constitution 114 A New Tax System (Goods and Services Tax) Act 1999 9-5 9-15 9-40 A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 Sch 2 Appropriation Act (No 1) 2007-2008 Sch 2", "Case_References": "American Express International Inc v Commissioner of Taxation (2009) 73 ATR 173 [2009] FCA 683 2009 ATC 20-113 Berry v Federal Commissioner of Taxation (1953) 89 CLR 653 (1953) 10 ATD 262 [1953] HCA 70 Combet v Commonwealth (2005) 224 CLR 494 [2005] HCA 61 221 ALR 621", "Subject_References": "Consideration as defined in section 9-15 of the A New Tax System (Goods and Services Tax) Act 1999 Whether an amount received under the scheme is a payment 'in connection with' the supply of travel services Whether a payment under the scheme is a payment specifically covered by an appropriation under an Australian law within the meaning of paragraph 9-15(3)(c) of the GST Act", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD685of2009/00001", "Unmatched_Content": "Implications on current Public Rulings & Determinations: The Commissioner withdrew GSTR 2006/11 and issued GSTR 2011/2 on 13 July 2011. GSTR 2011/2 sets out the Commissioner's views on the application of paragraph 9-15(3)(c) and updates the views previously expressed in GSTR 2006/11 to reflect the reasoning of the Full Federal Court. | The Commissioner issued a draft addendum GSTR 2006/9 on 10 August 2011. When finalised, the draft addendum will amend GSTR 2006/9 to reflect the Full Federal Court's observations about the application of subsection 9-15(2)."}
{"Case_Name": "Virgin Holdings SA v Commissioner of Taxation; Undershaft (No. 1) Limited and Undershaft (No. 2) BV v Commissioner of Taxation", "Venue_Reference_No": "NSD 1149 of 2007, NSD 57 of 2008; NSD 1283 of 2006 and NSD 1282 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "10 October 2008", "Date_Published": "16 September 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to two cases which raised the issue of whether Double Tax Agreements entered into prior to the CGT regime in Australia, denied the Commissioner the right to tax capital gains derived in Australia by foreign residents", "Overview_of_Facts": "In each of the matters, the applicants were foreign resident companies. Virgin Holdings SA was incorporated in Switzerland, Undershaft (No. 1) Limited was incorporated in the United Kingdom and Undershaft (No 2) BV was incorporated in the Netherlands. It was accepted in each case that none of the applicants carried on business through a permanent establishment in Australia. | The Commissioner takes the view in TR 2001/12 that DTAs entered into by Australia prior to the introduction of the comprehensive CGT regime into the Australian income tax legislation in 1985 (\"pre-CGT DTAs\") do not limit Australia's right to tax capital gains derived by entities that are residents of pre-CGT DTA treaty partners under the comprehensive capital gains tax regime. | The comprehensive capital gains tax regime was introduced into the Australian income tax legislation in 1985, by way of Part IIIA of the Income Tax Assessment Act 1936 , and continues in Part 3-1 of the Income Tax Assessment Act 1997 . | The DTAs between Australia and Switzerland, Australia and the UK, and Australia and the Netherlands came into force in 1981, 1967 and 1976 respectively and each of those DTAs remained in force at the time of the relevant transactions in each of the matters in the 2004 and 2001 tax years. | Virgin Holdings SA | Virgin Holdings SA was a company resident in Switzerland which was a shareholder in Virgin Blue Holdings Ltd, an Australian resident company. Due to a company group restructure and through a series of transactions including a 1:120 share split, on 4 November, 8 and 12 December 2003 Virgin Holdings disposed of 21,721,626, 7,031,176 and 123,196,853 respectively of its shares in Virgin Blue Holdings Ltd. The Commissioner allowed roll-over relief in respect of the 4 November share disposal. The 8 December disposal was an off-market share buy-back and the Commissioner allowed share buy-back capital losses of $4,208,737 pursuant to Division 16K of the ITAA 97. Inclusive of the amount rolled over from another member of the company group, a capital gain of $196,954,809 for the accounting period in lieu of the year ended 30 June 2004 arose for Virgin Holdings SA as a result of the 12 December 2003 sale. | The Federal Court (Edmonds J) handed down a decision in the Applicant's favour on 10 October 2008. On 31 October 2008 the Commissioner appealed that decision to the Full Federal Court. The appeal has now been withdrawn by the Commissioner. | Undershaft | Undershaft (No 1) was a company resident in the UK and Undershaft (No 2) was a company resident in the Netherlands. As a result of an earlier merger, on 20 December 2000, Undershaft (No 1) disposed of its shares in CGU Insurance Australia Ltd, an Australian resident company, and Undershaft (No 2) disposed of its shares in Norwich Union Australia Ltd, also an Australian resident company. The parties agreed that the sales fell within CGT Event A1 under s104-10 of the ITAA 97 and that a capital gain arose to each of Undershaft (No 1) and (No 2) as a result of those sales. In the year ended 30 June 2001 Undershaft (No 1) made a gain of $273,000,000 and Undershaft (No 2) made a gain of $108,585,000. | The Federal Court (Lindgren J) handed down a decision in the Applicants' favour on 3 February 2009. | Issues decided by the court | Virgin Holdings | 1. CGT amounts are included in \"taxes covered\" for the purposes of Article 2 of the Swiss DTA where the Swiss DTA was a pre CGT treaty, both as part of \"the Australian income tax\" in Article 2(1)(a) and alternatively as a \"substantially similar tax\" for the purposes of Article 2(2); 2. The CGT amounts are included in \"profits of an enterprise\" for the purposes of Article 7 of the Swiss DTA; or 3. The CGT amounts are included in \"income from the alienation of capital assets of an enterprise\" for the purposes of Article 13(3) of the Swiss DTA; 4. Accordingly, the CGT amounts are precluded from liability to tax in Australia. | 1. CGT amounts are included in \"taxes covered\" for the purposes of Article 2 of the Swiss DTA where the Swiss DTA was a pre CGT treaty, both as part of \"the Australian income tax\" in Article 2(1)(a) and alternatively as a \"substantially similar tax\" for the purposes of Article 2(2); 2. The CGT amounts are included in \"profits of an enterprise\" for the purposes of Article 7 of the Swiss DTA; or 3. The CGT amounts are included in \"income from the alienation of capital assets of an enterprise\" for the purposes of Article 13(3) of the Swiss DTA; 4. Accordingly, the CGT amounts are precluded from liability to tax in Australia. | Undershaft (No 1) | 1. Article 5 (Industrial or Commercial Profits Article) of the UK DTA applies to capital gains which are included in assessable income under the ITAA 1997; 2. The term \"Commonwealth income tax\" in Article 1(1)(b) (Taxes Covered Article) of the UK DTA includes capital gains; 3. Although not necessary to decide, in relation to Article 1(2) of the UK DTA, the tax on capital gains, as introduced by Part IIIA of the ITAA 1936, constitutes a \"substantially similar tax\" to the taxes covered in Article 1(1). | 1. Article 5 (Industrial or Commercial Profits Article) of the UK DTA applies to capital gains which are included in assessable income under the ITAA 1997; 2. The term \"Commonwealth income tax\" in Article 1(1)(b) (Taxes Covered Article) of the UK DTA includes capital gains; 3. Although not necessary to decide, in relation to Article 1(2) of the UK DTA, the tax on capital gains, as introduced by Part IIIA of the ITAA 1936, constitutes a \"substantially similar tax\" to the taxes covered in Article 1(1). | Undershaft (No 2) | 1. Article 7 (Business Profits Article) of the Netherlands DTA applies to capital gains which are included in assessable income under Part 3-1 of the ITAA 1997; 2. The term \"Australian income tax\" in Article 2(1)(a) (Taxes Covered Article) of the Netherlands DTA includes capital gains; 3. Although not necessary to decide, in relation to Article 2(2) of the Netherlands DTA, the tax on capital gains, as introduced by Part IIIA of the ITAA 1936, constitutes a substantially similar tax to the taxes covered in Article 2(1). 4. Capital gains tax would be covered by the Netherlands Agreement regardless of whether Australia had informed the Netherlands of its introduction (as required by Article 2(2)). | 1. Article 7 (Business Profits Article) of the Netherlands DTA applies to capital gains which are included in assessable income under Part 3-1 of the ITAA 1997; 2. The term \"Australian income tax\" in Article 2(1)(a) (Taxes Covered Article) of the Netherlands DTA includes capital gains; 3. Although not necessary to decide, in relation to Article 2(2) of the Netherlands DTA, the tax on capital gains, as introduced by Part IIIA of the ITAA 1936, constitutes a substantially similar tax to the taxes covered in Article 2(1). 4. Capital gains tax would be covered by the Netherlands Agreement regardless of whether Australia had informed the Netherlands of its introduction (as required by Article 2(2)). | Judicial comity (Undershaft) | This was relevant due to the decision in Virgin Holdings having been handed down in the same court 17 days prior to the hearing in Undershaft . 1. The principle of judicial comity requires, assuming the case to be indistinguishable, (particularly in this matter concerning interpretation of Commonwealth legislation) that the court follow an earlier decision unless it considers it clearly wrong or plainly wrong. | 1. The principle of judicial comity requires, assuming the case to be indistinguishable, (particularly in this matter concerning interpretation of Commonwealth legislation) that the court follow an earlier decision unless it considers it clearly wrong or plainly wrong.", "Issues_Decided": "Virgin Holdings 1. CGT amounts are included in \"taxes covered\" for the purposes of Article 2 of the Swiss DTA where the Swiss DTA was a pre CGT treaty, both as part of \"the Australian income tax\" in Article 2(1)(a) and alternatively as a \"substantially similar tax\" for the purposes of Article 2(2); 2. The CGT amounts are included in \"profits of an enterprise\" for the purposes of Article 7 of the Swiss DTA; or 3. The CGT amounts are included in \"income from the alienation of capital assets of an enterprise\" for the purposes of Article 13(3) of the Swiss DTA; 4. Accordingly, the CGT amounts are precluded from liability to tax in Australia. 1. CGT amounts are included in \"taxes covered\" for the purposes of Article 2 of the Swiss DTA where the Swiss DTA was a pre CGT treaty, both as part of \"the Australian income tax\" in Article 2(1)(a) and alternatively as a \"substantially similar tax\" for the purposes of Article 2(2); 2. The CGT amounts are included in \"profits of an enterprise\" for the purposes of Article 7 of the Swiss DTA; or 3. The CGT amounts are included in \"income from the alienation of capital assets of an enterprise\" for the purposes of Article 13(3) of the Swiss DTA; 4. Accordingly, the CGT amounts are precluded from liability to tax in Australia. Undershaft (No 1) 1. Article 5 (Industrial or Commercial Profits Article) of the UK DTA applies to capital gains which are included in assessable income under the ITAA 1997; 2. The term \"Commonwealth income tax\" in Article 1(1)(b) (Taxes Covered Article) of the UK DTA includes capital gains; 3. Although not necessary to decide, in relation to Article 1(2) of the UK DTA, the tax on capital gains, as introduced by Part IIIA of the ITAA 1936, constitutes a \"substantially similar tax\" to the taxes covered in Article 1(1). 1. Article 5 (Industrial or Commercial Profits Article) of the UK DTA applies to capital gains which are included in assessable income under the ITAA 1997; 2. The term \"Commonwealth income tax\" in Article 1(1)(b) (Taxes Covered Article) of the UK DTA includes capital gains; 3. Although not necessary to decide, in relation to Article 1(2) of the UK DTA, the tax on capital gains, as introduced by Part IIIA of the ITAA 1936, constitutes a \"substantially similar tax\" to the taxes covered in Article 1(1). Undershaft (No 2) 1. Article 7 (Business Profits Article) of the Netherlands DTA applies to capital gains which are included in assessable income under Part 3-1 of the ITAA 1997; 2. The term \"Australian income tax\" in Article 2(1)(a) (Taxes Covered Article) of the Netherlands DTA includes capital gains; 3. Although not necessary to decide, in relation to Article 2(2) of the Netherlands DTA, the tax on capital gains, as introduced by Part IIIA of the ITAA 1936, constitutes a substantially similar tax to the taxes covered in Article 2(1). 4. Capital gains tax would be covered by the Netherlands Agreement regardless of whether Australia had informed the Netherlands of its introduction (as required by Article 2(2)). 1. Article 7 (Business Profits Article) of the Netherlands DTA applies to capital gains which are included in assessable income under Part 3-1 of the ITAA 1997; 2. The term \"Australian income tax\" in Article 2(1)(a) (Taxes Covered Article) of the Netherlands DTA includes capital gains; 3. Although not necessary to decide, in relation to Article 2(2) of the Netherlands DTA, the tax on capital gains, as introduced by Part IIIA of the ITAA 1936, constitutes a substantially similar tax to the taxes covered in Article 2(1). 4. Capital gains tax would be covered by the Netherlands Agreement regardless of whether Australia had informed the Netherlands of its introduction (as required by Article 2(2)). Judicial comity (Undershaft) This was relevant due to the decision in Virgin Holdings having been handed down in the same court 17 days prior to the hearing in Undershaft . 1. The principle of judicial comity requires, assuming the case to be indistinguishable, (particularly in this matter concerning interpretation of Commonwealth legislation) that the court follow an earlier decision unless it considers it clearly wrong or plainly wrong. 1. The principle of judicial comity requires, assuming the case to be indistinguishable, (particularly in this matter concerning interpretation of Commonwealth legislation) that the court follow an earlier decision unless it considers it clearly wrong or plainly wrong.", "ATO_View_of_Decision": "The Commissioner accepts that with two separate decisions at first instance reaching a common conclusion in relation to substantially common issues, there has now been sufficient clarification of the law. | Accordingly, the Commissioner withdrew his appeal to the Full Federal Court in the Virgin Holdings matter. The appeal period in the Undershaft matters expired on 3 March 2009 and the Commissioner did not appeal the decision of Lindgren J in those matters. | The Commissioner will, where appropriate, apply the decisions in respect of similar matters involving entities making taxable capital gains under Part 3-1 of the ITAA 1997 which are residents of countries where a similarly worded DTA signed prior to the introduction of a comprehensive capital gains tax regime in 1985 applies. It means that, under the DTA, the Commissioner is denied the right to include capital gains in the assessable income of residents of these countries that make capital gains in Australia from the sale of similar assets in circumstances covered by the two cases. | It is noted, however, that as Australia has renegotiated a number of the DTAs that were in force in 1985, including those with many of our significant trading partners (e.g. the United States of America, the UK, New Zealand, Canada) these decisions will have a somewhat limited application. As further DTAs are renegotiated, the potential impact of this decision will lessen. Further, the ongoing significance of this issue with respect to the disposal of shares is reduced due to the narrowing of the range of assets held by foreign residents that are subject to CGT following legislative changes enacted by the Tax Laws Amendment (2006 Measures No 4) Act 2006 with effect from 12 December 2006. The direct and indirect interests in real property (including certain options and rights) held by foreign residents, and business assets of a foreign resident's permanent establishment in Australia are subject to the CGT provisions. It is noted that both the remaining pre-CGT tax treaties and those subsequently negotiated generally allocate the right to tax capital profits from the alienation of these types of assets. | In the Undershaft decision, Lindgren J commented, in obiter , at paragraph 46, that \"A DTA does not give a Contracting State power to tax ...\" However, the Commissioner takes the view that, in certain circumstances - for example a transfer pricing matter in respect of the Associated Enterprises Article - a DTA may apply (refer to the discussion at paragraphs 29-33 of TR 2001/13).", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | On 13 October 2010, the Commissioner withdrew Taxation Ruling TR 2001/12 without replacement. Taxation Ruling TR 2001/13 was amended on 14 September 2016 to make changes consequential to the withdrawal of TR 2001/12. | Date of amendment Part Comment 16 September 2016 Tax Office view of Decision Updated 2nd paragraph Administrative treatment Updated to reflect the withdrawal of TR 2001/12 and amendment of TR 2001/13 Comments section Deleted", "Related_Documents": "TR 2001/12 | TR 2001/13 | Virgin Holdings SA v Commissioner of Taxation | [2008] FCA 1503 | 2008 ATC 20-051 | Undershaft (No. 1) Ltd (formerly CGNU Holdings (Aust.) Ltd) and Undershaft (No. 2) BV (formerly Norwich Union Overseas Holdings BV) v Commissioner of Taxation | [2009] FCA 41 | (2009) 2009 ATC 20-091 | 25A | 47 | 167 | 260 | 3 | 4 | 5 | 11A | 11E | Schedule 1 | Schedule 10 | Part 3-1 | 102-5 | Virgin Holdings and Undershaft | 190 CLR 225 | 2000 ATC 4315 | 97 ATC 4752 | 2005 ATC 4398 | (1942) 66 CLR 198 | 92 ATC 4066 | 90 ATC 4717 | Virgin Holdings | 77 ATC 4365 | 2008 ATC 20-019 | [2007] IEHC 250 | 10 ITLR 63 | Undershaft | (1995) 36 NSWLR 567 | 78 A Crim R 64 | (1992) 110 ALR 201 | (1997) 97 ATC 4229 | 92 ATC 4016 | (1997) 68 SASR 156 | 92 A Crim R 233 | (1979) 22 SASR 101 | 1 A Crim R 1 | BC 9602146 | 70 NSWLR 448 | 178 A Crim R 133 | [2006] VSCA 199 | 14 VR 109 | 166 A Crim R 69 | 2002 ATC 5146", "Legislative_References": "Commonwealth Constitution 55 114 Income Tax Assessment Act 1915 (Cth) 53 Income Tax Assessment Act 1922 (Cth) 16B 17 93 Income Tax Assessment Act 1936 (Cth) Part IIIA 25A 26 26AAA 36 47 160ZO 167 260 International Tax Agreements Act 1953 (Cth) 3 4 5 11A 11E Schedule 1 Schedule 10 Schedule 15 Income Tax Assessment Act 1997 (Cth) Part 3-1 102-5", "Case_References": "Virgin Holdings and Undershaft Applicant A v Minister for Immigration and Ethnic Affairs [1997] HCA 4 190 CLR 225 142 ALR 331 Chong v Commissioner of Taxation (2000) 101 FCR 134 2000 ATC 4315 44 ATR 295 Commissioner of Taxation v Lamesa Holdings BV (1997) 77 FCR 597 36 ATR 589 97 ATC 4752 McDermott Industries (Aust) Pty Ltd v Commissioner of Taxation (2005) 142 FCR 134 2005 ATC 4398 59 ATR 358 Resch v Federal Commissioner of Taxation (1942) 66 CLR 198 15 ALJ 359 6 ATD 203 South Australia v Commonwealth (1992) 174 CLR 235 23 ATR 10 92 ATC 4066 Thiel v Federal Commissioner of Taxation (1990) 171 CLR 338 21 ATR 531 90 ATC 4717 Virgin Holdings Federal Commissioner of Taxation v Sherritt Gordon Mines Limited (1977) 137 CLR 612 7 ATR 726 77 ATC 4365 Gadsden v Minister for National Revenue (Tax Review Board) 83 DTC 127 Hastie Group Limited v Commissioner of Taxation [2008] FCA 444 2008 ATC 20-019 70 ATR 353 Kinsella v Revenue Commissioners [2007] IEHC 250 10 ITLR 63 Undershaft Fernando v Commissioner of Police (1995) 36 NSWLR 567 78 A Crim R 64 La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201 Lamesa Holdings BV v Federal Commissioner of Taxation (1997) 97 ATC 4229 35 ATR 239 Mutual Pools & Staff Pty Ltd v Commissioner of Taxation (Cth) (1992) 173 CLR 450 22 ATR 856 92 ATC 4016 R v Dyson (1997) 68 SASR 156 92 A Crim R 233 R v Franklin (1979) 22 SASR 101 1 A Crim R 1 Re McKean (unreported, Federal Court of Australia, 16 April 1996) BC 9602146 Tillman v Attorney-General for the State of New South Wales [2007] NSWCA 327 70 NSWLR 448 178 A Crim R 133 TSL v Secretary to the Department of Justice [2006] VSCA 199 14 VR 109 166 A Crim R 69 Unisys Corporation Inc v Commissioner of Taxation [2002] NSWSC 1115 2002 ATC 5146 51 ATR 386", "Subject_References": "Income tax International tax agreements Double tax agreements (DTAs) Taxation of capital tax in respect of DTAs entered into before introduction of capital gains tax (CGT) in Australia Business profits and alienation of property articles Comity in judicial decision-making", "Other_References": "Vienna Convention on the Law of Treaties 'Agreement between Australia and Switzerland for the Avoidance of Double Taxation with respect to Taxes of Income' entered into force on 13 February 1981 'Agreement between the Government of the Commonwealth of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains' signed on 7 December 1967 'Agreement between Australia and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income' signed on 17 March 1976", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1149of2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Waverley Council and Commissioner of Taxation", "Venue_Reference_No": "2008/2920", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "19 June 2009", "Date_Published": "17 September 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned: the GST treatment of a credit card administration fee imposed by a local council when a credit card is used to pay council charges; and the onus of proof provisions in s.14ZZK of the TAA 1953", "Overview_of_Facts": "The taxpayer (\"the Council\") is a local government authority under the Local Government Act 1993 (NSW) (\"the LG Act\"); and an Australian government agency within the meaning of that term in section 195-1 of A New Tax System (Goods and Services Tax) Act 1999 (\"the GST Act\"). Under section 608 of LG Act the Council may charge an approved fee for any service, product or commodity it provides, including services in connection with its regulatory functions (such as applications for or granting of approvals, or making inspections or issuing certificates). | At the relevant time the various fees and charges imposed by the Council included fees for residential parking permits (residential parking fees) and beach parking permits (beach parking fees), development applications and building applications (building and development application fees); and animal registration fees (animal registration fees) etc under various enabling NSW Acts. | The building and development application fees, animal registration fees and residential parking fees were specified in A New Tax System (Goods and Services Tax ) ( Exempt Tax, Fees and Charges) Determination 2006 , issued by the Minister for Revenue and Assistant Treasurer on 26 June 2006 pursuant to section 81-5(2), GST Act (Treasurer's Determination). The beach parking fees are not specified in the Treasurer's Determination. Specified fees and charges are not subject to GST. | When a fee or charge imposed by the Council is paid by credit card, the Council charges the payer of the fee or charge an additional sum equal to 1.1% of the total fees or charges being paid for by credit card (credit card fee). | In February 2007 the Council requested that the Commissioner make an assessment of the net amount due by the Council for the tax period of October 2006 under section 105-5(1), Schedule 1, Taxation Administration Act 1953 (Administration Act). On 28 February 2007 the Commissioner issued a notice of assessment of net amount for the period of October 2006 (the assessment) in the amount of $237,152/Cr (assessed net amount), being a refund of that amount payable to the Council. | On 13 March 2007 the Council objected to the assessment on the basis that the assessed net amount should be reduced to $237,150/Cr, being a refund of $2 less than the refund in the assessment (proposed net amount). | The Council applied to the Tribunal for a review of the objection decision on 30 June 2008 after the objection was disallowed by the Commissioner. | Issues decided by the Administrative Appeals Tribunal | Proper GST treatment of the credit card administration fee | The Council argued that, based upon Division 81 of the GST Act, because it was an \"Australian government agency\" as defined and the credit card fee was imposed by it under section 806 of the LG Act, the credit card always attracts GST. The Council argued that this must be the case because the credit card fee was not specified in the Treasurer's Determination which specified fees and charges that are not subject to GST. | The Commissioner submitted that the credit card fee is not itself an \"Australian tax, fee or charge\", but rather that it was part of the fee for the underlying supply that the credit card is being used to pay. | The Tribunal affirmed the objection decision under review, concluding that the credit card could not be a stand-alone fee in itself - it is really part of the fee for the underlying supply. There is one payment and one supply. | Burden of proof - taxpayer dissatisfied because assessment too low | The Tribunal agreed with the Commissioner's view that, in circumstances where the applicant is asserting that an assessment is too low, the onus is on the applicant to prove that the taxation decision concerned should not have been made or should have been made differently under s 14ZZK(b)(iii), rather than under s 14ZZK(b)(i) which puts the onus on the applicant to prove that the assessment is excessive. | In this case, the Tribunal concluded that the Council failed to prove that the Commissioner's assessment was wrong.", "Issues_Decided": "Proper GST treatment of the credit card administration fee: The Council argued that, based upon Division 81 of the GST Act, because it was an \"Australian government agency\" as defined and the credit card fee was imposed by it under section 806 of the LG Act, the credit card always attracts GST. The Council argued that this must be the case because the credit card fee was not specified in the Treasurer's Determination which specified fees and charges that are not subject to GST. The Commissioner submitted that the credit card fee is not itself an \"Australian tax, fee or charge\", but rather that it was part of the fee for the underlying supply that the credit card is being used to pay. The Tribunal affirmed the objection decision under review, concluding that the credit card could not be a stand-alone fee in itself - it is really part of the fee for the underlying supply. There is one payment and one supply. | Burden of proof - taxpayer dissatisfied because assessment too low: The Tribunal agreed with the Commissioner's view that, in circumstances where the applicant is asserting that an assessment is too low, the onus is on the applicant to prove that the taxation decision concerned should not have been made or should have been made differently under s 14ZZK(b)(iii), rather than under s 14ZZK(b)(i) which puts the onus on the applicant to prove that the assessment is excessive. In this case, the Tribunal concluded that the Council failed to prove that the Commissioner's assessment was wrong.", "ATO_View_of_Decision": "Proper GST treatment of the credit card administration fee | The Tribunal's decision confirms the Commissioner's view that a credit card fee forms part of the consideration for the underlying supply and its GST attributes are determined by reference to the attributes of the amount for the underlying supply that the credit card is used to pay (see ATO ID 2008/116 and Issue 15.1 of the Financial services - questions and answers (available on the Tax Office website)). The Tribunal's decision further confirms that Division 81 of the GST Act does not operate to require that the credit card fee be treated as a stand alone fee. | The Tribunal's reasoning confirms that a practical and common sense approach to the interpretation of the GST law should be adopted. In applying the GST law, a result that amounts to a triumph of form over substance would not promote the 'practical and fair business operation' of the tax and would not accord with the commercial reality of the arrangement. | Burden of proof - taxpayer dissatisfied because assessment too low | The Tribunal's decision confirms the Commissioner's view that, in circumstances where the taxpayer is asserting that the assessment is too low, the question of onus of proof falls to be considered under s 14ZZK(b)(iii), and not s 14ZZK(b)(i). That is, the onus is on the taxpayer to prove to the Tribunal that the taxation decision concerned should not have been made or should have been made differently.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "N/A | 2009 ATC 10-095 | 9-5 | 9-15 | 9-20 | 45-5 | 81-5 | 81-10 | 195-1 | 14ZZK(b)(i) | 14ZZK(b)(iii) | Local Government Act 1993 (NSW) | 94 ATC 4072 | 2006 ATC 4841 | 2005 ATC 4796 | 2008 ATC 20-034 | 2007 ATC 2692 | A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2006", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-5 9-15 9-20 45-5 81-5 81-10 195-1 Taxation Administration Act 1953 14ZZK(b)(i) 14ZZK(b)(iii) Local Government Act 1993 (NSW)", "Case_References": "CTC Resources NL v Commissioner of Taxation [1994] FCA 947 94 ATC 4072 48 FCR 397 27 ATR 403 Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191 156 FCR 256 2006 ATC 4841 64 ATR 602 Sterling Guardian Pty Limited v Commissioner of Taxation [2005] FCA 1166 2005 ATC 4796 60 ATR 502 220 ALR 550 Brady King Pty Ltd v Commissioner of Taxation [2008] FCAFC 118 2008 ATC 20-034 69 ATR 670 Re AGR Joint Venture and Commissioner of Taxation [2007] AATA 1870 2007 ATC 2692 70 ATR 466", "Subject_References": "GST credit card administration fee imposed by a local council whether GST payable whether a stand-alone fee for a stand-alone service or part of the payment for the underlying thing being paid for onus of proof review by the Administrative Appeals Tribunal", "Other_References": "A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2006", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/2920/00001", "Unmatched_Content": ""}
{"Case_Name": "Willersdorf-Greene v Commissioner of Taxation", "Venue_Reference_No": "2008/2147-2149; 2008/4832-4834", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "28 August 2009", "Date_Published": "4 December 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially Adverse", "Summary_of_Decision": "Outlines the Tax Office response to this case, which primarily concerned whether interest on a loan used to satisfy a guarantee is deductible, where the later loan was taken out after the relevant income producing opportunity related to the guarantee had passed.", "Overview_of_Facts": "The taxpayer was approached by friends to secure an investor to finance their investment in a scheme to import fuel into Australia and distribute it. Under the belief that he could derive commission income from the scheme, the taxpayer procured an investor to lend money to his friends' company. The investor required the taxpayer and his friends to guarantee repayment of the loan by the company, and to agree to execute mortgages over their respective houses. | When the company did not honour the repayments, the taxpayer discovered that he had been the victim of a scam perpetuated by his friends. After the investor and the taxpayer had explored ways to recover the moneys lent, the investor instructed the taxpayer to mortgage his property in accordance with the guarantee agreement. The investor foreclosed on the mortgage, and the taxpayer took out two loans to pay the reduced amount that the investor agreed would fulfil the taxpayer's guarantee. The taxpayer claimed deductions for interest and borrowing expenses associated with these loans in the 2005, 2006 and 2007 years. | In the 2005, 2006 and 2007 years, the taxpayer also claimed deductions for work related travel, motor cycle and home office expenses. | On audit, the expenses were disallowed and penalties (25%) for lack of reasonable care were imposed. During the course of proceedings before the Tribunal, the Commissioner accepted that the various home office expenses were allowable. | Issues decided by the court or tribunal | While the Tribunal found that the taxpayer's involvement in the fuel 'scheme' did not amount to the carrying on of a business, it found that he was engaged in activities that were clearly directed to gaining or producing commission income for himself. There was a connection between the taxpayer giving the guarantee and the investor making the loan that would lead to the taxpayer gaining or producing income (paragraphs 75 and 76). | The entering into of the guarantee gave rise to a contingent liability that would become an actual liability if the repayment by the company did not occur. The taxpayer later borrowed money to meet his actual liability under the guarantee and to avoid proceedings being taken against him by the investor. The taxpayer was aware that the borrowing would not lead to the gaining or producing of any income at that time or in the future. The prospect of gaining any commission income under the fuel 'scheme' was long gone (paragraph 83). | However, the necessary connection that initially existed between the contingent liability under the guarantee and the activities directed at the prospect of gaining commission income remained when the investor exercised its rights under the guarantee, even though the prospect of such income, by then, had gone. The investor's claim was a necessary consequence of the loss of its investment, and of the taxpayer having given the guarantee. The foundation of the claim was in the original fuel scheme arrangements. The interest and the borrowing expenses incurred in relation to the guarantee were deductible. The Tribunal also distinguished two earlier Tribunal decisions about interest expenses incurred on moneys borrowed to honour guarantees on the basis that the guarantees given in those cases did not have the necessary connection with any income earning activities of the taxpayers (paragraph 92). | The Tribunal was not satisfied that the taxpayer had incurred the travel expenses, and was also not satisfied that the taxpayer had properly substantiated the interest and borrowing expenses incurred. The Tribunal affirmed the Commissioner's calculation of the depreciation allowable on the motor cycle and the imposition of penalties of 25% for failure to take reasonable care in relation to the deduction claims disallowed.", "Issues_Decided": "While the Tribunal found that the taxpayer's involvement in the fuel 'scheme' did not amount to the carrying on of a business, it found that he was engaged in activities that were clearly directed to gaining or producing commission income for himself. There was a connection between the taxpayer giving the guarantee and the investor making the loan that would lead to the taxpayer gaining or producing income (paragraphs 75 and 76). The entering into of the guarantee gave rise to a contingent liability that would become an actual liability if the repayment by the company did not occur. The taxpayer later borrowed money to meet his actual liability under the guarantee and to avoid proceedings being taken against him by the investor. The taxpayer was aware that the borrowing would not lead to the gaining or producing of any income at that time or in the future. The prospect of gaining any commission income under the fuel 'scheme' was long gone (paragraph 83). However, the necessary connection that initially existed between the contingent liability under the guarantee and the activities directed at the prospect of gaining commission income remained when the investor exercised its rights under the guarantee, even though the prospect of such income, by then, had gone. The investor's claim was a necessary consequence of the loss of its investment, and of the taxpayer having given the guarantee. The foundation of the claim was in the original fuel scheme arrangements. The interest and the borrowing expenses incurred in relation to the guarantee were deductible. The Tribunal also distinguished two earlier Tribunal decisions about interest expenses incurred on moneys borrowed to honour guarantees on the basis that the guarantees given in those cases did not have the necessary connection with any income earning activities of the taxpayers (paragraph 92). The Tribunal was not satisfied that the taxpayer had incurred the travel expenses, and was also not satisfied that the taxpayer had properly substantiated the interest and borrowing expenses incurred. The Tribunal affirmed the Commissioner's calculation of the depreciation allowable on the motor cycle and the imposition of penalties of 25% for failure to take reasonable care in relation to the deduction claims disallowed.", "ATO_View_of_Decision": "In essence, the Tribunal has found that the occasion of the interest expenses was the giving of the guarantee, and that the giving of the guarantee was an important part of the arrangement that was likely to be productive of commission income for the taxpayer. The Tax Office accepts that this finding was open to the Tribunal on the particular facts as found, and that the case is distinguishable from cases in which the guarantees related directly to the income earning activities of the relevant companies, and only related indirectly, if at all, to the income earning activities of the guarantors ( Re Pope and Commissioner of Taxation [ 2005 ] AATA 1085 and Re Applicant and Commissioner of Taxation [ 2001 ] AATA 831 ).", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 2004/4 | TR 97/24 | 2009 ATC 10-102 | A New Tax System (Tax Administration) Act (No 2) 2000 | 82 | Division 4 | Division 6 | Division 8 | Division 25 | Division 40 | Division 900 | Division 995 | 2 | Sch 1 | Division 284 | 3 | 95 ATC 319 | 75 ATC 4057 | (1935) 54 CLR 295 | [1943] HCA 27 | [1951] AC 850 | (1956) 95 CLR 344 | (2000) 203 CLR 194 | 174 ALR 585 | 46 FLR 409 | [2004] NSWSC 284 | (1999) 99 ATC 4600 | 2008 ATC 20-064 | 2002 ATC 4135 | 71 ATC 4161 | 2001 ATC 4027 | 2007 ATC 4265 | 80 ATC 4001 | 91 ATC 4538 | [1966] HCA 13 | (1996) 19 ACSR 160 | (1996) 135 ALR 280 | (1995) 95 ATC 4459 | 2006 ATC 4472 | 2001 ATC 136 | 98 ATC 2137 | 2008 ATC 1-002 | [2004] AATA 1235 | [2005] AATA 1085 | (1949) 78 CLR 47 | [1949] HCA 15 | 2009 ATC 20-109 | 99 ATC 4242 | 2006 ATC 4523", "Legislative_References": "A New Tax System (Tax Administration) Act (No 2) 2000 Bankruptcy Act 1966 82 Income Tax Assessment Act 1997 Division 4 Division 6 Division 8 Division 25 Division 40 Division 42 (repealed) Division 900 Division 995 Income Tax Assessment Act 1936 23 51 226G Income Tax (Transitional Provisions) Act 1997 Division 40 New Business Tax System (Capital Allowances) Act 2001 2 Sch 1 New Business Tax System (Transitional and Consequential Provisions) Act 2001 2 Sch 1 Taxation Administration Act 1953 Division 284 Tax Law Improvement Act 1997 2 3 Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 3", "Case_References": "AAT Case 10,211 95 ATC 319 (1995) 30 ATR 1342 AGC (Advances) Ltd v Federal Commissioner of Taxation (1975) 132 CLR 175 5 ATR 243 5 ALR 208 75 ATC 4057 Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation [1935] HCA 81 (1935) 54 CLR 295 Bank of New South Wales v Permanent Trustee Co of New South Wales Ltd (1943) 68 CLR 1 [1943] HCA 27 Bolton v Stone [1951] AC 850 [1951] 1 All ER 1078 Charles Moore & Co (WA) Pty Ltd v Federal Commissioner of Taxation (1956) 95 CLR 344 [1956] HCA 77 Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission and Others (2000) 203 CLR 194 174 ALR 585 Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 2 ALD 60 46 FLR 409 Expile Pty Limited v Jabb's Excavations Pty Ltd & Anor [2004] NSWSC 284 (2004) 22 ACLC 667 Federal Commissioner of Taxation v Brown (1999) 99 ATC 4600 43 ATR 1 [1997] FCA 721 Federal Commissioner of Taxation v Day [2008] HCA 53 (2008) 236 CLR 163 (2008) 70 ATR 14 2008 ATC 20-064 Federal Commissioner of Taxation v Jones [2002] FCAFC 41 2002 ATC 4135 (2002) 49 ATR 188 Federal Commissioner of Taxation v Maddalena (1971) 45 ALJR 426 2 ATR 541 71 ATC 4161 Federal Commissioner of Taxation v Payne (2001) 202 CLR 93 [2001]HCA 3 2001 ATC 4027 46 ATR 228 Guest v Federal Commissioner of Taxation (2007) 65 ATR 815 [2007] FCA 193 2007 ATC 4265 Inglis v Federal Commissioner of Taxation (1979) 40 FLR 191 10 ATR 493 80 ATC 4001 Joselyn v Berryman (2003) 214 CLR 552 77 ALJR 1233 198 ALR 137 Kidston Goldmines Ltd v Commissioner of Taxation (1991) 30 FCR 77 22 ATR 168 91 ATC 4538 McHale v Watson (1966) 115 CLR 199 [1966] HCA 13 39 ALJR 459 [1966] ALR 513 Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (Administrator Appointed) (1996) 19 ACSR 160 (1996) 63 FCR 391 (1996) 135 ALR 280 Peco Arts Inc v Hazlitt Gallery Ltd [1983] 3 All ER 193 [1983] 1 WLR 1315 Perry v Ellis [1946] SASR 282 Placer Pacific Management Pty Ltd v Federal Commissioner of Taxation (1995) 31 ATR 253 (1995) 95 ATC 4459 R & D Holdings Pty Ltd v Deputy Federal Commissioner of Taxation [2006] FCA 981 2006 ATC 4472 (2006) 64 ATR 71 Re Applicant and Commissioner of Taxation [2001] AATA 831 48 ATR 1107 2001 ATC 136 Re Arnett and Federal Commissioner of Taxation (1998) 39 ATR 1095 98 ATC 2137 Re Confidential and Commissioner of Taxation [2008] AATA 415 2008 ATC 1-002 (2008) 72 ATR 252 Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 Re Gray and Australian Securities and Investments Commission [2004] AATA 1235 (2004) 86 ALD 230 Re Pope and Commissioner of Taxation [2005] AATA 1085 Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47 [1949] HCA 15 Silbermann v One.Tel Ltd (In liq) (2002) 167 FLR 274 Spriggs v Federal Commissioner of Taxation Riddell v Federal Commissioner of Taxation [2009] HCA 22 72 ATR 148 2009 ATC 20-109 Steele v Deputy Commissioner of Taxation (1999) 197 CLR 459 41 ATR 139 99 ATC 4242 Weyers & Anor v Federal Commissioner of Taxation 2006 ATC 4523 (2006) 63 ATR 268 [2006] FCA 818", "Subject_References": "Income tax Deductions Guarantee Interest Depreciation Penalties", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/2147-2149/00001", "Unmatched_Content": ""}
{"Case_Name": "Woodside Energy Ltd v Commissioner of Taxation", "Venue_Reference_No": "DIS WAD 18 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "12 February 2009", "Date_Published": "30 April 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable to the Commissioner", "Summary_of_Decision": "Whether losses incurred by Woodside Energy Ltd in connection with its hedging transactions were deductible in calculating its taxable profits under the Petroleum Resource Rent Tax Assessment Act 1987", "Overview_of_Facts": "Woodside Energy Ltd (Woodside Energy), a participant in a petroleum project in the Timor Sea known as the Laminaria Oil Project, adopted an approach to hedging designated \"active management\" which involved placing or lifting hedges within policy guidelines, but at times most opportune for the greatest return or smallest loss. This involved an element of risk leverage which was not precluded by Woodside Energy's hedging policy which expressly prohibited the use of hedging for speculative purposes. | The three relevant applications of hedging transactions were to 'strategic hedges' based on production forecasts up to three years before anticipated sales, to 'cargo specific hedges' placed less than six months before the anticipated delivery of the petroleum and to 'basis risk hedges' known as spread locks designed to minimise risk associated with differences between pricing benchmarks. At all times the extent of hedging transactions were related to the production forecasts in relation to the strategic hedges and anticipated sales in relation to the cargo specific hedges. There was a close correlation between the production forecasts and the expected sales of project petroleum. | Woodside Energy's 'taxable profit' from the Laminaria Oil Project is taxed under the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA), by way of secondary taxation (rather than secondary taxation by way of royalty, excise or other systems). Woodside Energy lodged its 2000, 2001 and 2002 petroleum resource rent tax (PRRT) returns without claiming hedging losses of $148million, $299million and $106million as 'deductible expenditure' incurred respectively in those years. However, Woodside Energy made a 'taxable profit' for PRRT purposes in 2002 and objected against the PRRT assessed claiming that the taxable profit should be reduced by the hedging losses incurred in 2000, 2001 and 2002. | The objection was disallowed and Woodside Energy appealed to the Federal Court. French J (as he was then) determined that hedge losses were not taken into account in calculating PRRT, being neither 'expenses payable...in relation to the sale' of hedged petroleum or marketable petroleum commodities, taken into account in working out assessable receipts for the petroleum or marketable petroleum commodities under paragraphs 24(a) or 24(b) of the PRRTAA (now paragraphs 24(1)(a) and 24(1)(b) of the PRRTAA), nor were the hedge losses deductible expenditure offset against assessable receipts as general project expenditure for the purposes of section 38 of the PRRTAA. The appeal was dismissed. | Woodside Energy then appealed to the Full Federal Court (\"the FCAFC\"). | Issues decided by the court | Woodside Energy's grounds of appeal to the FCAFC principally concerned the primary judge's alleged errors in construing and applying paragraph 24(b) of the PRRTAA although they raised, in the alternative, a final ground that his Honour erred in concluding that the hedging expenses were not deductible under section 38 of the PRRTAA. | In a joint judgement (Finn, Dowsett and Edmonds JJ), the FCAFC dismissed Woodside Energy's appeal. | The FCAFC held that hedge losses were not capable of being regarded as expenses payable in relation to the sale for the purposes of paragraph 24(b) of the PRRTAA. The FCAFC held that \"No less so than the consideration receivable, the expenses payable needed to be in relation to the sale of project produce and not otherwise\" [at para 58]. Further, at para 60, \"The hedging contracts were collateral agreements entered into for purposes relating to the sale of project produce. Gains and losses sustained in the performance of those contracts could not in any reasonable sense be said to be consideration or expenses related to a sale of project produce\". Then, at para 63, \"The only money or value which moves the relevant sale, the sale of Laminaria oil, is the contract price, whether the nexus is provided by the phrase 'in relation to' the sale, or by the word 'for' the sale.\". | Relevantly, the FCAFC held that \"The word 'expenses' is to be similarly construed; in other words, as referring to expenses of obtaining entitlement to payment of the money or value which moves the relevant sale; or put another way, as referring to those expenses payable by the vendor in performing its obligations under the relevant contracts for the sale of Laminaria oil. Such a construction in no way depends on whether the textual nexus is provided by the words 'in relation to' the sale, or by the words 'on' or 'off' ['of'] the sale. The result will be the same in all cases; such expenses will be confined to expenses incurred by the vendor in achieving receivability of the consideration in respect of the sale; they will not extend to expenses incurred outside that framework and will therefore, not include hedging outgoings or losses incurred by Woodside Energy under hedging contracts with third parties even if such contracts have direct temporal and quantitative relationships with the relevant contract for sale\" [para 64]. | As little or no argument, either in writing or orally, was directed by Woodside Energy to section 38 of the PRRTAA, the FCAFC did not disturb the primary judge's decision regarding the expenditure contemplated by section 38.", "Issues_Decided": "Woodside Energy's grounds of appeal to the FCAFC principally concerned the primary judge's alleged errors in construing and applying paragraph 24(b) of the PRRTAA although they raised, in the alternative, a final ground that his Honour erred in concluding that the hedging expenses were not deductible under section 38 of the PRRTAA. In a joint judgement (Finn, Dowsett and Edmonds JJ), the FCAFC dismissed Woodside Energy's appeal. The FCAFC held that hedge losses were not capable of being regarded as expenses payable in relation to the sale for the purposes of paragraph 24(b) of the PRRTAA. The FCAFC held that \"No less so than the consideration receivable, the expenses payable needed to be in relation to the sale of project produce and not otherwise\" [at para 58]. Further, at para 60, \"The hedging contracts were collateral agreements entered into for purposes relating to the sale of project produce. Gains and losses sustained in the performance of those contracts could not in any reasonable sense be said to be consideration or expenses related to a sale of project produce\". Then, at para 63, \"The only money or value which moves the relevant sale, the sale of Laminaria oil, is the contract price, whether the nexus is provided by the phrase 'in relation to' the sale, or by the word 'for' the sale.\". Relevantly, the FCAFC held that \"The word 'expenses' is to be similarly construed; in other words, as referring to expenses of obtaining entitlement to payment of the money or value which moves the relevant sale; or put another way, as referring to those expenses payable by the vendor in performing its obligations under the relevant contracts for the sale of Laminaria oil. Such a construction in no way depends on whether the textual nexus is provided by the words 'in relation to' the sale, or by the words 'on' or 'off' ['of'] the sale. The result will be the same in all cases; such expenses will be confined to expenses incurred by the vendor in achieving receivability of the consideration in respect of the sale; they will not extend to expenses incurred outside that framework and will therefore, not include hedging outgoings or losses incurred by Woodside Energy under hedging contracts with third parties even if such contracts have direct temporal and quantitative relationships with the relevant contract for sale\" [para 64]. As little or no argument, either in writing or orally, was directed by Woodside Energy to section 38 of the PRRTAA, the FCAFC did not disturb the primary judge's decision regarding the expenditure contemplated by section 38.", "ATO_View_of_Decision": "The FCAFC confirmed the Commissioner's view that Woodside Energy's hedge losses were not capable of being regarded as expenses payable in relation to the sale for the purposes of paragraph 24(b) of the PRRTAA. | The FCAFC's judgement uses language at several points to assert that 'consideration receivable...in relation to the sale' is confined to payment for the particular sale and has no different meaning to 'consideration for the sale' (the words replaced in development of the legislation at the same time the 'expenses payable...in relation to the sale' were inserted). The judgement asserts that as no change of meaning from 'for' to 'in relation to' was discussed in the explanatory material, that demonstrates none was intended: 'the consideration referred to manifestly still remained that which was receivable under a contract for the sale of project produce', and 'As the draft Bill originally was framed, there was no room for doubt that the consideration received was that for the project produce and no other' [at para 57]. These passages could be contended as obiter support for the view that payments required by a contract or arrangement for sale but not directly as a price per quantity would not be 'consideration receivable...in relation to the sale'. Similarly, the FCAFC expressly adopts and approves words of French J that 'The assessable petroleum receipts...comprised payment for a particular sale less expenses payable in relation to that sale'. [French J at para 266, FC at para 15]. | However, the FCAFC did acknowledge the wider meaning of 'consideration' as 'the money or value passing which moves the conveyance or transfer', quoting the judgement of Dixon J (as he then was) in Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW ) (1948) 77 CLR 143 [at para 62]. Taking this wider meaning, the FCAFC concluded that hedge contract receivables do not move the sale [at para 63] and stated that hedge contract outgoings are neither 'expenses of obtaining entitlement to payment of the money or value which moves the relevant sale' nor 'expenses payable by the vendor in performing its obligations under the relevant contracts for the sale of Laminaria oil' [at para 63]. | French J, in dealing with the expenses payable in relation to the sale, explained at para 268 that these are 'outgoings incurred in connection with the actual process, that is to say, the formation of the relevant contract, delivery of the commodity and receipt of payment for it'. | The words of French J and the FCAFC are consistent with the Tax Office view that 'consideration' has a wider meaning which encompasses the money or value passing which moves the conveyance or transfer. Therefore, receipts and payments within a framework agreement that move a conveyance or transfer may be within the meaning of 'consideration receivable...in relation to the sale'. Examples of framework agreements can include take-or-pay agreements and hedge agreements with the purchaser of the relevant petroleum. | The statement by the FCAFC that 'Absent some exceptional fact situation, which we cannot articulate, it is difficult to envisage how a receipt by Woodside Energy under a hedge contract between it and a party other than the purchaser of Laminaria oil would ever constitute money or value which moves the sale' [at para 63] provides further obiter support that receipts under a hedge contract with the purchaser of the petroleum may in certain circumstances be consideration receivable in relation to the sale. | The words about a 'payment for a particular sale less expenses payable in relation to that sale' are couched to the circumstances of Woodside Energy's case and are not apt to exclude payments under 'framework' agreements that move the conveyance or transfer of the relevant petroleum although the payments are not themselves payments made by quantity of petroleum.", "Administrative_Treatment": "None", "Related_Documents": "ATO ID 2005/11 | [2009] FCAFC 12 | 15AA | 15AB | 2 | 19 | 21 | 22 | 23 | 24 | 24(1)(b) | 32 | 38 | 44 | Clause 24 | Clause 27 | 66 | (1948) 77 CLR 143 | (1967) 115 CLR 653 | 2005 ATC 4052 | (1997) 187 CLR 384 | 43 FCR 280 | (2000) 175 ALR 163 | [2000] FCA 790 | 96 ATC 4520 | [1929] AC 381 | (1998) 194 CLR 355 | (1994) 49 FCR 534 | [2007] FCA 1961", "Legislative_References": "Acts Interpretation Act 1901 15AA 15AA(1) 15AB Petroleum Resource Rent Tax Assessment Act 1987 2 19 21 22 23 24 Former paragraph 24(a) Former paragraph 24(b) 24(1)(b) 32 38 44 44(j) Petroleum Resource Rent Tax Assessment Bill 1986 Clause 24 Clause 27 Petroleum (Submerged Lands) Act 1967 Division 3 Stamp Duties Act 1920 (NSW) 66", "Case_References": "Archibald Howie Pty Ltd v Commissioner of Stamp ties (NSW) (1948) 77 CLR 143 Atlantic Sugar Refineries v Minister of National Revenue [1949] SCR 706 [1949] 3 DLR 641 [1949] CTC 196 Berry v Federal Commissioner of Taxation (1967) 115 CLR 384 Carapark Holdings Ltd v Federal Commissioner of Taxation (1967) 115 CLR 653 Chief Commissioner of State Revenue (New South Wales v Dick Smith Electronic Holdings Pty Ltd (2005) 221 CLR 496 2005 ATC 4052 58 ATR 241 Chugg v Pacific Dunlop Ltd (1990) 170 CLR 249 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Collector of Customs v Pozzolanic Enterprises Pty Ltd ( 1993) 43 FCR 280 Comcare v Thompson (2000) 175 ALR 163 [2000] FCA 790 Echo Bay Mines Ltd v Canada [1992] 2 CTC 18 Evans v State of New South Wales [2008] 168 FCR 576 [2008] FCAFC 130 Federal Commissioner of Taxation v Guy (1996) 67 FCR 68 32 ATR 590 96 ATC 4520 J Gilksten & Son Ltd v Green [1929] AC 381 Nelson v Nelson (1995) 184 CLR 538 Placer Dome Canada Ltd v Ontario (Minister of Finance) [2006] 1 RCS 715 Project Blue Sky Inc & Ors v Australian Broadcasting Authority (1998) 194 CLR 355 R v L (1994) 49 FCR 534 R v Young (1999) 46 NSWLR 681 Rodriguez v US 480 US 522 (1987) Woodside Energy Ltd v Commissioner of taxation for the Commonwealth of Australia (No 2) [2007] FCA 1961 69 ATR 465", "Subject_References": "Assessable Receipts Consideration Contract Deductible expenses Expenses Framework Hedging Hedging Gains Hedging Losses In relation to Petroleum Petroleum Resource Rent Tax Sale Taxable profit", "Other_References": "Statutes and Statutory Construction, (5th ed) vol 2B ATO ID 2005/11", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD18of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "WRBD and Commissioner of Taxation", "Venue_Reference_No": "2008/3272-3278", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 May 2009", "Date_Published": "10 September 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the deductibility of a loss on the disposal of convertible notes where one of the reasons for the disposal was because the company issuing the convertible notes was placed into receivership.", "Overview_of_Facts": "1. In the 2000 financial year the taxpayer, a shareholder of Harris Scarfe Holdings Ltd ('the company') took up an offer to acquire convertible notes. In addition to those notes, the taxpayer had also acquired on the market the rights to buy further convertible notes. 2. In total, the taxpayer acquired 593,917 convertible notes for $1.40 per note for a total consideration of $831,483.80. The purchase of the convertible notes resulted from a transaction entered into between a taxpayer and the company which was not in the ordinary course of trading on a securities market. However at the time the taxpayer acquired the notes, it was open for her to acquire them in the ordinary course of trading on the securities market. 3. In early 2001, the company was placed into voluntary administration. Its securities were suspended from trading on the ASX on 3 April 2001 and it was placed into receivership with the appointment of receivers and managers on 6 April 2001. A resolution to wind up the company was passed on 3 January 2002. 4. On 10 December 2004, the taxpayer sold 500,000 notes for a total consideration of $1,000 in an off-market transfer to an unrelated third-party. The sale resulted in a substantial loss to the taxpayer. | 1. In the 2000 financial year the taxpayer, a shareholder of Harris Scarfe Holdings Ltd ('the company') took up an offer to acquire convertible notes. In addition to those notes, the taxpayer had also acquired on the market the rights to buy further convertible notes. 2. In total, the taxpayer acquired 593,917 convertible notes for $1.40 per note for a total consideration of $831,483.80. The purchase of the convertible notes resulted from a transaction entered into between a taxpayer and the company which was not in the ordinary course of trading on a securities market. However at the time the taxpayer acquired the notes, it was open for her to acquire them in the ordinary course of trading on the securities market. 3. In early 2001, the company was placed into voluntary administration. Its securities were suspended from trading on the ASX on 3 April 2001 and it was placed into receivership with the appointment of receivers and managers on 6 April 2001. A resolution to wind up the company was passed on 3 January 2002. 4. On 10 December 2004, the taxpayer sold 500,000 notes for a total consideration of $1,000 in an off-market transfer to an unrelated third-party. The sale resulted in a substantial loss to the taxpayer. | Issues decided by the court or tribunal | The Tribunal found that subsection 70B(4) of the ITAA 1936 operated to deny the taxpayer a deduction under subsection 70B(2) because the convertible notes disposed of by the taxpayer, being marketable securities, were not disposed of in the ordinary course of trading on a securities market. | The taxpayer argued that since it was open for her to acquire identical securities in the course of ordinary trading on the securities market, subparagraph 70B(4)(c)(ii) was not met and therefore subsection 70B(4) does not operate to remove the deduction available under subsection 70B(2). | The Tribunal rejected the taxpayer's argument for a literal interpretation of subsection 70B(4) of the ITAA 1936, and adopted a purposive approach since a literal interpretation of the subsection would not achieve the intention of the legislature. | Having regard to sections 15AA and 15AB of the Acts Interpretation Act 1901 and the High Court authorities of CIC Insurance Limited v Bankstown Football Limited (1995 ) 187 CLR 384 and others, the Tribunal determined that it was appropriate for it to consider extrinsic material which included the Explanatory Memorandum and the Second Reading Speech in support of that legislation in determining the intention of the legislature. | The Tribunal found that the reason for the disposal or redemption of a traditional security, whether marketable or not, must be within paragraph (e) for subsection 70B(4) to apply. If the traditional security is a marketable security, paragraphs (c) and (d) must also be considered. | Further, the Tribunal found that paragraphs (c) and (d) of subsection 70B(4) are conjunctive rather than disjunctive for a specific purpose. That purpose is that both the acquisition and the sale of a marketable security must be on the securities market. If the marketable security is not acquired on the securities market, it must be open to be acquired in the ordinary course of trading on a securities market. The Tribunal held that the failure to dispose of a marketable security other than on the market gives rise to the potential for the perpetration of a mischief being the artificial creation of a loss on the disposal which is other than at arms length. | The Tribunal held that in order to obtain the deduction for the loss, the taxpayer must have disposed of the marketable securities on the open market. By virtue of the fact that the taxpayer did not dispose of the convertible notes on the open market, the deduction under subsection 70B(2) is not available due to the operation of subsection 70B(4).", "Issues_Decided": "The Tribunal found that subsection 70B(4) of the ITAA 1936 operated to deny the taxpayer a deduction under subsection 70B(2) because the convertible notes disposed of by the taxpayer, being marketable securities, were not disposed of in the ordinary course of trading on a securities market. The taxpayer argued that since it was open for her to acquire identical securities in the course of ordinary trading on the securities market, subparagraph 70B(4)(c)(ii) was not met and therefore subsection 70B(4) does not operate to remove the deduction available under subsection 70B(2). The Tribunal rejected the taxpayer's argument for a literal interpretation of subsection 70B(4) of the ITAA 1936, and adopted a purposive approach since a literal interpretation of the subsection would not achieve the intention of the legislature. Having regard to sections 15AA and 15AB of the Acts Interpretation Act 1901 and the High Court authorities of CIC Insurance Limited v Bankstown Football Limited (1995 ) 187 CLR 384 and others, the Tribunal determined that it was appropriate for it to consider extrinsic material which included the Explanatory Memorandum and the Second Reading Speech in support of that legislation in determining the intention of the legislature. The Tribunal found that the reason for the disposal or redemption of a traditional security, whether marketable or not, must be within paragraph (e) for subsection 70B(4) to apply. If the traditional security is a marketable security, paragraphs (c) and (d) must also be considered. Further, the Tribunal found that paragraphs (c) and (d) of subsection 70B(4) are conjunctive rather than disjunctive for a specific purpose. That purpose is that both the acquisition and the sale of a marketable security must be on the securities market. If the marketable security is not acquired on the securities market, it must be open to be acquired in the ordinary course of trading on a securities market. The Tribunal held that the failure to dispose of a marketable security other than on the market gives rise to the potential for the perpetration of a mischief being the artificial creation of a loss on the disposal which is other than at arms length. The Tribunal held that in order to obtain the deduction for the loss, the taxpayer must have disposed of the marketable securities on the open market. By virtue of the fact that the taxpayer did not dispose of the convertible notes on the open market, the deduction under subsection 70B(2) is not available due to the operation of subsection 70B(4).", "ATO_View_of_Decision": "The Tax Office considers the effect of the decision is that: • if a traditional security is not marketable security and a paragraph 70B(4)(e) applies to the disposal or redemption of the traditional security, a deduction is not available under subsection 70B(2) as subsection 70B(4) applies. The Tribunal held that once the purpose of the disposal is in accordance with paragraph (e), the deduction is not available because the security cannot be disposed of on the market. • if a traditional security is a marketable security and paragraph 70B(4)(e) applies to the disposal or redemption of the traditional security, a deduction is not available under subsection 70B(2) unless both the acquisition and sale of the marketable security took place on the open market, or in the case of the acquisition of the security, an identical security could be acquired in the ordinary course of trading on a securities market. • Subsections 70B(4)(c) and (d) should be read conjunctively rather than disjunctively. • The failure to dispose of a marketable security other than on the market means that a deduction is not available under subsection 70B(2) as subsection 70B(4) applies. | • if a traditional security is not marketable security and a paragraph 70B(4)(e) applies to the disposal or redemption of the traditional security, a deduction is not available under subsection 70B(2) as subsection 70B(4) applies. The Tribunal held that once the purpose of the disposal is in accordance with paragraph (e), the deduction is not available because the security cannot be disposed of on the market. • if a traditional security is a marketable security and paragraph 70B(4)(e) applies to the disposal or redemption of the traditional security, a deduction is not available under subsection 70B(2) unless both the acquisition and sale of the marketable security took place on the open market, or in the case of the acquisition of the security, an identical security could be acquired in the ordinary course of trading on a securities market. • Subsections 70B(4)(c) and (d) should be read conjunctively rather than disjunctively. • The failure to dispose of a marketable security other than on the market means that a deduction is not available under subsection 70B(2) as subsection 70B(4) applies.", "Administrative_Treatment": "The Commissioner considers that this case confirms his view on the interpretation of subsection 70B(4) ITAA 1936 and will be applied in any case with similar facts. | Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 96/14 | 2009 ATC 1-007 | 70B(1) | 70B(2) | 70B(4) | 70B(7) | 159GP(1) | 15AA | 15AB | 169 CLR 214 | 91 ALR 16 | 187 CLR 384 | 141 ALR 618 | 191 CLR 85 | 68 ALR 416 | ATO ID 2006/214", "Legislative_References": "Income Tax Assessment Act 1936 ('ITAA 1936') 70B(1) 70B(2) 70B(4) 70B(7) 159GP(1) Acts Interpretation Act 1901 15AA 15AB Taxation Laws Amendment Act (No.5) 1992", "Case_References": "Mills v Meeking and Another [1990] HCA 6 169 CLR 214 91 ALR 16 CIC Insurance Limited v Bankstown Football Club Limited [1997] HCA 2 187 CLR 384 141 ALR 618 Newcastle City Council v GIO General Limited [1997] HCA 53 191 CLR 85 149 ALR 623 Re Australian Federation of Construction Contractors: Ex parte Billing [1986] HCA 74 68 ALR 416", "Subject_References": "Disposal of convertible notes after company placed in receivership Whether loss deductible from assessable income Whether convertible notes a traditional or a marketable security Whether convertible notes acquired in the ordinary course of trading on a securities market Statutory interpretation - section 70B of the Income Tax Assessment Act 1936 ('ITAA 1936')", "Other_References": "ATO ID 2006/214", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/3272-3278/00001", "Unmatched_Content": ""}
{"Case_Name": "Alcoa of Australia Ltd", "Venue_Reference_No": "2008/0670", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "16 December 2008", "Date_Published": "21 May 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Decision under review set aside and remitted to Commissioner to allow objection to private ruling", "Summary_of_Decision": "Whether expenses incurred on replacement of a refrctory in an anode bake furnace were allowable deductions for repairs or were instead capital incurred on replacement of an entirety.", "Overview_of_Facts": "This case concerned expenses incurred on the replacement of the entire \"refractory\" (comprising all internal refractory bricks and insulating material) and the \"exhaust gas manifold\" in an \"anode bake furnace\" at the applicant's aluminium smelter. The Commissioner issued a private ruling that these expenses were for the replacement of an \"entirety\" and thus capital and not deductible under s.25-10 of ITAA 1997. | The applicant lodged an objection against unfavourable private ruling. | The anode bake furnace comprised a building which housed two rectangular \"in ground\" concrete tubs supported by extensive foundations. The \"refractory\", consisting of a network of refractory bricks and insulation material lining the concrete tubs, was built inside the concrete tubs, forming a network of cells into which carbon anodes were placed for baking. The exhaust gases were drawn from the furnace via underground exhaust ducting connected to the sides of the concrete tubs. | The concrete tubs and building were not replaced. The concrete tubs, however, were each extended by two cells (that is,the total number of cells was increased from 60 to 64). The cost attributable to that extension (that is, to the extra cells) was not the subject of the private ruling and was conceded to be capital (as an \"addition\"). | The \"refractory\" was expected to last for 15 years. The estimated cost of the works in question was estimated to be $47.1 million. The estimated cost of replacing the entire anode bake furnace, comprising the building, foundations and concrete tubs and other ancillary equipment, was estimated at $204 million. | Issues decided by the tribunal | 1. Replacements of the \"refractory\" and the waste gas ductwork were not replacements of \"entireties\". The relevant \"entirety\" was the entire anode bake furnace. Alternatively, the entirety is the concrete tubs and their foundations, the \"refractory\" and the waste gas ductwork. 2. The undertaking of the additional works of extending the concrete tubs and upgrading the scrubber (conceded as capital expenditure) at the same time as the above works did not make the above works capital. | 1. Replacements of the \"refractory\" and the waste gas ductwork were not replacements of \"entireties\". The relevant \"entirety\" was the entire anode bake furnace. Alternatively, the entirety is the concrete tubs and their foundations, the \"refractory\" and the waste gas ductwork. 2. The undertaking of the additional works of extending the concrete tubs and upgrading the scrubber (conceded as capital expenditure) at the same time as the above works did not make the above works capital.", "Issues_Decided": "1. Replacements of the \"refractory\" and the waste gas ductwork were not replacements of \"entireties\". The relevant \"entirety\" was the entire anode bake furnace. Alternatively, the entirety is the concrete tubs and their foundations, the \"refractory\" and the waste gas ductwork. 2. The undertaking of the additional works of extending the concrete tubs and upgrading the scrubber (conceded as capital expenditure) at the same time as the above works did not make the above works capital. 1. Replacements of the \"refractory\" and the waste gas ductwork were not replacements of \"entireties\". The relevant \"entirety\" was the entire anode bake furnace. Alternatively, the entirety is the concrete tubs and their foundations, the \"refractory\" and the waste gas ductwork. 2. The undertaking of the additional works of extending the concrete tubs and upgrading the scrubber (conceded as capital expenditure) at the same time as the above works did not make the above works capital.", "ATO_View_of_Decision": "This is a decision that was open to the Tribunal on the particular facts in this case and does not have any significant implications for other cases. The question of what is an entirety depends on the overall impression gained from a factual scenario. It is a question of \"fact and degree\". Public Ruling TR 97/23 contains statements of principle to this effect and it is not inconsistent with the Tribunal's decision.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "TR 97/23 Deductions For Repairs | 2008 ATC 10-065 | 25-10 | (1961) 106 CLR 377 | [1911] 1KB 905 | (1965) 115 CLR 58", "Legislative_References": "Income Tax Assessment Act 1997 25-10", "Case_References": "Lindsay v FCT (1961) 106 CLR 377 [1961] HCA 93 [1961] ALR 58 Lurcott v Wakely & Wheeler [1911] 1KB 905 Rhodesia Railways Ltd v Income Tax Collector (Bechuanaland) [1933] AC 368 Samuel Jones & Co (Devonvale) Ltd v IRC (1951) 32 TC 513 Case 13 (1967) 18 CTBR (NS) W Thomas & Co Pty Ltd v FCT (1965) 115 CLR 58 [1965] HCA 54 [1966] ALR 915", "Subject_References": "Repairs & maintenance expenses Repairs in entirety", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/0670/00001", "Unmatched_Content": ""}
{"Case_Name": "Brady King Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 140 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "26 June 2008", "Date_Published": "19 September 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Australian Taxation Office's ('ATO') response to this case which concerned the application of the GST margin scheme to sales of stratum units following the acquisition of an office building and its conversion into stratum units, and in particular whether the units were held or acquired before 1 July 2000.", "Overview_of_Facts": "On 22 May 2000 the taxpayer executed a contract to purchase an office building for $9,250,000. The contract entitled the taxpayer to enter the property upon payment of a deposit for the purpose of carrying out certain specified works and for marketing purposes. Settlement of the contract occurred on 25 October 2000 and the transfer was registered under the Transfer of Land Act 1958 (Vic) on 9 November 2000. | The taxpayer then converted the building to stratum units. | The taxpayer obtained valuations of the stratum units as at 1 July 2000 prepared by a professional valuer. The taxpayer lodged GST returns disclosing GST on the margin calculated as the difference between the consideration for the sales of the units and the amounts specified in the valuation (in aggregate, $23,232,000). | The ATO considered that the taxpayer was not entitled to use the valuation method for margin scheme purposes and issued assessments calculating GST on the margin calculated as the difference between the consideration for the sales of the units and the relevant proportion of the consideration for the taxpayer's acquisition of the office building. | In the alternative, the ATO submitted that the valuation obtained by the taxpayer did not satisfy the requirements of the Commissioner's determination ( A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No.2) 2000 ('MSV 2'). | Issues decided by the court or tribunal | The trial judge held that the taxpayer was not entitled to use the valuation method. The primary reason for the decision was that the stratum units did not exist at the valuation date, 1 July 2000, and therefore the taxpayer had not held or acquired them as at that date for the purposes of subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 ('the GST Act'). | On appeal, both parties argued the trial judge was wrong to conclude that there had to be strict identity in juridical terms between what the taxpayer acquired and what it supplied. The Full Court agreed. Therefore it did not matter that the stratum units did not exist at the valuation date. | However, the parties were in dispute as to whether, by virtue of having entered into, but not completed, the contract to purchase the property, the taxpayer held or had acquired the necessary interest in each stratum unit before 1 July 2000 for the purposes of subsection 75-10(3) of the GST Act. The Commissioner submitted that the stratum units were acquired at the time the taxpayer acquired the property from which those units were derived and that the property was acquired on completion of the contract. | The Full Court did not accept this submission. The Court held that once the primary judge's \"precise juridical identity\" approach was rejected it was not possible to ring fence the interest Brady King acquired under the contract from the stratum units later supplied to the purchasers. The fee simple estate was itself derived from the interest under the contract; \"the contract was the genesis or source of the appellant's interest in the stratum unit it supplied\". | The Full Court remitted the matter to the trial judge to determine the margin for the supply of the units having declared that the margin is to be calculated under subsection 75-10(3) of the GST Act. This was necessary because the trial judge did not address the issue of whether the taxpayer's valuations complied with MSV 2.", "Issues_Decided": "The trial judge held that the taxpayer was not entitled to use the valuation method. The primary reason for the decision was that the stratum units did not exist at the valuation date, 1 July 2000, and therefore the taxpayer had not held or acquired them as at that date for the purposes of subsection 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 ('the GST Act'). On appeal, both parties argued the trial judge was wrong to conclude that there had to be strict identity in juridical terms between what the taxpayer acquired and what it supplied. The Full Court agreed. Therefore it did not matter that the stratum units did not exist at the valuation date. However, the parties were in dispute as to whether, by virtue of having entered into, but not completed, the contract to purchase the property, the taxpayer held or had acquired the necessary interest in each stratum unit before 1 July 2000 for the purposes of subsection 75-10(3) of the GST Act. The Commissioner submitted that the stratum units were acquired at the time the taxpayer acquired the property from which those units were derived and that the property was acquired on completion of the contract. The Full Court did not accept this submission. The Court held that once the primary judge's \"precise juridical identity\" approach was rejected it was not possible to ring fence the interest Brady King acquired under the contract from the stratum units later supplied to the purchasers. The fee simple estate was itself derived from the interest under the contract; \"the contract was the genesis or source of the appellant's interest in the stratum unit it supplied\". The Full Court remitted the matter to the trial judge to determine the margin for the supply of the units having declared that the margin is to be calculated under subsection 75-10(3) of the GST Act. This was necessary because the trial judge did not address the issue of whether the taxpayer's valuations complied with MSV 2.", "ATO_View_of_Decision": "The Commissioner will not apply for special leave to appeal to the High Court against the decision of the Full Court. | By virtue of section 75-5 of the GST Act, the margin scheme in Division 75 applies to certain supplies of particular kinds of real property, being a freehold interest in land, a stratum unit or long term lease (the 'relevant property'). The ATO considers that the Court's decision is authority for the proposition that, for the purposes of section 75-10 of the GST Act, an entity supplying relevant property is taken to have held or acquired a sufficient interest in that property at a particular time if it had entered into, but not completed, a contract for its acquisition. | In particular, where, as in the Brady King case, an entity has entered into but not completed a contract for the acquisition of freehold title to land out of which stratum units are to be created, the entity is taken to have held or acquired a sufficient interest in the stratum units at that time. | Similarly, an entity that has entered into but not completed a contract for the acquisition of freehold title to land for subdivision is taken to have held or acquired a sufficient interest in the subdivided lots at that time. | However, the ATO does not consider that it follows from the decision that a supply or acquisition of the relevant property itself occurs at the time of entry into a contract for the sale and purchase of that property. The ATO continues to consider that a supply and acquisition of land under a standard land contract occurs upon completion of the contract. | In that regard, the ATO considers that it is important to note exactly what the Full Court decided. The Court decided that Brady King, by holding or acquiring contractual rights as the purchaser under an uncompleted contract of sale, held or acquired a sufficient interest in the relevant property for the purposes of items 1 and 3 in the table in subsection 75-10(3) of the GST Act. | The Court did not decide that a taxable supply or creditable acquisition of the relevant property itself occurs on entering into a contract. Such a conclusion would be contrary to the High Court's reasoning in Commissioner of Taxation v Reliance Carpet Co Pty Limited [2008] HCA 22 at [42] that, in the case of a completed contract for the sale of real property, there is only one taxable supply and that it occurs at completion of the contract. | The Court's decision was based strictly on its reasoning, having regard to the object of the margin scheme, that it was sufficient for the purposes of subsection 75-10(3) of the GST Act for the taxpayer to hold or have acquired a contractual interest as purchaser under an uncompleted contract at the valuation date. | The ATO delayed updating relevant GST rulings to reflect the Court's decision while there was another unrelated matter before the Court involving the issue of when real property is supplied and acquired, in a broader context than that in Brady King. The Federal Court's decision in Aurora Developments Pty Ltd v Commissioner of Taxation [2011] FCA 232, together with the subsequent decision in Central Equity Limited v Commissioner of Taxation [2011] FCA 908, [1] confirms the ATO's view that a supply and acquisition of land under a standard land contract occurs upon completion of the contract. | In addition to subsection 75-10(3), there are also other provisions in Division 75 of the GST Act which require an entity, in relevant circumstances, to consider when they acquired a relevant interest in real property and whether or not specified conditions existed at the time of that acquisition- i.e. section 75-11 and subsection 75-5(3) of the GST Act. | In reaching its decision in Brady King , the Court did not consider section 75-11 or subsection 75-5(3) of the GST Act, and the reference to the acquisition of an 'interest, unit or lease' in those provisions appears in a different context to that of subsection 75-10(3) of the GST Act. | In the course of updating relevant GST rulings about the margin scheme to reflect the Court's decision, the ATO has identified some adverse and unintended outcomes that can arise if the Court's interpretation of subsection 75-10(3) of the GST Act is applied in the context of section 75-11 and subsection 75-5(3) of the GST Act. For example, where there is a supply of real property between associates, an interpretation of subsection 75-11(7) of the GST Act in line with the Court's interpretation of subsection 75-10(3) will give rise to over-taxation. The interaction of subsection 75-11(7) with section 75-13 of the GST Act will result in any increase in the value of the property, between the time of entry into the contract and settlement, being taxed twice; once at the time of the sale between the associates, and again when the acquiring associate on-sells it to another party. | The ATO will consult with the community about the issues arising in relation to the time of supply and acquisition of a relevant interest in real property under section 75-11 and subsection 75-5(3) of the GST Act. | Justice Middleton delivered his decision ([2008] FCA 1918) dismissing the taxpayer's appeal in relation to the valuation issue on 18 December 2008. The taxpayer lodged a notice of appeal against that decision to the Full Court of the Federal Court; however, the appeal was discontinued.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Addenda to the following public rulings published on 22 June 2011, amended those rulings to reflect the reasoning of the Full Court in relation to the application of subsection 75-10(3) of the GST Act. • GSTR 2000/21 Goods and services tax: the margin scheme for supplies of real property held prior to 1 July 2000; • GSTR 2006/7 Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000; and • GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000. | • GSTR 2000/21 Goods and services tax: the margin scheme for supplies of real property held prior to 1 July 2000; • GSTR 2006/7 Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000; and • GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000. | If you believe you have overpaid GST based on the ATO's former view, you may be entitled to a refund of the overpaid GST, subject to the application of section 105-55 (Time limit on refunds and credits) and section 105-65 (Restrictions on refunds) in Schedule 1 to the Taxation Administration Act 1953 .", "Related_Documents": "GSTR 2000/21 | GSTR 2006/7 | GSTR 2006/8 | 2008 ATC 20-034 | Div 75 | 75-5 | 75-10(2) | 75-10(3) | 75-15 | 195-1 | (1991) 91 ATC 4195 | 2011 ATC 20-250 | 2008 ATC 20-084 | 2011 ATC 20-274 | (1997) 187 CLR 384 | (1997) 141 ALR 618 | (2008) 2008 ATC 20-028 | (1981) 81 ATC 4292 | (1985) 85 ATC 4398 | 2006 ATC 4841 | 2005 ATC 4796 | 2006 ATC 4227", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (\"the GST Act\") Div 75 75-5 75-10(2) 75-10(3) 75-15 195-1", "Case_References": "Allina Pty Limited v Commissioner of Taxation (1991) 28 FCR 203 (1991) 99 ALR 295 (1991) 21 ATR 1320 (1991) 91 ATC 4195 Aurora Developments Pty Ltd v Commissioner of Taxation [2011] FCA 232 (2011) 192 FCR 519 2011 ATC 20-250 Brady King Pty Ltd v Commissioner of Taxation [2008] FCA 1918 2008 ATC 20-084 69 ATR 670 Central Equity Limited v Commissioner of Taxation [2011] FCA 908 2011 ATC 20-274 CIC Insurance Ltd v Bankstown Football Club (1997) 187 CLR 384 (1997) 141 ALR 618 Commissioner of Taxation v Reliance Carpet Co Pty Ltd [2008] HCA 22 (2008) 68 ATR 158 (2008) 2008 ATC 20-028 Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 (1981) 35 ALR 151 (1981) 11 ATR 949 (1981) 81 ATC 4292 Federal Commissioner of Taxation v Suttons Motors (Chullora) Wholesale Pty Ltd (1985) 157 CLR 277 (1985) 59 ALR 688 (1985) 16 ATR 567 (1985) 85 ATC 4398 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256 2006 ATC 4841 (2006) 64 ATR 602 (2006) 237 ALR 559 Sterling Guardian Pty Limited v Federal Commissioner of Taxation [2005] FCA 1166 2005 ATC 4796 60 ATR 502 Sterling Guardian Pty Ltd v Commissioner of Taxation (2006) 149 FCR 255 2006 ATC 4227 62 ATR 119", "Subject_References": "GST Margin scheme Freehold interest Consideration method Valuation method", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID140of2008/00001", "Unmatched_Content": "Footnotes: [1] This decision is the subject of an appeal by Central Equity Limited to the Full Federal Court."}
{"Case_Name": "Brady King Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 84 of 2005", "Venue": "Federal Court of Australia", "Judgment_Date": "18 February 2008", "Date_Published": "12 February 2012", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the application of the GST margin scheme to the acquisition of an office building, its conversion into stratum units (residential apartments) and the subsequent sale of those units.", "Overview_of_Facts": "On 22 May 2000 the taxpayer signed a contract to purchase an office building for $9,250,000. The contract entitled the taxpayer to enter the property upon payment of the deposit for the purpose of carrying out certain specified works and for marketing purposes. Settlement of the contract occurred on 25 October 2000 and the transfer was registered under the Transfer of Land Act 1958 (Vic) on 9 November 2000. | The taxpayer converted the building to stratum units. Most of the units were sold off the plan between April and November 2001. | The taxpayer obtained valuations of the stratum units as at 1 July 2000 prepared by a professional valuer. The taxpayer lodged GST returns calculating GST on the margin between the amounts specified in the valuation (in aggregate, $23,232,000) and the consideration for the sales of the units. | The Tax Office considered that the taxpayer was not entitled to use the valuation method to calculate its margin for margin scheme purposes and issued assessments calculating GST on the margin between the consideration for the taxpayer's acquisition of the office building and the consideration for the sales of the units. | Issues decided by the court or tribunal | The taxpayer argued that it held or had acquired the units at I July 2000 and that it held a valuation that complied with the Commissioner's determination under s 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (the 'GST Act'). Accordingly, the taxpayer submitted that it was entitled to use the valuation method to calculate its margin in accordance with s 75-10(3). | The Commissioner argued that the taxpayer was not entitled to use the valuation method as it did not hold and had not acquired the property at 1 July 2000. In the alternative, the Commissioner submitted that the valuation did not comply with the Commissioner's determination. | The Court held that the taxpayer was not entitled to use the valuation method. The primary reason for the decision was that the taxpayer did not hold the stratum units at 1 July 2000. The Court also concluded that, in any case, it was necessary for a legal interest in the relevant property to be held at the valuation date and the taxpayer, as the purchaser under an uncompleted contract, merely held an equitable interest in the property at 1 July 2000. | The issue of whether the valuation complied with the Commissioner's determination was not addressed by the Court.", "Issues_Decided": "The taxpayer argued that it held or had acquired the units at I July 2000 and that it held a valuation that complied with the Commissioner's determination under s 75-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (the 'GST Act'). Accordingly, the taxpayer submitted that it was entitled to use the valuation method to calculate its margin in accordance with s 75-10(3). The Commissioner argued that the taxpayer was not entitled to use the valuation method as it did not hold and had not acquired the property at 1 July 2000. In the alternative, the Commissioner submitted that the valuation did not comply with the Commissioner's determination. The Court held that the taxpayer was not entitled to use the valuation method. The primary reason for the decision was that the taxpayer did not hold the stratum units at 1 July 2000. The Court also concluded that, in any case, it was necessary for a legal interest in the relevant property to be held at the valuation date and the taxpayer, as the purchaser under an uncompleted contract, merely held an equitable interest in the property at 1 July 2000. The issue of whether the valuation complied with the Commissioner's determination was not addressed by the Court.", "ATO_View_of_Decision": "The Commissioner submitted to the Court that: • Although the stratum units did not come into existence until after 1 July 2000, it would be sufficient if the taxpayer held or had acquired a freehold interest in the parent title, that is, the title to the office building from which the units were to be created, at that date. • The taxpayer held an equitable interest in the property at the valuation date, but that equitable interest did not constitute a 'freehold interest' (or a 'stratum unit') as required by s 75-10(3) of the GST Act. • It is not necessary for the freehold interest to be registered at the land titles office. It would be sufficient for settlement to have occurred so that the taxpayer was in unconditional possession of a registrable instrument of transfer. • As settlement had not occurred by 1 July 2000, the taxpayer did not hold and had not acquired a freehold interest in the property. | • Although the stratum units did not come into existence until after 1 July 2000, it would be sufficient if the taxpayer held or had acquired a freehold interest in the parent title, that is, the title to the office building from which the units were to be created, at that date. • The taxpayer held an equitable interest in the property at the valuation date, but that equitable interest did not constitute a 'freehold interest' (or a 'stratum unit') as required by s 75-10(3) of the GST Act. • It is not necessary for the freehold interest to be registered at the land titles office. It would be sufficient for settlement to have occurred so that the taxpayer was in unconditional possession of a registrable instrument of transfer. • As settlement had not occurred by 1 July 2000, the taxpayer did not hold and had not acquired a freehold interest in the property. | The Court agreed with the Commissioner that the taxpayer was not entitled to use the valuation method under s 75-10(3). However, contrary to the Commissioner's submissions, the Court decided the matter on the basis the interest held at the valuation date must be the same interest that is the subject of the relevant supply. Because the taxpayer did not hold the stratum units at the valuation date, it was held that the valuation method could not be used. | The effect of this decision may be that developers would be unable to use the valuation method in calculating the margin for unit developments where the strata titles had not issued at the valuation date. | Middleton J also stated that \"the margin scheme can only apply to the same property (in the juridical sense) being acquired and subsequently sold\". It may follow from this view that developers would be precluded from using the margin scheme at all for unit developments. | The Tax Office respectfully agrees with the decision to dismiss the taxpayer's appeal. However, as noted, the basis on which the Court reached this view is contrary to the submissions made by the Commissioner, and is contrary to the Tax Office's longstanding practice in relation to the margin scheme provisions, as reflected in its public rulings (see GSTR 2000/21 , GSTR 2006/7 and GSTR 2006/8 ) and other guidance material.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | An appeal against this decision was allowed by the Full Court. An administrative treatment is no longer required in relation to this first instance decision. A Decision Impact Statement exists for the Full Court decision at Brady King (VID140 of 2008).", "Related_Documents": "GSTR 2000/21 | GSTR 2006/7 | GSTR 2006/8 | [2008] FCA 81 | 2008 ATC 20-008 | Div 75 | 75-5 | 75-10(2) | 75-10(3) | 75-15 | 195-1 | 2005 ATC 4571 | 2005 ATC 4796 | 2006 ATC 4227", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (\"the GST Act\") Div 75 75-5 75-10(2) 75-10(3) 75-15 195-1", "Case_References": "HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 60 ATR 106 Sterling Guardian Pty Limited v Federal Commissioner of Taxation [2005] FCA 1166 2005 ATC 4796 60 ATR 502 Sterling Guardian Pty Ltd v Commissioner of Taxation (2006) 149 FCR 255 2006 ATC 4227 62 ATR 119", "Subject_References": "GST Margin scheme Freehold interest Consideration method Valuation method", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID84of2005/00001", "Unmatched_Content": ""}
{"Case_Name": "Caltex Australia Petroleum Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 547 of 2006 and VID 1372 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "19 December 2008", "Date_Published": "17 February 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned, among other issues, whether residual oils were 'manufactured or produced' for the purposes of the Excise Tariff Act 1921, the meaning of 'delivery for home consumption', whether the residual oils were refined or semi-refined liquid petroleum products and whether the Commissioner's demand issued under section 60 of the Excise Act 1901 was valid.", "Overview_of_Facts": "The petroleum products (residual oils) produced at each of the refineries are manufactured by the applicant pursuant to manufacturer licences issued to it under Part IV of the Excise Act 1901 (Excise Act). Crude oil is the principal raw material refined by the applicant at Kurnell and Lytton, while Caltex Lubricating Oil Refinery (CLOR) processes certain hydrocarbon materials that are produced as part of the operations of the Kurnell refinery. | The applicant produces residual oils during the course of its operations at each refinery. | The applicant sought a Notice of Administratively Binding Advice, (the advice), which was issued on 12 April 2006. In short, the Commissioner contended in the advice that the residual oils produced by the applicant at its refineries and used as burner fuel were subject to excise duty as excisable goods. | Following receipt of the advice the applicant commenced proceedings in the Federal Court under section 39B of the Judiciary Act 1903 , seeking declarations in relation to the application of the Excise Act and the Excise Tariff Act 1921 (Tariff Act) to each of the products. | On 30 May 2006 the Commissioner served on the applicant, a demand pursuant to paragraph 60(1)(b) of the Excise Act for it to account for each of the residual oils for the relevant period (between 10 March 2002 and 29 March 2006). | On 28 June 2006 the Commissioner served a statutory demand on the applicant in the amount of $48,676,126.13 in respect of the products, being a \"debt\" due under the Excise Act. The demand was issued under both paragraphs 60(1)(a) and (b) of the Excise Act. | On 14 December the applicant commenced proceedings in the Federal Court under Part IVC of the Taxation Administration Act 1953 in respect of the demand under section 60 of the Excise Act. | Issues decided by the court | The issues that required determination were: (a) Whether the residual oils were \"manufactured or produced\" by Caltex for the purposes of s 5(1) of the Tariff Act. (b) If they were, whether the residual oils were properly characterised as \"refined or semi-refined liquid petroleum ... products\" so as to fall within item 11(a) of the Schedule. (c) Whether the Kurnell Residual Slop Oil and the CLOR Residual Slop Oil fell within item 11(I)(3)(d) of the Schedule (it being agreed by the parties that the Lytton Refinery Fuel Oil was subject to duty under item 11(D), if item 11(a) applied). (d) Whether the residual oils were \"delivered for home consumption\" by Caltex for the purposes of ss 61, 61C and 59 of the Excise Act. (e) Whether the Commissioner's statutory demand is valid, which turns on: • whether s 60 of the Excise Act is applicable to Caltex and the residual oils, including whether Caltex failed to keep the residual oils safely (s 60(1)(a)) or failed to account for the residual oils to the satisfaction of the Commissioner (s 60(1)(b)); and • whether the Commissioner's description in the demand of the amount owing as a \"debt\" invalidates the demand. | (a) Whether the residual oils were \"manufactured or produced\" by Caltex for the purposes of s 5(1) of the Tariff Act. (b) If they were, whether the residual oils were properly characterised as \"refined or semi-refined liquid petroleum ... products\" so as to fall within item 11(a) of the Schedule. (c) Whether the Kurnell Residual Slop Oil and the CLOR Residual Slop Oil fell within item 11(I)(3)(d) of the Schedule (it being agreed by the parties that the Lytton Refinery Fuel Oil was subject to duty under item 11(D), if item 11(a) applied). (d) Whether the residual oils were \"delivered for home consumption\" by Caltex for the purposes of ss 61, 61C and 59 of the Excise Act. (e) Whether the Commissioner's statutory demand is valid, which turns on: • whether s 60 of the Excise Act is applicable to Caltex and the residual oils, including whether Caltex failed to keep the residual oils safely (s 60(1)(a)) or failed to account for the residual oils to the satisfaction of the Commissioner (s 60(1)(b)); and • whether the Commissioner's description in the demand of the amount owing as a \"debt\" invalidates the demand. | • whether s 60 of the Excise Act is applicable to Caltex and the residual oils, including whether Caltex failed to keep the residual oils safely (s 60(1)(a)) or failed to account for the residual oils to the satisfaction of the Commissioner (s 60(1)(b)); and • whether the Commissioner's description in the demand of the amount owing as a \"debt\" invalidates the demand. | (a) 'Manufactured or Produced' | The Court found that each of the residual oils produced by the taxpayer were \"manufactured\" or, alternatively, \"produced\" in the course of its refinery operations as a result of refining raw crude oil. Further, they are systematically extracted from the refining process and brought into a usable form so as to maximise the quantity of higher value products produced. | Further, His Honour found that there was nothing expressed in Division 2 of Part III of the Excise Act or section 55 of the Constitution that could be said to limit the ambit of the word \"produced\" in the Tariff Act to the production of tobacco. To the contrary, His Honour found that section 5 is in wide terms and applies to \"all goods...manufactured or produced\" and which are dutiable under the Schedule to the Tariff Act. The Schedule itself reflects the intended width of the term. | For these reasons, His Honour concluded that, although the residual oils were not the principal products created by the taxpayer, it is clear that the intention is to bring about all of the known consequences of the refining process so as to consume them in a productive manner. Consequently, the Court held that the residual oils consumed in commercial operations would render the oils as \"manufactured\" goods and subject to excise duty. | (b) 'Refined' or 'Semi-refined' Liquid Petroleum Products | His Honour held that in the context of, and by reference to, the policies and objectives of the Tariff Act as whole and section 15AA of the Acts Interpretation Act 1901 (Cth) none of the residual oils could be said to be \"refined\" or \"semi-refined\". | Contrary to the Commissioner's submission, His Honour did not consider that the process of separating the crude oil into different components, in and of itself, means that each separated component therefore has the character of a \"refined\" product. This is especially so where the component in question is essentially removed from the whole because of its inferior or impure nature. | Therefore, His Honour concluded that none of the residual oils fell within item 11(a) of the Schedule and were consequently not dutiable. However, His Honour went on to deal with the following issues in the event that his conclusion on the \"refined or semi-refined\" point was incorrect, | Liquid v Solid Petroleum Product | The Court highlighted that neither the Schedule to the Tariff Act nor the Tariff Act itself, contains any stipulation that the relevant \"refined or semi-refined\" petroleum products in item 11(a) must be liquid at standard temperature or pressure . | In the absence of a specific temperature or set of conditions in the Schedule, His Honour considered that the relevant products should be characterised in the form they take when they come into existence as a discrete product. | In this instance, His Honour held that at that time, and at all subsequent material times, the residual oils would be in liquid form and, therefore, a liquid petroleum product as described by item 11(a). | (c) Item 11(I)(3)(D) of the Schedule | His Honour upheld the Commissioner's submission that item 11(I), referring to \"other refined ... products\", specifies the rates of duty for refined or partly refined petroleum products that do not otherwise fall under items 11(A) - (L). | The Court stated that products that do not come within item 11(I)(1) (\"recycled petroleum products not elsewhere specified\") or 11(I)(2) (\"Other, in packages not exceeding 210 litres\"), would therefore fall to item 11(I)(3) (\"Other\"). Similarly, par (d) of item 11(I)(3) applies to any product within item 11(I)(3) that is not covered by paragraphs (a), (b) or (c). | His Honour stated that plainly, the \"other\" in item 11(I)(1)(b)(ii) covered both fuel and non fuel uses, applying to products that did not contain the prescribed marker. Therefore, limiting the scope of item 11(I)(3)(d) to non-fuels would lead to the strange result that a manufacturer could avoid duty entirely on a non-combustion engine fuel by not using the marker - in that circumstance, the product would not fall within any of paragraphs (a) to (d). | The Court found that as the residual oils were not produced for use as fuel in an internal combustion engine and did not contain the required \"marker\", each of the residual oils fell within item 11(I) - assuming the residual oils were \"refined\" products. | (d) Delivery for Home Consumption | His Honour stated that the taxpayer's liability for excise duty depended on whether it could be said that the taxpayer \"delivered\" the residual oils for, or into, home consumption as that concept appears in the Excise Act. | The Court found that the taxpayer delivered the residual oils for home consumption based on the finding that the Excise Act does not refer to delivery to a person but adopts the more ample language of delivery for or into home consumption. | The Court held that the language of the Excise Act is sufficiently broad to apply to the consumption by a manufacturer at its own premises. The Court refuted the contention that \"delivery\" required the physical removal of goods from one place to another, stating that in that scenario it would give the concept of delivery for home consumption a restricted meaning not warranted either by the breadth of the language used, or the purpose of the legislation. | For these reasons, the Court concluded that the taxpayer delivered the residual oils for home consumption pursuant to its section 61C permissions. | (e) Validity of the Commissioner's demand under section 60 | The Court concluded that it was not open to the Commissioner to rely on a failure to account under section 60(1)(b) to support the demand. | The demand was valid only to the extent that it relied on s 60(1)(a) as a basis for the taxpayers liability. | His Honour found the following would apply regarding the taxpayer's contentions to this matter, if the above decision was incorrect: (a) The Court held the decision that the residual oils were not \"excisable goods\" and that on that basis alone the demand issued by the Commissioner would be invalid, and be required to be set aside. (b) The Commissioner's control over excisable goods ceases upon the goods being delivered for home consumption. Section 60 has application in respect of excisable goods over which the Commissioner's control has ceased where the cessation of that control is a result of goods being delivered into home consumption in an unauthorised manner. (c) Alternatively, if the residual oils were not delivered for home consumption, then they were at all relevant times subject to the Commissioner's control. (d) The Court held that the residual oils had been consumed by the taxpayer at its premises (\"home consumption\") and no duty had been paid in respect of them. It seemed to His Honour that it was common ground from the outset that Caltex had consumed all of the residual oils and that this was acknowledged by the Commissioner. Accordingly, His Honour found that the Commissioner was not entitled to make the request pursuant to section 60(1)(b). (e) However, the Court found that Caltex had consumed the residual oils by burning them. The consumption of the residual oils in this manner was a failure to keep them safely within section 60(1)(a). (f) The purported account simply recited the facts, which showed that the residual oils had not been kept safely within the meaning of section 60(1)(a). It was therefore reasonable for the Commissioner not to be satisfied that the goods had been accounted for. (g) His Honour did not consider that the demand was invalid because it claimed payment of a \"debt\". The proper reading of the subsections is that the making of the demand gives rise to a debt. On that basis the description of the amount owed as a \"debt\" at the time the debt arises does not assert an obligation existing before the demand. | (a) The Court held the decision that the residual oils were not \"excisable goods\" and that on that basis alone the demand issued by the Commissioner would be invalid, and be required to be set aside. (b) The Commissioner's control over excisable goods ceases upon the goods being delivered for home consumption. Section 60 has application in respect of excisable goods over which the Commissioner's control has ceased where the cessation of that control is a result of goods being delivered into home consumption in an unauthorised manner. (c) Alternatively, if the residual oils were not delivered for home consumption, then they were at all relevant times subject to the Commissioner's control. (d) The Court held that the residual oils had been consumed by the taxpayer at its premises (\"home consumption\") and no duty had been paid in respect of them. It seemed to His Honour that it was common ground from the outset that Caltex had consumed all of the residual oils and that this was acknowledged by the Commissioner. Accordingly, His Honour found that the Commissioner was not entitled to make the request pursuant to section 60(1)(b). (e) However, the Court found that Caltex had consumed the residual oils by burning them. The consumption of the residual oils in this manner was a failure to keep them safely within section 60(1)(a). (f) The purported account simply recited the facts, which showed that the residual oils had not been kept safely within the meaning of section 60(1)(a). It was therefore reasonable for the Commissioner not to be satisfied that the goods had been accounted for. (g) His Honour did not consider that the demand was invalid because it claimed payment of a \"debt\". The proper reading of the subsections is that the making of the demand gives rise to a debt. On that basis the description of the amount owed as a \"debt\" at the time the debt arises does not assert an obligation existing before the demand.", "Issues_Decided": "The issues that required determination were: (a) Whether the residual oils were \"manufactured or produced\" by Caltex for the purposes of s 5(1) of the Tariff Act. (b) If they were, whether the residual oils were properly characterised as \"refined or semi-refined liquid petroleum ... products\" so as to fall within item 11(a) of the Schedule. (c) Whether the Kurnell Residual Slop Oil and the CLOR Residual Slop Oil fell within item 11(I)(3)(d) of the Schedule (it being agreed by the parties that the Lytton Refinery Fuel Oil was subject to duty under item 11(D), if item 11(a) applied). (d) Whether the residual oils were \"delivered for home consumption\" by Caltex for the purposes of ss 61, 61C and 59 of the Excise Act. (e) Whether the Commissioner's statutory demand is valid, which turns on: • whether s 60 of the Excise Act is applicable to Caltex and the residual oils, including whether Caltex failed to keep the residual oils safely (s 60(1)(a)) or failed to account for the residual oils to the satisfaction of the Commissioner (s 60(1)(b)); and • whether the Commissioner's description in the demand of the amount owing as a \"debt\" invalidates the demand. (a) Whether the residual oils were \"manufactured or produced\" by Caltex for the purposes of s 5(1) of the Tariff Act. (b) If they were, whether the residual oils were properly characterised as \"refined or semi-refined liquid petroleum ... products\" so as to fall within item 11(a) of the Schedule. (c) Whether the Kurnell Residual Slop Oil and the CLOR Residual Slop Oil fell within item 11(I)(3)(d) of the Schedule (it being agreed by the parties that the Lytton Refinery Fuel Oil was subject to duty under item 11(D), if item 11(a) applied). (d) Whether the residual oils were \"delivered for home consumption\" by Caltex for the purposes of ss 61, 61C and 59 of the Excise Act. (e) Whether the Commissioner's statutory demand is valid, which turns on: • whether s 60 of the Excise Act is applicable to Caltex and the residual oils, including whether Caltex failed to keep the residual oils safely (s 60(1)(a)) or failed to account for the residual oils to the satisfaction of the Commissioner (s 60(1)(b)); and • whether the Commissioner's description in the demand of the amount owing as a \"debt\" invalidates the demand. • whether s 60 of the Excise Act is applicable to Caltex and the residual oils, including whether Caltex failed to keep the residual oils safely (s 60(1)(a)) or failed to account for the residual oils to the satisfaction of the Commissioner (s 60(1)(b)); and • whether the Commissioner's description in the demand of the amount owing as a \"debt\" invalidates the demand. | (a) 'Manufactured or Produced': The Court found that each of the residual oils produced by the taxpayer were \"manufactured\" or, alternatively, \"produced\" in the course of its refinery operations as a result of refining raw crude oil. Further, they are systematically extracted from the refining process and brought into a usable form so as to maximise the quantity of higher value products produced. Further, His Honour found that there was nothing expressed in Division 2 of Part III of the Excise Act or section 55 of the Constitution that could be said to limit the ambit of the word \"produced\" in the Tariff Act to the production of tobacco. To the contrary, His Honour found that section 5 is in wide terms and applies to \"all goods...manufactured or produced\" and which are dutiable under the Schedule to the Tariff Act. The Schedule itself reflects the intended width of the term. For these reasons, His Honour concluded that, although the residual oils were not the principal products created by the taxpayer, it is clear that the intention is to bring about all of the known consequences of the refining process so as to consume them in a productive manner. Consequently, the Court held that the residual oils consumed in commercial operations would render the oils as \"manufactured\" goods and subject to excise duty. | (b) 'Refined' or 'Semi-refined' Liquid Petroleum Products: His Honour held that in the context of, and by reference to, the policies and objectives of the Tariff Act as whole and section 15AA of the Acts Interpretation Act 1901 (Cth) none of the residual oils could be said to be \"refined\" or \"semi-refined\". Contrary to the Commissioner's submission, His Honour did not consider that the process of separating the crude oil into different components, in and of itself, means that each separated component therefore has the character of a \"refined\" product. This is especially so where the component in question is essentially removed from the whole because of its inferior or impure nature. Therefore, His Honour concluded that none of the residual oils fell within item 11(a) of the Schedule and were consequently not dutiable. However, His Honour went on to deal with the following issues in the event that his conclusion on the \"refined or semi-refined\" point was incorrect, Liquid v Solid Petroleum Product The Court highlighted that neither the Schedule to the Tariff Act nor the Tariff Act itself, contains any stipulation that the relevant \"refined or semi-refined\" petroleum products in item 11(a) must be liquid at standard temperature or pressure . In the absence of a specific temperature or set of conditions in the Schedule, His Honour considered that the relevant products should be characterised in the form they take when they come into existence as a discrete product. In this instance, His Honour held that at that time, and at all subsequent material times, the residual oils would be in liquid form and, therefore, a liquid petroleum product as described by item 11(a). | (c) Item 11(I)(3)(D) of the Schedule: His Honour upheld the Commissioner's submission that item 11(I), referring to \"other refined ... products\", specifies the rates of duty for refined or partly refined petroleum products that do not otherwise fall under items 11(A) - (L). The Court stated that products that do not come within item 11(I)(1) (\"recycled petroleum products not elsewhere specified\") or 11(I)(2) (\"Other, in packages not exceeding 210 litres\"), would therefore fall to item 11(I)(3) (\"Other\"). Similarly, par (d) of item 11(I)(3) applies to any product within item 11(I)(3) that is not covered by paragraphs (a), (b) or (c). His Honour stated that plainly, the \"other\" in item 11(I)(1)(b)(ii) covered both fuel and non fuel uses, applying to products that did not contain the prescribed marker. Therefore, limiting the scope of item 11(I)(3)(d) to non-fuels would lead to the strange result that a manufacturer could avoid duty entirely on a non-combustion engine fuel by not using the marker - in that circumstance, the product would not fall within any of paragraphs (a) to (d). The Court found that as the residual oils were not produced for use as fuel in an internal combustion engine and did not contain the required \"marker\", each of the residual oils fell within item 11(I) - assuming the residual oils were \"refined\" products. | (d) Delivery for Home Consumption: His Honour stated that the taxpayer's liability for excise duty depended on whether it could be said that the taxpayer \"delivered\" the residual oils for, or into, home consumption as that concept appears in the Excise Act. The Court found that the taxpayer delivered the residual oils for home consumption based on the finding that the Excise Act does not refer to delivery to a person but adopts the more ample language of delivery for or into home consumption. The Court held that the language of the Excise Act is sufficiently broad to apply to the consumption by a manufacturer at its own premises. The Court refuted the contention that \"delivery\" required the physical removal of goods from one place to another, stating that in that scenario it would give the concept of delivery for home consumption a restricted meaning not warranted either by the breadth of the language used, or the purpose of the legislation. For these reasons, the Court concluded that the taxpayer delivered the residual oils for home consumption pursuant to its section 61C permissions. | (e) Validity of the Commissioner's demand under section 60: The Court concluded that it was not open to the Commissioner to rely on a failure to account under section 60(1)(b) to support the demand. The demand was valid only to the extent that it relied on s 60(1)(a) as a basis for the taxpayers liability. His Honour found the following would apply regarding the taxpayer's contentions to this matter, if the above decision was incorrect: (a) The Court held the decision that the residual oils were not \"excisable goods\" and that on that basis alone the demand issued by the Commissioner would be invalid, and be required to be set aside. (b) The Commissioner's control over excisable goods ceases upon the goods being delivered for home consumption. Section 60 has application in respect of excisable goods over which the Commissioner's control has ceased where the cessation of that control is a result of goods being delivered into home consumption in an unauthorised manner. (c) Alternatively, if the residual oils were not delivered for home consumption, then they were at all relevant times subject to the Commissioner's control. (d) The Court held that the residual oils had been consumed by the taxpayer at its premises (\"home consumption\") and no duty had been paid in respect of them. It seemed to His Honour that it was common ground from the outset that Caltex had consumed all of the residual oils and that this was acknowledged by the Commissioner. Accordingly, His Honour found that the Commissioner was not entitled to make the request pursuant to section 60(1)(b). (e) However, the Court found that Caltex had consumed the residual oils by burning them. The consumption of the residual oils in this manner was a failure to keep them safely within section 60(1)(a). (f) The purported account simply recited the facts, which showed that the residual oils had not been kept safely within the meaning of section 60(1)(a). It was therefore reasonable for the Commissioner not to be satisfied that the goods had been accounted for. (g) His Honour did not consider that the demand was invalid because it claimed payment of a \"debt\". The proper reading of the subsections is that the making of the demand gives rise to a debt. On that basis the description of the amount owed as a \"debt\" at the time the debt arises does not assert an obligation existing before the demand. (a) The Court held the decision that the residual oils were not \"excisable goods\" and that on that basis alone the demand issued by the Commissioner would be invalid, and be required to be set aside. (b) The Commissioner's control over excisable goods ceases upon the goods being delivered for home consumption. Section 60 has application in respect of excisable goods over which the Commissioner's control has ceased where the cessation of that control is a result of goods being delivered into home consumption in an unauthorised manner. (c) Alternatively, if the residual oils were not delivered for home consumption, then they were at all relevant times subject to the Commissioner's control. (d) The Court held that the residual oils had been consumed by the taxpayer at its premises (\"home consumption\") and no duty had been paid in respect of them. It seemed to His Honour that it was common ground from the outset that Caltex had consumed all of the residual oils and that this was acknowledged by the Commissioner. Accordingly, His Honour found that the Commissioner was not entitled to make the request pursuant to section 60(1)(b). (e) However, the Court found that Caltex had consumed the residual oils by burning them. The consumption of the residual oils in this manner was a failure to keep them safely within section 60(1)(a). (f) The purported account simply recited the facts, which showed that the residual oils had not been kept safely within the meaning of section 60(1)(a). It was therefore reasonable for the Commissioner not to be satisfied that the goods had been accounted for. (g) His Honour did not consider that the demand was invalid because it claimed payment of a \"debt\". The proper reading of the subsections is that the making of the demand gives rise to a debt. On that basis the description of the amount owed as a \"debt\" at the time the debt arises does not assert an obligation existing before the demand.", "ATO_View_of_Decision": "'Manufactured or Produced' and 'Delivery for Home Consumption' | The case provides guidance on the meaning of 'manufactured or produced' for the purposes of the Excise Act and the Tariff Act. It is also important in that it explains the meaning of the expression 'delivered for home consumption'. | The decision confirms the Commissioner's view on these concepts which are fundamental to the operation of the Excise system. | 'Refined and Semi-Refined' | The Court took a different view to that of the Commissioner in that the residual oils were not \"refined\" or \"semi-refined\" products and, therefore, not subject to excise duty under item 11 of the Tariff Act. | The Commissioner accepts the decision in relation to this issue having regard to the facts of this case and for this reason will not appeal the decision.", "Administrative_Treatment": "None", "Related_Documents": "No relevant rulings and determinations considered. | [2008] FCA 1951 | 5(1) | item 11 of the Schedule | 54 | 60 | 61 | 61C | 85 ATC 4001 | (1934) 50 CLR 225 | (1978) 117 CLR 631 | (1949) 78 CLR 336 | 97 ATC 4674 | (1938) 60 CLR 263 | (1964) 111 CLR 353 | (1963) 110 CLR 264 | 2000 ATC 4559 | (1960) 104 CLR 529 | (1985) 157 CLR 309 | (1988) 78 ALR 285 | 13 ALR 37 | 49 ATR 114 | (1962) 107 CLR 279 | (1989) 167 CLR 399 | [2000] FCA 607 | 89 ATC 5000 | (1904) 1 CLR 497 | 96 ATC 4031 | (1951) 84 CLR 105 | [2007] EWHC 447 | (1998) 194 CLR 355", "Legislative_References": "Excise Tariff Act 1921(Clth) (the Tariff Act) 5(1) item 11 of the Schedule Excise Act 1901(Clth) (the Excise Act) 4AA 54 54 60 61 61C Constitution of the Commonwealth 55", "Case_References": "Commissioner of Taxation v Jax Tyres Pty Ltd (1984) 5 FCR 257 16 ATR 97 85 ATC 4001 Federal Commissioner of Taxation v Rochester (1934) 50 CLR 225 [1934] HCA 17 MP Metals Pty Ltd v Federal Commissioner of Taxation (1978) 117 CLR 631 Federal Commissioner of Taxation v Jack Zinander Pty Ltd (1949) 78 CLR 336 [1949] HCA 42 Commonwealth v 5 Star Foods Pty Ltd (2002) 167 FLR 214 Ha v New South Wales (1997) 189 CLR 465 36 ATR 319 97 ATC 4674 Matthews v Chicory Marketing Board (Vict) (1938) 60 CLR 263 Anderson's Pty Ltd v Victoria (1964) 111 CLR 353 Bolton v Madsen (1963) 110 CLR 264 Commissioner for A.C.T. Revenue v Kithock Pty Ltd (2000) 102 FCR 42 45 ATR 43 2000 ATC 4559 Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529 K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 Attorney-General v The Colonial Sugar Refining Co Ltd (1900) 26 VLR 83 Rheem Australia Ltd v Collector of Customs (NSW) (1988) 78 ALR 285 R v Lyon (1906) 3 CLR 770 13 ALR 37 Moama Refinery v Chief Executive Officer of Customs (2001) 115 FCR 205 49 ATR 114 48 ATR 145 Collector of Customs (New South Wales) v Southern Shipping Co Ltd (1962) 107 CLR 279 Philip Morris Ltd v Commissioner of Business Franchises (Victoria) (1989) 167 CLR 399 Sidebottom v Giuliano (2000) 98 FCR 579 [2000] FCA 607 Danmark Pty Ltd v Commissioner of Taxation (Cth) (1944) 7 ATD 333 Magna Stic Magnetic Signs Pty Ltd v Commissioner of Taxation (Cth) (1989) 20 ATR 1237 89 ATC 5000 Peterswald v Bartley (1904) 1 CLR 497 Revlon Manufacturing Limited v Commissioner of Taxation (1995) 63 FCR 535 96 ATC 4031 32 ATR 48 Federal Commissioner of Taxation v Wade (1951) 84 CLR 105 Langston v Langston (1834) 2 Cl & Fin 194 6 ER 1128 In Re Solomon; Solomon v Solomon [1946] VLR 115 Multiplex Constructions (UK) Limited v Honeywell Control Systems Limited (No. 2) [2007] EWHC 447 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355", "Subject_References": "Duties of excise Refining residual oils left after separation Residual oils 'Manufactured' or 'produced' Refined or semi- refined liquid petroleum products Delivered for home consumption Entered for home consumption Whether refiner failed to keep residuals safely or failed to account for them Demand under section 60 of the Excise Act", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID547of2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Clark v Commissioner of Taxation", "Venue_Reference_No": "SAD 110 of 2007", "Venue": "Federal Court of Australia", "Judgment_Date": "3 April 2008", "Date_Published": "2 September 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether a South Australian magistrate was 'a judge of a court of a State' for the purposes of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment And Collection Act 1997.", "Overview_of_Facts": "The case concerned the application of the superannuation contributions tax (surcharge) to a stipendiary magistrate of South Australia who was a member of a Constitutionally Protected Fund (CPF). | It was argued for the taxpayer that, as a Magistrate of the Youth Court of South Australia, he was 'a judge of a court of a State' for the purposes of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment And Collection Act 1997 (the Act). The relevance of this was that the surcharge did not apply to judges who were members of CPFs and who were appointed to their position before the commencement of the Act on 7 December 1997. The taxpayer had been appointed to the magistracy before the Act commenced. | The taxpayer also argued that the surcharge legislation was constitutionally invalid in its application to him, either on the basis of the principles stated in the High Court's decision in Austin v The Commonwealth (2003) 215 CLR 185 or because of section 114 of the Constitution. | Finally, the taxpayer argued that, as a matter of statutory construction, the surcharge did not apply to him because there were no \"surchargeable contributions\" within the meaning of the Act. | Issues decided by the court | The reference in section 7 of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment And Collection Act 1997 to \"a judge of a court of a State\" should be taken to include the taxpayer in his capacity as a magistrate of South Australia. | It followed that, as the taxpayer was appointed to the magistracy before the date the Act commenced, the Act did not apply to him and he was therefore not liable to pay surcharge under the Act. | In view of this conclusion, the Court found it unnecessary to decide the other questions that were referred to it, including the question relating to constitutional validity. However, an identically constituted Full Court considered, and rejected, arguments that in some respects were similar to this taxpayer's constitutional arguments in the related case of Ralph Clarke v Federal Commissioner of Taxation [2008] FCAFC 106. | In that case the Full Court also rejected the argument that there were relevantly no \"surchargeable contributions\", within the meaning of the surcharge legislation, in relation to the CPFs in question in that case.", "Issues_Decided": "The reference in section 7 of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment And Collection Act 1997 to \"a judge of a court of a State\" should be taken to include the taxpayer in his capacity as a magistrate of South Australia. It followed that, as the taxpayer was appointed to the magistracy before the date the Act commenced, the Act did not apply to him and he was therefore not liable to pay surcharge under the Act. In view of this conclusion, the Court found it unnecessary to decide the other questions that were referred to it, including the question relating to constitutional validity. However, an identically constituted Full Court considered, and rejected, arguments that in some respects were similar to this taxpayer's constitutional arguments in the related case of Ralph Clarke v Federal Commissioner of Taxation [2008] FCAFC 106. In that case the Full Court also rejected the argument that there were relevantly no \"surchargeable contributions\", within the meaning of the surcharge legislation, in relation to the CPFs in question in that case.", "ATO_View_of_Decision": "The Tax Office did not seek special leave to appeal to the High Court of Australia. The Tax Office accepts that the Federal Court's decision is authoritative. | For the purposes of the following discussion a \"magistrate\" is a judicial officer who presides over a court of the lowest tier. The term does not extend to various other officials, such as justices of the peace, who might be regarded as \"magistrates\" in some other sense of the term. | The decision in Clark v Commissioner of Taxation affects only: • magistrates of any Australian States who were members of CPFs, by virtue of their magistracy, as at 7 December 1997 (being the commencement date of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment And Collection Act 1997 ); and • magistrates of the Australian Capital Territory and the Northern Territory who were members of non-CPFs, by virtue of their magistracy, as at 5 June 1997 (being the commencement date of the Superannuation Contributions Tax (Assessment And Collection) Act 1997 ). | • magistrates of any Australian States who were members of CPFs, by virtue of their magistracy, as at 7 December 1997 (being the commencement date of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment And Collection Act 1997 ); and • magistrates of the Australian Capital Territory and the Northern Territory who were members of non-CPFs, by virtue of their magistracy, as at 5 June 1997 (being the commencement date of the Superannuation Contributions Tax (Assessment And Collection) Act 1997 ). | State magistrates who were not members of CPFs and State magistrates who were appointed after 7 December 1997 are not affected by the decision and so remain liable to pay surcharge as before. | The Tax Office understands that in practice, with a small number of possible exceptions, only South Australia and Western Australia have magistrates who are members of CPFs. On this basis, the Tax Office considers that the Court's decision affects magistrates of those two States who were appointed on or before 7 December 1997, and not (in general) magistrates of New South Wales, Victoria, Queensland or Tasmania. | For those magistrates who are covered by the decision, only the contributions referable to their membership of a CPF because they were a magistrate are affected by the decision. Surcharge continues to be payable in the normal way on contributions referable, for example, to any other employment a person may have had at any time. | As the Court did not decide the constitutional question raised by this case, the Tax Office will continue to administer the surcharge legislation on the basis that it is constitutionally valid in its application to magistrates. | The Tax Office does not accept the argument that there were no \"surchargeable contributions\" (as that term was defined) in relation to the taxpayer's membership of the relevant CPFs and regards this argument as having been relevantly rejected by the Full Federal Court in the Ralph Clarke case.", "Administrative_Treatment": "The Tax Office is taking steps to identify those taxpayers who may be affected by the decision (ie. all relevant magistrates mentioned above under the heading Tax Office view of Decision ) with a view to amending the relevant assessments in favour of the members concerned and refunding any surcharge that was incorrectly paid to the Tax Office. | Individuals who consider that they may belong to the class of taxpayer affected by the decision may contact the Tax Office directly. Correspondence may be sent to: PO Box 3100 PENRITH NSW 2740 Attention Sue Burton, Interpretative Assistance, Superannuation. | Implications on current Public Rulings & Determinations | None", "Related_Documents": "None. | [2008] FCAFC 51 | (2008) 171 FCR 1 | 7 | 4 | 34A | (2003) 2003 ATC 4042", "Legislative_References": "Superannuation Contribution Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 7 Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Imposition Act 1997 4 Superannuation Contributions Tax (Assessment And Collection) Act 1997 34A Superannuation Contributions Tax Imposition Act 1997 4", "Case_References": "Austin v Commonwealth of Australia 215 CLR 185 [2003] HCA 3 (2003) 2003 ATC 4042 (2003) 195 ALR 321 51 ATR 654 Frederick v State of South Australia (2006) 94 SASR 545 [2006] SASC 165 (2006) 152 IR 182 Re Bryant; ex parte Guarino (2001) 178 ALR 57 [2001] HCA 5 (2001) 75 ALJR 478 The Queen v Moss; ex parte Mancini (1982) 29 SASR 385", "Subject_References": "superannuation contributions surcharge superannuation contributions tax", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/SAD110of2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Colby Corporation Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "WAD 359 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "20 February 2008", "Date_Published": "2 September 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Appellant's appeal against the decision of the Administrative Appeals Tribunal dismissed.", "Summary_of_Decision": "Whether a contractor \"purchased\" fuel for use in a qualifying use under subsection 53(2) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA).", "Overview_of_Facts": "A drilling contractor consumed diesel fuel using its own machines in carrying out drilling operations for a mining company in the course of mining operations. The mining company supplied the fuel to the drilling contractor under a contract and for the purpose of carrying out the contracted activities. No separate charge was made by the mining company for the fuel. However, some contracts provided for alternative payment rates for the work done by the contractor depending on whether the mining company supplied the fuel or the contractor supplied its own fuel - although the mining company supplied the fuel in this instance. There was evidence that the contractor did not have to account for any residual fuel left in the fuel tanks of its drilling rigs at the end of a contract but that the amounts in question were insignificant. | The drilling contractor argued that it had \"purchased\" the fuel for the purposes s.53 of the EGCSA thus entitling it to off-road credits (and, therefore, energy credits) under the EGCSA. It argued that it acquired property in the fuel because it was allowed to retain residual fuel at the end of a contract. It argued also that it had provided consideration for the fuel by agreeing to accept a lower contract rate for its work than it would have accepted had it supplied its own fuel. | The Administrative Appeals Tribunal (AAT) found that the drilling contractor had not \"purchased\" the fuel and in particular that no mutual intention that property in the fuel was to pass from the mining company to the drilling contractor could be discerned from the contracts. | Issues decided by the court | For there to be a \"purchase\" of fuel there must be both consideration provided to the supplier and an intention that property in the fuel will pass from the supplier. | While a majority of the court was of the view that consideration for the fuel was provided, it was unanimous in holding that the proper construction of the relevant contracts was that there was no intention that property in the fuel would pass.", "Issues_Decided": "For there to be a \"purchase\" of fuel there must be both consideration provided to the supplier and an intention that property in the fuel will pass from the supplier. While a majority of the court was of the view that consideration for the fuel was provided, it was unanimous in holding that the proper construction of the relevant contracts was that there was no intention that property in the fuel would pass.", "ATO_View_of_Decision": "The decision supports the ATO view of the meaning of the word \"purchase\" in s.53 of the EGCSA. The ATO view is that for there to be a relevant \"purchase\" of fuel consideration is required and there must be an intention that property in the fuel pass to the party seeking to claim the relevant credits. In the above situation where a contractor is supplied fuel for the purposes of performing the contract, ownership of the fuel will not pass unless there is mutual intention of the parties that property in the fuel is to pass.", "Administrative_Treatment": "Current practice affirmed. | Implications on current Public Rulings & Determinations | As above", "Related_Documents": "PGBR 2005/2 Energy grants: off-road credits for mining operations paras 127-129 | PGBR 2005/3 Energy grants: off-road credits for mining operations paras 142-150 | [2008] FCAFC 10 | 53(1) | 53(2) | (2002) 50 ATR 1106", "Legislative_References": "Energy Grants (Credits) Scheme Act 2003 (EGCSA) 53(1) 53(2)", "Case_References": "Comptroller-General of Customs v Woodlands Enterprises Pty Ltd [1996] 1 QdR 589 (1995) 128 FLR 113 Re Riviera Nautic Pty Ltd v FCT [2002] AATA 657 (2002) 50 ATR 1106 (2002) 68 ALD 581", "Subject_References": "Energy Grants Off-road credits Off-road diesel fuel Product Grants and Benefits Purchase of fuel Mining operations", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD359of2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Day", "Venue_Reference_No": "S315/2008", "Venue": "High Court", "Judgment_Date": "13 November 2008", "Date_Published": "28 March 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned deductibility of legal expenses incurred by a public servant in defending charges in respect of conduct which occurred outside the course of his normal day-to-day duties", "Overview_of_Facts": "The taxpayer claimed a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for legal expenses incurred by him in the 2002 income year in defending three sets of disciplinary charges brought against him by his employer, the Australian Customs Service (Customs), under the Public Service Act 1922 . | The First Charge was brought under paragraph 56(d) of the Public Service Act 1922 and related to the alleged failure of the taxpayer to fulfil his duty as an officer in that he presented his official Customs identification card, in circumstances which were not work related, to gain access to a court officer in order to obtain information regarding a search warrant which had authorised a search of his workstation. | The Second Charges were brought under subparagraph 56(f)(i) of the Public Service Act 1922 and related to alleged failures of the taxpayer on various dates to fulfil his duty to accurately record attendance at work. | The Third Charges were brought under paragraph 56(d) of the Public Service Act 1922 and related to the alleged failures of the taxpayer to fulfil his duty as an officer in a number of instances, including that the taxpayer had failed to inform Customs of relevant information relating to a claim for a diesel fuel rebate by the partner of another Customs officer, had lent improper support and assistance to the other officer and was knowingly concerned in the creation of a false diary which supported the claim, had used a work vehicle for non-work related purposes, had falsely recorded his attendance records, and had failed to communicate certain information concerning an investigation into another person. The charges were made following the release by the Australian Federal Police (AFP) to Customs of information obtained from telephonic interceptions of the taxpayer's home and work telephones. The taxpayer initiated legal proceedings in the Federal Court and the High Court, unsuccessfully, to have the charges set aside on the basis that the information obtained from telephone interceptions was unlawfully passed to Customs by the AFP. | At first instance Emmett J held that the legal expenses incurred in relation to the First and Third Charges were not deductible, but also held that the Commissioner was estopped from contending that the expenses relating to the Third charges were deductible. His Honour held that legal expenses incurred in relation to the Second Charges were deductible. | The Commissioner appealed to the Full Federal Court against the application of estoppel in respect of the legal expenses related to the Third Charges. The Commissioner accepted that the legal expenses incurred in respect of the Second Charges were deductible. The taxpayer cross-appealed against the finding that the legal expenses incurred in respect of the First and Third Charges were not deductible. | The Full Federal Court (Spender, Dowsett and Edmonds JJ) allowed the Commissioner's appeal on the issue of estoppel. However, a majority of the Full Court, Spender and Edmonds JJ, also allowed the taxpayer's cross-appeal, holding the expenses incurred in respect of the First and Third charges to be deductible, although for different reasons. | Dowsett J, in his dissenting judgment in the Full Court, agreed with the primary judge, Emmett J, that the legal expenses incurred in relation to the First and Third Charges were not deductible. | The Commissioner applied for special leave to appeal to the High Court and leave was granted. | Issues decided by the High Court | Outgoing incurred in gaining or producing assessable income | A majority of the High Court (Gummow, Hayne, Heydon and Kiefel JJ) held that the legal expenses were incurred by the taxpayer in the course of gaining or producing his assessable income and therefore that paragraph 8-1(1)(a) of the ITAA 1997 was satisfied. Their Honours said: \"Section 8-1 is couched in terms intended to cover any number of factual and legal situations in which expenditure is incurred by a taxpayer. Its language and breadth of application do not make possible a formula capable of application to the circumstances of each case. The question ... is: is the occasion of the outgoing found in whatever is productive of actual or expected income? Essential to the enquiry is the determination of what it is that is productive of assessable income. A determination of what is productive of assessable income in a particular case may need to take account of any number of positive and negative duties to be performed or observed by an employee or other salary-earner. It is that determination which provides the answer as to whether the occasion is provided for the expenditure in question. That no narrow approach should be taken to the question of what is productive of a taxpayer's income is confirmed by cases which acknowledge that account should be taken of the whole of the operations of the business concerned in determining questions of deductibility. A similar approach should be taken to what is productive of a salary-earner's income ... In some cases those duties to be observed may extend beyond what is contained in the contract of employment. ...[I]t will often be necessary to analyse with some care the operations or activities regularly carried on by the taxpayer ... The essential difficulty with the Commissioner's argument in this case is that it does not fully recognise the scope of the respondent's role as an officer of the Public Service and what his office exposed him to. The respondent's position as an officer subject to the Public Service Act 1922 obliged him to observe standards of conduct extending beyond those in the performance of the tasks associated with his office and exposed him to disciplinary procedures within the Service which might have consequences for the retention of his office or his salary. What was productive of income must be understood in this light. He was exposed to ... charges [with respect to his conduct, or misconduct, as an officer] and consequential expenses by reason of his office. The charges cannot be considered remote from his office, in the way that private conduct giving rise to criminal or other sanctions may be. The incurring of expenditure by an employee to defend a charge because it may result in his or her dismissal may not itself be sufficient in every case to establish the necessary connection to the employment or service which is productive of income. Much will depend upon what is entailed in the employment and duties which it imposes upon an employee. In the present case the requisite connection is present.\" The majority also considered that in most cases whether expenses are incurred in gaining or producing assessable income looks to the scope of the operations or activities and their relevance to expenditure, rather than to a taxpayer's reason for the expenditure. | Not an outgoing of a private nature | The majority also held that the expenses were not of a private nature, because they were incurred in connection with the taxpayer's position as a public servant and were not unconnected to his service like some fines and penalties are. | Kirby J held that the taxpayer had not incurred the legal expenses in gaining or producing his assessable income. The matters giving rise to the expenditure lacked the requisite temporal or other connection with gaining or producing his assessable income. Alternatively, the expenditure was a loss or outgoing of a private nature and therefore excluded from deductibility.", "Issues_Decided": "Outgoing incurred in gaining or producing assessable income: A majority of the High Court (Gummow, Hayne, Heydon and Kiefel JJ) held that the legal expenses were incurred by the taxpayer in the course of gaining or producing his assessable income and therefore that paragraph 8-1(1)(a) of the ITAA 1997 was satisfied. Their Honours said: \"Section 8-1 is couched in terms intended to cover any number of factual and legal situations in which expenditure is incurred by a taxpayer. Its language and breadth of application do not make possible a formula capable of application to the circumstances of each case. The question ... is: is the occasion of the outgoing found in whatever is productive of actual or expected income? Essential to the enquiry is the determination of what it is that is productive of assessable income. A determination of what is productive of assessable income in a particular case may need to take account of any number of positive and negative duties to be performed or observed by an employee or other salary-earner. It is that determination which provides the answer as to whether the occasion is provided for the expenditure in question. That no narrow approach should be taken to the question of what is productive of a taxpayer's income is confirmed by cases which acknowledge that account should be taken of the whole of the operations of the business concerned in determining questions of deductibility. A similar approach should be taken to what is productive of a salary-earner's income ... In some cases those duties to be observed may extend beyond what is contained in the contract of employment. ...[I]t will often be necessary to analyse with some care the operations or activities regularly carried on by the taxpayer ... The essential difficulty with the Commissioner's argument in this case is that it does not fully recognise the scope of the respondent's role as an officer of the Public Service and what his office exposed him to. The respondent's position as an officer subject to the Public Service Act 1922 obliged him to observe standards of conduct extending beyond those in the performance of the tasks associated with his office and exposed him to disciplinary procedures within the Service which might have consequences for the retention of his office or his salary. What was productive of income must be understood in this light. He was exposed to ... charges [with respect to his conduct, or misconduct, as an officer] and consequential expenses by reason of his office. The charges cannot be considered remote from his office, in the way that private conduct giving rise to criminal or other sanctions may be. The incurring of expenditure by an employee to defend a charge because it may result in his or her dismissal may not itself be sufficient in every case to establish the necessary connection to the employment or service which is productive of income. Much will depend upon what is entailed in the employment and duties which it imposes upon an employee. In the present case the requisite connection is present.\" The majority also considered that in most cases whether expenses are incurred in gaining or producing assessable income looks to the scope of the operations or activities and their relevance to expenditure, rather than to a taxpayer's reason for the expenditure. | Not an outgoing of a private nature: The majority also held that the expenses were not of a private nature, because they were incurred in connection with the taxpayer's position as a public servant and were not unconnected to his service like some fines and penalties are. Kirby J held that the taxpayer had not incurred the legal expenses in gaining or producing his assessable income. The matters giving rise to the expenditure lacked the requisite temporal or other connection with gaining or producing his assessable income. Alternatively, the expenditure was a loss or outgoing of a private nature and therefore excluded from deductibility.", "ATO_View_of_Decision": "Outgoing incurred in gaining or producing assessable income | As noted by the High Court, section 8-1 is intended to cover such a wide variety of cases it is impossible to provide a formula capable of application to every case. The decision does not lay down any rule for the deduction of legal expenses by an employee beyond the requirement that the occasion for the expenses must be found in what is productive of the assessable income of the employee, which will turn on consideration of the scope of the taxpayer's employment. | The scope of a particular taxpayer's employment is a question of fact and degree. It is not confined to the day-to-day activities performed by the employee. In the circumstances of Day the majority had regard to the nature of the employment (in particular the role of public servants), the terms and conditions of the employment and the tasks performed and duties to be observed under the employment. Of significance was the fact that the legal expenses were incurred in responding to disciplinary action internal to the employment relationship and existing for no other purpose. The taxpayer was exposed to the action by reason of his employment as a public servant, and the consequences of the action only affected his employment. | Where legal expenses are incurred by the employee in an ongoing employment relationship the majority's decision clarifies that the requisite connection required by paragraph 8-1(1)(a) of the ITAA 1997 will not only be satisfied where the connection between the outgoing and the income is identified as being incurred to defend the manner of performance of positive duties, or as arising out of the day-to-day activities of employment. The decision establishes that where the connection between the legal expenses and the income is identified as being incurred to answer allegations of breaching negative duties imposed under the terms of the employment this may also be sufficient to satisfy paragraph 8-1(1)(a) of the ITAA 1997. It may be generalised that where employment or service is conducted on terms that standards of conduct be observed in a taxpayer's personal life on pain of dismissal or reduction in salary, legal expenses incurred in resisting civil disciplinary or legal action will be deductible. | Where the terms of employment do not oblige a taxpayer to observe certain standards of conduct, as the High Court observed, the incurring of expenditure by an employee to defend a charge because it may result in his or her dismissal may not itself be sufficient in every case to establish the necessary connection to the employment or service which is productive of income. Although the legal expenses in such a case may be incurred for a purpose of deriving employment income it does not necessarily follow that they were incurred in the course of gaining or producing that income. In particular, the Commissioner considers that the costs of defending criminal proceedings will rarely, if ever, be deductible under section 8-1. | Not an outgoing of a private nature | The Court found, on the facts of this case, that the legal expenses incurred by the taxpayer in relation to the disciplinary action taken by his employer are not outgoings of a private or domestic nature. Crucial to this view was the fact that the terms of employment exposed the taxpayer as an employee to the employer action , and therefore to the need to incur the legal expenses. The employer brought the action and the legal expenses were incurred in respect of proceedings internal to the employment relationship. The consequences of the disciplinary action, if proven, for the taxpayer principally affected the terms or existence of his employment as a customs officer. However, the criminal law applies regardless of any employment obligation, and the duty to obey it and to respond to criminal proceedings is owed by every man or woman to the Crown as a subject of the law, and not as an employee to the employer. Costs incurred in defending criminal proceedings, in the Commissioner's opinion, are private expenses even when an employee is liable to be dismissed from employment on conviction.", "Administrative_Treatment": "ATO ID 2002/665 , which concerns the deductibility of legal expenses incurred in defending disciplinary charges, was withdrawn on 24 July 2009. | Implications on current Public Rulings & Determinations | The Tax Office has reviewed its public rulings to ensure that they are consistent with the reasons of the High Court and confirms that no changes were required.", "Related_Documents": "ATO ID 2002/665 | 2008 ATC 20-064 | 8-1 | 54 CLR 295 | 95 CLR 344 | 187 CLR 384 | 96 ATC 5240 | 91 ATC 4396 | 99 ATC 4504 | 95 ATC 4691 | 2006 ATC 4268 | 2007 ATC 5426 | 71 ATC 4184 | 2001 ATC 4027 | 99 CLR 431 | 2006 ATC 4404 | 81 ATC 4114 | 91 ATC 4950 | 148 CLR 182 | 81 ATC 4157 | 48 CLR 113 | 89 ATC 4101 | [1958] HCA 5 | 100 CLR 478 | 80 ATC 4542 | 140 ALR 625 | 191 CLR 85 | [1998] HCA 28 | 194 CLR 355 | 91 ATC 4097 | [1949] HCA 15 | 78 CLR 47 | 99 ATC 4242 | 56 CLR 290", "Legislative_References": "Income Assessment Tax Act 1997 (Cth) 8-1 Public Service Act 1922 (Cth) 55 56 61 62 63B 63D", "Case_References": "Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation [1935] HCA 81 54 CLR 295 Charles Moore & Co (WA) Pty Ltd v Federal Commissioner of Taxation [1956] HCA 77 95 CLR 344 CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2 187 CLR 384 Collector of Customs v Agfa-Gevaert Ltd [1996] HCA 36 186 CLR 389 35 ATR 249 96 ATC 5240 Commissioner of Taxation v Cooper 29 FCR 177 91 ATC 4396 21 ATR 1616 Commissioner of Taxation v Shokker [1999] FCA 600 92 FCR 54 42 ATR 257 99 ATC 4504 Commissioner of Taxation v Rowe 60 FCR 99 31 ATR 392 95 ATC 4691 Day v Federal Commissioner of Taxation 62 ATR 530 [2006] FCA 655 2006 ATC 4268 Federal Commissioner of Taxation v Day 164 FCR 250 67 ATR 936 2007 ATC 5426 Federal Commissioner of Taxation v Hatchett [1971] HCA 47 125 CLR 494 2 ATR 557 71 ATC 4184 Federal Commissioner of Taxation v Payne [2001] HCA 3 202 CLR 93 2001 ATC 4027 46 ATR 228 Federal Commissioner of Taxation v Snowden & Willson Pty Ltd [1958] HCA 23 99 CLR 431 Federal Commissioner of Taxation v Citylink Melbourne Ltd 228 CLR 1 [2006] HCA 35 62 ATR 648 2006 ATC 4404 Federal Commissioner of Taxation v Smith 147 CLR 578 [1981] HCA 10 11 ATR 538 81 ATC 4114 Federal Commissioner of Taxation v Snowden & Willson Pty Ltd [1958] HCA 23 99 CLR 431 Fletcher v Federal Commissioner of Taxation [1991] HCA 42 173 CLR 1 22 ATR 613 91 ATC 4950 Handley v Federal Commissioner of Taxation 148 CLR 182 [1981] HCA 16 Federal Commissioner of Taxation v Forsyth 148 CLR 203 [1981] HCA 15 11 ATR 657 81 ATC 4157 Herald & Weekly Times Ltd v Federal Commissioner of Taxation [1932] HCA 56 48 CLR 113 John v Federal Commissioner of Taxation [1989] HCA 5 166 CLR 417 20 ATR 1 89 ATC 4101 Lunney v Commissioner of Taxation [1958] HCA 5 100 CLR 478 Magna Alloys and Research Pty Ltd v Federal Commissioner of Taxation 33 ALR 213 11 ATR 276 80 ATC 4542 [1980] FCA 150 McManus v Scott-Charlton (1996) 70 FCR 16 140 ALR 625 Newcastle City Council v GIO General Ltd [1997] HCA 53 191 CLR 85 Project Blue Sky Inc v Australian Broadcasting Corporation [1998] HCA 28 194 CLR 355 Putnin v Commissioner of Taxation 27 FCR 508 21 ATR 1245 91 ATC 4097 Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation [1949] HCA 15 78 CLR 47 Steele v Deputy Commissioner of Taxation [1999] HCA 7 197 CLR 459 41 ATR 139 99 ATC 4242 Strong & Co v Woodifield [1906] AC 448 W Nevill & Co Ltd v Federal Commissioner of Taxation [1937] HCA 9 56 CLR 290", "Subject_References": "Deductibility of legal expenses Whether legal expenses incurred 'in gaining or producing' assessable income Connection with activities productive of assessable income Legal expenses incurred in defending charges under the Public Service Act 1922 (Cth)", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S315/2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Futuris Corporation Ltd", "Venue_Reference_No": "A47/2007", "Venue": "High Court", "Judgment_Date": "31 July 2008", "Date_Published": "5 January 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable, appeal allowed unanimously.", "Summary_of_Decision": "Challenges to an income tax assessment should be made using the processes in Part IVC of the Taxation Administration Act 1953 unless there is corrupt conduct or a deliberate failure to comply with the provisions of the income tax law by the Commissioner.", "Overview_of_Facts": "Futuris (\"the taxpayer\") was a publicly listed company. As at September 1997 it owned, through various subsidiaries, assets collectively known as its \"Building Products Division\". Two of the taxpayer's directly owned subsidiaries were Vockbay Pty Ltd (\"Vockbay\") and Walshville Holdings Pty Ltd (\"Walshville\"). Vockbay owned a subsidiary, Bristile Ltd (\"Bristile\"). | Vockbay transferred its shares in Bristile to Walshville and Futuris then disposed of its Building Products Division by floating Walshville. The transfer of the shares held by Vockbay attracted the operation of Division 19A of the Income Tax Assessment Act 1936 (\"ITAA1936\") (the value shifting provisions), which applied to asset transfers between companies under common ownership. Division 19A had the effect of reducing the cost base of the taxpayer's shares in Vockbay and increasing the cost base of its shares in Walshville. The amount of the taxpayer's cost base transferred was calculated to be $82.95m. | In November 2002, the Commissioner issued to the taxpayer an amended assessment for the 1997/98 year (\"first amended assessment\"), increasing its taxable income by $19.95m. This was made on the basis that the cost base of the Vockbay shares held by Futuris was only $63m and that this was the maximum amount that could be transferred to the cost base of the Walshville shares held by Futuris . The taxpayer objected to the first amended assessment, and appealed to the Federal Court against the Commissioner's disallowance of that objection (\"the Division 19A proceedings\"). | In November 2004, the Commissioner issued the taxpayer with a second amended assessment for the 1997/98 year, increasing its taxable income by a further $82.95m on the basis that the amount was a tax benefit that had been cancelled pursuant to section 177F of Part IVA of the ITAA1936. | Although the first amended assessment had already increased the taxpayer's taxable income by $19.95m, the Commissioner proceeded on the basis that a further $82.95m should be included in the taxpayer's assessable income (increasing the taxable income of the taxpayer by the same amount). In adopting this position, the Commissioner was mindful that, depending on the outcome of the Division 19A proceedings, it might be appropriate for a compensating adjustment to be made at a later stage under section 177F(3) of the ITAA1936. | The taxpayer objected to the second amended assessment and appealed to the Federal Court against the Commissioner's disallowance of its objection (\"the Part IVA proceedings\"). Subsequently, the taxpayer commenced proceedings under section 39B of the Judiciary Act 1903 (\"the Judiciary Act\") seeking to have the second amended assessment quashed. In support of its application the taxpayer argued that in failing to take into account the $19.95m already included in the first amended assessment, the second amended assessment had deliberately overstated the taxpayer's taxable income for the year ended 30 June 1998. The result was that the Commissioner had purported to make an 'assessment' which he knew was incorrect; this represented an unauthorised exercise of the power to assess. | Alternatively, the taxpayer argued that the \"assessment\" made was not at law an assessment: the 'assessment' was tentative or provisional in that it did not create a definitive liability because of the contemplated later use of section 177F(3) of the ITAA1936. | Federal Court decision | Finn J at first instance held that the Commissioner was acting within power when he chose to include the full $82.95m in the taxpayer's assessable income, rather than only part of the amount. The Commissioner was entitled to take this course because, among other matters: • The Division 19A proceedings had not been determined; • There was uncertainty about how the $19.95m was calculated; and • A later compensating adjustment could be made if necessary. | • The Division 19A proceedings had not been determined; • There was uncertainty about how the $19.95m was calculated; and • A later compensating adjustment could be made if necessary. | Full Federal Court decision | The taxpayer appealed the decision to the Full Federal Court comprising Heerey, Stone and Edmonds JJ who allowed the taxpayer's appeal in part finding that while the 'assessment' was neither provisional nor tentative, the Commissioner had deliberately engaged in double counting, albeit on the basis that any double taxation could subsequently be rectified by a suitable compensating adjustment under section 177F(3). The court held that section 177F(3) was never intended to allow the Commissioner to assess an amount as being the taxable income of a taxpayer which the Commissioner knew exceeded the true taxable income. Consequently, as the power to assess had been exercised with a want of good faith, section 175 did not operate to protect the assessment from judicial examination outside the confines of Part IVC. | Issues decided by the court | The High Court unanimously found that Finn J was correct to dismiss the section 39B application, and the Full Federal Court erred in overturning the judgment of Finn J. | This case was to be decided by the application of section 175. Section 175 provides that a failure to comply with any provision of the Income Tax Assessment Act 1936 does not affect the validity of any assessment.Section 177(1) merely gives evidentiary effect to section 175. There is no conflict or inconsistency between sections 177(1) and section 175 and the requirements of the ITAA1936 governing assessment (see also the reasons of Dawson J in Deputy Commissioner of Taxation v Richard Walter Pty Ltd) . There is no need to read down either provision in the way discussed in Plaintiff S157/2002. | The significance of section 175 for the operation of the ITAA1936 and for the scope of judicial review outside Part IVC is to be assessed in the manner indicated in Project Blue Sky Inc v Australian Broadcasting Authority . The relevant question is 'whether it is a purpose of the Act that a failure by the Commissioner in the process of assessment to comply with provisions of the Act renders the assessment invalid; in determining that question of legislative purpose regard must be had to the language of the relevant provisions and the scope and purpose of the statute'. In this context there is no scope for the operation of the Hickman principle (further see Marijancevic v Mann [2008] FCAFC 161 at [13]). | The validity of an assessment is not affected by failure to comply with any provision of the ITAA1936. 'Where section 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under section 75(v) of the Constitution or under section 39B of the Judiciary Act'. Additionally, where section 175 operates there is no potential operation for the equitable remedies of declarations and injunctions, as those remedies only operate to declare invalidity and to restrain the implementation of invalid exercises of power. However, the section operates only where there has been an \"assessment\" within the statutory description. | Section 175 does not bring within the jurisdiction of the Commissioner a decision made for a corrupt purpose or a deliberate failure to comply with the provisions of the ITAA1936 when making an assessment. A public officer who knowingly acts in excess of that officer's power (that deliberately fails to administer the law according to its terms) commits an error going to jurisdiction. In such cases the constitutional writs are available (any indication to the contrary in the decisions of Mason and Wilson JJ in F J Bloemen Pty Ltd v Federal Commissioner of Taxation should not be followed). | The usual discretionary considerations applicable to the grant of equitable remedies apply equally to injunctions and declarations in public law cases (see the reasons of Gaudron J in Enfield City Corporation v Development Assessment Commission ). Discretionary relief under section 75(v) and section 39B may be (and often will be) withheld where there is another remedy provided by Part IVC. | Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers are not lightly to be made or upheld (see Kordan Pty Ltd v Federal Commissioner of Taxation ) and will need to be properly pleaded. | There was no failure of due administration by the Commissioner in the present case. The reasoning in Australia and New Zealand Banking Group Ltd v Commissioner of Taxation was fairly open to the construction that it supported the course taken in making the second amended assessment and the assessment was made on that footing. | The assessments were not tentative or provisional. In this context the essential test was explained by Davies J in Stokes v Federal Commissioner of Taxation . | By way of obiter dicta the High Court went on to explain that: • subsection 177(1) is intended to facilitate recovery proceeding by the Commissioner through its \"conclusive evidence\" element: the subsection operates to change what otherwise would be the operation of the relevant laws of evidence; • the existence of Part IVC ensures that the ITAA1936 does not impose an incontestable tax; • subsection 177(1) is not a privative clause as it does not purport to oust federal jurisdiction. On the contrary it recognises that there may be Part IVC proceedings and in those proceedings the \"conclusive evidence\" provision does not apply: the excessiveness or otherwise of an assessment can be review by the courts under Part IVC; and • the principles set out in the joint reasons should be applied in preference to what was said in Richard Walter concerning the construction of, and relationship between, section 175 and section 177(1). | • subsection 177(1) is intended to facilitate recovery proceeding by the Commissioner through its \"conclusive evidence\" element: the subsection operates to change what otherwise would be the operation of the relevant laws of evidence; • the existence of Part IVC ensures that the ITAA1936 does not impose an incontestable tax; • subsection 177(1) is not a privative clause as it does not purport to oust federal jurisdiction. On the contrary it recognises that there may be Part IVC proceedings and in those proceedings the \"conclusive evidence\" provision does not apply: the excessiveness or otherwise of an assessment can be review by the courts under Part IVC; and • the principles set out in the joint reasons should be applied in preference to what was said in Richard Walter concerning the construction of, and relationship between, section 175 and section 177(1).", "Issues_Decided": "The High Court unanimously found that Finn J was correct to dismiss the section 39B application, and the Full Federal Court erred in overturning the judgment of Finn J. This case was to be decided by the application of section 175. Section 175 provides that a failure to comply with any provision of the Income Tax Assessment Act 1936 does not affect the validity of any assessment.Section 177(1) merely gives evidentiary effect to section 175. There is no conflict or inconsistency between sections 177(1) and section 175 and the requirements of the ITAA1936 governing assessment (see also the reasons of Dawson J in Deputy Commissioner of Taxation v Richard Walter Pty Ltd) . There is no need to read down either provision in the way discussed in Plaintiff S157/2002. The significance of section 175 for the operation of the ITAA1936 and for the scope of judicial review outside Part IVC is to be assessed in the manner indicated in Project Blue Sky Inc v Australian Broadcasting Authority . The relevant question is 'whether it is a purpose of the Act that a failure by the Commissioner in the process of assessment to comply with provisions of the Act renders the assessment invalid; in determining that question of legislative purpose regard must be had to the language of the relevant provisions and the scope and purpose of the statute'. In this context there is no scope for the operation of the Hickman principle (further see Marijancevic v Mann [2008] FCAFC 161 at [13]). The validity of an assessment is not affected by failure to comply with any provision of the ITAA1936. 'Where section 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under section 75(v) of the Constitution or under section 39B of the Judiciary Act'. Additionally, where section 175 operates there is no potential operation for the equitable remedies of declarations and injunctions, as those remedies only operate to declare invalidity and to restrain the implementation of invalid exercises of power. However, the section operates only where there has been an \"assessment\" within the statutory description. Section 175 does not bring within the jurisdiction of the Commissioner a decision made for a corrupt purpose or a deliberate failure to comply with the provisions of the ITAA1936 when making an assessment. A public officer who knowingly acts in excess of that officer's power (that deliberately fails to administer the law according to its terms) commits an error going to jurisdiction. In such cases the constitutional writs are available (any indication to the contrary in the decisions of Mason and Wilson JJ in F J Bloemen Pty Ltd v Federal Commissioner of Taxation should not be followed). The usual discretionary considerations applicable to the grant of equitable remedies apply equally to injunctions and declarations in public law cases (see the reasons of Gaudron J in Enfield City Corporation v Development Assessment Commission ). Discretionary relief under section 75(v) and section 39B may be (and often will be) withheld where there is another remedy provided by Part IVC. Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers are not lightly to be made or upheld (see Kordan Pty Ltd v Federal Commissioner of Taxation ) and will need to be properly pleaded. There was no failure of due administration by the Commissioner in the present case. The reasoning in Australia and New Zealand Banking Group Ltd v Commissioner of Taxation was fairly open to the construction that it supported the course taken in making the second amended assessment and the assessment was made on that footing. The assessments were not tentative or provisional. In this context the essential test was explained by Davies J in Stokes v Federal Commissioner of Taxation . By way of obiter dicta the High Court went on to explain that: • subsection 177(1) is intended to facilitate recovery proceeding by the Commissioner through its \"conclusive evidence\" element: the subsection operates to change what otherwise would be the operation of the relevant laws of evidence; • the existence of Part IVC ensures that the ITAA1936 does not impose an incontestable tax; • subsection 177(1) is not a privative clause as it does not purport to oust federal jurisdiction. On the contrary it recognises that there may be Part IVC proceedings and in those proceedings the \"conclusive evidence\" provision does not apply: the excessiveness or otherwise of an assessment can be review by the courts under Part IVC; and • the principles set out in the joint reasons should be applied in preference to what was said in Richard Walter concerning the construction of, and relationship between, section 175 and section 177(1). • subsection 177(1) is intended to facilitate recovery proceeding by the Commissioner through its \"conclusive evidence\" element: the subsection operates to change what otherwise would be the operation of the relevant laws of evidence; • the existence of Part IVC ensures that the ITAA1936 does not impose an incontestable tax; • subsection 177(1) is not a privative clause as it does not purport to oust federal jurisdiction. On the contrary it recognises that there may be Part IVC proceedings and in those proceedings the \"conclusive evidence\" provision does not apply: the excessiveness or otherwise of an assessment can be review by the courts under Part IVC; and • the principles set out in the joint reasons should be applied in preference to what was said in Richard Walter concerning the construction of, and relationship between, section 175 and section 177(1).", "ATO_View_of_Decision": "With the exception of corrupt conduct or deliberate failure to comply with the provisions of the ITAA1936, section 175 will protect assessments from review under either subsection 75(v) of the Constitution or section 39B of the Judiciary Act. | Any allegation of corruption and a deliberate failure to comply with the provisions of the ITAA1936 must be properly pleaded and particularised. There is a clear direction to lower courts not to entertain claims made without a solid prima facie case. | The Commissioner will make strike-out motions (or seek summary judgment) in respect of section 39B applications (or applications made under section 75(v) of the Constitution) that do not have such a solid basis, including substantial evidence to support allegations of corrupt conduct or deliberate failure to comply with the provisions of the Act. The Commissioner will also seek cost orders in such cases. | The Commissioner will not consent to the adjournment of related Part IVC proceedings pending determination of applications under either subsection 75(v) of the Constitution or section 39B of the Judiciary Act that do not have a solid prima facie basis. | Further the Commissioner will generally argue that the court should not exercise its discretion to grant relief on the grounds that Part IVC provides a more appropriate remedy.", "Administrative_Treatment": "None", "Related_Documents": "None | 2008 ATC 20-039 | 175 | 177F(3) | Pt IVC | 2003 ATC 5041 | (1928) 42 CLR 39 | (1995) 95 ATC 4067 | (2000) 199 CLR 135 | [2000] HCA 5 | 81 ATC 4280 | 2006 ATC 4579 | 2007 ATC 4600 | 2000 ATC 4812 | (1998) 193 CLR 173 | (2003) 211 CLR 476 | [2003] HCA 2 | (1998) 194 CLR 355 | (1998) 153 ALR 490 | [1998] HCA 28 | (1945) 70 CLR 598 | 99 ATC 5138 | 96 ATC 4393", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) 175 177(1) 177F(3) Judiciary Act 1903 (Cth) 39B Taxation Administration Act 1953 (Cth) Pt IVC The Constitution 75(v)", "Case_References": "Australia and New Zealand Banking Group Ltd v Commissioner of Taxation (2003) 137 FCR 1 (2003) 54 ATR 449 2003 ATC 5041 Commissioner of Taxation v Hoffnung & Co Ltd (1928) 42 CLR 39 [1928] HCA 49 Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 (1995) 95 ATC 4067 [1995] HCA 23 Enfield City Corporation v Development Assessment Commission (2000) 199 CLR 135 [2000] HCA 5 (2000) 169 ALR 400 F J Bloemen Pty Ltd v FC of T (1981) 147 CLR 360 [1981] HCA 27 11 ATR 914 81 ATC 4280 Futuris Corporation Ltd v FC of T (2006) 63 ATR 562 2006 ATC 4579 [2006] FCA 1096 Futuris Corporation Ltd v FC of T (2007) 159 FCR 257 2007 ATC 4600 [2007] FCAFC 93 Kordan Pty Ltd v FC of T (2000) 46 ATR 191 2000 ATC 4812 Nicholas v The Queen (1998) 193 CLR 173 (1998) 151 ALR 312 [1998] HCA 9 Plaintiff S 157/2002 v The Commonwealth (2003) 211 CLR 476 [2003] HCA 2 (2003) 195 ALR 24 Project Blue Sky Inc v Australian Broadcasting Corporation (1998) 194 CLR 355 (1998) 153 ALR 490 [1998] HCA 28 R v Hickman; Ex parte Fox and Clinton (1945) 70 CLR 598 [1945] HCA 53 San Remo Macaroni Company Pty Ltd v FCT (1999) 43 ATR 53 99 ATC 5138 Stokes v FC of T (1996) 136 ALR 632 32 ATR 500 96 ATC 4393", "Subject_References": "Assessments Validity of assessments Errors within jurisdiction rather than going to jurisdiction Collateral challenge to assessments under section 75(v) of the Constitution or section 39B of Judiciary Act Tentative or provisional assessments", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/A47/2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Reliance Carpet Co Pty Ltd", "Venue_Reference_No": "M163/2007", "Venue": "High Court", "Judgment_Date": "22 May 2008", "Date_Published": "9 September 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether GST is payable on the forfeiture of a security deposit.", "Overview_of_Facts": "The respondent vendor (taxpayer) entered into a contract of sale of commercial property for $2,975,000, with a deposit of 10%. The contract of sale was dated 10 January 2002 and was entered into consequent on the exercise of an option to purchase by the purchaser. Both the taxpayer and the purchaser were registered for GST. | The purchaser paid the deposit of $297,500 but failed to pay the balance of the purchase price by the settlement date of 10 July 2003. | On 11 July 2003, the taxpayer issued a rescission notice to the purchaser, requiring the purchaser to remedy its default within 14 days. The purchaser failed to remedy its default. | On or about 26 July 2003, the contract was rescinded and the deposit was forfeited to the taxpayer. | The taxpayer was assessed to GST on the forfeited deposit. The taxpayer objected and, following the disallowance of the objection, applied to the Administrative Appeals Tribunal (AAT) for a review of the objection decision ( Reliance Carpet Co Pty Ltd and Commissioner of Taxation [2006] AATA 486). | The AAT found against the taxpayer and held that, upon execution of the contract and payment of the deposit by the purchaser, there was a taxable supply and GST was payable on the forfeited deposit. | The taxpayer appealed to the Full Federal Court ( Reliance Carpet Company Pty Ltd v Commissioner of Taxation [2007] FCAFC 99). In finding for the taxpayer, the Court decided: • there was no supply of 'interim' obligations at the time of entry into the contract or subsequently; • a supply did not take place at forfeiture as a result of the rescission of the contract; and • the Commissioner's argument that Division 99 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deems there to have been a supply, based on the language of section 99-5, was not accepted. | • there was no supply of 'interim' obligations at the time of entry into the contract or subsequently; • a supply did not take place at forfeiture as a result of the rescission of the contract; and • the Commissioner's argument that Division 99 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deems there to have been a supply, based on the language of section 99-5, was not accepted. | The Commissioner appealed to the High Court. The High Court unanimously allowed the Commissioner's appeal, finding, as contended by the Commissioner, that a vendor of land makes a supply to a purchaser when a contract for sale is entered into and that the deposit paid by the purchaser is consideration for that supply where the deposit is forfeited.", "Issues_Decided": "", "ATO_View_of_Decision": "In reaching its decision the High Court examined the facts and determined whether they disclosed the presence of the statutory requirements in section 9-5 of the GST Act for there to be a taxable supply. The critical elements in this case for the existence of a taxable supply were whether there was a supply and whether the deposit paid and forfeited by the purchaser was consideration for any such supply. | Was there a supply? | In determining that there was a supply made by the taxpayer to the purchaser, the High Court examined the events that actually occurred and asked whether they gave rise to something meeting the statutory definition of supply in section 9-10. As a result, they found that there was such a supply. This can be contrasted with the Full Federal Court's approach which seemed to characterise events that, although contemplated, did not occur and on that basis determined that actual events meeting the statutory description of supply were not to be treated as such. | Specifically, the High Court referred to two reasons for its conclusion that there was a supply. First, at paragraph 37 of the judgment the Court endorsed the comments of Deputy President Olney in the AAT that there was a supply in terms of paragraph 9-10(2)(g) because the vendor entered into obligations (principally an obligation to transfer title to the land) upon the contract being made. Second, at paragraph 38 of the judgment, they also indicated that the events met the description of supply set out in paragraph 9-10(2)(d) because the vendor granted rights to the purchaser over or in relation to land. Such rights meet the definition of 'real property' in section 195-1 of the GST Act. | The Commissioner considers that his public rulings and approach to administration of the GST are broadly consistent with the reasoning of the Court as to the existence of a supply. In particular, the Court's approach of examining the events that actually transpired is consistent with Proposition 10 in Goods and Services Tax Ruling GSTR 2006/9 (concerning supplies) that, in determining whether there is a supply and its character, \"it is necessary to analyse the transaction that occurs, not a transaction that might have occurred\". | Was the supply for consideration? | The High Court noted that, under section 9-15 of the GST Act, consideration includes, among other things, any payment 'in connection with' a supply of anything. The Court's judgment indicates that such a connection was apparent in this case for a number of reasons relating to the connection between the payment of the deposit and the bargain struck by the parties. | The Commissioner considers that the High Court's judgment discloses a practical approach to determining whether there is a connection between consideration and a supply. The taxpayer had argued that various technical characteristics of security deposits in relation to contracts for the sale of real property meant that they served a purpose inconsistent with them being consideration for GST purposes (see the discussion in paragraphs 22 to 28 of the judgment). In rejecting those arguments, the Court simply noted the obvious connection between the payment of the deposit and the contract agreed by the parties. | In analysing the decision of the European Court of Justice in Société thermale d'Eugénie-les-Bains v Ministère de l'Économie, des Finances et de l'Industrie [2007] 3 CMLR 1003, the High Court gave some indication that the connection between consideration and a supply need not be direct (see paragraph 30 of the judgment). The Court did not expand on what the extent of the connection needs to be, probably because the Court found the connection 'readily' apparent in this case. | The Commissioner considers that his public rulings and approach to administration of the GST are broadly consistent with the approach of the High Court to the question of consideration. | The effect of Division 99 (concerning security deposits) | The High Court described section 99-5 in Division 99 of the GST Act as a 'wait and see' provision, finding that its effect in the present case was to treat the deposit as consideration for the supply when it was forfeited. The effect of that, according to the Court, was to make the supply that occurred on entry into the contract a taxable supply only once the deposit was forfeited, with section 99-10 ensuring that the GST payable is attributed to the tax period in which the forfeiture occurred. | The Commissioner accepts that Division 99 is about delaying the time of attribution of GST payable on a taxable supply for which a security deposit is consideration. Before the AAT and the Full Federal Court, the Commissioner pursued an argument, in the alternative to his primary contentions, that Division 99 deems there to be a taxable supply in cases where a security deposit was forfeited. That argument was rejected by the Full Federal Court and the Commissioner did not pursue that argument in the High Court. | Is the reasoning of the High Court restricted to forfeited deposits on contracts for the sale of land? | In the Commissioner's view, the reasoning of the High Court is equally applicable to cases involving the forfeiture of deposits on contracts for the provision of goods and services generally. Each case will turn on its facts and circumstances, but in any case where parties make a contract for the provision of goods or services and a purchaser pays a deposit as security, there would likely be a supply in terms of subsection 9-10(1) and paragraphs 9-10(2)(e) and (g) of the GST Act. It is likely that the deposit paid would be consideration in connection with such a supply. | Does the High Court's approach mean that what is in substance a single thing needs to be dissected into multiple taxable supplies? | It might be thought that the High Court's approach of treating the obligations entered into by the vendor, and the consequent rights created, as a supply means that contracts can, or must, be broken down into various elements each of which is to be treated as a separate taxable supply. For example, it might be thought that each obligation arising under a contract is to be treated as a separate taxable supply or that an obligation to provide a thing is to be treated as a taxable supply separate from the actual provision of that thing. | At paragraph 5 of its judgment, the Court indicated that 'upon examination' of a transaction that includes several things meeting the statutory definition of 'supply' there may be no more than one taxable supply. The Court did not elaborate on the reason for this conclusion, which could arise from multiple supplies being treated as part of a single whole, and/or from a view that the consideration paid only has a connection with one of the relevant supplies. The answer will depend on the nature of the transaction in question. However, on either view, paragraph 5 would seem to be a caution against dividing and treating separately for GST purposes what is in substance no more than one taxable supply. | It can be noted also that, in endorsing the approach of Deputy President Olney in the AAT to the characterisation of the supply that occurred, the High Court appears to have implicitly accepted that a number of obligations arising under a contract can be characterised as giving rise to a single supply. This seems consistent with the principle referred to by the Full Federal Court in Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 at paragraph 35 that \"... [w]here one can identify a supply as incidental to a principal supply, courts have generally treated the transaction as giving rise to one supply\". And paragraph 9-10(2)(h) of the GST Act provides that a supply includes \"any combination of any 2 or more of the matters\" referred to in paragraphs 9-10(2)(a) to (g). | Further, the Court confirmed at paragraph 42 of the judgment that where a contract for the sale of land in respect of which a deposit is paid proceeds to completion there will be only one taxable supply. | The Commissioner will maintain his approach in GSTR 2001/8 that a 'commonsense approach' and an 'overall view' should be taken where it is necessary to characterise a supply (see, in particular, paragraphs 19, 20 and 40 to 42 of that ruling). | What if a contemplated supply would have been GST-free or input taxed? | Parties may enter into a contract for the supply of goods or services that would meet the description of a supply that is GST-free or input taxed. A security deposit may be paid in relation to the contract. If the contemplated supply does not occur, a question may arise as to whether the supply that actually took place (being the entry into of obligations and consequent granting of rights by the supplier) is also GST-free or input taxed. | The Commissioner put before the Court the possibility that in such circumstances, paragraphs 9-30(1)(b) and 9-30(2)(b) may be read as ensuring that the supply on entry into the contract had the same tax character (GST-free, input taxed or taxable) as the contemplated supply. | This circumstance did not arise on the facts of the case before the High Court because the land the subject of the contract was commercial property and thus fully taxable. Probably for that reason, the High Court did not address the GST treatment of cases where the contemplated supply would have been GST-free or input taxed. | GSTR 2006/2 concerning the GST treatment of security deposits indicated, through Example 13 at paragraphs 127 and 128, that a forfeited deposit would have been taxable notwithstanding that the contemplated supply would have been GST-free or input taxed. GSTR 2006/2 was published prior to the Full Federal Court decision in the Reliance Carpet case and was based, at least in part, on the view that Division 99 deems a taxable supply. The Commissioner did not challenge that part of the Full Federal Court's decision in the High Court. | The High Court decided that a vendor makes a supply when it enters into a contract consisting of the obligations it undertakes and the consequent rights it grants. In light of that, the Commissioner considers that paragraphs 9-30(1)(b) and 9-30(2)(b) of the GST Act would be applicable in a case where a security deposit is forfeited in relation to a contract where the contemplated supply would have been GST-free or input taxed. Broadly those provisions state that a supply consisting of a right to receive another supply that would be GST-free or input taxed is also GST-free or input taxed, as the case requires. (This paragraph is a public indirect tax ruling for the purposes of section 105-60 of the Taxation Administration Act 1953 (TAA) in relation to the application of paragraphs 9-30(1)(b) and 9-30(2)(b) to cases of forfeited security deposits. The Tax Office view of what constitutes a security deposit, as expressed within GSTR 2006/2, remains unchanged by the High Court decision.) | So, for example, if the real property in this case had been residential premises that would have been input taxed under section 40-65 of the GST Act, then the supply actually made by the vendor in the case where the contract was not completed and the deposit forfeited would also have been input taxed. | The Commissioner will update GSTR 2006/2 to reflect this view. | Damages as consideration | The High Court confirmed that a forfeited security deposit is not damages (see paragraph 24 of the judgment). As a consequence, the Court did not discuss the significance of a payment being damages to the test of whether such a payment can be in connection with a supply. The Commissioner's views on the application of the GST to court orders and out of court settlements are set out in GSTR 2001/4. The Commissioner does not currently expect there to be any consequences for that ruling arising from the High Court's judgment, but will consider whether there are any implications. The views set out in the ruling remain the Commissioner's views pending that review. | Relevance of practical and business considerations in interpreting the GST Act | The High Court did not refer at all in its judgment to the need to consider the 'economic or social reality', or 'practical and business' considerations, of a transaction in applying the provisions of the GST Act to it. Those considerations had been referred to by the Full Federal Court in the Reliance Carpet case (see for example, paragraphs 13 and 16 of the Full Federal Court's judgment), and had developed from earlier decisions of the Federal Court in Sterling Guardian Pty Ltd v Commissioner of Taxation [2005] FCA 1166 and Saga Holidays v Commissioner of Taxation [2006] FCAFC 191. These considerations have led some to describe the GST as a 'practical business tax'. | The Commissioner does not consider that the High Court's lack of reference to practical and business considerations should be taken to mean that those considerations are not relevant to the application of the GST Act. The Commissioner agrees with the observations in Saga Holidays (at paragraph 30 of [2006] FCAFC 191) that there is no special canon of construction for the GST Act. The Commissioner contends that practical and business considerations cannot override the language and intent of the Act (and the High Court's decision could be seen as providing implicit support for that proposition). Rather, the Commissioner considers that those considerations are often a useful tool to aid in characterising transactions and interpreting the Act in a manner consistent with its purpose or object. | In any event, the Commissioner considers that the outcome of the High Court's decision reflects the commercial reality of the events that took place. The purchaser did obtain a commercial benefit from the contract (e.g. the removal of the property from the market) and it would seem out of step with commercial reality to suggest that the forfeited deposit was 'money for nothing'. | Relevance of foreign GST and value added tax (VAT) systems in interpreting Australian law | The High Court referred, at paragraphs 29 to 31 of its judgment, to some foreign GST and VAT systems and case law, finding that they were not of value in interpreting the GST Act on the facts before it. This was, it seems, largely because of the different statutory provisions to be found in those foreign systems. The Commissioner considers that the High Court's views reinforce the caution that needs to be exercised in seeking to draw upon foreign GST and VAT law and concepts in interpreting the GST Act. Sometimes foreign law may provide useful insights, but ultimately the interpretation of the GST Act depends on the language to be found in it and on its purpose or object as disclosed by its statutory context and relevant extrinsic materials.", "Administrative_Treatment": "In terms of its outcome, the Tax Office administration of the treatment of forfeited deposits is consistent with the High Court's decision. | Implications on current Public Rulings & Determinations | GSTR 2006/2 and GSTR 2000/28 have been amended to accord with the decision and reasons of the High Court.", "Related_Documents": "GSTR 2000/28 | GSTR 2006/2 | 2008 ATC 20-028 | 7-1 | 9-5 | 9-10 | 9-15 | 9-30 | 29-5 | 99-5 | 99-10 | 2006 ATC 2206 | 2007 ATC 4650 | 2006 ATC 4841 | 2005 ATC 4796 | 2006 ATC 4363 | (1933) 48 CLR 457 | GSTR 2001/4 | GSTR 2001/8 | GSTR 2006/9 | PS LA 2006/8", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 7-1 9-5 9-10 9-15 9-30 29-5 99-5 99-10 Taxation Administration Act 1953 105-65", "Case_References": "Reliance Carpet Co Pty Ltd and Commissioner of Taxation [2006] AATA 486 63 ATR 1001 2006 ATC 2206 Reliance Carpet Company Pty Ltd v Commissioner of Taxation [2007] FCAFC 99 2007 ATC 4650 66 ATR 117 Saga Holidays v Commissioner of Taxation [2006] FCAFC 191 2006 ATC 4841 64 ATR 602 Societe thermale d'Eugenie-les-Bains v Ministere de l'Economie, des Finances et de l'Industrie [2007] 3 CMLR 1003 Sterling Guardian Pty Ltd v Commissioner of Taxation [2005] FCA 1166 2005 ATC 4796 60 ATR 502 Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 2006 ATC 4363 62 ATR 682 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Howe v Smith (1884) 27 Ch D 89", "Subject_References": "attribution consideration forfeiture GST security deposits supply taxable supply", "Other_References": "GSTR 2000/28 GSTR 2001/4 GSTR 2001/8 GSTR 2006/2 GSTR 2006/9 PS LA 2006/8", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M163/2007/00001", "Unmatched_Content": "Except as noted herein, this document is not a public ruling, but provides a statement of the Commissioner's position in relation to the decision and how the law will be administered as a consequence of the decision. Any proposals for changes in the law are matters for government and it is not appropriate for the Commissioner to comment."}
{"Case_Name": "Commissioner of Taxation v Word Investments Ltd", "Venue_Reference_No": "M 41/3008", "Venue": "High Court", "Judgment_Date": "3 December 2008", "Date_Published": "2 September 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office response to this case which concerned whether a company that ran a funeral business and paid all its profits to charitable institutions was entitled, itself, to be endorsed as a charitable institution.", "Overview_of_Facts": "Word Investments Ltd (Word) is a company limited by guarantee set up in 1986 to raise funds for Wycliffe Bible Translators Australia, an endorsed charitable institution which primarily carries out overseas missionary and bible translating activities. Word initially raised funds from investment activities. From 1996 to 2002, Word also operated a business of conducting funerals. | Word has objects in its memorandum of association which advance religious purposes, and other objects which aid those purposes, such as carrying on any business or activity, taking money on deposit at interest or otherwise, and subscribing and making payments to any fund for religious, charitable or benevolent objects of any description. | Word applied for endorsement as an income tax exempt charitable institution under sub-division 50-B of the Income Tax Assessment Act 1997 (ITAA97). Endorsement was refused on the basis that its commercial activities were not charitable, and that it did not meet the requirement of paragraph 50-50(a) of the ITAA97 that it pursues its objectives principally in Australia. | The Administrative Appeals Tribunal [2005] AATA 941 decided that Word was not a charitable institution whilst operating the funeral business, but was entitled to endorsement as a charitable institution from 1 July 2002 when it reverted to its investment activities. The Tribunal also accepted that Word had pursued its objectives solely in Australia from 1 July 2002. | On appeal by the Commissioner, and cross appeal by the taxpayer, to the Federal Court [2006] FCA 1414, Sundberg J held that Word was a charitable institution for the whole period from 1986 and that, by providing funds to Wycliffe in Australia, it satisfied the requirements of paragraph 50-50(a). | The Commissioner's appeal was dismissed by the Full Federal Court (2007) 164 FCR 184. The Court concluded that there was no error in the approach of Sundberg J in characterising Word as a charitable institution. The Court also concluded that Word pursued its objectives principally in Australia by donating funds in Australia to other organisations in accordance with its charitable purposes. | The High Court granted the Commissioner special leave to appeal from the decision of the Full Court. | Issues decided by the court | The majority of the High Court (Gummow, Hayne, Heydon and Crennan JJ, Kirby J dissenting) found that Word was a charitable institution, as its objects were confined to advancing religious charitable purposes (paragraphs 19 and 20). Word endeavoured to make a profit only in aid of its charitable purposes - to isolate the goal of profit as the relevant purpose is to create a false dichotomy between characterisation of an institution as commercial or charitable (paragraph 24). | In that regard, although the commercial fundraising activities of Word were not intrinsically charitable they were charitable in character because they were carried out in furtherance of a charitable purpose (paragraph 26). | The majority also held that Word satisfied the special condition in paragraph 50-50(a). Once the Court had accepted that Word's charitable purposes can be fulfilled by it making payments to other charitable institutions, the clear conclusion was that Word pursued its objectives in Australia by making payments to those institutions in Australia (paragraph 73). | Accordingly, Word was entitled to endorsement as an income tax exempt institution under sub-division 50-B ITAA97.", "Issues_Decided": "The majority of the High Court (Gummow, Hayne, Heydon and Crennan JJ, Kirby J dissenting) found that Word was a charitable institution, as its objects were confined to advancing religious charitable purposes (paragraphs 19 and 20). Word endeavoured to make a profit only in aid of its charitable purposes - to isolate the goal of profit as the relevant purpose is to create a false dichotomy between characterisation of an institution as commercial or charitable (paragraph 24). In that regard, although the commercial fundraising activities of Word were not intrinsically charitable they were charitable in character because they were carried out in furtherance of a charitable purpose (paragraph 26). The majority also held that Word satisfied the special condition in paragraph 50-50(a). Once the Court had accepted that Word's charitable purposes can be fulfilled by it making payments to other charitable institutions, the clear conclusion was that Word pursued its objectives in Australia by making payments to those institutions in Australia (paragraph 73). Accordingly, Word was entitled to endorsement as an income tax exempt institution under sub-division 50-B ITAA97.", "ATO_View_of_Decision": "The High Court has recognised that an entity can be a 'charitable institution' under Item 1.1 of the table in section 50-5, even if it does not directly carry out charitable activities, but gives its profits to institutions that do. Whether, in any particular case, an entity that conducts an investment, trading or other commercial activity for profit, can be characterised as a charitable institution, requires an examination of 'the objects, and the purported effectuation of those objects in the activities, of the institution in question. In examining the objects, it is necessary to see whether its main or predominant or dominant objects, as distinct from its concomitant or incidental or ancillary objects, are charitable.' | The Tax Office accepts that the principles considered by the High Court have equal application to the possible characterisation of an entity as a religious institution (Item 1.2), a scientific institution (Item 1.3) or a public educational institution (Item 1.4). | The High Court has stated that, if a charitable institution pursues its charitable objectives in Australia by paying its profits to other charitable institutions in Australia, it 'pursues its objectives principally in Australia', for the purposes of paragraph 50-50(a), even if the other institutions ultimately expend those funds outside Australia.", "Administrative_Treatment": "The decision in this case will be considered in determining the status of any entity claiming exemption as a charitable, religious, scientific or public educational institution. However, as noted above, the outcome in each case will depend on an examination of the objects of each entity and the effectuation of those objects in the activities of the entity. | Entities who are uncertain about whether their particular circumstances qualify for exemption and require greater certainty may apply for a private ruling. Entities are reminded that charitable institutions must apply for exemption and be endorsed by the Commissioner in order to become exempt. | Implications on current Public Rulings & Determinations | TR 2005/21 was withdrawn on 11 May 2011 and replaced by TR 2011/4 on 12 October 2011 and reflects the Commissioner's views following recent significant decisions of the High Court and Federal Court including Word Investments Ltd and Aid / Watch Incorporated v FC of T [2010] HCA 42; 2010 ATC 20 227; (2010) 77 ATR 195. To the extent that the views in TR 2005/21 still apply, they have been incorporated into TR 2011/4. | TR 2005/22 was amended to reflect the High Court decision in Word Investments Ltd . | TR 2000/11 was withdrawn on 19 August 2015.", "Related_Documents": "TR 2005/21 | TR 2005/22 | 2008 ATC 20-072 | 23(e) | 23(j) | 50-1 | 50-5 | 50-50 | 50-52 | 50-55 | 50-65 | 50-105 | 50-110 | [1931] HCA 47 | 45 CLR 476 | 51 CLR 1 | 68 CLR 436 | 85 CLR 159 | [1968] AC 138 | [1967] 3 All ER 215 | [1970] HCA 45 | 125 CLR 138 | 71 ATC 4206 | [1982] Ch 49 | [1981] 3 WLR 377 | 87 ATC 4825", "Legislative_References": "Income Tax Assessment Act 1936 23(e) 23(j) Income Tax Assessment Act 1997 50-1 50-5 50-50 50-52 50-55 50-57 50-60 50-65 50-105 50-110 50-115 50-140 50-145 50-155", "Case_References": "H A Stephenson & Son Ltd (In Liq) v Gillanders, Arbuthnot & Co [1931] HCA 47 45 CLR 476 Roman Catholic Archbishop of Melbourne v Lawlor [1934] HCA 14 51 CLR 1 [1934] ALR 202 Royal Australasian College of Surgeons v FCT [1943] HCA 34 68 CLR 436 [1943] ALR 377 Baptist Union of Ireland (Northern) Corporation Ltd v Commissioner of Inland Revenue (1945) 26 TC 335 Salvation Army (Victoria) Property Trust v Shire of Fern Tree Gully [1952] HCA 4 85 CLR 159 [1952] ALR 85 R v The Assessors of the Town of Sunny Brae [1952] 2 SCR 76 [1952] 2 DLR 386 In re Smith (Deceased) [1954] 1 SASR 151 Commissioner of Inland Revenue v Carey's (Petone and Miramar) [1963] NZLR 450 Christian Enterprises Ltd v Commissioner of Land Tax (1968) 72 SR (NSW) 90 [1968] 2 NSWR 99 Scottish Burial Reform and Cremation Society Ltd v Glasgow City Corporation [1968] AC 138 [1967] 3 All ER 215 Stratton v Simpson [1970] HCA 45 125 CLR 138 [1971] ALR 117 The Incorporated Council of Law Reporting of the State of Queensland v Commissioner of Taxation [1971] HCA 44 125 CLR 659 2 ATR 515 71 ATC 4206 Inland Revenue Commissioners v Helen Slater Charitable Trust Ltd [1982] Ch 49 [1981] 3 WLR 377 Glebe Administration Board v Commissioner of Pay-Roll Tax 10 NSWLR 352 19 ATR 297 87 ATC 4825", "Subject_References": "income tax exemption endorsement as a tax exempt entity charitable institution advancement of religion", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M41/3008/00001", "Unmatched_Content": "• TR 2005/21 was withdrawn and replaced by TR 2011/4 • TR 2005/22 was amended to reflect the Word decision • TR 2000/11 has been withdrawn."}
{"Case_Name": "DCT v Broadbeach Properties Pty Ltd; DCT v MA Howard Racing Pty Ltd and DCT v Neutral Bay Pty Ltd (\"Howard Group\")", "Venue_Reference_No": "B10/2008,B11/2008 and B12/2008", "Venue": "High Court", "Judgment_Date": "3 September 2008", "Date_Published": "15 October 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned, amongst other issues, the setting aside of Statutory Demands which had issued and where proceedings were subsequently brought pursuant to Part IVC of the Taxation Administration Act 1953", "Overview_of_Facts": "1. The four companies in the \"Howard Group\" were subject to an audit. As a result of the audit the Deputy Commissioner (DCT) issued various GST and income tax assessments, declarations and penalty notices. In accordance with normal practice after assessing the risk to the revenue the DCT issued Statutory Demands to each of the companies in respect of these debts. At the time of issue of the Statutory Demands the companies stated that they either were or were intending to exercise their rights under Part IVC of the Taxation Administration Act 1953 (TAA) . | 2. Each of the four entities comprising the group filed and served applications to set aside Statutory Demands for payment of the assessed liabilities issued by the DCT. The matters were heard by the Supreme Court on 21 and 22 September 2006 and on 14 December 2006 judgment was given in favour of the applicants and the Statutory Demands were set aside. | 3. The DCT appealed to the Queensland Court of Appeal. | 4. On 28 September 2007 the Court of Appeal dismissed the DCT's appeals. In so doing the Court of Appeal found that, notwithstanding the operation and effect of sections 105-100 of the TAA, 177 of the Income Tax Assessment Act 1936 (ITAA 36) and 14ZZR and 14ZZM of the TAA, the existence of a dispute pursuant to Part IVC of the TAA constituted a \"genuine dispute\" for the purposes of 459H of the Corporations Act 2001 (CA). The Court of Appeal declined to apply the decision of the Full Court of the Federal Court in the matter of Hoare Bros Pty Ltd v DCT (1996) 96 ATC 4163. The Court of Appeal also found that the trial judge had properly exercised his discretion pursuant to section 459J of the CA to set aside the DCT's demands on the basis of \"other reason\". | 5. The DCT sought and obtained Special Leave to Appeal to the High Court of Australia from the Queensland Court of Appeal's judgment. | 6. On 3 September 2008 the High Court published its judgment in which it allowed the DCT's appeals in full. | Findings of the Court | Genuine dispute (section 459H of the CA) | 1. The long-standing legislative purpose of the conclusive evidence provisions (sections 177 of the ITAA 36, 105-100 and 298-30 of the TAA) is to protect the interests of the revenue. | 2. \"Special status\" and characteristics attach to tax debts which do not pertain to debts in the sense of general law. | 3. The production by the Commissioner of notices of assessment and GST declarations conclusively demonstrates that the amounts and particulars are correct. The provisions of the of the taxation laws creating these debts and providing for their recovery cannot be circumvented under 459G of the CA. | 4. Section 14ZZM and 14ZZR apply to the Statutory Demand procedure precluding a \"genuine dispute\" under section 459H of the CA as to the existence and amount of tax debts. | Other reason (section 459J of the CA) | 1. The material considerations in determining whether to set aside a statutory demand under section 459J of the CA must include the legislative policy manifested in section 14ZZM and 14ZZR of the TAA. Accordingly the Court found that the exercise of the discretion by the Queensland Court of Appeal under 459J of the CA had miscarried.", "Issues_Decided": "", "ATO_View_of_Decision": "The decision of the Queensland Court of Appeal was a concern to the Commissioner as the Court made a number of findings that were contrary to the Commissioner's understanding of the operation of the tax law provisions that make a notice of assessment conclusive evidence of a tax debt due, except in an appeal under Part IVC of the TAA. | The Court of Appeal, in coming to its judgment as to the operation of the Statutory Demand provisions of the CA, distinguished a 1996 decision of the Full Federal Court in Hoare Bros Pty Ltd v Commissioner of Taxation 62 FCR 3002 (Hoare Bros). Hoare Bros established that a pending Part IVC appeal did not establish a genuine dispute for the purposes of the Corporations Law. The Commissioner was concerned to get clarification from the High Court as to which court decision he needed to follow. | The Tax Office respectfully agrees with all aspects of the High Court's decision.", "Administrative_Treatment": "The Commissioner recognises the seriousness of taking recovery action where the taxpayer is disputing their assessment. Action taken to recover disputed debts is based on the assessed risk to the revenue. | While it is not common for the Tax Office to take recovery action prior to the outcome of the dispute process, the Commissioner will take such action if the circumstances indicate an unacceptable level of risk to revenue, for instance, in cases where it is clear the taxpayer is disposing of assets. | Even where the level of risk necessitates action to secure payment of the disputed debt before resolution of a dispute, the Commissioner may offer a taxpayer a number of options as alternatives to the instigation of legal action for recovery of the debt. These options are outlined in the ATO Receivables Policy. | The Commissioner will continue to use statutory demands in appropriate cases in accordance with the ATO Receivables Policy.", "Related_Documents": "No ATO rulings considered. | 2008 ATC 20-045 | 459G | 459H | 459J | 459P | 459S | 204 | 255-5 | 298-30 | 14ZZR | 14ZZM | 96 ATC 4163 | [2007] QCA 312 | 65 ATR 270 | 2008 ATC 20-039 | 2008 ATC 20-040 | (1976) 76 ATC 4113 | (1981) 81 ATC 4280 | (1982) 82 ATC 4510 | (2000) 157 FLR 26 | [2000] QSC 268 | (1995) 95 ATC 4519 | (1965) 8 FLR 134", "Legislative_References": "Corporations Act 2001 (Cth) 459G 459H 459J 459P 459S Income Tax Assessment Act 1936 (Cth) 177(1) 204 208 209 Taxation Administration Act 1953 (Cth) 105-100 255-5 298-30 14ZZR 14ZZM", "Case_References": "Hoare Bros v DCT (1996) 62 FCR 302 96 ATC 4163 (1996) 32 ATR 148 Neutral Bay and Others v DCT (2006) 205 FLR 470 [2007] QCA 312 65 ATR 270 Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32 2008 ATC 20-039 (2008) 247 ALR 605 Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd (2008) 232 CLR 314 [2008] HCA 9 W.R. Carpenter Holdings Pty Ltd v Commissioner of Taxation [2008] HCA 33 2008 ATC 20-040 (2008) 69 ATR 29 Deputy Commissioner of Taxation v Roma Industries Pty Ltd (1976) 6 ATR 54 (1976) 76 ATC 4113 FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 (1981) 81 ATC 4280 (1981) 11 ATR 914 Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857 (1982) 82 ATC 4510 (1982) 13 ATR 481 Bluehaven Transport Pty Ltd v Commissioner of Taxation (2000) 157 FLR 26 [2000] QSC 268 Kalis Nominees Pty Ltd v DCT (1995) 31 ATR 188 (1995) 95 ATC 4519 Deputy Commissioner of Taxation v Niblett (1965) 83 WN (Pt 1) (NSW) 405 (1965) 8 FLR 134", "Subject_References": "Appeals Applications to set aside Statutory Demands Part IVC dispute", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/B10/2008/00001", "Unmatched_Content": ""}
{"Case_Name": "De Simone and Commissioner of Taxation", "Venue_Reference_No": "VT 2005/304 & 305", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "13 August 2008", "Date_Published": "11 March 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially favourable", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned whether a claimed partnership loss arising from the applicants' investment in Jolson - The Musical was deductible", "Overview_of_Facts": "On or about 30 June 1999, the applicants became partners in a partnership formed to produce a theatrical production of Jolson - the Musical . Each partner was intended to contribute $500,000 towards production costs, of which $400,000 was to be borrowed on a limited recourse basis from a finance company associated with the promoter, Mr Brereton. The partnership was to be managed by a company, who would agree with another company to produce the show. The applicants decided to share equally ($250,000) in the one partnership share, each purportedly borrowing $200,000 from the financier, and contributing $50,000 each in cash. | Under the production services and licence agreement, the partnership was liable to pay the production company a fee for the grant of the production licence and the provision of production services, and was entitled to 60% of the net profits after the running costs were recouped. | The production did not run for the intended period during the 2000 income year and did not generate the profits expected by the information memorandum. Production costs for the limited season were funded by ticket sales and the cash contributed by the partners. | While the partnership accounts showed that the loan funding was contributed by the partners, no evidence existed of loan agreements being executed or of payments being made by the finance company to the production company to fund the costs of production. | Each applicant claimed a deduction of $250,000 in his income tax return for the year ended 30 June 1999 as his share of the partnership loss. | At the hearing before the Tribunal, the applicants were given an adjournment to arrange for Mr Brereton to give evidence about the scheme, including the loan facility. At the resumed hearing over 3 months later, Mr Brereton did not attend to give evidence, and the applicants could not show that a summons had been properly served on him, nor that he would later voluntarily attend to give evidence. Accordingly, the Tribunal proceeded to determine the case without granting any further adjournment. | Issues decided by the tribunal | The partnership incurred expenditure in the 1999 income year equal to the cash contributed by the partners in gaining income from the production or in carrying on a business of musical production. However, the partnership did not incur any outgoing equal to the amount of the purported loan financing. Accordingly, each applicant was only entitled to a deduction for a partnership loss of $50,000 (paragraphs 13 to 15). | In the alternative, if the applicants were entitled to a deduction of $250,000 for the partnership loss, Part IVA of the Income Tax Assessment Act 1936 (ITAA) would apply to disallow the deduction. It could be objectively concluded, looking at the factors in section 177D of the ITAA, that Mr Brereton and the partners entered into the scheme purporting to borrow funds to increase partnership expenses beyond that actually incurred for the purpose of obtaining a tax benefit by inflating the amount sought to be deducted. However, it is appropriate to make a compensating adjustment under subsection 177F(3) to allow the applicants a deduction of $50,000 for the moneys actually incurred by them (paragraph 16). | The Tribunal accepted that penalty of 50% was not payable by the applicants under section 226L of the ITAA, on the basis that they did not enter into the scheme for the subjective purpose pf paying no or less tax. However, penalty of 25% is payable under section 226G, on the basis that the applicants' tax shortfalls were caused by their failure to take reasonable care in relation to the partnership losses claimed (paragraph 19). | The applicants appealed to the Federal Court in relation to the disallowance of the partnership loss and also claimed that they were denied procedural fairness by the Tribunal deciding not to grant a further adjournment of the hearing to enable Mr Brereton to give evidence. The Commissioner did not appeal against the allowance of part of the partnership loss, nor against the reduction in penalties. | The Court (Jessup J) [2009] FCA 446 dismissed the appeal on 9 May 2009. His Honour agreed that the Tribunal had erred in finding that the partnership did not incur any outgoing equal to the amount of the purported loan financing. The partnership came under an immediate obligation to pay the production services fee when the agreement was entered into (paragraph 8). However, there was no error of law involved in the Tribunal's decision in relation to Part IVA (paragraph 11). His Honour also found that there was no denial of natural justice by the Tribunal in refusing a further adjournment (paragraph 24). | The Full Federal Court [2009] FCAFC 181 dismissed the applicant's appeal from the decision of Jessup J on 22 December 2009. The applicants did not seek special leave to appeal to the High Court.", "Issues_Decided": "The partnership incurred expenditure in the 1999 income year equal to the cash contributed by the partners in gaining income from the production or in carrying on a business of musical production. However, the partnership did not incur any outgoing equal to the amount of the purported loan financing. Accordingly, each applicant was only entitled to a deduction for a partnership loss of $50,000 (paragraphs 13 to 15). In the alternative, if the applicants were entitled to a deduction of $250,000 for the partnership loss, Part IVA of the Income Tax Assessment Act 1936 (ITAA) would apply to disallow the deduction. It could be objectively concluded, looking at the factors in section 177D of the ITAA, that Mr Brereton and the partners entered into the scheme purporting to borrow funds to increase partnership expenses beyond that actually incurred for the purpose of obtaining a tax benefit by inflating the amount sought to be deducted. However, it is appropriate to make a compensating adjustment under subsection 177F(3) to allow the applicants a deduction of $50,000 for the moneys actually incurred by them (paragraph 16). The Tribunal accepted that penalty of 50% was not payable by the applicants under section 226L of the ITAA, on the basis that they did not enter into the scheme for the subjective purpose pf paying no or less tax. However, penalty of 25% is payable under section 226G, on the basis that the applicants' tax shortfalls were caused by their failure to take reasonable care in relation to the partnership losses claimed (paragraph 19). The applicants appealed to the Federal Court in relation to the disallowance of the partnership loss and also claimed that they were denied procedural fairness by the Tribunal deciding not to grant a further adjournment of the hearing to enable Mr Brereton to give evidence. The Commissioner did not appeal against the allowance of part of the partnership loss, nor against the reduction in penalties. The Court (Jessup J) [2009] FCA 446 dismissed the appeal on 9 May 2009. His Honour agreed that the Tribunal had erred in finding that the partnership did not incur any outgoing equal to the amount of the purported loan financing. The partnership came under an immediate obligation to pay the production services fee when the agreement was entered into (paragraph 8). However, there was no error of law involved in the Tribunal's decision in relation to Part IVA (paragraph 11). His Honour also found that there was no denial of natural justice by the Tribunal in refusing a further adjournment (paragraph 24). The Full Federal Court [2009] FCAFC 181 dismissed the applicant's appeal from the decision of Jessup J on 22 December 2009. The applicants did not seek special leave to appeal to the High Court.", "ATO_View_of_Decision": "The ATO accepts that it was open to Jessup J to find that the Tribunal had erred in law in finding that the partnership had only incurred the cash component of the production services fee for the purposes of section 8-1, and then to find that the production services and licence agreement created a presently existing obligation to pay the production services fee to the production company. | The ATO also accepts that it was open to the Tribunal on the facts of the case to find that it was appropriate to make a compensating adjustment under subsection 177F(3) to allow the applicants a deduction of $50,000 for the moneys actually paid by them (consistent with the approach taken in Commissioner of Taxation v Sleight [2004] FCAFC 94), and to find that section 226L did not apply.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "None | 2008 ATC 10-042 | 92 | 177D | 177F(1) | 177F(3) | 8-1 | 2007 ATC 5447", "Legislative_References": "Income Tax Assessment Act 1936 92 177D 177F(1) 177F(3) Income Tax Assessment Act 1997 8-1", "Case_References": "Commissioner of Taxation v Starr 164 FCR 436 2007 ATC 5447 67 ATR 923", "Subject_References": "Partnership loss Incurred Part IVA Tax avoidance scheme", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VT200500304/00001", "Unmatched_Content": ""}
{"Case_Name": "Deputy Commissioner of Taxation v De Angelis", "Venue_Reference_No": "2093/2005", "Venue": "Miscellaneous - Australian", "Judgment_Date": "14 August 2008", "Date_Published": "19 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to an issue raised in this case concerning whether the general interest charge (GIC) is payable on administrative overpayments where the Tax Office has not issued a notice to the taxpayer under section 8AAZN of the Taxation Administration Act 1953 (TAA).", "Overview_of_Facts": "1. Mr De Angelis and Mr Carpinelli entered into a partnership for the construction and sale of residential units. Mr De Angelis and Mr Carpinelli separately sought and obtained GST registration relating to the partnership's business and lodged business activity statements (BASs) claiming input tax credits. | 2. A refund of $77,018, representing input tax credits claimed, was paid to Mr De Angelis. However, the Tax Office later determined that the amount had been paid in error, resulting in an administrative overpayment occurring and issued amended assessments disallowing the input tax credits. | 3. The administrative overpayment was allocated to a running balance account (RBA) and the GIC was calculated as accruing from the date of the assessment. No notice issued pursuant to section 8AAZN of the TAA in respect of the overpayment. | 4. The Deputy Commissioner of Taxation (the DCT) commenced recovery action in the District Court of South Australia against Mr De Angelis in respect of the RBA deficit debt comprising the administrative overpayment and brought an application for judgment to be entered summarily. | 5. Mr De Angelis filed an amended defence wherein he, amongst other things, pleaded: • that the account relied on by the DCT was not an RBA for the purposes of section 8AAZC; • that an administrative overpayment is not a \"primary debt\" for the purposes of the RBA provisions; • that section 8AAZD did not permit the DCT to allocate an administrative overpayment to an RBA; and • that the DCT is not entitled to claim GIC on the administrative overpayment as no notice was given pursuant to section 8AAZN. | • that the account relied on by the DCT was not an RBA for the purposes of section 8AAZC; • that an administrative overpayment is not a \"primary debt\" for the purposes of the RBA provisions; • that section 8AAZD did not permit the DCT to allocate an administrative overpayment to an RBA; and • that the DCT is not entitled to claim GIC on the administrative overpayment as no notice was given pursuant to section 8AAZN. | 6. The DCT submitted that an administrative overpayment is a primary tax debt and may therefore be allocated to an RBA and that she had allocated the administrative overpayment in the matter at hand as a primary tax debt to an RBA. As the RBA was in deficit, GIC was payable pursuant to subsection 8AAZF(1). | 7. In support of her application for summary judgment the DCT produced to the Court a copy of the notice of assessment issued to Mr De Angelis and relied on it as conclusive evidence of Mr De Angelis' liability pursuant to the then sections 59 and 61 of the TAA [now sections 105-100 and 105-110 of Schedule 1 to the TAA]. | 8. The DCT also relied on evidentiary certificates pursuant to section 8AAZJ. | Findings of the Court | 9. At first instance, Master Rice found, amongst other things: • that the RBA deficit debt could not be \"conclusively proved under section 59 of theTAA as the over payment is not based on a notice of assessment, it is based on the overpayment mistake provision\"; • that section 8AAZN is part of the \"taxation law\" and an administrative overpayment is a primary tax debt; • that the administrative overpayment made to Mr De Angelis was within the definition in subsection 8AAZN(3) and was a payment made by \"mistake\"; and • that because no section 8AAZN notice was given the Commissioner could not allocate GIC to the RBA debt. | • that the RBA deficit debt could not be \"conclusively proved under section 59 of theTAA as the over payment is not based on a notice of assessment, it is based on the overpayment mistake provision\"; • that section 8AAZN is part of the \"taxation law\" and an administrative overpayment is a primary tax debt; • that the administrative overpayment made to Mr De Angelis was within the definition in subsection 8AAZN(3) and was a payment made by \"mistake\"; and • that because no section 8AAZN notice was given the Commissioner could not allocate GIC to the RBA debt. | 10. The Master granted summary judgment for the amount of the primary tax debt ($77,018) but not the GIC. | 11. The DCT appealed to the District Court of South Australia against the decision of Master Rice. The DCT sought summary judgment for the GIC component on the basis that an administrative overpayment is a primary tax debt and may therefore be allocated to an RBA and that she had so allocated the administrative overpayment in the matter at hand. As the RBA was in deficit GIC was payable pursuant to subsection 8AAZF(1). | 12. The taxpayer cross appealed against, amongst other things, the decision to enter summary judgment for the sum of $77,018. The taxpayer argued that the case was not an appropriate case for summary judgment as it involved significant factual disputes and complex legal questions. | 13. In the time between the appeal being heard before Shaw J and the handing down of the decision the taxpayer was declared bankrupt. | 14. On the appeal, Shaw J found that the taxpayer had an arguable defence which was sufficient for the taxpayer's appeal to be upheld in relation to the contention that this was not a case for summary judgment. | 14. Her Honour found that it was reasonably arguable that the taxpayer had lodged the correct claim and it was reasonably arguable that if there was a mistaken payment it was made to the second partnership registered by Mr Carpinelli. Accordingly it was at least arguable that the Commissioner had not established the alleged overpayment in relation to the taxpayer. | 16. Her Honour also considered that the issue surrounding the conclusive nature of the assessments involved complex and important legal questions.", "Issues_Decided": "", "ATO_View_of_Decision": "17. The Commissioner respectfully disagrees with the Master's conclusion in respect of the GIC issue and remains of the view that, when an administrative overpayment is posted to an RBA, the GIC provisions are engaged and GIC is payable on the RBA balance. Further, the Tax Office considers that the correct date from which GIC is able to be imposed is the date that the administrative overpayment was made and that the RBA deficit debt can be conclusively proved under section 105-100 of Schedule 1 to the TAA (formerly section 59 of the TAA) where the administrative overpayment is reflected in an assessment of the taxpayer's net amount made by the Commissioner. | 18. The Commissioner accepts that it was open to Shaw J. to find that this matter was not suited for summary judgment in view of the factual disputes and complex legal questions arising from the case. | 19. The Commissioner considered taking the matter back for trial. However the complexities arising from the taxpayer's bankruptcy made the case unsuitable for continued litigation. | 20. Following the conclusion of the De Angelis litigation, the Commissioner's views on the GIC issue were tested in the District Court of NSW in Deputy Commissioner of Taxation v Smith [2008] NSWDC 219. In that matter, the Commissioner was successful in obtaining judgment for both the administrative overpayment and GIC components of it allocated to an RBA without a subsection 8AAZN(2) notice being issued. The Commissioner has published a decision impact statement on that matter - DIS 148/2007 .", "Administrative_Treatment": "21. It should be noted that the decision in Deputy Commissioner of Taxation v Smith [2008] NSWDC 219 is not binding on other jurisdictions. However, the Tax Office considers the decision in Smith to be the better approach in these circumstances and as such: 21.1 The Tax Office will continue to allocate administrative overpayments to RBAs, and to calculate GIC on such administrative overpayments from the date of the overpayment where it has been posted to an RBA. 21.2 The Tax Office will continue to seek recovery of administrative overpayments and GIC on them | 21.1 The Tax Office will continue to allocate administrative overpayments to RBAs, and to calculate GIC on such administrative overpayments from the date of the overpayment where it has been posted to an RBA. 21.2 The Tax Office will continue to seek recovery of administrative overpayments and GIC on them", "Related_Documents": "None | DIS 148/2007 | [2008] SADC 103 on appeal | 8AAZA | 8AAZC | 8AAZD | 8AAZF | 8AAZJ | 8AAZN", "Legislative_References": "Taxation Administration Act 1953 8AAZA 8AAZC 8AAZD 8AAZF 8AAZJ 8AAZN 8AAZW 22 [now s105-5] 35 [now s105-50] 59 [now s105-100]", "Case_References": "", "Subject_References": "Administrative Overpayments Running Balance Account General Interest Charge", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2093/2005/00001", "Unmatched_Content": "Implications on Law Administration Practice Statements: 22. The matter of DCT v Price (2010) QSC 196 has now confirmed that the Smith decision is binding on other District and County Courts across Australia. | 23. Furthermore section 35-5(2) of the GST Act which was inserted with effect from the first tax period starting after 24 March 2010 made overpaid refunds arising under section 35-5 of the GST Act a tax due and payable under the GST Act with GIC arising under s 105-80 of the TAA . As a result of the amendment the Commissioner no longer needs to rely on s 8AAZN to create the tax debt due and payable in relation to future overpaid refunds made under section 35-5 of the GST Act but will still rely on s 8AAZN for debts arising in tax periods prior to the new provision taking effect.. Section 8AAZN will continue to have application to other administrative overpayments that do not arise as a result of payments made under section 35-5 of the GST Act."}
{"Case_Name": "Deputy Commissioner of Taxation v PM Developments Pty Ltd", "Venue_Reference_No": "QUD 159 of 2007", "Venue": "Federal Court of Australia", "Judgment_Date": "12 December 2008", "Date_Published": "13 July 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether a liquidator is personally liable for GST on a taxable supply made in the course of the liquidation and the priority of GST incurred in the course of the liquidation.", "Overview_of_Facts": "• PM Developments Pty Ltd was the developer of a new residential unit project. • After the making of an order for its winding up, the liquidator of the company entered into and completed a contract for the sale of a unit. • The liquidator sought a declaration that the liquidator was not personally liable for GST on the sale of the unit. | • PM Developments Pty Ltd was the developer of a new residential unit project. • After the making of an order for its winding up, the liquidator of the company entered into and completed a contract for the sale of a unit. • The liquidator sought a declaration that the liquidator was not personally liable for GST on the sale of the unit. | Issues decided by the court or tribunal | The Court decided that: • Since the liquidator acted as agent for the company in liquidation, the liquidator did not make the relevant supply and therefore was not personally liable for GST. • The liability for GST on the supply rests with the company in liquidation. • The GST on the supply falls within the category of expenses covered by s 556(1)(a) of the Corporations Act 2001 . (Under s 556(1)(a), expenses properly incurred by a liquidator in realising property of the company are, subject to some exceptions, paid in priority to other unsecured debts and claims.) • The GST and other expenses under s 556(1)(a) must be paid proportionately by the liquidator, subject to any liens in favour of creditors, pursuant to s 559. | • Since the liquidator acted as agent for the company in liquidation, the liquidator did not make the relevant supply and therefore was not personally liable for GST. • The liability for GST on the supply rests with the company in liquidation. • The GST on the supply falls within the category of expenses covered by s 556(1)(a) of the Corporations Act 2001 . (Under s 556(1)(a), expenses properly incurred by a liquidator in realising property of the company are, subject to some exceptions, paid in priority to other unsecured debts and claims.) • The GST and other expenses under s 556(1)(a) must be paid proportionately by the liquidator, subject to any liens in favour of creditors, pursuant to s 559.", "Issues_Decided": "The Court decided that: • Since the liquidator acted as agent for the company in liquidation, the liquidator did not make the relevant supply and therefore was not personally liable for GST. • The liability for GST on the supply rests with the company in liquidation. • The GST on the supply falls within the category of expenses covered by s 556(1)(a) of the Corporations Act 2001 . (Under s 556(1)(a), expenses properly incurred by a liquidator in realising property of the company are, subject to some exceptions, paid in priority to other unsecured debts and claims.) • The GST and other expenses under s 556(1)(a) must be paid proportionately by the liquidator, subject to any liens in favour of creditors, pursuant to s 559. • Since the liquidator acted as agent for the company in liquidation, the liquidator did not make the relevant supply and therefore was not personally liable for GST. • The liability for GST on the supply rests with the company in liquidation. • The GST on the supply falls within the category of expenses covered by s 556(1)(a) of the Corporations Act 2001 . (Under s 556(1)(a), expenses properly incurred by a liquidator in realising property of the company are, subject to some exceptions, paid in priority to other unsecured debts and claims.) • The GST and other expenses under s 556(1)(a) must be paid proportionately by the liquidator, subject to any liens in favour of creditors, pursuant to s 559.", "ATO_View_of_Decision": "The GST Act has been amended since the decision. See below under 'Legislative Amendments'. The discussion below under 'Legislation as it was for this case' is of the Tax Office view of the decision in regard to the legislation as it was before it was amended. Note that the amendments apply from 1 July 2000. | Legislation as it was for this case | Division 147 of the GST Act contained special rules relating to 'representatives' of 'incapacitated entities'. The term 'incapacitated entity' includes bankrupts and companies in liquidation or receivership. The term 'representative' includes trustees in bankruptcy, liquidators and receivers. | The Tax Office considers the effect of the decision in this case, in respect of the then Division 147, to be as follows: • Where an asset of an incapacitated entity remains vested in the entity and the representative of the entity makes a supply of the asset as agent for the incapacitated entity and the supply is a taxable supply - it is the incapacitated entity and not the representative that has the liability for GST. The Tax Office understands that, other than in the uncommon case where assets of the company are vested in the liquidator, under the general law, a liquidator acts as agent of the company in realising the assets of the company, and that under the terms of their appointment receivers also commonly act as agent of the company in receivership. • Similarly, where a representative of an incapacitated entity makes an acquisition as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the incapacitated entity and not the representative that is entitled to the input tax credit. • Where an asset of an incapacitated entity is vested in the representative and the representative makes a supply of the asset (for example, where a trustee in bankruptcy makes a supply of an asset of the bankrupt estate) and the supply is a taxable supply - it is the representative that has the liability for GST; • Similarly, where a representative of an incapacitated entity, such as a trustee in bankruptcy, makes an acquisition in its own right and not as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the representative and not the incapacitated entity that is entitled to the input tax credit. | • Where an asset of an incapacitated entity remains vested in the entity and the representative of the entity makes a supply of the asset as agent for the incapacitated entity and the supply is a taxable supply - it is the incapacitated entity and not the representative that has the liability for GST. The Tax Office understands that, other than in the uncommon case where assets of the company are vested in the liquidator, under the general law, a liquidator acts as agent of the company in realising the assets of the company, and that under the terms of their appointment receivers also commonly act as agent of the company in receivership. • Similarly, where a representative of an incapacitated entity makes an acquisition as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the incapacitated entity and not the representative that is entitled to the input tax credit. • Where an asset of an incapacitated entity is vested in the representative and the representative makes a supply of the asset (for example, where a trustee in bankruptcy makes a supply of an asset of the bankrupt estate) and the supply is a taxable supply - it is the representative that has the liability for GST; • Similarly, where a representative of an incapacitated entity, such as a trustee in bankruptcy, makes an acquisition in its own right and not as agent for the incapacitated entity, and the acquisition is a creditable acquisition - it is the representative and not the incapacitated entity that is entitled to the input tax credit. | Section 70-25 of the Fuel Tax Act 2006 (Fuel Tax Act) provided that the fuel tax law applies to an incapacitated entity and its representative in the same way as the GST Act applies to them under Division 147 of the GST Act. Following its appointment, a representative of an incapacitated entity may acquire, manufacture or import into Australia taxable fuel in circumstances which give rise to an entitlement to a fuel tax credit under the Fuel Tax Act. However, under section 41-15 of the Act, a taxpayer is not entitled to a fuel tax credit for taxable fuel if it is reasonable to conclude that another taxpayer is entitled to a fuel tax credit for the same fuel. | The Tax Office considers the effect of the decision in PM Developments, in respect of the interaction between the Fuel Tax Act and the then Division 147 of the GST Act to be as follows: • Where a representative of an incapacitated entity, such as a liquidator or receiver, acquires, manufactures or imports into Australia taxable fuel as agent for the incapacitated entity, in circumstances which give rise to an entitlement under the Fuel Tax Act, it is the incapacitated entity and not the representative that is entitled to the fuel tax credit. For the purposes of section 41-15 of the Fuel Tax Act, the representative is not taken to have been entitled to the fuel tax credit for the fuel. • Where a representative of an incapacitated entity, such as a trustee in bankruptcy, acquires, manufactures or imports into Australia taxable fuel in its own right in circumstances which give rise to an entitlement under the Fuel Tax Act, it is the representative and not the incapacitated entity that is entitled to the fuel tax credit for the fuel. For the purposes of section 41-15, the incapacitated entity is not taken to have been entitled to the fuel tax credit for the fuel. | • Where a representative of an incapacitated entity, such as a liquidator or receiver, acquires, manufactures or imports into Australia taxable fuel as agent for the incapacitated entity, in circumstances which give rise to an entitlement under the Fuel Tax Act, it is the incapacitated entity and not the representative that is entitled to the fuel tax credit. For the purposes of section 41-15 of the Fuel Tax Act, the representative is not taken to have been entitled to the fuel tax credit for the fuel. • Where a representative of an incapacitated entity, such as a trustee in bankruptcy, acquires, manufactures or imports into Australia taxable fuel in its own right in circumstances which give rise to an entitlement under the Fuel Tax Act, it is the representative and not the incapacitated entity that is entitled to the fuel tax credit for the fuel. For the purposes of section 41-15, the incapacitated entity is not taken to have been entitled to the fuel tax credit for the fuel. | Legislative amendments | The Assistant Treasurer issued a press release \"GST and Incapacitated Entities\" (see link below) on 6 February 2009 announcing that the GST Act would be amended to restore the original policy intent that representatives of incapacitated entities, including liquidators and receivers, be personally liable for GST on taxable supplies made in the course of the administration of the incapacitated entity's affairs. | The press release indicated that the amendments, when enacted, will take effect from the commencement of the GST, that is, 1 July 2000. | Legislative amendments in line with that press release received Royal Assent on 4 December 2009 with a commencement date of 1 July 2000. The amendments omitted Division 147 of the GST Act and inserted Division 58 setting out detailed rules dealing with representatives of incapacitated entities.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None | Implications on Law Administration Practice Statement | None", "Related_Documents": "None | 2008 ATC 20-078 | 9-5 | 556(1)(a) | 559 | 41-15 | 70-25 | 2008 ATC 20-039 | (2005) 2005 ATC 4255 | (2008) 2008 ATC 20-028 | (1981) 81 ATC 4292 | (2008) 2008 ATC 20-045 | (2007) 232 CLR 562 | [2007] HCA 52 | 92 ATC 4013 | 93 ATC 4947 | (1997) 15 ACLC 1427 | [2005] NSWCA 399 | (1998) 194 CLR 355 | [1998] HCA 28 | (1998) 153 ALR 490 | (1987) 162 CLR 514 | (1921) 29 CLR 257 | [1921] HCA 20", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 9-5 Division 147 Corporations Act 2001 556(1)(a) 559 Fuel Tax Act 2006 41-15 70-25", "Case_References": "Commissioner of Taxation v Futuris Pty Ltd (2008) 82 ALJR 1177 [2008] HCA 32 2008 ATC 20-039 (2008) 69 ATR 41 Commissioner of Taxation v Linter Textiles Australia Limited (In liquidation) (2005) 220 CLR 592 (2005) 2005 ATC 4255 (2005) 59 ATR 177 Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 82 ALJR 968 (2008) 2008 ATC 20-028 (2008) 68 ATR 158 Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1980-1981) 147 CLR 297 (1981) 81 ATC 4292 (1981) 11 ATR 949 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 82 ALJR 1411 (2008) 2008 ATC 20-045 (2008) 69 ATR 357 Director of Public Prosecutions (Victoria) v Le (2007) 232 CLR 562 [2007] HCA 52 Hepples v Commissioner of Taxation (1991-1992) 173 CLR 492 (1992) 22 ATR 852 92 ATC 4013 Oil Basins Ltd v Commonwealth of Australia (1993) 178 CLR 643 (1993) 26 ATR 603 93 ATC 4947 Muroa Pty Ltd v O'Meara (1997) 15 ACLC 1427 Platypus Leasing Inc v Commissioner of Taxation (2005) 61 ATR 239 [2005] NSWCA 399 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28 (1998) 153 ALR 490 Re Application by the Liquidator of Haupiri Courts Ltd [1969] NZLR 348 Re Bolton; ex parte Beane (1987) 162 CLR 514 [1987] HCA 12 Re Judiciary and Navigation Acts (1921) 29 CLR 257 [1921] HCA 20 (1921) 27 ALR 193 Case W59 (2004) 21 NZTC 11,551", "Subject_References": "GST Division 147 liquidator personal liability priorities", "Other_References": "GST and Incapacitated Entities (Media Release No. 5)", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD159of2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Deputy Commissioner of Taxation v Smith", "Venue_Reference_No": "148/2007", "Venue": "Miscellaneous - Australian", "Judgment_Date": "19 September 2008", "Date_Published": "19 January 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned, amongst other issues, whether the general interest charge (GIC) is payable on administrative overpayments where the Tax Office has not issued a notice to the taxpayer under section 8AAZN of the Taxation Administration Act 1953 (TAA).", "Overview_of_Facts": "1. The defendant, trading under a business name, and his company claimed GST input tax credits for the continuous periods 1 July 2002 to 31 December 2004 and received a consequent payment from the Commissioner. Following an audit the Deputy Commissioner of Taxation (DCT) issued notices of assessment of GST net amount(s) for the continuous periods 1 July 2002 to 31 December 2004 denying the claim for input tax credits. | 2. The defendant subsequently became liable to repay the administrative overpayment, GIC, tax shortfall and failure to lodge on time penalties. The DCT did not serve a notice in accordance with subsection 8AAZN(2) of the TAA. | 3. The DCT commenced recovery action in the District Court of New South Wales against Mr Smith in respect of the RBA deficit debt comprising the administrative overpayment, the general interest charge associated with that debt, tax shortfall and failure to lodge on time penalties. | 4 In his defence, the defendant stated that he was entitled to the GST input tax credits. | 5. The administrative overpayment was allocated to a running balance account (RBA) and the GIC was calculated as accruing from the date of the overpayment. | 6. The DCT submitted that an administrative overpayment is a primary tax debt and may therefore be allocated to an RBA and that she had allocated the administrative overpayment in the matter at hand as a primary tax debt to an RBA. As the RBA was in deficit GIC was payable pursuant to subsection 8AAZF(1) of the TAA. | 7. In support of her application for judgment, the DCT produced to the Court a copy of the notice of assessment issued to Mr Smith and relied on the notice as conclusive evidence of Mr Smith's liability pursuant to the then applicable sections 59 and 61 of the TAA [now sections 105-100 and 105-110 of Schedule 1 to the TAA]. | 8. The DCT also relied on evidentiary certificates pursuant to section 8AAZJ of the TAA. | Findings of the Court | 9. Truss J found that • There was an administrative overpayment within the meaning of subsection 8AAZN(3). • The RBA provisions provide an alternative method to section 8AAZN for the recovery of administrative overpayments. • Contrary to the views of Shaw J in Deputy Commissioner of Taxation v De-Angelis (2008) SADC 103 that subsection 8AAZN(2) cannot be overridden by the general GIC provisions contained in the RBA provisions, Truss J concluded that the legislation entitles the Commissioner to allocate the administrative overpayment to the RBA but not the GIC. The GIC on the RBA then becomes payable under s 8AAZF not s 8AAZN(2). • Once the character of the debt changed from an administrative overpayment to a RBA deficit debt by allocation to the RBA, subsection 8AAZN(2) is no longer relevant, GIC being calculated under s 8AAZF. | • There was an administrative overpayment within the meaning of subsection 8AAZN(3). • The RBA provisions provide an alternative method to section 8AAZN for the recovery of administrative overpayments. • Contrary to the views of Shaw J in Deputy Commissioner of Taxation v De-Angelis (2008) SADC 103 that subsection 8AAZN(2) cannot be overridden by the general GIC provisions contained in the RBA provisions, Truss J concluded that the legislation entitles the Commissioner to allocate the administrative overpayment to the RBA but not the GIC. The GIC on the RBA then becomes payable under s 8AAZF not s 8AAZN(2). • Once the character of the debt changed from an administrative overpayment to a RBA deficit debt by allocation to the RBA, subsection 8AAZN(2) is no longer relevant, GIC being calculated under s 8AAZF.", "Issues_Decided": "", "ATO_View_of_Decision": "10. The Tax Office accepts the decision of Truss J.", "Administrative_Treatment": "11. The Tax Office will continue to allocate administrative overpayments to RBAs, and to calculate GIC on such administrative overpayments from the date of the overpayment where it has been posted to an RBA. | 12. The Tax Office will continue to seek recovery of administrative overpayments and GIC on them. | 13. It should be noted that the decision by Truss J. in this case is not binding on other jurisdictions.", "Related_Documents": "None | [2008] NSWDC 219 | 8AAZA | 8AAZC | 8AAZD | 8AAZF | 8AAZJ | 8AAZN", "Legislative_References": "Taxation Administration Act 1953 8AAZA 8AAZC 8AAZD 8AAZF 8AAZJ 8AAZN 8AAZW 22 [now s105-5] 35 [now s105-50] 59 [now s105-100] 61 [now s105-110]", "Case_References": "", "Subject_References": "Administrative Overpayments Running Balance Account General Interest Charge", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/148/2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Dixon atf the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation", "Venue_Reference_No": "QUD251 of 2007", "Venue": "Federal Court of Australia", "Judgment_Date": "8 April 2008", "Date_Published": "12 February 2013", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the Tax Office's response to this case which involved a consideration of factors relevant to the exercise of a discretion to remit penalty.", "Overview_of_Facts": "The applicant, as trustee of a superannuation fund, purchased a commercial property for $1.88 million as a going concern. The applicant's tax agent correctly identified the transaction as a Goods and Services Tax (GST) free acquisition and the relevant activity statement, as lodged, did not assert a claim for input tax credits (ITCs). | Some time later the applicant changed tax agents. The new tax agent lodged an amended activity statement claiming ITCs of $171,791. He did so without instructions from the applicant based solely on a draft of the sale contract (ie. without a valid tax invoice and without consulting with the vendor or the previous tax agent). If processed as lodged the activity statement would have resulted in a refund of $171,791. However, in accordance with his usual administrative practices, the Commissioner sought verification of the ITC claim, determined the ITCs were not allowable and did not pay out a refund. | The Commissioner concluded that the relevant statutory provisions provided that administrative penalty of $85,681 applied in the circumstances of the case. The Commissioner also decided a remission of penalty was not indicated and issued an assessment of penalty. The applicant lodged objections against the assessment of penalty and the remission decision. Both objections were disallowed and the applicant sought a review of the objection decisions by the Administrative Appeals Tribunal (AAT). | In determining the review the AAT affirmed the objection decision in respect of the assessment of penalty but varied the decision in respect of remission, finding that, as no refund of the ITC claim had been made, \"no harm was done\". Subsequently: • The Commissioner successfully appealed the AAT decision on remission to a single judge of the Federal Court; • The applicant appealed the Federal Court decision to the Full Federal Court which remitted the matter to the AAT to determine a question of fact. • The Tribunal affirmed the objection decision. | • The Commissioner successfully appealed the AAT decision on remission to a single judge of the Federal Court; • The applicant appealed the Federal Court decision to the Full Federal Court which remitted the matter to the AAT to determine a question of fact. • The Tribunal affirmed the objection decision. | Issues decided by the court or tribunal | At issue was the exercise of a discretion to remit penalty pursuant to section 298-20 of Schedule 1 of the Taxation Administration Act 1953 . Section 298-20 is expressed as an unfettered discretion. However, the basis of the Commissioner's appeal to the Federal Court was that the AAT had made an error of law in exercising the discretion taking into account certain irrelevant considerations. | In the first instance the Federal Court dealt with each of the considerations raised by the Commissioner finding, inter alia, that the remission discretion may only be exercised in \"special circumstances\" and the fact that no refund had been made was not a relevant consideration for the purposes of exercising the discretion. On appeal the Full Federal Court stated (at paragraph 19): It is difficult to see how [all the questions considered by the primary judge], assuming they are questions of law, arose in the circumstances of this case. The only relevant question of law was the subject of the ultimate conclusion of the primary judge. Her Honour's ultimate conclusion was that the discretion to remit is not enlivened by whether or not an amount of revenue has or has not been lost: absence of loss of revenue is not a relevant consideration in relation to the exercise of the discretion to remit the penalty. | and (at paragraph 21): To the extent that the primary judge concluded that it is necessary that there be special circumstances before the discretion to remit can be exercised, her Honour was in error. There is nothing in the legislative scheme to suggest that special circumstances must be established... | The Full Federal Court concluded (at paragraph 24): It must follow, therefore, that, for the purposes of the exercise of the discretion to remit, it can be of no consequence whether a taxpayer's false statement was detected before the Commissioner allowed or paid an input tax credit to a taxpayer, on the one hand, or whether, on the other hand, the Commissioner detected the overpayment after an input tax credit had been paid and recovered the amount, together with an amount in respect of the general interest charge. | The Full Court remitted the matter to the AAT to determine whether the imposition of the penalty was \"harsh, having regard to the particular circumstances of the Taxpayer\" (at paragraph 27). That not being the case, the AAT affirmed the objection decision.", "Issues_Decided": "At issue was the exercise of a discretion to remit penalty pursuant to section 298-20 of Schedule 1 of the Taxation Administration Act 1953 . Section 298-20 is expressed as an unfettered discretion. However, the basis of the Commissioner's appeal to the Federal Court was that the AAT had made an error of law in exercising the discretion taking into account certain irrelevant considerations. In the first instance the Federal Court dealt with each of the considerations raised by the Commissioner finding, inter alia, that the remission discretion may only be exercised in \"special circumstances\" and the fact that no refund had been made was not a relevant consideration for the purposes of exercising the discretion. On appeal the Full Federal Court stated (at paragraph 19): It is difficult to see how [all the questions considered by the primary judge], assuming they are questions of law, arose in the circumstances of this case. The only relevant question of law was the subject of the ultimate conclusion of the primary judge. Her Honour's ultimate conclusion was that the discretion to remit is not enlivened by whether or not an amount of revenue has or has not been lost: absence of loss of revenue is not a relevant consideration in relation to the exercise of the discretion to remit the penalty. and (at paragraph 21): To the extent that the primary judge concluded that it is necessary that there be special circumstances before the discretion to remit can be exercised, her Honour was in error. There is nothing in the legislative scheme to suggest that special circumstances must be established... The Full Federal Court concluded (at paragraph 24): It must follow, therefore, that, for the purposes of the exercise of the discretion to remit, it can be of no consequence whether a taxpayer's false statement was detected before the Commissioner allowed or paid an input tax credit to a taxpayer, on the one hand, or whether, on the other hand, the Commissioner detected the overpayment after an input tax credit had been paid and recovered the amount, together with an amount in respect of the general interest charge. The Full Court remitted the matter to the AAT to determine whether the imposition of the penalty was \"harsh, having regard to the particular circumstances of the Taxpayer\" (at paragraph 27). That not being the case, the AAT affirmed the objection decision.", "ATO_View_of_Decision": "The decision is consistent with the Commissioner's view and with the manner in which the exercise of the remission discretion is currently administered.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Nil", "Related_Documents": "PS LA 2006/2 | 2008 ATC 20-015 | Schedule 1, Section 298-20 | 2008 ATC 10-047", "Legislative_References": "Taxation Administration Act 1953 Schedule 1, Section 298-20", "Case_References": "Dixon v Commissioner of Taxation [2008] AATA 825 2008 ATC 10-047", "Subject_References": "Remission of administrative penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD251of2007/00001", "Unmatched_Content": "Implications on Law Administration Practice Statements: Practice Statement Law Administration PS LA 2006/2, dealing with the administration of shortfall penalty for false and misleading statements has been withdrawn and replaced by PS LA 2012/5 Administration of penalties for making false or misleading statements that result in shortfall amounts. The decision of the Full Federal Court in this case has been taken into account in the new Practice Statement."}
{"Case_Name": "Drysdale and Commissioner of Taxation", "Venue_Reference_No": "2007/0772", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "14 May 2008", "Date_Published": "24 July 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the Applicant was carrying on an enterprise for the purposes of section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).", "Overview_of_Facts": "1. The Applicant expended approximately $425,000 on a boat and associated acquisitions. At or about the time he purchased the boat, the Applicant entered into a \"sub-dealers\" agreement with the vendor, under which he would receive $5,000 commission for each boat of the same type sold within Victoria during the term of the agreement. | 2. The Applicant claimed that: a. he expected to earn commission of approximately $20,000p.a.; b. he did not receive any commissions as no Dufour 40 yachts were sold in Victoria; c. the Boat was primarily moored at the Docklands Marina; d. the Boat was displayed at two Sandringham Boat Shows; e. he showed the Boat to several potential purchasers, although these people did not provide witness statements; and f. he operated a mussel farm six days a week. | a. he expected to earn commission of approximately $20,000p.a.; b. he did not receive any commissions as no Dufour 40 yachts were sold in Victoria; c. the Boat was primarily moored at the Docklands Marina; d. the Boat was displayed at two Sandringham Boat Shows; e. he showed the Boat to several potential purchasers, although these people did not provide witness statements; and f. he operated a mussel farm six days a week. | 3. The Applicant took no steps to enter into a \"direct sales agency agreement\" with Dufour after the \"sub-dealers\" agreement came to an end. | 4. The Boat was valued, as at 25 October 2007, by an expert valuer at $285,000 (plus or minus 5%), meaning the Boat depreciated at about $46,907 per annum. | Issues decided by the court or tribunal | The Tribunal found that the acquisition of the boat and associated acquisitions by the Applicant were not creditable acquisitions, as the acquisitions were not made in carrying on an enterprise. The absence of relevant indicia of a business was not consistent with the Applicant carrying on an enterprise. In this regard, the Tribunal contrasted the facts of this case with the indicia of a business as evidenced in Hostess Marine v Commissioner of Taxation ([2006] FCA 1651) and Peerless Marine v Commissioner of Taxation ([2006] AATA 765) and found that few of the features in those cases existed in the case of the Applicant (see paragraph 26 of the decision). | Further, the Tribunal found that it was necessary for the Applicant to have a reasonable expectation of profit or gain. SM Handley acknowledged that the Applicant may well have purchased the boat with an intention to make a profit, but the circumstances of the matter meant that that expectation was not reasonable. | Thirdly, the Tribunal found that there was a private recreational element to the Applicant's acquisition, which also worked against a finding that the Applicant was carrying on an enterprise. | The Tribunal also found that it was legitimate for the Commissioner to take the depreciation of the vessel into account in considering whether there is a reasonable expectation of a profit.", "Issues_Decided": "The Tribunal found that the acquisition of the boat and associated acquisitions by the Applicant were not creditable acquisitions, as the acquisitions were not made in carrying on an enterprise. The absence of relevant indicia of a business was not consistent with the Applicant carrying on an enterprise. In this regard, the Tribunal contrasted the facts of this case with the indicia of a business as evidenced in Hostess Marine v Commissioner of Taxation ([2006] FCA 1651) and Peerless Marine v Commissioner of Taxation ([2006] AATA 765) and found that few of the features in those cases existed in the case of the Applicant (see paragraph 26 of the decision). Further, the Tribunal found that it was necessary for the Applicant to have a reasonable expectation of profit or gain. SM Handley acknowledged that the Applicant may well have purchased the boat with an intention to make a profit, but the circumstances of the matter meant that that expectation was not reasonable. Thirdly, the Tribunal found that there was a private recreational element to the Applicant's acquisition, which also worked against a finding that the Applicant was carrying on an enterprise. The Tribunal also found that it was legitimate for the Commissioner to take the depreciation of the vessel into account in considering whether there is a reasonable expectation of a profit.", "ATO_View_of_Decision": "The decision confirms that a taxpayer is required to demonstrate that sufficient indicators of a business exist to establish that activities have been done in the form of a business for the purpose of paragraph 9-20(1)(a) of the GST Act - see generally Miscellaneous Tax Ruling MT 2006/1. | One of the indicators of a business is the prospect of profit. The decision is consistent with the Commissioner's view, as outlined in Taxation Ruling TR 2003/4 (Income tax: boat hire arrangements) at paragraph 17, that a taxpayer should take into account the decline in value of the boat in determining whether that taxpayer has an expectation of making a commercially realistic profit from the undertaking. | The decision also confirms that the depreciating value of an asset should be taken into account when determining whether there is a reasonable expectation of profit or gain for the purposes of paragraph 9-20(2)(c) of the GST Act.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "MT 2006/1 | GSTD 2006/6 | GSTR 2008/1 | TR 97/11 - re indicia of business | TR 2003/4 - re depreciation and indicia of business | 2008 ATC 10-027 | 7-1 | 9-20 | 9-20(1)(a) | 9-20(2)(b) | 9-20(2)(c) | 11-5 | 11-5(a) | 11-15 | 11-15(2)(b) | 11-20 | 69-5(1) | 26-50 | (1911) 1 Ch 92 | 84 ATC 4883 | 2003 ATC 5099 | (1979) 79 ATC 4261 | [2006] FCA 1651 | 79 ATC 4261 | 2006 ATC 2419", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (Cth) 7-1 9-20 9-20(1)(a) 9-20(2)(b) 9-20(2)(c) 11-5 11-5(a) 11-15 11-5(a) 11-15 11-15(2)(b) 11-20 69-5(1) Income Tax Assessment Act 1997 (Cth) 26-50", "Case_References": "In Re The Spanish Prospecting Company Ltd (1911) 1 Ch 92 Commissioner of Taxation v Slater Holdings Limited [1984] HCA 78 84 ATC 4883 Spassked v Commissioner of Taxation [2003] FCAFC 282 2003 ATC 5099 Ferguson v FCT (1979) 79 ATC 4261 (1979) 26 ALR 307 (1979) 9 ATR 873 Hostess Marine Pty Ltd v Commissioner of Taxation [2006] FCA 1651 79 ATC 4261 Peerless Marine Pty Ltd and Commissioner of Taxation [2006] AATA 765 2006 ATC 2419", "Subject_References": "Carrying on an enterprise Reasonable expectation of profit or gain Private recreational pursuit or hobby", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/0772/00001", "Unmatched_Content": ""}
{"Case_Name": "Finerty v Deputy Commissioner of Taxation", "Venue_Reference_No": "QUD 289 of 2007", "Venue": "Federal Court of Australia", "Judgment_Date": "23 July 2008", "Date_Published": "10 September 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerns, inter alia , whether tax shortfall penalty under Part VII of the Income Tax Assessment Act 1936 applies in respect of default assessments.", "Overview_of_Facts": "Income tax | The applicant was the sole director and shareholder of two resident Australian companies. During the years ended 30 June 2000 to 30 June 2003 inclusive the applicant failed to lodge taxation returns. On 12 May 2004, the Commissioner requested the applicant to lodge returns but the applicant failed to do so. On 17 November 2004, the Commissioner raised default assessments pursuant to section 167 of the Income Tax Assessment Act 1936 (ITAA 1936). | Penalty | For the years ended 30 June 2001 to 30 June 2003 inclusive, the penalty for failure to lodge was imposed under subsection 284-75(3) of Schedule 1 of the Taxation Administration Act 1953 (TAA 1953). | For the year ended 30 June 2000, penalty was imposed in respect of a tax shortfall pursuant to section 226J of the ITAA 1936. | These penalty notices were raised on 22 November 2004. | Objection Decision | The applicant objected to the assessments on 9 March 2007. The Commissioner made a request to the applicant for information in support of the objection on 17 May 2007 but no response was forthcoming. On 10 July 2007 the Commissioner disallowed the objection. | The applicant filed an application for review on 7 September 2007. | Issues decided by the court or tribunal | The day prior to the hearing the applicant contacted the court and the Commissioner seeking to vacate the hearing dates. The court determined that it would not grant the applicant's request on the basis of the continual failure by the applicant to comply with any court directions and relying on State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146. Further, it was held that on the evidence provided by the applicant \" there is nothing to indicate that that aim [provision of evidence] is achievable . Rather, it is the hope or expectation that that would be the result of going through the documents .\" | The applicant had failed to discharge the onus of proof required pursuant to section 14ZZO of the TAA 1953 that the assessments were excessive. | The Court affirmed the objection decision in respect of the assessments of income tax and penalty pursuant to subsection 284-75(3) of Schedule 1 of the TAA 1953, namely for the years ended 30 June 2001 to 30 June 2003 inclusive. However, the Court set aside the objection decision to the extent it pertained to tax shortfall penalty for the year ended 30 June 2000 which was conceded as improperly imposed by the Commissioner.", "Issues_Decided": "The day prior to the hearing the applicant contacted the court and the Commissioner seeking to vacate the hearing dates. The court determined that it would not grant the applicant's request on the basis of the continual failure by the applicant to comply with any court directions and relying on State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146. Further, it was held that on the evidence provided by the applicant \" there is nothing to indicate that that aim [provision of evidence] is achievable . Rather, it is the hope or expectation that that would be the result of going through the documents .\" The applicant had failed to discharge the onus of proof required pursuant to section 14ZZO of the TAA 1953 that the assessments were excessive. The Court affirmed the objection decision in respect of the assessments of income tax and penalty pursuant to subsection 284-75(3) of Schedule 1 of the TAA 1953, namely for the years ended 30 June 2001 to 30 June 2003 inclusive. However, the Court set aside the objection decision to the extent it pertained to tax shortfall penalty for the year ended 30 June 2000 which was conceded as improperly imposed by the Commissioner.", "ATO_View_of_Decision": "The tax shortfall penalty was imposed in error for the year ended 30 June 2000. At the hearing, the Commissioner made submissions to this effect and the decision of the Court was consistent with those submissions.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Nil", "Related_Documents": "None. | [2008] FCA 1136 | 14ZZO | 284-75(3) | 189 CLR 146 | 141 ALR 353", "Legislative_References": "Taxation Adminstration Act 1953 14ZZO 284-75(3) Income Tax Assessment Act 1936 226J", "Case_References": "State of Queensland v JL Holdings Pty Ltd [1997] HCA 1 189 CLR 146 141 ALR 353", "Subject_References": "Default Assessments Onus of Proof Tax Shortfall Penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD289of2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Frisch and Commissioner of Taxation", "Venue_Reference_No": "2007/4517-4521", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "4 June 2008", "Date_Published": "29 July 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case sought to test whether expenditure incurred by a taxpayer with disability in employing an assistant to assist and attend to the taxpayer in or in relation to their disability while the taxpayer carries out their employment duties is deductible under s 8-1 of the Income Tax Assessment Act 1997 | Decision/Outcome | Adverse", "Overview_of_Facts": "The taxpayer requested a private ruling in relation to the deductibility of outgoings incurred by her in employing someone to provide the assistance needed by her because of her disability to fulfil the obligations and functions of her employment. | The taxpayer suffers from cerebral palsy. She has limited motor skills, her speech is impeded and she is permanently confined to a wheelchair/bed. At the time she requested the private ruling, she was studying law and planning to become a solicitor. During a semester break, she obtained employment as a law clerk and hired an assistant to help her while she did her work. The duties of the assistant included typing notes, photocopying, arranging items on the desk (non-personal services) and providing some personal care assistance (personal services). The amount sought to be deducted included wages and superannuation, advertising, insurance and training of the assistant. | The ruling and objection decisions were that no deduction was available but that any amount paid as remuneration to an attendant for medical services could be taken into account in determining whether a concessional rebate for medical expenses was available. | Issues decided by the tribunal | Outgoing incurred in gaining or producing assessable income | The Tribunal found that the taxpayer does not delegate any of the employment tasks to the attendant. Rather, the attendant merely performs necessary physical tasks under the direction and control of the taxpayer and the taxpayer merely obtains the assistance needed by her to fulfil her obligations and functions as an employee. | Accordingly the Tribunal decided that, to the extent that the expenditure of the taxpayer is in relation to non-personal services, the outgoing is incurred to enable the taxpayer to undertake her employment duties and is thus incurred in gaining her employment income. A deduction is available under s 8-1 ITAA 1997. | Not an outgoing of a private nature | The Tribunal found that any deduction under subsection 8-1(1) in relation to outgoings incurred on non-personal services is not denied to any extent under subsection 8-1(2) because the outgoings are not outgoings of a private or domestic nature. | In reaching this decision, the Tribunal noted that an expense incurred to overcome physical disability will probably in most cases be non-deductible as private or domestic, although this is not a rule which applies invariably. Outgoings incurred to acquire items required to overcome a disability are generally not deductible - for example, the cost of items such as spectacles, hearing aids, wheelchairs and crutches - as such items are not required only at and for work. | Here, however, the outgoings are to acquire services required and provided only at and for work. The Tribunal found that these are services without which the taxpayer could not fulfil her work obligations and, accordingly, the outgoings on the non-personal services are not outgoings of a private or domestic nature. | Interaction between s 159P ITAA 1936 and s 8-1 ITAA 1997 | The Tribunal decided that the fact that a rebate under s 159P ITAA 1936 is available in relation to an amount paid as remuneration for medical services would not preclude a deduction under s 8-1 ITAA 1997 in relation to that outgoing.", "Issues_Decided": "Outgoing incurred in gaining or producing assessable income: The Tribunal found that the taxpayer does not delegate any of the employment tasks to the attendant. Rather, the attendant merely performs necessary physical tasks under the direction and control of the taxpayer and the taxpayer merely obtains the assistance needed by her to fulfil her obligations and functions as an employee. Accordingly the Tribunal decided that, to the extent that the expenditure of the taxpayer is in relation to non-personal services, the outgoing is incurred to enable the taxpayer to undertake her employment duties and is thus incurred in gaining her employment income. A deduction is available under s 8-1 ITAA 1997. | Not an outgoing of a private nature: The Tribunal found that any deduction under subsection 8-1(1) in relation to outgoings incurred on non-personal services is not denied to any extent under subsection 8-1(2) because the outgoings are not outgoings of a private or domestic nature. In reaching this decision, the Tribunal noted that an expense incurred to overcome physical disability will probably in most cases be non-deductible as private or domestic, although this is not a rule which applies invariably. Outgoings incurred to acquire items required to overcome a disability are generally not deductible - for example, the cost of items such as spectacles, hearing aids, wheelchairs and crutches - as such items are not required only at and for work. Here, however, the outgoings are to acquire services required and provided only at and for work. The Tribunal found that these are services without which the taxpayer could not fulfil her work obligations and, accordingly, the outgoings on the non-personal services are not outgoings of a private or domestic nature. | Interaction between s 159P ITAA 1936 and s 8-1 ITAA 1997: The Tribunal decided that the fact that a rebate under s 159P ITAA 1936 is available in relation to an amount paid as remuneration for medical services would not preclude a deduction under s 8-1 ITAA 1997 in relation to that outgoing.", "ATO_View_of_Decision": "Outgoing incurred in gaining or producing assessable income | The Tax Office argued that this is an outgoing incurred to address the physical disability of the taxpayer which, although incurred for the purpose of gaining or producing her employment income, does not meet the essential character test of being incurred in gaining or producing the employment income. | On the facts of this case, the Tax Office accepts the Tribunal's decision that the outgoing is incurred not merely to put the taxpayer in a place or a position in which she could undertake her employment duties, but to enable her to undertake the employment duties. | This was not a case involving delegation of duties by an employee. The taxpayer did not delegate her employment duties, nor any discrete part of them, to her assistant. Although the maxim delegatus non potest delegare was discussed by the Tribunal, it acknowledged that there had been no delegation and the taxpayer had merely incurred expenditure to acquire services to enable her to undertake her income earning employment duties. | Not an outgoing of a private nature | The Tax Office also accepts, on the facts of this case, that the outgoings incurred by the taxpayer on non-personal services are not outgoings of a private or domestic nature. However, the Tax Office agrees with the Tribunal that an expense incurred to overcome a physical disability will probably in most cases be private and domestic, and non-deductible. | Interaction between s 159P ITAA 1936 and s 8-1 ITAA 1997 | An amount paid by a taxpayer permanently confined to a wheelchair/bed as remuneration for services necessitated by the taxpayer's confinement which are rendered by the recipient as an attendant of a person so confined can be taken into account in determining whether a rebate for medical expenses is available to the taxpayer under s 159P ITAA1936. | Any deduction available in relation to such an amount under s 8-1 ITAA 1997 is not precluded because the outgoing is an amount paid within the ambit of this concessional rebate.", "Administrative_Treatment": "None. The decision was open to the Tribunal based on the particular circumstances of the case. | Implications on current Public Rulings & Determinations | None.", "Related_Documents": "None. | 2008 ATC 10-031 | 8-1 | (1994) 94 ATC 4255 | 2001 ATC 4027 | (1972) 72 ATC 4174 | 100 CLR 478, 498-499 | 1958) 11 ATD 404 | [1958] ALR 225 | 2000 ATC 2077", "Legislative_References": "Income Tax Assessment Act 1997 8-1 Income Tax Assessment Act 1936 159P", "Case_References": "Australian Air Express Pty Limited v Langford [2005] NSWCA 96 (2005) 147 IR 240 [2006] ALMD 3683 Commissioner of Taxation v Edwards (1994) 49 FCR 318 (1994) 94 ATC 4255 (1994) 28 ATR 87 Commissioner of Taxation v Payne [2001] HCA 3 (2001) 202 CLR 93 2001 ATC 4027 (2001) 46 ATR 228 Lodge v Federal Commissioner of Taxation (1972) 128 CLR 171 (1972) 72 ATC 4174 (1972) 3 ATR 254 (1972) 46 ALJR 575 Lunney v Commissioner of Taxation 100 CLR 478, 498-499 1958) 11 ATD 404 (1958) 32 ALJR 139 [1958] ALR 225 Wells v Commissioner of Taxation [2000] AATA 920 2000 ATC 2077 (2000) 45 ATR 1145", "Subject_References": "Deduction outgoing incurred outgoing incurred to enable employee to undertake employment duties outgoing of a private nature employee of employee delegation delegatus non potest delegare maxim Rebate concessional rebate rebate for medical expenses", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/4517-4521/00001", "Unmatched_Content": ""}
{"Case_Name": "Hance & Anor v Federal Commissioner of Taxation", "Venue_Reference_No": "NSD 492-3 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "19 December 2008", "Date_Published": "9 February 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the application of section 8-1 of the Income Tax Assessment Act 1997 ('ITAA 97') to an investor's contributions to a registered agricultural managed investment scheme ('MIS'). It proceeded by way of a private ruling testing the Tax Office view in TR2007/8.", "Overview_of_Facts": "The applicants applied for private rulings in relation to their proposed involvement in the '2009 AIMA Almond Investment Scheme' ('the Scheme'), which was to be registered as a managed investment scheme under the Corporations Act 2001 (Corporations Act). | They did so in order to test the view of the Commissioner published in public ruling TR 2007/8, which reflected a change from that previously set out in TR 2000/8. | The Responsible Entity of the Scheme for the purposes of the Corporations Act was to be AIMA Limited ('AIMA'), and the applicants were to enter into an Almondlot Management Agreement ('the management agreement') with AIMA, as well as a sub-lease, in relation to the growing and harvesting of almonds for sale (under which the applicants would gain limited rights to access their own Almondlots). The operation of the Scheme was also to be governed by the Scheme's Constitution, and various other documents. | Outgoings were to be incurred by the applicants over the life of the Scheme (23 years, with the possibility of a further two years), including amounts for 'rent' and 'management fees', as well as amounts referred to as a 'responsible entity fee' ('the relevant outgoings'). | The applications for private ruling asked the Commissioner to rule on whether the relevant outgoings were allowable deductions under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). | The Commissioner ruled, consistently with TR 2007/8, that the relevant outgoings were capital, or capital in nature, being for the acquisition of the applicants' interests in the Scheme, chiefly their right to share in the net proceeds from the Scheme as a whole. This stance was maintained on objections being lodged against the private rulings. Subsequently, applications were made to the Federal Court, and the Chief Justice agreed to the matters being heard by a Full Federal Court. | Issues decided by the court or tribunal | The Commissioner argued that the applicants' involvement in the Scheme would be as 'passive investors', as borne out by the extent to which they would delegate their ability to control the relevant operations to AIMA, and by the fact that they would have no proprietary right in proceeds from the sale of almonds produced on their Almondlots. Instead, it was submitted that they would obtain, in substitution, the right to share rateably in the proceeds of sale of almonds produced by the Scheme as a whole. This was said to follow particularly from those terms of the Scheme documentation concerning the pooling of almonds. | These factors were said to result in the conclusion, amongst others, that the applicants would not be carrying on business as a consequence of their membership of the Scheme. | The Commissioner argued that the applicants' relevant outgoings would obtain for them a capital asset in the form of the right to share proportionately in the net proceeds of the Scheme. | Alternatively, it was submitted that these net proceeds would be held on trust by AIMA for all members of the Scheme, under subsection 601FC(2) of the Corporations Act, which concerned the holding of 'scheme property'. This was consistent with the proposition that the effect of the management agreement would be to convert a proprietary interest in the almonds grown on the applicants' Almondlots into personal rights against AIMA for a rateable portion of the net sale proceeds from the Scheme as a whole. | Carrying on business | The Court rejected the argument that the applicants would give up any right of ownership of almonds produced on their Almondlots, and held that, up until their sale, the applicants would retain such ownership, which would extend to them being able to withdraw their almonds from any pooling arrangement up until the point of sale. | The Court also rejected the argument that the extent of delegation to AIMA would have any material effect. In particular, the Court said that the argument of the Commissioner here 'focuses too much upon what the applicants will not be doing and pays too little attention to what they will be doing' (at [77]). | The Court referred to certain authorities concerning long established principles to do with the question of whether taxpayers carry on business, and, on the facts before them, held that the applicants would be doing so in relation to their membership of the Scheme. | Beneficiaries of a trust | The Court also held that AIMA would not hold any scheme property on trust in a way that would lead to the conclusion that payment of the relevant outgoings would be in exchange for the acquisition of 'an identifiable asset which will produce the net proceeds of sale of his crop' (at [103]). In the likely event that sales would be made from the almond pool it was held that AIMA would hold the gross proceeds from such sales on trust for members of the Scheme 'in accordance with their respective entitlements in those proceeds' (at [101]). | Characterisation of the relevant outgoings | The Court held that the relevant outgoings would be incurred in the course of carrying on a business, and that the question of their character was governed by their legal form on the face of the documentation, as rent or management fees (including responsible entity fees). Having rejected the arguments that the applicants would be passive investors, and that their outgoings would be on capital account it followed that: | The only answer open is that the relevant outgoings will be incurred as operating expenses in carrying on each applicant's business. It follows that they are deductible pursuant to s 8-1 of the 1997 Act. (at [110]) | The Commissioner accepts the decision of the Full Federal Court as authoritative in relation to similar schemes, and will not seek special leave to appeal to the High Court.", "Issues_Decided": "The Commissioner argued that the applicants' involvement in the Scheme would be as 'passive investors', as borne out by the extent to which they would delegate their ability to control the relevant operations to AIMA, and by the fact that they would have no proprietary right in proceeds from the sale of almonds produced on their Almondlots. Instead, it was submitted that they would obtain, in substitution, the right to share rateably in the proceeds of sale of almonds produced by the Scheme as a whole. This was said to follow particularly from those terms of the Scheme documentation concerning the pooling of almonds. These factors were said to result in the conclusion, amongst others, that the applicants would not be carrying on business as a consequence of their membership of the Scheme. The Commissioner argued that the applicants' relevant outgoings would obtain for them a capital asset in the form of the right to share proportionately in the net proceeds of the Scheme. Alternatively, it was submitted that these net proceeds would be held on trust by AIMA for all members of the Scheme, under subsection 601FC(2) of the Corporations Act, which concerned the holding of 'scheme property'. This was consistent with the proposition that the effect of the management agreement would be to convert a proprietary interest in the almonds grown on the applicants' Almondlots into personal rights against AIMA for a rateable portion of the net sale proceeds from the Scheme as a whole. | Carrying on business: The Court rejected the argument that the applicants would give up any right of ownership of almonds produced on their Almondlots, and held that, up until their sale, the applicants would retain such ownership, which would extend to them being able to withdraw their almonds from any pooling arrangement up until the point of sale. The Court also rejected the argument that the extent of delegation to AIMA would have any material effect. In particular, the Court said that the argument of the Commissioner here 'focuses too much upon what the applicants will not be doing and pays too little attention to what they will be doing' (at [77]). The Court referred to certain authorities concerning long established principles to do with the question of whether taxpayers carry on business, and, on the facts before them, held that the applicants would be doing so in relation to their membership of the Scheme. | Beneficiaries of a trust: The Court also held that AIMA would not hold any scheme property on trust in a way that would lead to the conclusion that payment of the relevant outgoings would be in exchange for the acquisition of 'an identifiable asset which will produce the net proceeds of sale of his crop' (at [103]). In the likely event that sales would be made from the almond pool it was held that AIMA would hold the gross proceeds from such sales on trust for members of the Scheme 'in accordance with their respective entitlements in those proceeds' (at [101]). | Characterisation of the relevant outgoings: The Court held that the relevant outgoings would be incurred in the course of carrying on a business, and that the question of their character was governed by their legal form on the face of the documentation, as rent or management fees (including responsible entity fees). Having rejected the arguments that the applicants would be passive investors, and that their outgoings would be on capital account it followed that: The only answer open is that the relevant outgoings will be incurred as operating expenses in carrying on each applicant's business. It follows that they are deductible pursuant to s 8-1 of the 1997 Act. (at [110]) The Commissioner accepts the decision of the Full Federal Court as authoritative in relation to similar schemes, and will not seek special leave to appeal to the High Court.", "ATO_View_of_Decision": "The decision of the Full Federal Court that the applicants would be carrying on a business was open to the Court on the facts of the case and it is not apparent that the decision is attended by any relevant error of law. | The Commissioner considers that the decision of the Full Federal Court provides greater certainty in relation to the application of the law to deductions for contributions to registered agricultural managed investment schemes. | The decision also provides clarification of the scope of subsection 601FC(2) of the Corporations Act 2001", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | N/A", "Related_Documents": "TR 2007/8 | GSTR 2008/D1 | 2008 ATC 20-085 | 8-1 | Chapter 5C | (1938) 61 CLR 337 | (1954) 91 CLR 209 | (2002) 2002 ATC 4742 | (1990) 90 ATC 4319 | (1979) 79 ATC 4261 | (2003) 2003 ATC 4782 | (1976) 76 ATC 4001 | (1990) 90 ATC 4461 | (1946) 72 CLR 634 | (1984) 84 ATC 4553 | [2005] WASCA 236 | (2002) 26 WAR 385 | [2002] WASC 63 | [2006] 1 QdR 339 | [2005] QCA 408 | [1969] 3 All ER 1196", "Legislative_References": "Income Tax Assessment Act 1997 8-1 Corporations Act 2001 Chapter 5C", "Case_References": "Sun Newspapers Ltd and Associated Newspapers Ltd v FCT (1938) 61 CLR 337 [1938] HCA 73 [1938] ALR 498 Clowes v FCT (1954) 91 CLR 209 [1954] HCA 10 [1954] ALR 293 Vincent v FCT (2002) 124 FCR 350 (2002) 2002 ATC 4742 (2002) 51 ATR 18 FCT v Emmakell Pty Ltd (1990) 22 FCR 157 (1990) 90 ATC 4319 (1990) 21 ATR 346 Ferguson v FCT (1979) 37 FLR 310 (1979) 79 ATC 4261 (1979) 9 ATR 873 Puzey v FCT (2003) 131 FCR 244 (2003) 2003 ATC 4782 (2003) 53 ATR 614 Milne v FCT (1976) 133 CLR 526 (1976) 76 ATC 4001 (1976) 5 ATR 785 Vincent v FCT (2002) 50 ATR 20 (1976) 76 ATC 4001 (1976) 5 ATR 785 FCT v Raymor (NSW) Pty Ltd (1990) 24 FCR 90 (1990) 90 ATC 4461 (1990) 21 ATR 458 Hallstroms Pty Ltd v FCT (1946) 72 CLR 634 [1946] HCA 34 [1946] ALR 434 FCT v Walker (1984) 2 FCR 283 (1984) 84 ATC 4553 (1984) 15 ATR 847 Southern Wine Corporation Pty Ltd (In Liq) v Frankland River Olive Co Ltd (2005) 31 WAR 162 [2005] WASCA 236 Re Global Finance Group Pty Ltd (In Liq); ex parte Read (2002) 26 WAR 385 [2002] WASC 63 Mier v FN Management Pty Ltd [2006] 1 QdR 339 [2005] QCA 408 Secretan v Hart [1969] 1 WLR 1599 [1969] 3 All ER 1196 Gideons International Service Mark (1991) 108 RPC 141", "Subject_References": "Managed Investment Schemes Deductions for contributions", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD492-3of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Hornsby Shire Council and Commissioner of Taxation", "Venue_Reference_No": "2007/5657", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "26 November 2008", "Date_Published": "3 September 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse to the ATO", "Summary_of_Decision": "Outlines the ATO response to the Tribunal's treatment, for GST purposes, of a compulsory acquisition of land by a government entity in circumstances where the land owner exercised a statutory right to compel the government entity to acquire its land.", "Overview_of_Facts": "CSR Ltd owned a quarry in Hornsby which was zoned Open Space A. Under the Hornsby Shire Local Environment Plan 1994 (LEP), owners of land which was zoned Open Space A could require that the taxpayer acquire the land. In accordance with its rights under the LEP, on 22 March 2001 CSR Ltd (CSR) notified the taxpayer that it required the taxpayer to acquire the quarry. | The taxpayer initially resisted the request; but after an action was taken by CSR in the Land and Environment Court, a notice pursuant to s 19 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) was published in the Gazette. The effect of the notice was that the land was vested in the taxpayer. Under s 37 of that Act, CSR became entitled to be paid compensation. | The taxpayer paid to CSR a total of $26,508,771.28 by way of compensation. The taxpayer sought to claim an input tax credit for the acquisition of the land. | Issues decided by the tribunal | The Tribunal held that CSR had made a supply on the basis that CSR entered into an obligation, within paragraph 9-10(2)(g), when it requested that the taxpayer acquire the land, or on the basis that CSR surrendered the land, within paragraph 9-10(2)(d), as a result of requesting the taxpayer to acquire the land. | Although it was unnecessary for them to consider the issue, nevertheless, the Tribunal agreed with the Tax Office's view that the making of a supply requires some form of positive action on the part of the supplier (paragraph 70). In this case, the Tribunal was satisfied that CSR had taken positive action by exercising its right to require the taxpayer to acquire the land. | The Tribunal also rejected the taxpayer's contention that CSR's entry into a Deed of Release surrendering its rights in consideration of the payment of the compensation constituted a supply (paragraph 54).", "Issues_Decided": "The Tribunal held that CSR had made a supply on the basis that CSR entered into an obligation, within paragraph 9-10(2)(g), when it requested that the taxpayer acquire the land, or on the basis that CSR surrendered the land, within paragraph 9-10(2)(d), as a result of requesting the taxpayer to acquire the land. Although it was unnecessary for them to consider the issue, nevertheless, the Tribunal agreed with the Tax Office's view that the making of a supply requires some form of positive action on the part of the supplier (paragraph 70). In this case, the Tribunal was satisfied that CSR had taken positive action by exercising its right to require the taxpayer to acquire the land. The Tribunal also rejected the taxpayer's contention that CSR's entry into a Deed of Release surrendering its rights in consideration of the payment of the compensation constituted a supply (paragraph 54).", "ATO_View_of_Decision": "The Commissioner agrees with the Tribunal's view that the making of a supply requires some positive action on the part of the supplier. The Tribunal's decision affirms the Tax Office's view in GSTR 2006/9 that, as a general principle, an entity must do something in order to make a supply. | The Commissioner accepts the Tribunal's finding that, on the specific facts of this case, CSR did make a supply of the land, by way of surrender under paragraph 9-10(2)(d), to the Council. In particular, CSR undertook positive action by initiating the process that directly led to the compulsory acquisition of the land by the Council. | It was the view of the Tribunal that CSR incurred legal obligations when, pursuant to the LEP, it gave notice to the Council requiring the Council to acquire the land. On the basis of this view, the Tribunal considered that paragraph 9-10(2)(g) was also applicable. It is the view of the Commissioner that this finding of the Tribunal is explicable on the basis that any such obligations entered into by CSR were a precursor to, or a part of, the surrender of the land. | The Commissioner considers that the Tribunal's decision is broadly consistent with his view in GSTR 2006/9 that an owner of real property does not make a supply when an acquiring authority initiates the process of compulsorily acquiring real property and the relevant interest is vested in the relevant government authority by extinguishing any previous interests in the land (as opposed to an acquisition of the real property by agreement). | The Commissioner accepts the Tribunal's decision and has decided not to lodge an appeal.", "Administrative_Treatment": "None", "Related_Documents": "GSTR 2006/9 | 2008 ATC 10-061 | 9-5 | 9-10 | 11-5 | 11-20 | 20 | 37 | 26 | 27 | 2006 ATC 4363 | (2004) 2004 ATC 4966 | [2007] FCA 1867 | (2007) 2007 ATC 5326 | (2001) 2001 ATC 4054", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-5 9-10 11-5 11-20 Income Tax Assessment Act 1936 26 26AAA 59 Land Acquisition (Just Terms Compensation) Act 1991 (NSW) 20 37 Environmental Planning and Assessment Act 1979 (NSW) 26 27 Taxation Administration Act 1953 105-60", "Case_References": "Westley Nominees Pty Ltd & Anor v Coles Supermarkets Australia Pty Ltd & Anor (2006) 152 FCR 461 2006 ATC 4363 62 ATR 682 Fidler v Port Stephens Council ( 24 September 1996) BC9606976 [1996] NSWLEC 257 CSR Ltd v Hornsby Shire Council [2004] NSWSC 946 (2004) 2004 ATC 4966 (2004) 57 ATR 201 Databank Systems Limited v Commissioner of Inland Revenue [1987] 2 NZLR 312 Kirkness (Inspector of Taxes) v John Hudson & Co Ltd [1955] AC 696 Shell's Annandale Farm (Pty) Ltd v Commissioner for South African Revenue Service 62 SATC 97 IRG Technical Services Pty Ltd & Anor v Federal Commissioner of Taxation (2007) 165 FCR 57 [2007] FCA 1867 (2007) 69 ATR 433 (2007) 2007 ATC 5326 G Stewart & T Hammond t/a GT Shooting v Commissioners of Customs & Excise [2001] EWCA Civ 1988 [2002] Simon's Tax Cases 255 [2002] BTC 5238 Parker Hale Ltd v Customs & Excise Commissioners [2000] Simon's Tax Cases 388 Shaw v Director of Housing and State of Tasmania (No. 2) (2001) 10 Tas R 1 159 FLR 322 (2001) 2001 ATC 4054 (2001) 46 ATR 242", "Subject_References": "GST meaning of supply compulsory acquisition of quarry by notice in the Gazette whether some form of action is required for the purposes of s 9-10(1) of the GST Act whether a legal obligation was incurred under para 9-10(2)(g) surrender under para 9-10(2)(d) relevance of deed of release in respect of the compensation.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/5657/00001", "Unmatched_Content": "Implications on current Public Rulings & Determinations: In light of the Tribunal's decision, the Tax Office has amended the relevant paragraphs in GSTR 2006/9 Goods and Services Tax: supplies, relating to the vesting of real property in government authorities. Taxpayers who relied on the ruling as in force before this amendment to determine their GST position have the protection of section 105-60 of Schedule 1 to the Taxation Administration Act 1953"}
{"Case_Name": "Jacob Berghofer and Commissioner of Taxation", "Venue_Reference_No": "2008/2012", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "19 December 2008", "Date_Published": "19 March 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to a case which concerned the assessability of a grant paid under State law to improve the sustainability and profitability of farming businesses, affected by laws which restricted broadscale clearing of vegetation • Mr Berghofer operates a farming business in rural Queensland • In 2004, the Queensland Government introduced laws which restricted broadscale clearing of vegetation • The new law affected approximately 25% of Mr Berghofer's property, impacting the viability and sustainability of the farming business. • The Queensland Government made available a grant of up to $100,000 to undertake activities to improve the viability, sustainability and profitability of farming businesses whose properties were affected by the new laws. • In 2005, Mr Berghofer applied for and received access to a grant of $100,000 to construct a dam and to develop an irrigated cultivation for growing feed for his livestock. • Between November 2005 and January 2007, as part of the grant, Mr Berghofer was reimbursed, after submitting receipts, for the expenditure incurred in undertaking the project, including the purchase of a tractor, a scrapper, fuel, seed and irrigation equipment. • Mr Berghofer's accountant prepared his income tax return for the 2006 income year and included this as 'assessable government industry payments'. • Mr Berghofer was assessed on the basis of this return. He subsequently objected to the assessment on the grounds that the payment was compensation for the loss of the right to clear part of his land. | • Mr Berghofer operates a farming business in rural Queensland • In 2004, the Queensland Government introduced laws which restricted broadscale clearing of vegetation • The new law affected approximately 25% of Mr Berghofer's property, impacting the viability and sustainability of the farming business. • The Queensland Government made available a grant of up to $100,000 to undertake activities to improve the viability, sustainability and profitability of farming businesses whose properties were affected by the new laws. • In 2005, Mr Berghofer applied for and received access to a grant of $100,000 to construct a dam and to develop an irrigated cultivation for growing feed for his livestock. • Between November 2005 and January 2007, as part of the grant, Mr Berghofer was reimbursed, after submitting receipts, for the expenditure incurred in undertaking the project, including the purchase of a tractor, a scrapper, fuel, seed and irrigation equipment. • Mr Berghofer's accountant prepared his income tax return for the 2006 income year and included this as 'assessable government industry payments'. • Mr Berghofer was assessed on the basis of this return. He subsequently objected to the assessment on the grounds that the payment was compensation for the loss of the right to clear part of his land. | Issues decided by the court or tribunal | The Tribunal affirmed the Commissioner's decision that the payments received by Mr Berghofer constituted part of his assessable income, however, the Tribunal held that the amounts were assessable as ordinary income and not as a bounty or subsidy. | The Tribunal determined that while the payments appeared to satisfy the definition of bounty or subsidy, they did not fall within that category due to the \"precondition of an adverse affect upon the land available to conduct the recipient's business.\" This precondition made the payment of the same nature as compensation for the loss of the right to clear the land and therefore could not be described as a bounty or subsidy. | However, the Tribunal considered that, as Mr Berghofer had no entitlement to compensation for the loss of the right to clear trees on his property, the payments were gratuitous in nature.. The Tribunal stated that \"Mr Berghofer did not become entitled to payment because his land was affected; rather, because his land was affected he was entitled to be considered for a grant provided the other matters required to be shown were shown.\" The payments \"were received as recoupment of expenditure undoubtedly made in the course of Mr Berghofer's business\". Accordingly, \"it represented a profit or gain made by Mr Berghofer in the course of his business\" and was therefore ordinary income.", "Overview_of_Facts": "", "Issues_Decided": "The Tribunal affirmed the Commissioner's decision that the payments received by Mr Berghofer constituted part of his assessable income, however, the Tribunal held that the amounts were assessable as ordinary income and not as a bounty or subsidy. The Tribunal determined that while the payments appeared to satisfy the definition of bounty or subsidy, they did not fall within that category due to the \"precondition of an adverse affect upon the land available to conduct the recipient's business.\" This precondition made the payment of the same nature as compensation for the loss of the right to clear the land and therefore could not be described as a bounty or subsidy. However, the Tribunal considered that, as Mr Berghofer had no entitlement to compensation for the loss of the right to clear trees on his property, the payments were gratuitous in nature.. The Tribunal stated that \"Mr Berghofer did not become entitled to payment because his land was affected; rather, because his land was affected he was entitled to be considered for a grant provided the other matters required to be shown were shown.\" The payments \"were received as recoupment of expenditure undoubtedly made in the course of Mr Berghofer's business\". Accordingly, \"it represented a profit or gain made by Mr Berghofer in the course of his business\" and was therefore ordinary income.", "ATO_View_of_Decision": "The Commissioner could not appeal the decision of the Tribunal that the payment was not a bounty or subsidy because the decision was favourable. | The decision to classify the payments received by Mr Berghofer as ordinary income was open to the Tribunal on the facts. However, if the payments received were not ordinary income, the Commissioner maintains that the payments received would be included in assessable income under section 15-10 of the ITAA 1997 as bounties or subsidies received in relation to carrying on a business. | The Tribunal states that there is a common underlying notion of compensation for a loss between payments of the nature received by Mr Berghofer and payments for agreeing to give up or sell part of the profit yielding structure of the business, and for this reason the payments are outside what is said to be a bounty or subsidy. The Tribunal cited paragraph 83 of Taxation Ruling TR 2006/3 as support for the contention that these payments were outside what is considered a \"bounty or subsidy\" | The Commissioner's view is that the \"precondition of an adverse affect upon the land available to conduct the recipient's business\" does not change the nature of the payments in the hands of Mr Berghofer or take them out of the category of payments properly described as a bounty or subsidy. It is also considered that paragraph 83 does not support the Tribunal's finding. | In determining whether a government payment (grant) is a bounty or subsidy for the purposes of section 15-10 of the ITAA 1997, it is essential to determine what the grant is actually for (see paragraph 97 of Taxation Ruling TR 2006/3). Thus, a government payment received by a taxpayer for each diseased dairy cow destroyed was accepted by the High Court in Federal Commissioner v Wade (1951)84 CLR 105 as payment of compensation in respect of loss sustained by him as a result of the destruction of the dairy cattle. In contrast, in Softex Industries Pty Ltd v FCT [2002] AATA 1232, a payment of financial assistance was provided to recipients to address the adverse impact of a change to exemptions in the sales tax law (to remove a sales tax exemption for their product). The assistance was held to be a bounty or subsidy received in relation to carrying on a business. | In the present case, the fact that the taxpayer's land was affected adversely by the new laws enabled him to meet one of the eligibility criteria to apply for the grant. However, the grant was not compensation for the loss of any rights in respect of the land. Rather, the grant was financial assistance received by the taxpayer to undertake activities to improve the viability, sustainability and profitability of his business and, therefore, is a bounty or subsidy for the purposes of section 15-10 of the ITAA 1997. A reference to 'bounty or subsidy'' includes a grant that encourages business or trade (see paragraph 96 of Taxation Ruling TR 2006/3). | The Commissioner maintains that the words \"bounty or subsidy\" are words of wide meaning and may include financial assistance provided by government by way of grant, including grants provided to address the detrimental impact of changing economic and environmental circumstances. | The Commissioner has issued an addendum to Taxation Ruling TR 2006/3 which clarifies the grant of the nature received by Mr Berghofer.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "Taxation Ruling TR 2006/3 | 2008 ATC 10-066 | 6-5 | 15-10 | 118 CLR 300 | [1953] ALR 17 | [1952] HCA 65 | 86 CLR 540 | 95 ATC 4145 | 90 ATC 4413 | 74 ATC 4185 | [1966] HCA 48 | 117 CLR 514 | 86 CLR 570", "Legislative_References": "Income Tax Assessment Act 1997 6-5 15-10", "Case_References": "Brisbane Amateur Turf Club v Federal Commissioner of Taxation [1968] HCA 31 118 CLR 300 Federal Commissioner of Taxation v Dixon [1953] ALR 17 [1952] HCA 65 86 CLR 540 First Provincial Building Society Ltd v Commissioner of Taxation (1995) 56 FCR 320 30 ATR 207 95 ATC 4145 GP International Pipecoaters Pty Ltd v Commissioner of Taxation [1990] HCA 25 (1990) 170 CLR 124 21 ATR 1 90 ATC 4413 Reckitt & Colman Pty Ltd v Federal Commissioner of Taxation (1974) 3 ALR 381 74 ATC 4185 4 ATR 501 Scott v Commissioner of Taxation [1967] ALR 561 [1966] HCA 48 117 CLR 514 The Squatting Investment Company Ltd v Federal Commissioner of Taxation [1953] HCA 13 86 CLR 570 26 ALR 658", "Subject_References": "Income Tax Ordinary Income Bounty or Subsidy", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/2012/00001", "Unmatched_Content": ""}
{"Case_Name": "Jones and Commissioner of Taxation", "Venue_Reference_No": "2007/5166-5168;2007/5197-5199", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "25 June 2008", "Date_Published": "14 October 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to these cases which concerned whether the extensions of time sought by the applicants to lodge objections in respect of their 1996-1998 income tax assessments should be granted.", "Overview_of_Facts": "Mr Jones' 1996-1998 income tax affairs were the subject of an audit. Mr and Mrs Jones had lodged tax returns on the basis that they were in partnership together, providing consulting engineering services. | As a result of the audit, the Commissioner issued assessments to Mr Jones on the basis that the income of the partnership for the 1996-1998 income years was income derived by him from his personal services, and was not partnership income. | Decisions disallowing objections to those assessments were referred to the AAT. Based on an agreement between the parties, the AAT decided in [2003] AATA 84 that the income was his personal services income, but that he was entitled to deductions for reasonable wages paid to Mrs Jones. The applicants were to lodge amended returns to reflect the AAT decision but this didn't occur. The Commissioner issued amended assessments in October 2003 and February 2005 to reflect the AAT decision. | The applicants sought to object to the amended assessments on the basis that they should be allowed deductions for additional business establishment expenses, being matters that were not the subject of the amended assessments. The Commissioner maintained the view that the applicants could not object to the amendments, but should request extensions of time to object against the original assessments. The AAT confirmed this position in a decision delivered on 2 February 2007. | On 30 June 2007, the applicants sought extensions of time to lodge objections to the original assessments. The Commissioner denied the extensions of time on the bases that the applicants had failed to provide an acceptable explanation for the delay (5 months) in seeking the extensions, and did not have an arguable case for any business establishment costs to be wholly or partially allowed as deductions. | Issues decided by the AAT | The Tribunal found that extensions of time to lodge objections should be granted to the applicants, as they had provided an acceptable explanation for the delay in objecting against the original assessments, and, although the case for claiming additional deductions was not strong, nevertheless it was reasonably arguable in the circumstances of the case (paragraphs 31, 36 & 37).", "Issues_Decided": "The Tribunal found that extensions of time to lodge objections should be granted to the applicants, as they had provided an acceptable explanation for the delay in objecting against the original assessments, and, although the case for claiming additional deductions was not strong, nevertheless it was reasonably arguable in the circumstances of the case (paragraphs 31, 36 & 37).", "ATO_View_of_Decision": "The Tax Office accepts that the decision of the Tribunal was open to it on the particular evidence and the facts as found by the Tribunal.", "Administrative_Treatment": "None | Implications on current Public Rulings & Determinations | None", "Related_Documents": "PS LA 2003/7 | [2008] AATA 544 | 2008 ATC 10-034 | 14ZW | 14ZX | 99 ATC 4852", "Legislative_References": "Taxation Administration Act 1953 14ZW 14ZX", "Case_References": "FCT v Brown [1999] FCA 1198 99 ATC 4852 2008 ATC 10-034", "Subject_References": "Extension of time to lodge objections to income tax assessments", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/5166-5168/00001", "Unmatched_Content": ""}
{"Case_Name": "Kafataris v Deputy Commissioner of Taxation", "Venue_Reference_No": "NSD 2510-9/2007", "Venue": "Federal Court of Australia", "Judgment_Date": "19 September 2008", "Date_Published": "5 January 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Appeals Dismissed", "Summary_of_Decision": "Whether CGT event E1 happened when a taxpayer's interest in real property was placed on trust, which trust was in the nature of a superannuation fund of which the taxpayer was a member. In particular, whether the absolute entitlement exception in paragraph 104-55(5)(a) applied.", "Overview_of_Facts": "In May 1987, Helen and Peter Kafataris (the taxpayers) purchased a commercial property for $612,000. The taxpayers were registered proprietors of the property as joint tenants. | On 28 June 2002, the taxpayers executed a trust deed establishing 'The Helen Kafataris Superannuation Fund'. On the same day they executed a trust deed establishing 'The Peter Kafataris Superannuation Fund'. Both taxpayers were the trustees of each fund. | The execution of these deeds by the taxpayers subjected their respective interests in the property to their respective funds (to be held on the terms of their respective funds) and severed the joint tenancy. That is, Helen's interest in the property was held by Helen's fund and Peter's interest by Peter's fund. | On 4 July 2002, the property was sold to Marriott Restaurants Pty Ltd for $4,000,000. | The issues were firstly, whether subjecting the taxpayers' respective interests in the property to the relevant trusts caused CGT event E1 or E2 to happen; and secondly whether the exception to those events in paragraph 104-55(5)(a) or 104-60(5)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) applied. | The 2002 and 2003 income tax returns of the taxpayers did not disclose any disposal of property by the taxpayers. The 2003 income tax returns for both of the funds showed that a CGT event had happened but disclosed a nil gain arising from the happening of the event. | Issues decided by the court | CGT Event E1 happens if a trust is created over a CGT asset by declaration or settlement. CGT Event E2 happens if an asset is instead transferred to an existing trust. Paragraph 104-55(5)(a) of the ITAA 1997 states that CGT Event E1 does not happen if you create a trust of over an asset, but you are the sole beneficiary of the trust and absolutely entitled to the asset as against the trustee. Paragraph 104-60(5)(a) serves an analogous function in relation to CGT Event E2. | Relevant asset and event | Lindgren J concluded that the relevant CGT assets were the half interests of each taxpayer in the property and that the relevant CGT Event was CGT event E1. As each respective interest in the property was the first property subjected to the corresponding trust, there were no transfers to existing trusts which is why CGT event E2 was not relevant. | Absolute entitlement exception not satisfied | Lindgren J then determined that the taxpayers did not meet the exception to CGT Event E1 in paragraph 104-55(5)(a) as neither taxpayer was the sole beneficiary of their respective trust and, moreover, neither taxpayer was absolutely entitled to the asset of their trust as against the trustees. | Absolute entitlement exception - sole beneficiary | His Honour noted that the term beneficiary as used in the absolute entitlement exception to CGT Event E1 is not defined in the Act and takes its ordinary meaning. As such, a beneficiary of a trust is any person for whose benefit the trust is to be administered and who is entitled to enforce the trustee's obligations to administer the trust according to its terms (paragraph 42). A person may have no interest in the trust property and may never have an interest in the property yet still be a beneficiary (paragraph 43). For example, although the objects of a discretionary trust do not have beneficial interests in any property of the trust, the objects may be described as beneficiaries of the trust. | Focusing on the deed for The Helen Kafataris Superannuation Fund, his Honour observed that the deed conferred upon the trustee the power to pay benefits to dependants, spouse and relatives of members. | Helen Kafataris was a member, and hence a beneficiary, of the fund. Her five children satisfied the deed definition of a Dependant and therefore they were also beneficiaries of the fund (clause 23.3). | Further, Peter Kafataris and the 15 grandchildren of Helen Kafataris were also beneficiaries of the fund because the trustee was: • permitted under the deed to pay Peter Kafataris a pension on the death of Helen Kafataris (clause 34.4(d)); and • required in certain circumstances to pay benefits to relatives of Helen Kafataris on her death (clause 34.6). | • permitted under the deed to pay Peter Kafataris a pension on the death of Helen Kafataris (clause 34.4(d)); and • required in certain circumstances to pay benefits to relatives of Helen Kafataris on her death (clause 34.6). | Therefore, The Helen Kafataris Superannuation Fund did not have a sole beneficiary. Likewise The Peter Kafataris Superannuation Fund did not have a sole beneficiary (paragraph 53). | His Honour also noted that it remained possible as at the relevant date, namely 28 June 2002, that additional persons would, at a later date, fall within the definition of 'Relative', for example, further lineal descendants of Helen (paragraph 51). Though he said this did not matter - presumably because he had already concluded for other reasons that each fund had more than one beneficiary. | Absolute entitlement exception - entitlement to an asset as against the trustee | As to the meaning to be given to the notion of 'absolutely entitled to the asset as against the trustee', His Honour concluded that the test 'is intended to describe a situation in which the beneficiary of a trust has a vested, indefeasible and absolute interest in trust property and is entitled to require the trustee to deal with the trust property as the beneficiary directs' (paragraph 61). | Lindgren J concluded that clauses 34.12 (b) and (c) of the two trust deeds were 'fatal' to the taxpayers' case (paragraph 63). The former clause permitted but did not mandate in specie distributions of assets by the trustee. The latter clause stated a general rule that no member had or acquired a beneficial or other interest in any specific asset of the relevant fund or the assets of the fund as a whole. | His Honour also found that even if the taxpayers had an interest in an asset of their respective fund (which they did not), that interest would have been defeasible by reason of the trustee having the power under clause 8.4 to sell and vary investments (paragraph 65). | In summary, Helen Kafataris was not entitled to her half interest in the property once it was subjected to the terms of the Helen Kafataris Superannuation Fund: her only entitlement was to require the trustee to pay her money once the conditions of her entitlement were satisfied (paragraph 66). An analogous conclusion applied to Peter Kafataris in respect of his fund. | Further observations | Lindgren J noted that whether the taxpayers were absolutely entitled to their interests in the property as against the trustees depended on the terms of the relevant deed and on general law principles (paragraph 73). | As an aside, his Honour highlighted the problem at the heart of the taxpayers' submissions: the taxpayers fundamentally were arguing inconsistent positions: | First, they contend that the interposition of the Trusts had the effect that the sale to Marriott for $4,000,000 was not a sale by them as joint tenants and as beneficial owners of the entire interest in the Property as they had been prior to the establishment of the Trusts. They also contend that the sale was not two sales by them separately of their respective half interests. Rather, they contend that the sale was by the Trustees of the two half interests that were the subject of the respective Trusts. The CGT event that resulted from the sale of the Property to Marriott was treated as having arisen in respect of each Fund, not the applicants personally, in their assessable incomes for the 2002-2003 year. | On the other hand, in order to bring themselves within subs (5) of s 104-55 ..., they must contend that they are each absolutely entitled as against the Trustees to the half interest in the Property the subject of the relevant Trust. But if this last contention is upheld, s 106-50 has the effect that [the CGT provisions of the Act] apply to the Trustees' sales of the respective half interests to Marriott as if Helen and Peter respectively had sold them to Marriott - the very result that Helen and Peter have sought to avoid. | In sum, if, as the applicant's contend, the exception allowed by subs (5) of s 104-55 ... applies, s 106-50 also operates, and the applicants are taken to have sold their respective half interests in the Property to Marriott in the 2002-2003 year. If that subsection, and therefore s 106-50, does not apply, the applicants are caught by the primary provision of s 104-55 ... in the 2001-2002 year.", "Issues_Decided": "CGT Event E1 happens if a trust is created over a CGT asset by declaration or settlement. CGT Event E2 happens if an asset is instead transferred to an existing trust. Paragraph 104-55(5)(a) of the ITAA 1997 states that CGT Event E1 does not happen if you create a trust of over an asset, but you are the sole beneficiary of the trust and absolutely entitled to the asset as against the trustee. Paragraph 104-60(5)(a) serves an analogous function in relation to CGT Event E2. | Relevant asset and event: Lindgren J concluded that the relevant CGT assets were the half interests of each taxpayer in the property and that the relevant CGT Event was CGT event E1. As each respective interest in the property was the first property subjected to the corresponding trust, there were no transfers to existing trusts which is why CGT event E2 was not relevant. | Absolute entitlement exception not satisfied: Lindgren J then determined that the taxpayers did not meet the exception to CGT Event E1 in paragraph 104-55(5)(a) as neither taxpayer was the sole beneficiary of their respective trust and, moreover, neither taxpayer was absolutely entitled to the asset of their trust as against the trustees. | Absolute entitlement exception - sole beneficiary: His Honour noted that the term beneficiary as used in the absolute entitlement exception to CGT Event E1 is not defined in the Act and takes its ordinary meaning. As such, a beneficiary of a trust is any person for whose benefit the trust is to be administered and who is entitled to enforce the trustee's obligations to administer the trust according to its terms (paragraph 42). A person may have no interest in the trust property and may never have an interest in the property yet still be a beneficiary (paragraph 43). For example, although the objects of a discretionary trust do not have beneficial interests in any property of the trust, the objects may be described as beneficiaries of the trust. Focusing on the deed for The Helen Kafataris Superannuation Fund, his Honour observed that the deed conferred upon the trustee the power to pay benefits to dependants, spouse and relatives of members. Helen Kafataris was a member, and hence a beneficiary, of the fund. Her five children satisfied the deed definition of a Dependant and therefore they were also beneficiaries of the fund (clause 23.3). Further, Peter Kafataris and the 15 grandchildren of Helen Kafataris were also beneficiaries of the fund because the trustee was: • permitted under the deed to pay Peter Kafataris a pension on the death of Helen Kafataris (clause 34.4(d)); and • required in certain circumstances to pay benefits to relatives of Helen Kafataris on her death (clause 34.6). • permitted under the deed to pay Peter Kafataris a pension on the death of Helen Kafataris (clause 34.4(d)); and • required in certain circumstances to pay benefits to relatives of Helen Kafataris on her death (clause 34.6). Therefore, The Helen Kafataris Superannuation Fund did not have a sole beneficiary. Likewise The Peter Kafataris Superannuation Fund did not have a sole beneficiary (paragraph 53). His Honour also noted that it remained possible as at the relevant date, namely 28 June 2002, that additional persons would, at a later date, fall within the definition of 'Relative', for example, further lineal descendants of Helen (paragraph 51). Though he said this did not matter - presumably because he had already concluded for other reasons that each fund had more than one beneficiary. | Absolute entitlement exception - entitlement to an asset as against the trustee: As to the meaning to be given to the notion of 'absolutely entitled to the asset as against the trustee', His Honour concluded that the test 'is intended to describe a situation in which the beneficiary of a trust has a vested, indefeasible and absolute interest in trust property and is entitled to require the trustee to deal with the trust property as the beneficiary directs' (paragraph 61). Lindgren J concluded that clauses 34.12 (b) and (c) of the two trust deeds were 'fatal' to the taxpayers' case (paragraph 63). The former clause permitted but did not mandate in specie distributions of assets by the trustee. The latter clause stated a general rule that no member had or acquired a beneficial or other interest in any specific asset of the relevant fund or the assets of the fund as a whole. His Honour also found that even if the taxpayers had an interest in an asset of their respective fund (which they did not), that interest would have been defeasible by reason of the trustee having the power under clause 8.4 to sell and vary investments (paragraph 65). In summary, Helen Kafataris was not entitled to her half interest in the property once it was subjected to the terms of the Helen Kafataris Superannuation Fund: her only entitlement was to require the trustee to pay her money once the conditions of her entitlement were satisfied (paragraph 66). An analogous conclusion applied to Peter Kafataris in respect of his fund. | Further observations: Lindgren J noted that whether the taxpayers were absolutely entitled to their interests in the property as against the trustees depended on the terms of the relevant deed and on general law principles (paragraph 73). As an aside, his Honour highlighted the problem at the heart of the taxpayers' submissions: the taxpayers fundamentally were arguing inconsistent positions: First, they contend that the interposition of the Trusts had the effect that the sale to Marriott for $4,000,000 was not a sale by them as joint tenants and as beneficial owners of the entire interest in the Property as they had been prior to the establishment of the Trusts. They also contend that the sale was not two sales by them separately of their respective half interests. Rather, they contend that the sale was by the Trustees of the two half interests that were the subject of the respective Trusts. The CGT event that resulted from the sale of the Property to Marriott was treated as having arisen in respect of each Fund, not the applicants personally, in their assessable incomes for the 2002-2003 year. On the other hand, in order to bring themselves within subs (5) of s 104-55 ..., they must contend that they are each absolutely entitled as against the Trustees to the half interest in the Property the subject of the relevant Trust. But if this last contention is upheld, s 106-50 has the effect that [the CGT provisions of the Act] apply to the Trustees' sales of the respective half interests to Marriott as if Helen and Peter respectively had sold them to Marriott - the very result that Helen and Peter have sought to avoid. In sum, if, as the applicant's contend, the exception allowed by subs (5) of s 104-55 ... applies, s 106-50 also operates, and the applicants are taken to have sold their respective half interests in the Property to Marriott in the 2002-2003 year. If that subsection, and therefore s 106-50, does not apply, the applicants are caught by the primary provision of s 104-55 ... in the 2001-2002 year.", "ATO_View_of_Decision": "The decision of Justice Lindgren confirms the correctness of the Commissioner's approach to what is meant by absolute entitlement in the context of the CGT provisions, including section 106-50 of the ITAA 1997. To be absolutely entitled to an asset as against the trustee, the beneficiary must have both a vested and an indefeasible interest in the asset and be able to demand transfer of the asset by the trustee. It does not suffice for the beneficiary merely to have an entitlement under the deed to be paid a benefit. The beneficiary must have an immediate entitlement to demand transfer of the particular asset in circumstances where that entitlement cannot be defeated. | The decision of Justice Lindgren also confirms that any enquiry into the quality of a beneficiary's interest in an asset of the trust requires close and careful examination of the constituent document of the trust. This is consistent with the observation by the High Court in CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) 2005 ATC 4925 where the High Court emphasised in the context of resolving the application of the particular statutory provision then in issue to the trust under examination that: | All depends, as Tamberlin and Hely JJ put it in Kent v SS ``Maria Luisa'' (No 2), upon the terms of the particular trust' (at paragraph 15 of the joint judgement). | In particular, the presence in the particular deed of a clause that gives the trustee power to sell and vary investments, will be inconsistent with the existence of absolute entitlement; as will be the presence of a clause stating that no beneficiary of the trust has a beneficial interest in any asset of the trust.", "Administrative_Treatment": "TR 2004/D25 sets out the Tax Office's current administrative treatment of the meaning of the words 'absolutely entitled to a CGT asset as against the trustee' as used in the CGT provisions. (As noted in the header to the ruling, that ruling will remain a draft while consultation with Treasury continues concerning certain problems that arise in the practical application of the provisions.) The draft ruling does not apply to members of a superannuation fund in respect of assets held by a fund (paragraph 6). | We consider that the approach taken by Lindgren J aligns with the 'core principle' adopted in the ruling at paragraph 10. 'The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of a beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction' aligns with his Honour's approach expressed at paragraph 61 of the judgment: \"the expression 'absolutely entitled to the asset as against the trustee' ... as the beneficiary directs.\" to the construction of the exception to CGT Event E1. | The ruling makes further propositions which were not necessary for his Honour to consider (for example, the effect of having multiple beneficiaries). The Commissioner's practice with regard to these propositions will continue as set out in the draft ruling. | Additionally, his Honour made some conclusions not expressed in the draft ruling. These are: • The existence of a power of sale by the trustee in respect of an asset is inconsistent with absolute entitlement by a beneficiary to the asset as against the trustee; • A provision in the instrument of trust denying a beneficiary any interest in any particular asset of a trust is inconsistent with absolute entitlement by a beneficiary to any of the assets of the trust. | • The existence of a power of sale by the trustee in respect of an asset is inconsistent with absolute entitlement by a beneficiary to the asset as against the trustee; • A provision in the instrument of trust denying a beneficiary any interest in any particular asset of a trust is inconsistent with absolute entitlement by a beneficiary to any of the assets of the trust. | These conclusions are not inconsistent with our draft ruling and we accept that they are correct.", "Related_Documents": "TR 2004/D25 | 2008 ATC 20-048 | 104-55(5)(b) | 104-60(5)(b) | [2006] FCA 814 | 2005 ATC 4925 | [1968] AC 553 | 88 ATC 4995 | (2003) 130 FCR 12 | [2003] FCAFC 93 | [1971] AC 424 | (1922) 31 CLR 66 | [1922] HCA 28 | 90 ATC 4299 | [1975] 1 All ER 625 | [1975] 1 WLR 882; | [1969] 1 All ER 700", "Legislative_References": "Income Tax Assessment Act 1997 104-55(5)(b) 104-60(5)(b)", "Case_References": "Australian Securities & Investments Commission v Carey (No 6) (2006) 58 ACSR 141 [2006] FCA 814 (2006) 233 ALR 475 CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 [2005] HCA 53 2005 ATC 4925 60 ATR 371 Gartside v Inland Revenue Commissioners [1968] AC 553 Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 20 ATR 24 88 ATC 4995 In re Gulbenkian's Settlements [1970] AC 408 Kent v \"Maria Luisa (No 2) \" (2003) 130 FCR 12 [2003] FCAFC 93 McPhail v Doulton [1971] AC 424 Public Curator of Queensland v Union Trustee Company of Australia Ltd (1922) 31 CLR 66 (1922) 28 ALR 438 [1922] HCA 28 R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1992) 10 WAR 59 Re Denley's Trust Deed; Holman v HH Martyn & Co Ltd [1968] 3 All ER 65 [1969] 1 Ch 373 Sacks v Gridiger (1990) 22 NSWLR 502 90 ATC 4299 Saunders v Vautier [1841] 4 Beav 115 Stephenson (HM Inspector of Taxes) v Barclays Bank Trust Co Limited [1975] 1 All ER 625 [1975] 1 WLR 882; Tomlinson (Inspector of Taxes) v Glyns Executor & Trustees Co [1969] 1 All ER 700 Tomlinson (Inspector of Taxes) v Glyns Executor & Trustees Co [1970] 1 All ER 381", "Subject_References": "Income Tax capital gains meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Parts 3-1 and 3-3 of the ITAA 1997 Capital Gains Tax Trusts CGT event E1 and E2 Sole beneficiary of trust Absolutely entitled", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2510-9/2007/00001", "Unmatched_Content": "List of Rulings and Determinations Affected: Draft Income Tax Ruling TR 2004/D25"}
{"Case_Name": "Kalintas and Commissioner of Taxation", "Venue_Reference_No": "NT2006/0368 to 0371", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 May 2008", "Date_Published": "23 December 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly Adverse", "Summary_of_Decision": "Whether the applicant had discharged the burden of proving that assessments in respect of GST and default income tax assessments were excessive.", "Overview_of_Facts": "1. The Commissioner commenced a review of the applicant's income tax and GST affairs as a result of a low document home loan project that sought to cross-reference loan application data with income tax and BAS data. | 2. The audit concluded that there were undisclosed amounts of GST and undisclosed amounts of income for the period 1 July 2001 to 30 June 2004. | 3. Amended notices of assessment for income tax and GST assessments were issued for the following periods: GST from 1 July 2001 to 30 June 2004 and income tax from 30 June 2002 to 30 June 2004. The data relied on by the Commissioner to make the assessments had been drawn from the applicant's own statements in his loan application, at the interview with tax officers, other documentary evidence, and industry standard rates. | 4. The applicant objected to the assessments and provided some further information. Prior to the hearing, the Commissioner reviewed the objection decision and the available evidence, and, at the hearing, submitted that the objection decision should be varied in a manner that was considerably more favourable to the applicant than was originally the case. | Issues decided by the court or tribunal | The taxpayer's application to the Administrative Appeals Tribunal (AAT) concerned two central issues: | 1. Whether the assessments of GST for the periods from 1 July 2001 to 30 June 2004 (excluding the September 2003, December 2003 and March 2004 quarters), were excessive; and | 2. Whether the amended assessments for the years ended 30 June 2002 and 30 June 2003, and the assessment for the year ended 30 June 2004, were excessive. | Subject to one qualification, the AAT found that the applicant had failed to discharge the burden of proving that the Commissioner's assessments were excessive. | The AAT decided that the Commissioner's decision on objection should be varied in accordance with the way in which the Commissioner proposed the decision be varied, except for the period December 2001 to June 2002, when the taxpayer was employed as an apprentice bricklayer. | In this regard, the AAT accepted the evidence of the taxpayer that he had earned only $7,000 during that period. The AAT noted that, in default assessment cases, it is always open to a taxpayer to assist the Commissioner or Tribunal with evidence as to their actual earnings over the period in dispute.", "Issues_Decided": "The taxpayer's application to the Administrative Appeals Tribunal (AAT) concerned two central issues: 1. Whether the assessments of GST for the periods from 1 July 2001 to 30 June 2004 (excluding the September 2003, December 2003 and March 2004 quarters), were excessive; and 2. Whether the amended assessments for the years ended 30 June 2002 and 30 June 2003, and the assessment for the year ended 30 June 2004, were excessive. Subject to one qualification, the AAT found that the applicant had failed to discharge the burden of proving that the Commissioner's assessments were excessive. The AAT decided that the Commissioner's decision on objection should be varied in accordance with the way in which the Commissioner proposed the decision be varied, except for the period December 2001 to June 2002, when the taxpayer was employed as an apprentice bricklayer. In this regard, the AAT accepted the evidence of the taxpayer that he had earned only $7,000 during that period. The AAT noted that, in default assessment cases, it is always open to a taxpayer to assist the Commissioner or Tribunal with evidence as to their actual earnings over the period in dispute.", "ATO_View_of_Decision": "The case concerned undisclosed income and the making of default assessments. The Tax Office accepts that the decision by the AAT to accept the evidence provided by the applicant at the hearing about his income for the March and June quarters in 2002 was open to the AAT. Nevertheless, the AAT pointed out that the Commissioner's estimates of income for those periods, which were based on information from the applicant, were quite defensible. | The AAT also pointed out that the Commissioner is not required to prove that his figures are correct, and that he can act only on the information that he has. The taxpayer has an obligation to keep proper records and, if that is not done, the Commissioner can ascertain the taxpayer's income by applying accepted standards. | Nevertheless, in default assessment cases, it is always open to the applicant to provide further information to assist in determining the most accurate assessment. It would be expected that credible evidence adduced to prove income or taxable supplies would be preferred by a court or tribunal to the use of industry averages.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "N/A | [2008] AATA 444 | 69 ATR 341 | 167 | 14ZZK | 2005 ATC 2404 | [1959] HCA 8 | (1959) 101 CLR 298 | [1959] ALR 367 | [2008] FCA 125", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) 167 Taxation Administration Act 1953 (Cth) 14ZZK", "Case_References": "Graham Docker and Associates Pty Ltd and Commissioner of Taxation [2005] AATA 1180 2005 ATC 2404 61 ATR 1077 Jones v Dunkel [1959] HCA 8 (1959) 101 CLR 298 [1959] ALR 367 Green v Minister for Immigration and Citizenship [2008] FCA 125 (2008) 100 ALD 346", "Subject_References": "GST Income Tax Default assessment Onus on applicant to prove that assessments are excessive", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NT2006/0368/00001", "Unmatched_Content": ""}
{"Case_Name": "KAP Motors Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 2070 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "28 February 2008", "Date_Published": "9 September 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse.", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the entitlement to a refund for GST that was overpaid because of a mistaken belief concerning the GST treatment of holdback payments that motor vehicle dealers receive from distributors.", "Overview_of_Facts": "The taxpayers carried on the business of retail dealers in new motor vehicles. They entered into dealership agreements with various motor vehicle manufacturers/distributors and also entered into agreements with finance companies, commonly referred to as 'floor plan arrangements' to finance the acquisition of new motor vehicles from those motor vehicle distributors. | Under the floor plan arrangements, the taxpayers acquired possession of, and subsequently title to, motor vehicles for sale to retail customers in the following way: • They would order a motor vehicle from a motor vehicle distributor on behalf of a finance company. • The motor vehicle distributor would sell the motor vehicle to the finance company and would issue an invoice in relation to the sale of the motor vehicle to the finance company. • The finance company would bail the motor vehicle to the taxpayers and the motor vehicle distributor would deliver the motor vehicle to the taxpayers for display and sale. • They would negotiate the sale of the motor vehicle to the ultimate retail customer. Immediately prior to sale to the customer, the taxpayers would purchase the motor vehicle from the finance company. Until that time, the motor vehicle would remain the property of the finance company. • The finance company would issue an invoice in relation to the sale of the motor vehicle to the taxpayers. | • They would order a motor vehicle from a motor vehicle distributor on behalf of a finance company. • The motor vehicle distributor would sell the motor vehicle to the finance company and would issue an invoice in relation to the sale of the motor vehicle to the finance company. • The finance company would bail the motor vehicle to the taxpayers and the motor vehicle distributor would deliver the motor vehicle to the taxpayers for display and sale. • They would negotiate the sale of the motor vehicle to the ultimate retail customer. Immediately prior to sale to the customer, the taxpayers would purchase the motor vehicle from the finance company. Until that time, the motor vehicle would remain the property of the finance company. • The finance company would issue an invoice in relation to the sale of the motor vehicle to the taxpayers. | The taxpayers also had an arrangement with each motor vehicle distributor pursuant to which the distributor would, upon the sale of each new motor vehicle, pay a rebate to the taxpayers, commonly known in the industry as a holdback payment. The arrangement in relation to the payment of holdback payments did not form part of the dealership agreements between motor vehicle distributors and the taxpayers. | The holdback payment was paid directly to the taxpayers by the motor vehicle distributor and did not form part of the consideration paid by the taxpayers to the finance company. The payment was generally not referred to in the invoice issued by the distributor to the finance company, nor did it change the consideration paid by the finance company to the distributor. Finally the holdback payment did not alter the consideration paid by the taxpayers to the finance company, in respect of the purchase of the motor vehicle under the separate floor plan arrangement. | During the relevant tax periods from 1 July 2000 the taxpayers received the holdback payments from the motor vehicle distributors. From 1 July 2000 until February 2004 and April 2005 they remitted to the Commissioner GST referable to those holdback payments. | The Commissioner issued Goods and Service Tax Determination GSTD 2005/4 which stated that such holdback payments were not made for or in respect of any supply. | Subsequently, the taxpayers made a request to amend their BAS to receive a refund or credit in respect of the overpaid GST relating to those holdback payments and when the Commissioner refused to pay the refund the taxpayer made an application to the Federal Court under s 39B of the Judiciary Act 1903 seeking a writ of mandamus against the Commissioner to make the refund. | The proceeding then came before the Court by parties having agreed to proceed on a set of agreed facts with the court being asked to answer two questions, which then basically became the two issues before the court. | Issues decided by the court | 1. Does s105-65 of Schedule 1 to the TAA 1953, on its proper constructions, operate to preclude the entitlement of the taxpayers to a refund of GST paid by them after 1 July 2000 to the Commissioner in respect of holdback payments received by them? | His Honour held that in its terms s105-65 is limited to circumstances where there is a supply that is not a taxable supply. It does not in its terms extend to some transaction that does not involve a supply within the meaning of the GST Act. His Honour observed that there may be circumstances in which a taxpayer who obtains a refund from the Commissioner will derive a windfall gain, if the provision is construed literally. However, that is not a reason for construing the words of the provision as meaning something that they do not say because the explanatory memorandum says that the purpose of the provision is to preclude a windfall in connection with a supply. | Justice Emmett refused to give the section an expansive construction on the basis that there is no justification present in the case for the court to depart from the defined meaning given to a term, which in this case is the word 'supply' in s105-65. | 2. Is the entitlement of the taxpayers to a refund of GST paid by them after 1 July 2000 in respect of holdback payments precluded by the general law in the absence of their refunding or undertaking to the Court to refund a corresponding amount to the persons from whom they received the holdback payments (including the GST component) in respect of which GST was paid? | His Honour took the view that the existence of a constructive trust could not be raised by the Commissioner as a defence to a common law action for money had and received. His Honour said that such an action is not defeated simply because the claimant has recouped the outgoings from others and that it was difficult to understand why, as between the taxpayers on the one hand and the Commissioner on the other hand, the failure to pass on refunded GST to the relevant distributors should constitute conduct that would disentitle the taxpayers from recovering from the Commissioner moneys that should never have been paid to the Commissioner. In that regard, his Honour observed that the concept of impoverishment as a co-relative of enrichment is foreign to Australian law. Even if there was any equity in favour of the distributors attaching to the fruits of any judgment that the taxpayers might recover against the Commissioner, that circumstance was irrelevant to this proceeding.", "Issues_Decided": "1. Does s105-65 of Schedule 1 to the TAA 1953, on its proper constructions, operate to preclude the entitlement of the taxpayers to a refund of GST paid by them after 1 July 2000 to the Commissioner in respect of holdback payments received by them? His Honour held that in its terms s105-65 is limited to circumstances where there is a supply that is not a taxable supply. It does not in its terms extend to some transaction that does not involve a supply within the meaning of the GST Act. His Honour observed that there may be circumstances in which a taxpayer who obtains a refund from the Commissioner will derive a windfall gain, if the provision is construed literally. However, that is not a reason for construing the words of the provision as meaning something that they do not say because the explanatory memorandum says that the purpose of the provision is to preclude a windfall in connection with a supply. Justice Emmett refused to give the section an expansive construction on the basis that there is no justification present in the case for the court to depart from the defined meaning given to a term, which in this case is the word 'supply' in s105-65. 2. Is the entitlement of the taxpayers to a refund of GST paid by them after 1 July 2000 in respect of holdback payments precluded by the general law in the absence of their refunding or undertaking to the Court to refund a corresponding amount to the persons from whom they received the holdback payments (including the GST component) in respect of which GST was paid? His Honour took the view that the existence of a constructive trust could not be raised by the Commissioner as a defence to a common law action for money had and received. His Honour said that such an action is not defeated simply because the claimant has recouped the outgoings from others and that it was difficult to understand why, as between the taxpayers on the one hand and the Commissioner on the other hand, the failure to pass on refunded GST to the relevant distributors should constitute conduct that would disentitle the taxpayers from recovering from the Commissioner moneys that should never have been paid to the Commissioner. In that regard, his Honour observed that the concept of impoverishment as a co-relative of enrichment is foreign to Australian law. Even if there was any equity in favour of the distributors attaching to the fruits of any judgment that the taxpayers might recover against the Commissioner, that circumstance was irrelevant to this proceeding.", "ATO_View_of_Decision": "The Commissioner contended that given the history of similar provisions in the previous sales tax regime and in the context in which the section appears in the Act, s105-65(1) of Schedule 1 to the TAA should be given a purposive construction such that the word 'supply' included a purported supply or a putative supply and that it referred non-technically to any transaction (\"something which is not a supply\") that was incorrectly treated as a taxable supply. Such an interpretation, it was argued, would give effect to Parliament's intention to ensure that business taxpayer's who incorrectly charged GST to their customers did not receive a windfall gain. | The Commissioner accepts his Honour's construction that section 105-65 of Schedule 1 to the TAA does not apply where it is ultimately found that there is no supply at all. The interpretation is open on the plain literal meaning of the words. | The Commissioner further contended that the claim by the taxpayers for a refund of overpaid GST could be resisted because any such refund would be impressed with a constructive trust in favour of the distributors who had made the holdback payments to which the refund related. | While his Honour agreed that the taxpayers may have become a constructive trustee of the amount received from the distributors, his Honour took the view that the existence of a constructive trust could not be raised by the Commissioner as a defence to a common law action for money had and received. | The Commissioner accepts his Honour's view on this issue. | The Commissioner is not appealing the Court's decision", "Administrative_Treatment": "Section 105-55 of Schedule 1 to the TAA provides that you are not entitled to a refund or credit unless you notify the Commissioner that you are entitled to the refund or credit within four years after the end of the tax period. | Section 105-65 was amended effective as of 1 July 2008. To be eligible to claim a refund under the pre- amended section 105-65 a notification was required to be provided to the Commissioner prior to 30 June 2008. | Income Tax | Subject to the relevant time limits imposed by section 170 of the Income Tax Assessment Act 1936 , a taxpayer should amend their relevant prior year income tax returns to include the entirety of their holdback receipts as assessable income in each income year in which the receipts were originally derived. There are no additional income tax consequences arising from the refund by the Commissioner to the taxpayer of GST incorrectly paid in relation to a holdback receipt. | Implications on current Public Rulings & Determinations | The Tax Office has not currently identified any implications for current public rulings or determinations.", "Related_Documents": "GSTD 2005/4 | PSLA 2002/12 | 2008 ATC 20-007 | Schedule 1, Division 284 | 9-5 | 9-10 | 11-5 | 17-5 | 170 | (1997) 187 CLR 384 | (1997) 141 ALR 618 | (1994) 94 ATC 4960 | (1981) 81 ATC 4292 | (1984) 156 CLR 41 | (1984) 55 ALR 417 | (2001) 48 ATR 442", "Legislative_References": "Taxation Administration Act 1953 (Cth) Schedule 1, 105-65 Schedule 1, Division 284 A New Tax System (Goods and Services Tax) Act 1999 (Cth) 9-5 9-10 11-5 Income Tax Assessment Act 1997 17-5 Income Tax Assessment Act 1936 170", "Case_References": "CIC Insurance Ltd v Bankstown Football Club Ltd [1997] HCA 2 (1997) 187 CLR 384 (1997) 141 ALR 618 Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd [1994] HCA 61 (1994) 182 CLR 51 (1994) 94 ATC 4960 29 ATR 173 Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26 (1981) 147 CLR 297 (1981) 81 ATC 4292 11 ATR 949 Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64 (1984) 156 CLR 41 (1984) 55 ALR 417 Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68 (2001) 208 CLR 516 (2001) 48 ATR 442 R v PLV [2001] NSWCCA 282 (2001) 51 NSWLR 736", "Subject_References": "GST restriction on refunds section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) application of the section to transactions where the consideration received is not for or in respect of a supply you made. Restitution whether a common law action for money had and received can be defended on the basis that the claimant may be a constructive trustee of the funds for a third party whether constructive trust relevant to the enforcement of common law action.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD2070of2006/00001", "Unmatched_Content": "Implications on Law Administration Practice Statements: Law Administration Practice Statement PSLA 2002/12 is under review. The Tax Office has not currently identified any implications for other current practice statements."}
{"Case_Name": "Lawrence v Commissioner of Taxation", "Venue_Reference_No": "VID 882 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "10 October 2008", "Date_Published": "11 March 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly adverse", "Summary_of_Decision": "Outlines the ATO's response to that part of the case which concerns the application of the administrative penalty provisions in Schedule 1 to the Taxation Administration Act 1953 (TAA).", "Overview_of_Facts": "During the 2003 income year, 2 companies controlled by the taxpayer (\"the target companies\"), with past, current, and anticipated future year profits, entered into a Distributable Surplus Arrangement (\"DSA\") promoted by Cleary Hoare. The objective of each DSA was to provide for the effective payment or transfer of profits of the companies in a manner that would not give rise to a deemed dividend. In summary, the \"target companies\" used promissory notes to purchase \"B\" class shares in a newly formed private company whose only other shares (2 \"A\" class shares) were held by a trustee company associated with the taxpayer. Almost immediately, the \"B\" class shares were rendered worthless and their value shifted to the \"A\" class shares in a pre-ordained series of steps. Pending liquidation, the newly formed company recorded a loan to the trustee company by way of delivery of a promissory note. Funds were then made available from the trust in non-taxable capital form to the taxpayer to repay debts to the target companies. | The schemes did not feature vendor shareholders selling their shares cum-dividend, with the purchaser receiving a dividend, getting a dividend rebate, selling the shares ex-dividend at a loss, and obtaining a revenue loss on the sale. As a result of the schemes, all of the profits and anticipated profits of the target companies were transferred to other entities controlled by the taxpayer for his benefit. | The Commissioner took the view that each DSA was a scheme by way of, or in the nature of, dividend stripping (subparagraph 177E(1)(a)(i) of the Income Tax Assessment Act 1936 (ITAA)), or a scheme having substantially the effect of such a scheme (subparagraph 177E(1)(a)(ii)). He viewed the diminution in the value of the 'B' class shares as a result of each scheme as being a disposal of property by the target companies, and formed the opinion that that disposal represented a distribution of the profits of those companies (paragraph 177E(1)(b)). He also took the view that, if the target companies had paid a dividend out of profits equal to an amount represented by the diminution in value of the 'B' class shares, the amount of that distribution might reasonably be expected to have been included in the taxpayer's assessable income (paragraph 177E(1)(c)). As a result of section 177E applying to each DSA, the taxpayer was assessed under section 177F on a tax benefit equal to the amount identified under paragraph 177E(1)(c). | Accompanied by a letter of 3 May 2005, the Commissioner had sent a notice under section 264 of the ITAA to the taxpayer to attend and give evidence concerning his income, and the income of numerous related entities, for the 1996 to 2004 years. It was accepted that the applicant made a voluntary disclosure of the details of each DSA by letter dated 12 May 2005. The Commissioner assessed the taxpayer to penalty of 40% of a scheme shortfall amount (50% base penalty under subparagraph 284-160(1)(a)(i) of Schedule 1 to the TAA, with a reduction of 20% under subsection 284-225(1) for a voluntary disclosure made after notification of an audit). | Issues decided by the court | In relation to section 177E, the main issue was whether either of subparagraphs 177E(1)(a)(i) or (ii) applied to each DSA. Jessup J concluded that each scheme was not covered by subparagraph (i) (see paragraph 74), but was a scheme covered by subparagraph (ii) (see paragraph 84). | In relation to penalty, although his Honour accepted the taxpayer's contention that, for the purposes of subparagraph 284-145(b)(i), the Full Federal Court decision in FCT v Starr (2007) 164 FCR 436 required consideration of the subjective, rather than objective, purpose of an entity that entered into a scheme (paragraph 104), he found that it was reasonable to conclude from the circumstances surrounding the taxpayer's involvement in each DSA, that the taxpayer entered into, and carried out, the schemes with the dominant purpose of getting a scheme benefit from them (paragraph 105). | His Honour then concluded that the base penalty amount applying to the taxpayer was 25% of the scheme shortfall amounts under subparagraph 284-160(1)(a)(ii), based on the finding that it was reasonably arguable that section 177E did not apply. Though with some reservations, his Honour accepted that the views expressed in Walstern P/L v FCT (2003) 138 FCR 1 about an earlier version of the reasonably arguable test in subsection 284-15(1) should apply to the interpretation of that provision. He found that the taxpayer's arguments about section 177E not applying to each DSA were, on balance, ones that had a rational basis in the Explanatory Memorandum to the Bill that introduced section 177E and in the decision in FCT v Consolidated Press Holdings Ltd (2001) 207 CLR 235 (paragraphs 105-6). | Finally, his Honour held that the base penalty amount should be reduced by 80% under subsections 284-225(2) and (4) (paragraph 111). His Honour found that the letter of 3 May 2005, and the accompanying section 264 notice, did not clearly \"tell\" the taxpayer that an examination by the Commissioner of his financial affairs for the purposes of the income tax laws for the 2003 income year was to be conducted. | The taxpayer appealed to the Full Federal Court in relation to the operation of section 177E. The Commissioner did not appeal in relation to the decision on penalty, nor did he lodge any notice of contention against the finding that each DSA was not covered by subparagraph 177E(1)(a)(i) . | On 20 March 2009, the Full Federal Court confirmed the decision of Jessup J in relation to the operation of section 177E. On 4 September 2009, the High Court refused to grant the taxpayer special leave to appeal.", "Issues_Decided": "In relation to section 177E, the main issue was whether either of subparagraphs 177E(1)(a)(i) or (ii) applied to each DSA. Jessup J concluded that each scheme was not covered by subparagraph (i) (see paragraph 74), but was a scheme covered by subparagraph (ii) (see paragraph 84). In relation to penalty, although his Honour accepted the taxpayer's contention that, for the purposes of subparagraph 284-145(b)(i), the Full Federal Court decision in FCT v Starr (2007) 164 FCR 436 required consideration of the subjective, rather than objective, purpose of an entity that entered into a scheme (paragraph 104), he found that it was reasonable to conclude from the circumstances surrounding the taxpayer's involvement in each DSA, that the taxpayer entered into, and carried out, the schemes with the dominant purpose of getting a scheme benefit from them (paragraph 105). His Honour then concluded that the base penalty amount applying to the taxpayer was 25% of the scheme shortfall amounts under subparagraph 284-160(1)(a)(ii), based on the finding that it was reasonably arguable that section 177E did not apply. Though with some reservations, his Honour accepted that the views expressed in Walstern P/L v FCT (2003) 138 FCR 1 about an earlier version of the reasonably arguable test in subsection 284-15(1) should apply to the interpretation of that provision. He found that the taxpayer's arguments about section 177E not applying to each DSA were, on balance, ones that had a rational basis in the Explanatory Memorandum to the Bill that introduced section 177E and in the decision in FCT v Consolidated Press Holdings Ltd (2001) 207 CLR 235 (paragraphs 105-6). Finally, his Honour held that the base penalty amount should be reduced by 80% under subsections 284-225(2) and (4) (paragraph 111). His Honour found that the letter of 3 May 2005, and the accompanying section 264 notice, did not clearly \"tell\" the taxpayer that an examination by the Commissioner of his financial affairs for the purposes of the income tax laws for the 2003 income year was to be conducted. The taxpayer appealed to the Full Federal Court in relation to the operation of section 177E. The Commissioner did not appeal in relation to the decision on penalty, nor did he lodge any notice of contention against the finding that each DSA was not covered by subparagraph 177E(1)(a)(i) . On 20 March 2009, the Full Federal Court confirmed the decision of Jessup J in relation to the operation of section 177E. On 4 September 2009, the High Court refused to grant the taxpayer special leave to appeal.", "ATO_View_of_Decision": "Jessup J has recognized that each DSA was not a scheme by way of, or in the nature of, dividend stripping, for the purposes of subparagraph 177E(1)(a)(i). However, the ATO notes that the Full Federal Court has recognized that each DSA is a paradigm example of the type of scheme to which subparagraph 177E(1)(a)(ii) was intended to apply. | In relation to the views of Jessup J about the interpretation of the purpose test in subparagraph 284-145(1)(b)(i), the ATO notes that, while the Full Federal Court in FCT v Star City P/L (No 2 ) [2009] FCAFC 122 recognised that its earlier decision in Starr was authority for the proposition that the former section 226L of the ITAA contained a subjective purpose test, Dowsett J in that decision made it clear that Starr was only a decision about section 226L, and did not consider the operation of subparagraph 284-145(1)(b)(i). His Honour noted that the language of section 226L is different to that used in section 284-145, and was apposite to refer to a reasonably drawn inference about whether the relevant entity had the identified purpose, and not to what was that entity's actual purpose. The ATO considers that the views of Dowsett J in Star City accurately reflects what was decided in Starr , and will follow his Honour's views about how the purpose test in subparagraph 284-145(1)(b)(i) applies instead of the views of Jessup J on that issue in this decision. | The ATO accepts that it was open to Jessup J to find that it was reasonably arguable that section 177E did not apply to each DSA in the way that he found. The ATO also accepts that, based on the particular terms of the letter of 3 May 2005, and the accompanying section 264 notice, it was open to his Honour to find that the taxpayer had not been 'told' that an income tax audit was to be conducted of his financial affairs for the 2003 income year before he made a voluntary disclosure of the details of each DSA on 12 May 2005.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "MT 2008/2 | MT 2008/3 | 2008 ATC 20-052 | 177E | 284-15 | 284-145 | 284-150 | 284-160 | 284-225 | 2001 ATC 4343 | 2003 ATC 5076 | 2007 ATC 5447 | 2009 ATC 20-096 | 2009 ATC 20-129", "Legislative_References": "Income Tax Assessment Act 1936 177E Taxation Administration Act 1953 284-15 284-145 284-150 284-160 284-225", "Case_References": "Commissioner of Taxation v Consolidated Press Holdings Ltd 207 CLR 235 2001 ATC 4343 47 ATR 229 Walstern Pty Ltd v Commissioner of Taxation 138 FCR 1 54 ATR 423 2003 ATC 5076 Federal Commissioner of Taxation v Starr 164 FCR 436 2007 ATC 5447 67 ATR 923 Lawrence v Commissioner of Taxation [2009] FCAFC 29 2009 ATC 20-096 Commissioner of Taxation v Star City Pty Ltd (No 2) [2009] FCAFC 122 2009 ATC 20-129", "Subject_References": "Dividend stripping scheme Scheme benefit Scheme penalty Reasonably arguable position Voluntary disclosure Tax audit", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID882of2008/00001", "Unmatched_Content": "Implications for general administration: For cases before the Administrative Appeals Tribunal or the Federal Court dealing with the application of subparagraph 284-145(1)(b)(i), the ATO will apply the views of Dowsett J in Star City that the words of the provision are apposite to refer to a reasonably drawn inference about whether a relevant entity had the identified purpose, and not to what was that entity's actual purpose."}
{"Case_Name": "Lenten v Commissioner of Taxation", "Venue_Reference_No": "2007/0415-0416", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "9 April 2008", "Date_Published": "7 November 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the costs incurred by an employee teacher in respect of overseas travel and the purchase of newspapers and magazines were deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 97)", "Overview_of_Facts": "The applicant was employed as an Assistant to the Principal of a high school in Victoria between 2003 and 30 June 2005. In 2005, he was also appointed as the head of the Studies of Society and the Environment (SOSE) faculty at the school for that year. The appointment to this position led to an increase in income. | The applicant used unpaid leave to visit various places in Asia, Europe and the UK from July to October 2004 accompanied by his wife. The trip consisted of general package tours and self guided visits to places mainly of historical interest and significance. The applicant was not formally required by the high school to undertake the trip, and did not attend any professional conferences or lectures or visit any schools on the trip. | During the 2005 income year, the applicant purchased daily newspapers and occasional magazines before school for the asserted primary purpose of taking cuttings to be used to provide students with writing tasks. | For the 2004 income year, the applicant claimed a deduction of $9,309 for work related travel expenses in respect of his overseas trip. For the 2005 income year, the applicant claimed a further deduction of $5,000 in respect of his overseas trip and $200 for the purchase of newspapers and magazines. | The Commissioner argued before the Tribunal that the expenses incurred on the overseas trip were essentially of a private nature and did not have a sufficient connection with the activities by which the applicant earned his income as an Assistant to the Principal during 2004, nor was there any evidence to show that the applicant received his appointment to the SOSE faculty in 2005 as a result of undertaking the trip. | Issues decided by the court | The Tribunal decided that 75% of the overseas travel expenses incurred by the applicant were deductible under section 8-1 of the ITAA 97. The Tribunal was satisfied that the expenses not only directly contributed to his professional skill and knowledge, but also directly led to his advancement within the school as head of the SOSE faculty. The Tribunal decided that the dominant purpose of the travel was to improve the applicant's knowledge and skills as a teacher and to enhance his promotional opportunities at the school. The Tribunal also found that the travel enabled the applicant to support his colleagues in developing the curriculum mandated by the State government (paragraphs 28 and 32). It was also found that a minor element of the travel would have been of a recreational character, for which a 25% reduction was appropriate (paragraphs 35 to 37). | The Tribunal decided that 15% of the purchase cost of the newspapers and magazines was deductible under section 8-1 of the ITAA 97. While the Tribunal was satisfied that the applicant used the publications to take clippings for use in his teaching activities, it considered that he would have simultaneously taken the opportunity to absorb the content for private purposes (paragraphs 44 and 45).", "Issues_Decided": "The Tribunal decided that 75% of the overseas travel expenses incurred by the applicant were deductible under section 8-1 of the ITAA 97. The Tribunal was satisfied that the expenses not only directly contributed to his professional skill and knowledge, but also directly led to his advancement within the school as head of the SOSE faculty. The Tribunal decided that the dominant purpose of the travel was to improve the applicant's knowledge and skills as a teacher and to enhance his promotional opportunities at the school. The Tribunal also found that the travel enabled the applicant to support his colleagues in developing the curriculum mandated by the State government (paragraphs 28 and 32). It was also found that a minor element of the travel would have been of a recreational character, for which a 25% reduction was appropriate (paragraphs 35 to 37). The Tribunal decided that 15% of the purchase cost of the newspapers and magazines was deductible under section 8-1 of the ITAA 97. While the Tribunal was satisfied that the applicant used the publications to take clippings for use in his teaching activities, it considered that he would have simultaneously taken the opportunity to absorb the content for private purposes (paragraphs 44 and 45).", "ATO_View_of_Decision": "The Commissioner considers that the decision is able to be viewed as being consistent with established general principles of deductibility under section 8-1 in relation to expenses incurred by employees. The Tribunal noted that 'each case must be considered on its own peculiar facts', referred to the decision in Commission of Taxation v Finn (1961) 106 CLR 60, and stated that '... Factors taken into account by the High Court included the extent to which the taxpayer's [sic] increased his knowledge as a result of the travel and whether that proved decisive in his subsequent career advancement; the extent to which his increased knowledge was recognised and valued by his colleagues; the extent to which the knowledge gained was necessarily incidental to the taxpayer's work; and the extent to which the expenses related to the acquisition or enhancement of skills relevant to the taxpayer's work.' The Tribunal found on the evidence that the applicant satisfied the criteria for deductibility as identified by the High Court in Finn , and that the applicant's 'dominant purpose' in undertaking the overseas travel was work related. | The Commissioner initially lodged an appeal from the decision of the Tribunal to the Federal Court, but withdrew the notice of appeal after considering further legal advice. | The Tribunal's acceptance of the applicant's 'dominant purpose' in undertaking his overseas travel determined the outcome of this case. Any appeal against a decision which depends on the evidence of a witness should consider the Full Federal Court decision in FC of T v Nixon (1980) 30 ALR 400. At page 406 the Court endorsed two principles expressed in Powell and Wife v Streatham Manor Nursing Home (1935) AC 243 and quoted the following from pp. 265-6: 'First it is clear that in an appeal of this character, that is from the decision of a trial judge based on his opinion of the trustworthiness of witnesses whom he has seen, the Court of Appeal \"must, in order to reverse, not merely entertain doubts whether the decision below is right, but be convinced that it is wrong ....\". And secondly the Court of Appeal has no right to ignore what facts the judge has found on his impression of the credibility of the witnesses and proceed to try the case on paper on its own view of the probabilities as if there had been no oral hearing.' | We think that what the Court identified as relevant principles for an appeal from a decision of a trial judge would be equally relevant to an appeal from a decision of the Administrative Appeals Tribunal. We have concluded that on an appeal in this case we would not be able to show that the Tribunal's conclusion, 'which was founded upon direct evidence which [the Member] was entitled to accept, was plainly or manifestly wrong or that there was no adequate basis for it in the evidence before him' ( Nixon at p 406).", "Administrative_Treatment": "Amendment Requests | Taxpayers who consider that they are entitled to a self-amendment of an income tax return or assessment because of the decision in this case should notify the Commissioner of their intention to amend by either completing a \"Request for amendment of income tax return for individuals\" or notifying the Commissioner in writing. | Taxation Objections | Taxpayers requesting an amendment to an assessment should also preserve their dispute rights by lodging an objection. | Taxpayers who wish to lodge a taxation objection to an assessment should notify the Commissioner of their intention to object by either completing an \"Objection form\" or notifying the Commissioner in writing. | For further information and for access to an online form to notify the Commissioner, visit the Tax Office website at www.ato.gov.au. | Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 98/9 | TR 95/14 | 2008 ATC 10-017 | 8-1 | (1949) 78 CLR 47 | [1949] ALR 785 | (1961) 106 CLR 60 | (1958) 100 CLR 478 | [1958] ALR 225 | 71 ATC 4184 | 86 ATC 4838 | 85 ATC 165 | (1980) 80 ATC 4297 | [1935] AC 243", "Legislative_References": "Income Tax Assessment Act 1997 8-1", "Case_References": "Ronpibon Tin NL v FC of T (1949) 78 CLR 47 [1949] ALR 785 FC of T v Finn (1961) 106 CLR 60 [1962] ALR 173 Lunney v FC of T; Hayley v FC of T (1958) 100 CLR 478 [1958] ALR 225 FC of T v Hatchett (1971) 125 CLR 494 71 ATC 4184 2 ATR 557 Griffin v FC of T (1986) 18 ATR 23 86 ATC 4838 Case S12 85 ATC 165 (1985) 28 CTBR (NS) 131 FC of T v Nixon (1980) 80 ATC 4297 30 ALR 400 10 ATR 891 Powell and Wife v Streatham Manor Nursing Home [1935] AC 243", "Subject_References": "income tax allowable deduction self-education expenses teacher overseas travel newspapers", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/0415/00001", "Unmatched_Content": ""}
{"Case_Name": "Metlife Insurance Limited v Commissioner of Taxation", "Venue_Reference_No": "NSD 730 of 2008", "Venue": "Federal Court of Australia", "Judgment_Date": "3 October 2008", "Date_Published": "25 May 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to the decision which concerned whether the amendment of the taxpayer's deemed notice of assessment by a notice of amended assessment issued after the period of review would otherwise have expired, was an amendment made within the meaning of subsection 170(10AA) of the ITAA 1936, for the purpose of giving effect to subsection 104-10(3) of the ITAA 1997.", "Overview_of_Facts": "The matter proceeded by way of agreed facts. The agreed facts were as follows: 1. The taxpayer, a resident of Australia, carried on a life insurance business in Taiwan. 2. Under section 18 of the Income Tax Assessment Act 1936 (ITAA 1936) the taxpayer adopted an accounting period ending 31 December in lieu of 30 June. Accordingly, the accounting period of the taxpayer for the year ended 30 June 2001 was the 12 month period that ended 31 December 2000 (the 2001 income year). 3. On 19 July 2000, the taxpayer and Fubon Life Assurance Co Limited (Fubon) entered into a Transfer of Business Agreement. On 16 November the taxpayer and Fubon entered into an Amended and Restated Transfer of Business Agreement (The Agreement). 4. Settlement of the Agreement occurred during January 2001. 5. The capital proceeds from the sale of the business amounted to $43,359,741which represented the following items: • net tangible assets: $1,998,656 • policy rights: $12,491,602 • goodwill: $28,869,482 6. On 16 July 2001, the taxpayer lodged its income tax return for the 2001 year of income. The taxpayer calculated its taxable income in the return on the basis that on the sale of the goodwill of the business it made a taxable capital gain of $28,869,482. 7. The taxpayer and the Commissioner agreed that: • for the purpose of subsection 104-10(3) of the ITAA 1997, the time of the disposal of the Business is taken to be 19 July 2000, the date of the Transfer of Business Agreement; and • but for the operation of subsection 104-10(3) of the ITAA 1997, the time of the disposal of the Business, within the meaning of subsection 104-10(2) of the ITAA 1997, would be January 2001, when the disposal actually occurred. 8. The taxpayer was a full self assessment taxpayer, within the meaning of subsection 6(1) of the ITAA 1936, in respect of the 2001 year of income. 9. Under subsection 166A(3) of the ITAA 1936, the assessment was taken to have been made on, and the notice of assessment served on, the taxpayer on 16 July 2001, the day the return was lodged. 10. By the operation of paragraph 204(1A)(b) of the ITAA 1936, the tax payable by the taxpayer for the 2001 year of income under the assessment became due and payable on 1 June 2001. 11. It was common ground between the parties that paragraph 170(2)(c) of the ITAA 1936 applied to the taxpayer in respect of the assessment for the year ended 30 June 2001. The four years in which the Commissioner could amend under that provision ended on 1 June 2005. 12. On 15 July 2005, more than 4 years after the tax became due and payable under the original assessment, the Commissioner issued to the taxpayer a notice of amended assessment for the 2001 year of income increasing the taxpayer's assessable income by $12,491,602 being the inclusion of the capital gain in relation to the disposal of the policy rights of the business in its assessable income. 13. The Commissioner had formed the view that subsection 170(10AA) provided the authority to amend the assessment and include the capital gain in relation to the disposal of the policy rights in assessable income. It was concluded that an amended assessment would be authorised as it was 'for the purpose of giving effect to ...' subsection 104 -10(3) of the ITAA 1997. | 1. The taxpayer, a resident of Australia, carried on a life insurance business in Taiwan. 2. Under section 18 of the Income Tax Assessment Act 1936 (ITAA 1936) the taxpayer adopted an accounting period ending 31 December in lieu of 30 June. Accordingly, the accounting period of the taxpayer for the year ended 30 June 2001 was the 12 month period that ended 31 December 2000 (the 2001 income year). 3. On 19 July 2000, the taxpayer and Fubon Life Assurance Co Limited (Fubon) entered into a Transfer of Business Agreement. On 16 November the taxpayer and Fubon entered into an Amended and Restated Transfer of Business Agreement (The Agreement). 4. Settlement of the Agreement occurred during January 2001. 5. The capital proceeds from the sale of the business amounted to $43,359,741which represented the following items: • net tangible assets: $1,998,656 • policy rights: $12,491,602 • goodwill: $28,869,482 6. On 16 July 2001, the taxpayer lodged its income tax return for the 2001 year of income. The taxpayer calculated its taxable income in the return on the basis that on the sale of the goodwill of the business it made a taxable capital gain of $28,869,482. 7. The taxpayer and the Commissioner agreed that: • for the purpose of subsection 104-10(3) of the ITAA 1997, the time of the disposal of the Business is taken to be 19 July 2000, the date of the Transfer of Business Agreement; and • but for the operation of subsection 104-10(3) of the ITAA 1997, the time of the disposal of the Business, within the meaning of subsection 104-10(2) of the ITAA 1997, would be January 2001, when the disposal actually occurred. 8. The taxpayer was a full self assessment taxpayer, within the meaning of subsection 6(1) of the ITAA 1936, in respect of the 2001 year of income. 9. Under subsection 166A(3) of the ITAA 1936, the assessment was taken to have been made on, and the notice of assessment served on, the taxpayer on 16 July 2001, the day the return was lodged. 10. By the operation of paragraph 204(1A)(b) of the ITAA 1936, the tax payable by the taxpayer for the 2001 year of income under the assessment became due and payable on 1 June 2001. 11. It was common ground between the parties that paragraph 170(2)(c) of the ITAA 1936 applied to the taxpayer in respect of the assessment for the year ended 30 June 2001. The four years in which the Commissioner could amend under that provision ended on 1 June 2005. 12. On 15 July 2005, more than 4 years after the tax became due and payable under the original assessment, the Commissioner issued to the taxpayer a notice of amended assessment for the 2001 year of income increasing the taxpayer's assessable income by $12,491,602 being the inclusion of the capital gain in relation to the disposal of the policy rights of the business in its assessable income. 13. The Commissioner had formed the view that subsection 170(10AA) provided the authority to amend the assessment and include the capital gain in relation to the disposal of the policy rights in assessable income. It was concluded that an amended assessment would be authorised as it was 'for the purpose of giving effect to ...' subsection 104 -10(3) of the ITAA 1997. | • net tangible assets: $1,998,656 • policy rights: $12,491,602 • goodwill: $28,869,482 | • for the purpose of subsection 104-10(3) of the ITAA 1997, the time of the disposal of the Business is taken to be 19 July 2000, the date of the Transfer of Business Agreement; and • but for the operation of subsection 104-10(3) of the ITAA 1997, the time of the disposal of the Business, within the meaning of subsection 104-10(2) of the ITAA 1997, would be January 2001, when the disposal actually occurred. | Issues decided by the court | At first instance | The issue before the Court at first instance was whether or not the amendment of the taxpayer's 2001 deemed notice of assessment of 16 July 2001, by the notice of amended assessment issued on 15 July 2005, was an amendment made within the meaning of subsection 170(10AA) of the ITAA 1936 for the purpose of giving effect to subsection 104-10(3) of the ITAA 1997. | On 29 April 2008, the Federal Court (Emmett J) dismissed the taxpayer's appeal. His Honour concluded that: • There is no rationale for saying that the Commissioner's power to amend in order to give effect to the deeming provided for in subsection 104-10(3) of the ITAA 1997 and other provisions listed in the Table in subsection 170(10AA)of the ITAA 1936 should depend on when a tax return, giving rise to a deemed assessment, is lodged by a taxpayer. • Parliament did not enact a provision that gave the Commissioner the power to amend during the four years after any subsequent event referred to in the Table. Instead Parliament provided, in order to give effect to any of the provisions in the Table, that the Commissioner could amend 'at any time'. | • There is no rationale for saying that the Commissioner's power to amend in order to give effect to the deeming provided for in subsection 104-10(3) of the ITAA 1997 and other provisions listed in the Table in subsection 170(10AA)of the ITAA 1936 should depend on when a tax return, giving rise to a deemed assessment, is lodged by a taxpayer. • Parliament did not enact a provision that gave the Commissioner the power to amend during the four years after any subsequent event referred to in the Table. Instead Parliament provided, in order to give effect to any of the provisions in the Table, that the Commissioner could amend 'at any time'. | The Full Court | On 3 October 2008, the Full Federal Court delivered a joint judgement allowing the taxpayer's appeal from the decision at first instance. | The Full Court considered that the answer to the matter turned on the meaning of the phrase in subsection 170(10AA) of ITAA 1936 'for the purpose of giving effect to'. | The Court was of the view that an amendment taking account of a CGT event or an amendment that relates to the consequences of the CGT event is not one which is necessarily an amendment of an assessment 'for the purpose of giving effect to' any of the provisions of the ITAA 1997 as set out in the table in subsection 170(10AA) of the ITAA 1936. | The Court found that, on the facts of this case, any work which subsection 104-10(3) of the ITAA 1997 had to do in 'backdating' the sale to the time of entry into the contract had been performed by 16 July 2001, the date of the original assessment. To now seek to amend the assessment so as to include as income the capital gain on the disposal of the policy rights would be doing more than giving effect to the operation of subsection 104-10(3). | In their Honours' view, the provisions set out in the table to subsection 170(10AA) of the ITAA 1936 reinforce their interpretation of the correct construction of subsection 170(10AA). In each of the examples in that table, power is given to the Commissioner to amend at any time an original assessment where a new fact occurs after the assessment and where certain provisions of the tax legislation would be frustrated if the Commissioner were not able to take the new facts into account by so amending the original assessment. | In addition they stated that in their view, subsection 170(10AA) of the ITAA 1936 was designed to address new facts which could occur at any time after the original assessment, enlivening the operation of subsection 104-10(3) of the ITAA 1997. In situations where the settlement occurs before the making of the assessment, s170(10AA) will generally have no work to do; this is because s104-10(3) will already have been taken into account by the Commissioner in his assessment. | The Court did not think that if subsection 170(10AA) item 30 only gave the Commissioner an unlimited power to amend in circumstances where settlement occurred after the lodgement of the return and deemed assessment, that this would give rise to an anomaly. Instead, the words 'for the purpose of giving effect to' were chosen deliberately to distinguish between a provision which would give an indefinite power to amend an assessment where the entering into, and settling of, a contract for the disposal of a CGT asset occurred at different times, and a provision which was necessary in order to simply effect a 'backdating' provision which would otherwise be entirely frustrated. Subsection 170(10AA) was only intended to do the latter.", "Issues_Decided": "At first instance: The issue before the Court at first instance was whether or not the amendment of the taxpayer's 2001 deemed notice of assessment of 16 July 2001, by the notice of amended assessment issued on 15 July 2005, was an amendment made within the meaning of subsection 170(10AA) of the ITAA 1936 for the purpose of giving effect to subsection 104-10(3) of the ITAA 1997. On 29 April 2008, the Federal Court (Emmett J) dismissed the taxpayer's appeal. His Honour concluded that: • There is no rationale for saying that the Commissioner's power to amend in order to give effect to the deeming provided for in subsection 104-10(3) of the ITAA 1997 and other provisions listed in the Table in subsection 170(10AA)of the ITAA 1936 should depend on when a tax return, giving rise to a deemed assessment, is lodged by a taxpayer. • Parliament did not enact a provision that gave the Commissioner the power to amend during the four years after any subsequent event referred to in the Table. Instead Parliament provided, in order to give effect to any of the provisions in the Table, that the Commissioner could amend 'at any time'. • There is no rationale for saying that the Commissioner's power to amend in order to give effect to the deeming provided for in subsection 104-10(3) of the ITAA 1997 and other provisions listed in the Table in subsection 170(10AA)of the ITAA 1936 should depend on when a tax return, giving rise to a deemed assessment, is lodged by a taxpayer. • Parliament did not enact a provision that gave the Commissioner the power to amend during the four years after any subsequent event referred to in the Table. Instead Parliament provided, in order to give effect to any of the provisions in the Table, that the Commissioner could amend 'at any time'. | The Full Court: On 3 October 2008, the Full Federal Court delivered a joint judgement allowing the taxpayer's appeal from the decision at first instance. The Full Court considered that the answer to the matter turned on the meaning of the phrase in subsection 170(10AA) of ITAA 1936 'for the purpose of giving effect to'. The Court was of the view that an amendment taking account of a CGT event or an amendment that relates to the consequences of the CGT event is not one which is necessarily an amendment of an assessment 'for the purpose of giving effect to' any of the provisions of the ITAA 1997 as set out in the table in subsection 170(10AA) of the ITAA 1936. The Court found that, on the facts of this case, any work which subsection 104-10(3) of the ITAA 1997 had to do in 'backdating' the sale to the time of entry into the contract had been performed by 16 July 2001, the date of the original assessment. To now seek to amend the assessment so as to include as income the capital gain on the disposal of the policy rights would be doing more than giving effect to the operation of subsection 104-10(3). In their Honours' view, the provisions set out in the table to subsection 170(10AA) of the ITAA 1936 reinforce their interpretation of the correct construction of subsection 170(10AA). In each of the examples in that table, power is given to the Commissioner to amend at any time an original assessment where a new fact occurs after the assessment and where certain provisions of the tax legislation would be frustrated if the Commissioner were not able to take the new facts into account by so amending the original assessment. In addition they stated that in their view, subsection 170(10AA) of the ITAA 1936 was designed to address new facts which could occur at any time after the original assessment, enlivening the operation of subsection 104-10(3) of the ITAA 1997. In situations where the settlement occurs before the making of the assessment, s170(10AA) will generally have no work to do; this is because s104-10(3) will already have been taken into account by the Commissioner in his assessment. The Court did not think that if subsection 170(10AA) item 30 only gave the Commissioner an unlimited power to amend in circumstances where settlement occurred after the lodgement of the return and deemed assessment, that this would give rise to an anomaly. Instead, the words 'for the purpose of giving effect to' were chosen deliberately to distinguish between a provision which would give an indefinite power to amend an assessment where the entering into, and settling of, a contract for the disposal of a CGT asset occurred at different times, and a provision which was necessary in order to simply effect a 'backdating' provision which would otherwise be entirely frustrated. Subsection 170(10AA) was only intended to do the latter.", "ATO_View_of_Decision": "The Commissioner accepts the Full Federal Court's interpretation of subsection 170(10AA) of the ITAA 1936. | Subsection 170(10AA) is intended to allow the Commissioner to amend an assessment in circumstances where the Commissioner would otherwise not be able to give effect to the specific CGT timing rule contained in subsection 104-10(3) because the time of the CGT event was outside the normal amendment period. | The facts of this case were that settlement of the contract had occurred prior to the original assessment and the backdating of the time of the CGT event to the date of entering into the contract [the specific CGT timing rule in subsection 104-10(3)] had been given effect to at the time of the original assessment. The Commissioner accepts that in these circumstances subsection 170(10AA) cannot be relied on to amend the assessment.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The Commissioner's power to amend pursuant to subsection 170(10AA) item 30 (ss104-10(3) of the ITAA 1936 was the subject of ATO ID 2007/78: Capital Gains Tax: amendment of assessments to give effect to the timing rule. | The view expressed in ATO ID 2007/78 was contrary to the Court decision and the ATO ID has been withdrawn.", "Related_Documents": "ATO ID 2007/78 - Capital Gains Tax: amendment of assessments to give effect to the timing rule | 2008 ATC 20-049 | 166A(3) | 170 | 170(10AA) | 104-10(1) | 104-10(3) | 2008 ATC 20-025", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) 166A(3) 170 170(2)(c) 170(10AA) Income Tax Assessment Act 1997 (Cth) 104-10(1) 104-10(3)", "Case_References": "Metlife Insurance Ltd v Commissioner of Taxation, reversed [2008] FCA 568 2008 ATC 20-025 70 ATR 125", "Subject_References": "Income Tax amendment of assessments where backdating provision provides that time of CGT event is time of entering into contract rather than actual disposal of CGT asset where further provision allows amendment of assessment 'at any time' where amendment is 'for the purpose of giving effect to' backdating provision whether amended assessment was 'for the purpose of giving effect to' CGT backdating provision", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD730of2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Murdoch v Commissioner of Taxation", "Venue_Reference_No": "NSD 1959 of 2007", "Venue": "Federal Court of Australia", "Judgment_Date": "28 May 2008", "Date_Published": "23 July 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office response to this case which concerned the characterisation as income or capital of an amount paid by trustees of a trust to a beneficiary entitled to income for life in consequence of a claim made for an amount as recompense for moneys not had as a result of breach of fiduciary duty by the trustees.", "Overview_of_Facts": "Under various trusts, the taxpayer was the income beneficiary for life (the 'life tenant') and her son the only corpus beneficiary (the 'remainderman'). The taxpayer claimed that the investment policy maintained by the trustees (one of whom was the corpus beneficiary) had exposed both beneficiaries to risk. She contended that the corpus beneficiary had been adequately compensated for that risk through the resultant increase in value of the corpus but that she as income beneficiary had not been adequately compensated. In the result, she claimed a specified amount from the trustees to recompense her for moneys not had as a result of their failure to act impartially between the successive beneficiaries. She undertook to release the trustees and the trust assets from further claim on receiving the trustees' undertaking to pay the amount sought. | The amount paid to the taxpayer was sourced from a selective reduction of share capital on some of the shareholding which constituted each trust estate. | The amount received by the taxpayer was characterised and assessed by the Commissioner as ordinary income, being an amount received by an income beneficiary under a claim for money not had as income beneficiary. | Issues decided by the court | The Full Federal Court noted that the amount received should be characterised by the claim given up. The characterisation of the receipt as income or capital therefore depended on the characterisation of the particular claim. | The Court saw the claim of the taxpayer as a Phipps v Boardman claim against Mr Murdoch personally in respect of a fiduciary duty owed to the life tenant independently of the trusts rather than, it would seem, as a claim against the trustees for their breach of trusts or for the proper performance of the trusts. | The rule in Phipps v Boardman (which the Court saw as forming part of the law in Australia following the decision of the High Court in Chan v Zacharia ) is that a person who is under a fiduciary obligation to another must account to that other for any profit or gain the first person obtains or receives in circumstances of conflict or opportunity arising in relation to the fiduciary duty. | The claim was thus seen as a claim to a windfall gain accruing to Mr Murdoch on capital account rather than for the supplementation or enforcement of the taxpayer's rights to income as income beneficiary.", "Issues_Decided": "The Full Federal Court noted that the amount received should be characterised by the claim given up. The characterisation of the receipt as income or capital therefore depended on the characterisation of the particular claim. The Court saw the claim of the taxpayer as a Phipps v Boardman claim against Mr Murdoch personally in respect of a fiduciary duty owed to the life tenant independently of the trusts rather than, it would seem, as a claim against the trustees for their breach of trusts or for the proper performance of the trusts. The rule in Phipps v Boardman (which the Court saw as forming part of the law in Australia following the decision of the High Court in Chan v Zacharia ) is that a person who is under a fiduciary obligation to another must account to that other for any profit or gain the first person obtains or receives in circumstances of conflict or opportunity arising in relation to the fiduciary duty. The claim was thus seen as a claim to a windfall gain accruing to Mr Murdoch on capital account rather than for the supplementation or enforcement of the taxpayer's rights to income as income beneficiary.", "ATO_View_of_Decision": "The characterisation of an amount received as a result of a claim made by reference to the character of the claim made. | The decision made by the court that the amount received fell to be characterised by reference to the claim made accords with the position put by the Commissioner. A difference in interpretation of the claim made, however, led to the divergence in opinion in applying that principle. | The Tax Office view was that the taxpayer's claim was made by her as income beneficiary against the trustees and the trust assets in relation to money not had as a result of breach of the trustees' fiduciary duty, thereby characterising the amount received as income. | The view of the Court was that the taxpayer's claim was a claim against the corpus beneficiary for an accounting by him to her of an actual capital profit or gain seen by the Court as having been made by him and to an entitlement to a constructive trust over the assets of the trust estate, with the result that the amount received by the taxpayer was not income. | The Tax Office is of the view that the decision is of limited application because of the unique facts of the case.", "Administrative_Treatment": "None required. The case was decided on its facts.", "Related_Documents": "None. | 2008 ATC 20-031 | [1967] 2 AC 46 | (1984) 154 CLR 178 | (1984) 53 ALR 417 | (1984) 58 ALJR 353", "Legislative_References": "Income Tax Assessment Act 1936 25(1)", "Case_References": "Phipps v Boardman [1967] 2 AC 46 Chan v Zacharia (1984) 154 CLR 178 (1984) 53 ALR 417 (1984) 58 ALJR 353", "Subject_References": "Income tax Characterisation of money received by reference to claim made", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1959of2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Nitram Consulting Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2007/4526", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "16 December 2008", "Date_Published": "20 February 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this decision which concerned whether an administrative penalty relating to GST should be remitted.", "Overview_of_Facts": "• The Applicant, which carried on business in the hospitality industry, sold its interest in a hotel-tavern for an amount expressed to be inclusive of GST. • Relevant boxes on the contract were marked to indicate that the sale was a taxable supply and was not a supply of a going concern. • The Applicant issued a tax invoice to the purchaser showing GST of 1/11th of the sale price. • The Applicant lodged an activity statement bringing GST on the transaction to account. • However, the Applicant's accountant subsequently lodged an amended activity statement reducing the GST payable on the sale to nil and mistakenly advising the Applicant that if the Applicant lodged the amended activity statement it would receive a call from the Tax Office and the GST payable could be resolved in that way. • The Tax Office issued an assessment for the shortfall and also assessed penalty at the rate of 25% for lack of reasonable care. • The Applicant objected against the assessment of penalty and the Tax Office disallowed the objection. • The Applicant applied to the Tribunal for review of the objection decision. • It was common ground that the Applicant had failed to exercise reasonable care, but the Applicant argued that the penalty imposed at the rate of 25% should be remitted in part or in full. • The Applicant did not dispute that it does not have a particularly good compliance history. | • The Applicant, which carried on business in the hospitality industry, sold its interest in a hotel-tavern for an amount expressed to be inclusive of GST. • Relevant boxes on the contract were marked to indicate that the sale was a taxable supply and was not a supply of a going concern. • The Applicant issued a tax invoice to the purchaser showing GST of 1/11th of the sale price. • The Applicant lodged an activity statement bringing GST on the transaction to account. • However, the Applicant's accountant subsequently lodged an amended activity statement reducing the GST payable on the sale to nil and mistakenly advising the Applicant that if the Applicant lodged the amended activity statement it would receive a call from the Tax Office and the GST payable could be resolved in that way. • The Tax Office issued an assessment for the shortfall and also assessed penalty at the rate of 25% for lack of reasonable care. • The Applicant objected against the assessment of penalty and the Tax Office disallowed the objection. • The Applicant applied to the Tribunal for review of the objection decision. • It was common ground that the Applicant had failed to exercise reasonable care, but the Applicant argued that the penalty imposed at the rate of 25% should be remitted in part or in full. • The Applicant did not dispute that it does not have a particularly good compliance history. | Issue decided by the Tribunal | The Tribunal decided that the penalty should be remitted from 25% to 20% of the shortfall. | In arriving at this decision, the Tribunal noted the similarities between this case and Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Federal Commissioner of Taxation 2008 ATC 20-015 in which there was no remission of penalty. | However, the Tribunal noted that in that case the tax agent denied advising the taxpayer to proceed with a speculative lodgement of its activity statement, whereas in this case, the Applicant's accountant freely admitted to advising the Applicant to that effect. Further, this was not a case where the tax agent hoped that the Tax Office might fail to notice the change. Rather, the accountant assumed that the Tax Office would notice the change and his approach, although incorrect and imprudent, was to rely on receiving a call from the Tax Office requesting further information after lodgement of the revised activity statement. | Due to the distinction between the two matters, the Tribunal considered that a small remission of the penalty was warranted.", "Issues_Decided": "The Tribunal decided that the penalty should be remitted from 25% to 20% of the shortfall. In arriving at this decision, the Tribunal noted the similarities between this case and Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Federal Commissioner of Taxation 2008 ATC 20-015 in which there was no remission of penalty. However, the Tribunal noted that in that case the tax agent denied advising the taxpayer to proceed with a speculative lodgement of its activity statement, whereas in this case, the Applicant's accountant freely admitted to advising the Applicant to that effect. Further, this was not a case where the tax agent hoped that the Tax Office might fail to notice the change. Rather, the accountant assumed that the Tax Office would notice the change and his approach, although incorrect and imprudent, was to rely on receiving a call from the Tax Office requesting further information after lodgement of the revised activity statement. Due to the distinction between the two matters, the Tribunal considered that a small remission of the penalty was warranted.", "ATO_View_of_Decision": "The Tax Office accepts that the decision to make the small remission of the penalty was open to the Tribunal in the circumstances of this case. | However, the Tax Office cautions taxpayers against lodging activity statements on a speculative basis with a view to discussing matters with the Tax Office at a later time. The law imposes penalties for lodging false and misleading returns and this case should not be relied upon to assume that a remission of penalties would occur in these circumstances. Decisions on remission are made having regard to all of the relevant facts in the individual case and, as this case demonstrates, significant penalties may be payable for lodging incorrect activity statements.", "Administrative_Treatment": "None required. The case was decided on its facts.", "Related_Documents": "PS LA 2006/2 | 2008 ATC 10-063 | 14ZZK | 284-75 | 284-80 | 284-90 | 298-20 | 2008 ATC 20-015", "Legislative_References": "Taxation Administration Act 1953 (Cth 14ZZK 284-75 284-80 284-90 298-20", "Case_References": "Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Federal Commissioner of Taxation 2008 ATC 20-015 [2008] FCAFC 54 69 ATR 627", "Subject_References": "Administrative penalty Remission of penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/4526/00001", "Unmatched_Content": ""}
{"Case_Name": "O'Brien v Commissioner of Taxation", "Venue_Reference_No": "QT2005/364-368", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "1 February 2008", "Date_Published": "8 July 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether scheme penalty tax otherwise payable should be remitted in full on the basis that the applicant's subjective purpose in entering into a Part IVA scheme was not to obtain a tax benefit.", "Overview_of_Facts": "The Commissioner concluded that in the 1997, 1998 and 1999 income years the applicant had obtained tax benefits, for the purposes of Part IVA of the Income Tax Assessment Act 1936 (ITAA 36), in respect of his participation in the Barkworth Olive Groves Project Number 1 and the Barkworth Olive Groves Project Number 2. The Commissioner made Part IVA determinations to cancel the tax benefits and amended the applicant's income tax assessments to give effect to the determinations. The Commissioner assessed penalty tax of 10% under subsection 227(1) of the ITAA 36 by reducing the penalty of 50% otherwise payable under section 226 (on the basis that it was not reasonably arguable that Part IVA did not apply) by 80% under section 226E (on the basis that the applicant had made a voluntary disclosure of the relevant scheme matters before audit). | Issues decided by the court or tribunal | The AAT found that Part IVA applied to cancel the tax benefits obtained by the applicant in connection with his participation in the Projects. | However, the AAT decided that the penalty tax imposed by section 226 and reduced by section 226E should be remitted in full under subsection 227(3). Notwithstanding that Part IVA applied, the AAT found that 'the evidence in this case does not indicate that the applicant participated in the scheme with the avowed purpose of tax avoidance. Subjectively, the applicant did wish to participate in an agricultural scheme that would harvest real products, albeit in a tax effective way.' (paragraph 160).", "Issues_Decided": "The AAT found that Part IVA applied to cancel the tax benefits obtained by the applicant in connection with his participation in the Projects. However, the AAT decided that the penalty tax imposed by section 226 and reduced by section 226E should be remitted in full under subsection 227(3). Notwithstanding that Part IVA applied, the AAT found that 'the evidence in this case does not indicate that the applicant participated in the scheme with the avowed purpose of tax avoidance. Subjectively, the applicant did wish to participate in an agricultural scheme that would harvest real products, albeit in a tax effective way.' (paragraph 160).", "ATO_View_of_Decision": "The Commissioner did not appeal to the Federal Court from the penalty remission decision. The Tax Office accepts that the decision was based on the evidence before the AAT and considers that it is confined to the particular facts of the case. The Tax Office recognises that the decision is consistent with paragraph 2 of Taxation Ruling Taxation Ruling TR 94/7 that states that 'Each case should be decided on the basis of its own facts and circumstances.'", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "Taxation Ruling TR 94/7 | 2008 ATC 10-002", "Legislative_References": "Income Tax Assessment Act 1936 226 226E 227", "Case_References": "", "Subject_References": "Penalty tax where Part IVA applies Remission of scheme penalty tax Administrative penalty for schemes Remission of administrative penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QT2005/364-368/00001", "Unmatched_Content": ""}
{"Case_Name": "Ostwald Bros Civil Pty Ltd atf Ostwald Bros Family Trust v Commissioner of Taxation", "Venue_Reference_No": "339 of 2007", "Venue": "Federal Court of Australia", "Judgment_Date": "11 June 2008", "Date_Published": "11 November 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether purchase of diesel fuel for use in earthworks for the construction of a rail line and maintenance road alongside the rail line are eligible activities that qualify for off-road credits under the Energy Grants (Credits) Scheme Act 2003.", "Overview_of_Facts": "1. This was an appeal from a decision of the Administrative Appeals Tribunal (AAT) to set aside an objection decision of the Commissioner of Taxation (Commissioner). The objection decision related to a private ruling made by the Commissioner on 10 April 2006. | 2. The Applicant was a sub-contractor to a mining company who undertook earthworks to enable the construction of a rail line and access road alongside of the rail line. The rail line is used to transport coal from the mine site to the port for export (no beneficiation occurs at the port as the coal is power grade coal and is not subjected to any further processing after it leaves the mine site). | 3. The works undertaken by the Applicant comprised: a) The clearing of virgin land and the removal and stockpiling of topsoil; b) The earthworks to construct an eight metre wide construction haul road for safe access to the site during the works and remaining upon completion of the works for the purpose of private access to and maintenance of the railway; c) The necessary bulk earthworks to construct the rail formation and achieve the required vertical and horizontal alignment; d) The extraction and haulage of materials from within the wider easement and from adjoining properties due to a major shortfall in cut-to-fill balance; e) The earthworks for bridge abutments and approaches; f) The earthworks for the construction of the Dawson Highway Overpass across the rail formation; g) The earthworks in the formation and wider easement for the installation of all major drainage structures including corrugated metal pipes and precast concrete culvert sections; h) The backfilling of installed drainage structures using cement stabilised soil; i) The necessary 'cuts and fills'; and j) The preparation of the sub-base for the alignment of the railway. | a) The clearing of virgin land and the removal and stockpiling of topsoil; b) The earthworks to construct an eight metre wide construction haul road for safe access to the site during the works and remaining upon completion of the works for the purpose of private access to and maintenance of the railway; c) The necessary bulk earthworks to construct the rail formation and achieve the required vertical and horizontal alignment; d) The extraction and haulage of materials from within the wider easement and from adjoining properties due to a major shortfall in cut-to-fill balance; e) The earthworks for bridge abutments and approaches; f) The earthworks for the construction of the Dawson Highway Overpass across the rail formation; g) The earthworks in the formation and wider easement for the installation of all major drainage structures including corrugated metal pipes and precast concrete culvert sections; h) The backfilling of installed drainage structures using cement stabilised soil; i) The necessary 'cuts and fills'; and j) The preparation of the sub-base for the alignment of the railway. | 3. The applicant applied for a private binding ruling to address the issue of: Whether the carrying out of earthworks to enable the construction of a new rail line and the construction of an access road alongside the rail line fell within paragraph 11(1)(a) or paragraph 11(1)(f) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA). | 4. The Commissioner issued an unfavourable private ruling providing that the relevant activities did not fall within the meaning of 'mining operations' as the activities were not activities undertaken in the preparation of a site to enable mining for minerals to commence nor were they a mining construction activity, but were activities to enable the transport of coal to a port after it had been mined and recovery has ceased. | 5. The Applicant appealed to the AAT. The Tribunal found that the construction of the rail line and the access road fell within the definition of 'mining operations' as defined in paragraph 11(1)(a) of the EGCSA. The Tribunal accepted that the role played by the rail line in the overall operation of the mine and the importance of the rail line as an essential part of the core infrastructure of the mine development, made the construction of the rail line and its access road an activity undertaken in the preparation of a site to enable mining for minerals to commence. | 6. The Tribunal also found that the activities undertaken by the Applicant were not mining construction activities within paragraph 11(1)(f) of the EGCSA | 7. The Commissioner appealed to the Federal Court. The matter was heard by the Full Federal Court. | Issues decided by the court | 1. Whether on the facts as found by the AAT, the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line satisfied the statutory requirements for entitlement to an off-road credit pursuant to s53 of the EGCSA. | 2. Whether on the facts as found by the AAT, the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line is a use in activities undertaken in the preparation of a site to enable mining to commence within the meaning of that expression in s11(1)(a) of the EGCSA. | 3. Whether, in considering an entitlement to an off-road credit pursuant to the EGCS Act, the alleged integration of the project was a proper consideration for the Tribunal to have regard to in finding that the Applicant was entitled to an off-road credit for the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line within the meaning of the relevant provisions of the EGCSA. | In a joint decision, their Honours found that the Tribunal asked itself the wrong question. The issue under the EGCS Act was not whether the line and road were \"essential\" or \"integral\" to the commercial operation of the Rolleston coal mine. | Activities \"in\" the preparation of the site must refer to actual physical work which is done as part of the preparation of the site. The statute does not extend to activities \"in connection with\" or \"for the purposes of\" such preparation. | The expression \"other activities\" in para 11(1)(a) of EGCSA takes flavour from its association with \"removal of overburden\". One starts with \"exploration or prospecting\" which obviously enough would usually not be confined to the mine site ultimately selected. When that site is identified, work would necessarily have to be done on it before mining could commence. An essential element is that the activity is in preparation of the site, not activity directed towards transporting the product of the mine once the site has been prepared and the mine is in operation. | The Full Court referred to three previous Full Court decisions and a Second Reading speech. | The three previous Full Court decisions referred to were: i) Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108. ii) Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1. iii) Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482 | i) Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108. ii) Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1. iii) Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482 | The Full Court considered that the precedential value of these decisions was lessened by the substantial changes to the legislation that had occurred since those decisions were handed down. | The Second Reading speech (for the Bill containing the 1997 amendments to the Customs Act 1901 , House of Representative) revealed Parliamentary intention to overcome what were regarded as misinterpretations of legislative intention by the Federal Court and the Administrative Appeals Tribunal in relation to the diesel fuel rebate scheme in the Customs Act. | The Full Court stated that although it was clear that the activities carried out by Applicant were an integrated part of the overall infrastructure of the mine development, those activities enabled the transportation of coal from the mine site to the Port of Gladstone rather than the commencement of mining for minerals. There was therefore no relevant relationship, for the purposes of the section, between the activities and the commencement of mining for minerals. | The Full Court held that the rail line and road were necessary in the commercial and marketing sense to \"enable\" mining for minerals to commence but they were not activities undertaken in the physical preparation of the site. | The Full Court also found that the proposed transport of coal along the line was not a \"mining transport activity\" within the meaning of the Act - s11(1)(c) of EGCSA.", "Issues_Decided": "1. Whether on the facts as found by the AAT, the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line satisfied the statutory requirements for entitlement to an off-road credit pursuant to s53 of the EGCSA. 2. Whether on the facts as found by the AAT, the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line is a use in activities undertaken in the preparation of a site to enable mining to commence within the meaning of that expression in s11(1)(a) of the EGCSA. 3. Whether, in considering an entitlement to an off-road credit pursuant to the EGCS Act, the alleged integration of the project was a proper consideration for the Tribunal to have regard to in finding that the Applicant was entitled to an off-road credit for the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line within the meaning of the relevant provisions of the EGCSA. In a joint decision, their Honours found that the Tribunal asked itself the wrong question. The issue under the EGCS Act was not whether the line and road were \"essential\" or \"integral\" to the commercial operation of the Rolleston coal mine. Activities \"in\" the preparation of the site must refer to actual physical work which is done as part of the preparation of the site. The statute does not extend to activities \"in connection with\" or \"for the purposes of\" such preparation. The expression \"other activities\" in para 11(1)(a) of EGCSA takes flavour from its association with \"removal of overburden\". One starts with \"exploration or prospecting\" which obviously enough would usually not be confined to the mine site ultimately selected. When that site is identified, work would necessarily have to be done on it before mining could commence. An essential element is that the activity is in preparation of the site, not activity directed towards transporting the product of the mine once the site has been prepared and the mine is in operation. The Full Court referred to three previous Full Court decisions and a Second Reading speech. The three previous Full Court decisions referred to were: i) Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108. ii) Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1. iii) Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482 i) Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108. ii) Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1. iii) Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482 The Full Court considered that the precedential value of these decisions was lessened by the substantial changes to the legislation that had occurred since those decisions were handed down. The Second Reading speech (for the Bill containing the 1997 amendments to the Customs Act 1901 , House of Representative) revealed Parliamentary intention to overcome what were regarded as misinterpretations of legislative intention by the Federal Court and the Administrative Appeals Tribunal in relation to the diesel fuel rebate scheme in the Customs Act. The Full Court stated that although it was clear that the activities carried out by Applicant were an integrated part of the overall infrastructure of the mine development, those activities enabled the transportation of coal from the mine site to the Port of Gladstone rather than the commencement of mining for minerals. There was therefore no relevant relationship, for the purposes of the section, between the activities and the commencement of mining for minerals. The Full Court held that the rail line and road were necessary in the commercial and marketing sense to \"enable\" mining for minerals to commence but they were not activities undertaken in the physical preparation of the site. The Full Court also found that the proposed transport of coal along the line was not a \"mining transport activity\" within the meaning of the Act - s11(1)(c) of EGCSA.", "ATO_View_of_Decision": "The decision of the Full Court aligns with the Tax Office interpretation of the legislation as outlined in PGBR 2005/2.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | An Addendum to PGBR 2005/2 was published on 19 October 2011. An Addendum to FTR 2006/2 was published on 1 November 2011. These rulings were amended to take into account the views expressed in the decision. The changes made by the Addenda clarify the meaning of 'site' and 'other activities undertaken in the preparation of a site to enable mining for minerals to commence' for the purposes of the EGCSA.", "Related_Documents": "Product Grant Benefit Ruling PGBR 2005/2 | Fuel Tax Ruling FTR 2006/2 | [2008] FCAFC 99 | 11(1)(a) | 11(1)(c) | 11(1)(f) | 12 | 53 | (1996) 67 FCR 108 | (1997) 73 FCR 1 | (1998) 87 FCR 482", "Legislative_References": "Energy Grants (Credits) Scheme Act 2003 11(1)(a) 11(1)(c) 11(1)(f) 12 53", "Case_References": "Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108 Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1 Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482", "Subject_References": "Energy grant (credits) scheme entitlement to off-road credits for use of diesel fuel mining operations other activities undertaken in the preparation of a site to enable mining for minerals to commence", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD339of2007/00001", "Unmatched_Content": "Relevant Rulings/Determinations: Product Grant Benefit Ruling PGBR 2005/2 Energy grants: off-road credits for mining operations (PGBR 2005/2); | Fuel Tax Ruling FTR 2006/2 Fuel tax: fuel tax credits for taxable fuel acquired or manufactured in, or imported into Australia for use in carrying on an enterprise involving 'mining operations' as defined in section 11 of the Energy Grants (Credit) Scheme Act 2003 (FTR 2006/2)."}
{"Case_Name": "Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation", "Venue_Reference_No": "B39/2007", "Venue": "High Court", "Judgment_Date": "22 May 2008", "Date_Published": "24 October 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Taxpayer's appeal dismissed; Commissioner's cross-appeal allowed", "Summary_of_Decision": "Precis for the web page index: Whether both the apparent appointment of the trustee of a loss trust as a tertiary beneficiary and the distributions of income to that beneficiary were a sham, or otherwise ineffective in equity.", "Overview_of_Facts": "Towards the end of the 1995 income year, building development companies controlled by one or more of the Heran brothers (Mr Brian Heran, Mr Martin Heran and Mr Stephen Heran) had forecast taxable profits of approximately $3 million. The Heran interests sought to acquire, and obtained, control of the E & M Unit Trust, a Thomasz family trust, which had tax losses of approximately $4 million for a \"price\" of $250,000. | On 30 June 1995, the Raftland Trust was settled with Raftland Pty Ltd as the trustee. Under clause 3(b) of the Raftland Trust deed, the trustee was given a discretion to pay, apply or set aside all or any part of the net income of the trust (after allowing for expenses) for the benefit of one or more of the primary, secondary and tertiary beneficiaries, or to accumulate the income. In default of the discretion being exercised the trustee was obliged to hold that income for such of the tertiary beneficiaries as were then in existence or, absent any tertiary beneficiaries, for such primary beneficiaries as were in existence (and if no primary beneficiaries were in existence for the secondary beneficiaries). Under the deed the trustee, for the time being, of the E & M Unit Trust was named as a tertiary beneficiary of the Raftland Trust and the Heran brothers were named as primary beneficiaries. | The Heran interests then took steps to channel the income of the Heran building companies to the E & M Unit Trust where it could be offset by the prior year tax losses. This involved complex agreements amongst various Heran entities and trusts, including Heran Projects Pty Ltd and the trustees of the Brian Heran Discretionary Trust, the Northbank Trust and the Heran Developments Trust. | Over three years, 1995, 1996 and 1997, some $4 million was distributed to the trustee of the Raftland Trust in this way (including, in 1996, some $57,973 sourced in rental and interest income which the trustee of Raftland Trust received from the trustee of the Brian Heran Discretionary Trust). | Of the moneys that came into the Raftland Trust in respect of the 1995 year of income, the trustee distributed $250,000 to Mr Carey in his capacity as trustee of the E & M Unit Trust and the balance also to Mr Carey, again in his capacity as trustee of the E & M Unit Trust, but by separate resolution. The trustee's resolutions were made on 30 June 1995. | With effect from 2 July 1995, Raftland Pty Ltd was appointed as trustee of the E & M Unit Trust. | On 3 July 1995, an amount of $250,000 was given to Mr Carey by way of bank cheque. The moneys for the bank cheque were provided by three Heran companies. By a written direction, Mr Carey requested that the payment be made to a firm of accountants. That firm deducted the sum of $30,000 and the balance was paid to Mr Carey who in turn paid it to his step-father, Mr Thomasz. | The income tax return for the Raftland Trust for the 1995 income year disclosed a distribution of $2,849,467. The income tax return of the E & M Unit Trust for the 1995 income year disclosed income in the same amount which was offset by prior year tax losses resulting in a net income of nil. | For the 1996 and 1997 income years, the trustee of the Raftland Trust resolved to distribute to Raftland Pty Ltd, as trustee of the E & M Unit Trust, amounts of $779,705 and $385,400. The income tax returns of E & M Unit Trust disclosed income in the same amount which was offset by prior year tax losses resulting in a net income of nil. The E & M Unit Trust's tax losses were exhausted in the 1997 income year. No further resolutions to distribute income to or by the trustee of the Raftland Trust were made. | Apart from the payment of $250,000, no money changed hands. The trustee of the Raftland Trust did not call upon or receive the funds to which it was entitled from the trustee of the Heran Trusts and the trustee of the E & M Unit Trust did not call upon or receive the balance monies to which it was purportedly entitled from the trustee of the Raftland Trust. | It is also of some significance to note that in the 1995 year, the Chairman of Raftland Pty Ltd reported that, apart from the $250,000 to be distributed to the trustee of the E & M Unit Trust for immediate payment, Raftland did not expect to require the funds to which it was entitled from the Brian Heran Discretionary Trust for use in its business as trustee of the Raftland Trust. Instead, Raftland subscribed for shares in a newly incorporated company called Navgate [see paragraphs 30 - 32]. | The Commissioner assessed Raftland Pty Ltd as trustee of the Raftland Trust for the 1995, 1996 and 1997 income years on the net income of that trust. He also assessed penalty at the rate of 50% of the shortfall. | At first instance | On 17 February 2006, the Federal Court (Kiefel J) held that the resolutions of the trustee of the Raftland Trust to distribute to the E & M Unit Trust were a sham and should be disregarded, as should the appointment of E & M Unit Trust as a tertiary beneficiary of the Raftland Trust which was likewise part of a façade. Accordingly, the purported distributions were ineffective. | Her Honour then found that, by operation of the default provisions in clause 3(b) of the Raftland Trust deed, the primary beneficiaries, being the Heran brothers, were presently entitled to the undistributed income of the Raftland Trust. However, because these present entitlements arose out of, or in connection with, a reimbursement agreement, the Heran brothers were taken not to be presently entitled by operation of subsection 100A(1). Subsection 100A(3A) did not operate to deny the application of subsection 100A(1) because the primary beneficiaries were not trustee beneficiaries. | As a result, section 100A applied with the effect that Raftland Pty Ltd as trustee of the Raftland Trust was correctly assessed under section 99A on the income distributed to it by the Heran trusts. Kiefel J also found that in the context of a sham transaction, a conclusion of recklessness under section 226H was clearly open and there was no case for remitter of part of the penalties. | The Full Court | On 31 January 2007, the Full Court (Edmonds, Conti and Dowsett JJ) handed down its judgment. The Court disagreed with Kiefel J's finding of sham. The Court found that the effect of the Raftland Trust deed was to make the trustee of the E & M Unit Trust presently entitled to the income of the Raftland Trust. However, Edmonds J, with whom Justices Conti and Dowsett agreed, concluded that in respect of all but $57,973 of that income, which His Honour found was sourced in rental and interest income, the trustee's present entitlement arose out of, or in connection with, a reimbursement agreement: subsection 100A(1). Since the E & M Unit Trust was a trustee beneficiary, subsection 100A(3A) therefore had to be considered. | The Court found that subsection 100A(3A) did not operate to deny the application of s100A(1) as the unitholders of the E & M Unit Trust were not presently entitled to the income of the E & M Unit Trust. There were several reasons given by the Court as to why this was so. | The primary reason given was that there was no trust law income of the E & M Unit Trust available for distribution to unit holders - by way of payment, application or setting aside - because the income of the trust was required to make good prior year losses that had been incurred by the trustee in carrying on a business of buying and selling real property. Edmonds J said that the general rule is that losses in one year must, in the absence of any contrary direction in the trust instrument, be made up out of profits of subsequent years and not out of capital - see Upton v Brown - and that there could be no profits properly distributable in cash until all past losses were paid. | Therefore, Raftland Pty Ltd in its capacity as trustee of the Raftland Trust had been correctly assessed under section 99A on the income distributed to it by the abovementioned trusts, save for the $57,973 in the 1996 income year which could not be said to have been 'sourced' in the reimbursement agreement. | The taxpayer sought leave to the High Court to appeal against the decision of the Full Court. The Commissioner lodged a notice of contention in relation to the Full Court's rejection of sham, and also sought leave to cross-appeal in relation to the exclusion of the $57,973 from the taxpayer's assessment in the 1996 income year. | Issues decided by the court | On 22 May 2008, the High Court (Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ) dismissed the taxpayer's appeal and allowed the Commissioner's cross-appeal. As a result, the High Court upheld the assessments issued by the Commissioner to Raftland Pty Ltd as trustee of the Raftland Trust. | The issues considered by the High Court were: | • whether the trustee of the E & M Unit Trust was presently entitled to the income of the Raftland Trust; • the application of section 100A; • whether the Full Federal Court was correct in excluding the amount of $57,973 from the application of section 100A; and • the amount of penalties. | • whether the trustee of the E & M Unit Trust was presently entitled to the income of the Raftland Trust; • the application of section 100A; • whether the Full Federal Court was correct in excluding the amount of $57,973 from the application of section 100A; and • the amount of penalties. | Entitlement to the income of the Raftland Trust | In a joint judgment, Gleeson CJ, Gummow and Crennan JJ upheld Kiefel J's finding that the entitlement under the Raftland Trust deed was not intended by the settlor, or the trustee, or the \"tertiary beneficiary\", to have substantive, as opposed to apparent, legal effect [see paragraph 58]. In so finding, their Honours cited, with apparent approval, her Honour's conclusion that the provisions of the Raftland Trust deed which purported to create an entitlement in the E & M Unit Trust as tertiary beneficiary, and the resolutions which purported to reflect that entitlement, were a facade and were contrary to the intentions of the Herans and Mr and Mrs Thomasz [see paragraph 53]. | Their Honours found that the evidence showed that the \"business people\" looked upon the transaction as the purchase, for a price of $250,000, by the Heran interests from the Thomasz interests, of control of a trust with accumulated tax losses [see paragraph 50]. They further found that it would have been inconsistent with this 'sale' of 'control' for the Thomasz interests subsequently to seek an accounting from Raftland for the purported distributions [see paragraph 50] or otherwise to assert any rights [see paragraph 53]. They had no entitlement to the income [see paragraph 53]. | The application of section 100A | Gleeson CJ, Gummow and Crennan JJ upheld Kiefel J's conclusion that subsection 100A(1) applied and that, under the default provisions of clause 3(b) of the Raftland Trust deed, the primary beneficiaries were presently entitled to the trust income with the consequence that subsection 100A(3A) did not operate to deny the application of subsection 100A(1) because the primary beneficiaries were not trustee beneficiaries [see paragraphs 53 and 63]. | Their Honours cited, with apparent approval, Kiefel J's conclusion that subsection 100A(1) applied to deny the present entitlement of the primary beneficiaries to the income of the Raftland Trust because those entitlements had come about by reason of the invalidity of the appointments to the E & M Unit Trust which, in turn, had been made pursuant to a reimbursement agreement which provided benefits to the Brian Heran Discretionary Trust and Heran Projects. Her Honour had said that the Brian Heran Discretionary Trust benefited so long as it was not called upon to pay income to the trustee of the Raftland Trust and Heran Projects benefited so long as it was not called upon to repay its loan from the Brian Heran Discretionary Trust [see paragraphs 60 - 61]. | As a result of the application of section 100A, Raftland Pty Ltd as trustee of the Raftland Trust was correctly assessed on the distributions that had been made to it. | As their Honours upheld Kiefel J's conclusions in respect of the entitlement of the trustee of the E & M Unit Trust to the income of the Raftland Trust, it was strictly unnecessary for their Honours to examine the Full Court's conclusion that, for each of the three years, the E & M Unit Trust had no net income for trust purposes because of the losses of previous years. Nevertheless, as the Full Court had based this conclusion on an application of the general rule in Upton v Brown, and this involved a question of general principle, their Honours said that it should not be allowed to pass without comment. | In relation to Upton v Brown, their Honours said that the principle of losses being made good out of the subsequent profits rather than out of capital is a particular application of the general requirement that a trustee who has two or more beneficiaries is under a duty to deal with each of them impartially. Their Honours concluded that while there may be a rationale for applying the general rule in Upton v Brown in a case where the testator or settlor has created successive interests, with an interest in income followed by an interest in capital, that rationale did not exist in a case such as the E & M Unit Trust where there was only one class of unit holder [see paragraph 69]. | Whether the Full Court was correct in excluding the amount of $57,973 from the application of section 100A | Gleeson CJ, Gummow and Crennan JJ overturned the Full Court's finding in relation to the exclusion of the amount of $57,973 from the operation of subsection 100A(1) [see paragraph 63]. Their Honours concluded that if the reimbursement agreement had not been entered into, the amount of $57,973 would not have been distributed to the Raftland Trust [see paragraph 77]. | In so finding their Honours cited, with apparent approval, Kiefel J's observation that, following Commissioner of Taxation v Prestige Motors Pty Ltd (1998) 82 FCR 195 and Idlecroft Pty Ltd v Commissioner of Taxation (2005) 144 FCR 501, a \"reimbursement agreement\" does not have to be legally enforceable and it is not necessary that the beneficiary be a party to it [see paragraph 61]. | Penalties | Gleeson CJ, Gummow and Crennan JJ upheld Kiefel J's decision as to recklessness and her finding that there was no case for remitter of part of the penalties [see paragraph 72]. | His Honour agreed with the conclusions of Gleeson CJ, Gummow and Crennan JJ and in particular the conclusion that the entitlement of the trustee of the E & M Unit Trust under the Raftland Trust deed was not intended by the settlor or the trustee or the \"tertiary beneficiary\" to have substantive, as opposed to apparent legal effect [see paragraph 85]. | His Honour examined the utility and content of sham in legal analysis. In doing this, his Honour said that the particular utility of sham analysis, especially in revenue cases, is that it permits courts to send a clear signal that they will not be deceived into giving effect to unreal transactions just because such transactions are expressed in instruments that, to a greater or lesser extent, observe legal forms and give effect to apparent legal objectives [see paragraph 140]. | His Honour agreed with the conclusions of Gleeson CJ, Gummow and Crennan JJ save for the issue discussed below [see paragraph 181]. | His Honour considered that the central question of whether the Tertiary Beneficiary was presently entitled to the income of the Raftland Trust was answered by hypothesising whether, had the trustee of the E & M Unit Trust sued the Trustee of the Raftland Trust for the income of that trust, that claim would have been 'vindicated .. by curial action' [see paragraph 172]. | His Honour did not consider that, on the facts of this case, the question could be answered by reference to 'sham'. His Honour said that this was because the trial judge had not made a finding that the transaction was 'aimed at deceiving third parties' [see paragraph 173]. | Nevertheless, his Honour did conclude that the trustee of the Raftland Trust could have resisted a claim to the income made by the trustee of the E & M Unit Trust on the basis that clause 3(b) of the Raftland Trust deed was a mere piece of machinery obtained by the Heran interests from the Thomasz interests, subsidiary to and for the purposes of the verbal and only real agreement, in circumstances which would have made the use of it for any purpose inconsistent with that agreement, dishonest and fraudulent [see paragraph 177]. Accordingly, if the Thomasz interests acting through the Trustee of the E & M Unit Trust could not use clause 3(b) of the Raftland Trust deed to enforce a present entitlement to the income of the Raftland Trust, it followed that such an entitlement had never arisen [see paragraphs 174 and 178]. | It followed that both the nomination of the trustee of the E & M Unit Trust as a tertiary beneficiary of the Raftland Trust and the resolutions of the trustee of the Raftland Trust to distribute income to the trustee of the E & M Unit Trust should be disregarded [see paragraph 180].", "Issues_Decided": "On 22 May 2008, the High Court (Gleeson CJ, Gummow, Kirby, Heydon and Crennan JJ) dismissed the taxpayer's appeal and allowed the Commissioner's cross-appeal. As a result, the High Court upheld the assessments issued by the Commissioner to Raftland Pty Ltd as trustee of the Raftland Trust. | The issues considered by the High Court were:: • whether the trustee of the E & M Unit Trust was presently entitled to the income of the Raftland Trust; • the application of section 100A; • whether the Full Federal Court was correct in excluding the amount of $57,973 from the application of section 100A; and • the amount of penalties. • whether the trustee of the E & M Unit Trust was presently entitled to the income of the Raftland Trust; • the application of section 100A; • whether the Full Federal Court was correct in excluding the amount of $57,973 from the application of section 100A; and • the amount of penalties. | Entitlement to the income of the Raftland Trust: In a joint judgment, Gleeson CJ, Gummow and Crennan JJ upheld Kiefel J's finding that the entitlement under the Raftland Trust deed was not intended by the settlor, or the trustee, or the \"tertiary beneficiary\", to have substantive, as opposed to apparent, legal effect [see paragraph 58]. In so finding, their Honours cited, with apparent approval, her Honour's conclusion that the provisions of the Raftland Trust deed which purported to create an entitlement in the E & M Unit Trust as tertiary beneficiary, and the resolutions which purported to reflect that entitlement, were a facade and were contrary to the intentions of the Herans and Mr and Mrs Thomasz [see paragraph 53]. Their Honours found that the evidence showed that the \"business people\" looked upon the transaction as the purchase, for a price of $250,000, by the Heran interests from the Thomasz interests, of control of a trust with accumulated tax losses [see paragraph 50]. They further found that it would have been inconsistent with this 'sale' of 'control' for the Thomasz interests subsequently to seek an accounting from Raftland for the purported distributions [see paragraph 50] or otherwise to assert any rights [see paragraph 53]. They had no entitlement to the income [see paragraph 53]. | The application of section 100A: Gleeson CJ, Gummow and Crennan JJ upheld Kiefel J's conclusion that subsection 100A(1) applied and that, under the default provisions of clause 3(b) of the Raftland Trust deed, the primary beneficiaries were presently entitled to the trust income with the consequence that subsection 100A(3A) did not operate to deny the application of subsection 100A(1) because the primary beneficiaries were not trustee beneficiaries [see paragraphs 53 and 63]. Their Honours cited, with apparent approval, Kiefel J's conclusion that subsection 100A(1) applied to deny the present entitlement of the primary beneficiaries to the income of the Raftland Trust because those entitlements had come about by reason of the invalidity of the appointments to the E & M Unit Trust which, in turn, had been made pursuant to a reimbursement agreement which provided benefits to the Brian Heran Discretionary Trust and Heran Projects. Her Honour had said that the Brian Heran Discretionary Trust benefited so long as it was not called upon to pay income to the trustee of the Raftland Trust and Heran Projects benefited so long as it was not called upon to repay its loan from the Brian Heran Discretionary Trust [see paragraphs 60 - 61]. As a result of the application of section 100A, Raftland Pty Ltd as trustee of the Raftland Trust was correctly assessed on the distributions that had been made to it. As their Honours upheld Kiefel J's conclusions in respect of the entitlement of the trustee of the E & M Unit Trust to the income of the Raftland Trust, it was strictly unnecessary for their Honours to examine the Full Court's conclusion that, for each of the three years, the E & M Unit Trust had no net income for trust purposes because of the losses of previous years. Nevertheless, as the Full Court had based this conclusion on an application of the general rule in Upton v Brown, and this involved a question of general principle, their Honours said that it should not be allowed to pass without comment. In relation to Upton v Brown, their Honours said that the principle of losses being made good out of the subsequent profits rather than out of capital is a particular application of the general requirement that a trustee who has two or more beneficiaries is under a duty to deal with each of them impartially. Their Honours concluded that while there may be a rationale for applying the general rule in Upton v Brown in a case where the testator or settlor has created successive interests, with an interest in income followed by an interest in capital, that rationale did not exist in a case such as the E & M Unit Trust where there was only one class of unit holder [see paragraph 69]. Whether the Full Court was correct in excluding the amount of $57,973 from the application of section 100A Gleeson CJ, Gummow and Crennan JJ overturned the Full Court's finding in relation to the exclusion of the amount of $57,973 from the operation of subsection 100A(1) [see paragraph 63]. Their Honours concluded that if the reimbursement agreement had not been entered into, the amount of $57,973 would not have been distributed to the Raftland Trust [see paragraph 77]. In so finding their Honours cited, with apparent approval, Kiefel J's observation that, following Commissioner of Taxation v Prestige Motors Pty Ltd (1998) 82 FCR 195 and Idlecroft Pty Ltd v Commissioner of Taxation (2005) 144 FCR 501, a \"reimbursement agreement\" does not have to be legally enforceable and it is not necessary that the beneficiary be a party to it [see paragraph 61]. | Penalties: Gleeson CJ, Gummow and Crennan JJ upheld Kiefel J's decision as to recklessness and her finding that there was no case for remitter of part of the penalties [see paragraph 72]. His Honour agreed with the conclusions of Gleeson CJ, Gummow and Crennan JJ and in particular the conclusion that the entitlement of the trustee of the E & M Unit Trust under the Raftland Trust deed was not intended by the settlor or the trustee or the \"tertiary beneficiary\" to have substantive, as opposed to apparent legal effect [see paragraph 85]. His Honour examined the utility and content of sham in legal analysis. In doing this, his Honour said that the particular utility of sham analysis, especially in revenue cases, is that it permits courts to send a clear signal that they will not be deceived into giving effect to unreal transactions just because such transactions are expressed in instruments that, to a greater or lesser extent, observe legal forms and give effect to apparent legal objectives [see paragraph 140]. His Honour agreed with the conclusions of Gleeson CJ, Gummow and Crennan JJ save for the issue discussed below [see paragraph 181]. His Honour considered that the central question of whether the Tertiary Beneficiary was presently entitled to the income of the Raftland Trust was answered by hypothesising whether, had the trustee of the E & M Unit Trust sued the Trustee of the Raftland Trust for the income of that trust, that claim would have been 'vindicated .. by curial action' [see paragraph 172]. His Honour did not consider that, on the facts of this case, the question could be answered by reference to 'sham'. His Honour said that this was because the trial judge had not made a finding that the transaction was 'aimed at deceiving third parties' [see paragraph 173]. Nevertheless, his Honour did conclude that the trustee of the Raftland Trust could have resisted a claim to the income made by the trustee of the E & M Unit Trust on the basis that clause 3(b) of the Raftland Trust deed was a mere piece of machinery obtained by the Heran interests from the Thomasz interests, subsidiary to and for the purposes of the verbal and only real agreement, in circumstances which would have made the use of it for any purpose inconsistent with that agreement, dishonest and fraudulent [see paragraph 177]. Accordingly, if the Thomasz interests acting through the Trustee of the E & M Unit Trust could not use clause 3(b) of the Raftland Trust deed to enforce a present entitlement to the income of the Raftland Trust, it followed that such an entitlement had never arisen [see paragraphs 174 and 178]. It followed that both the nomination of the trustee of the E & M Unit Trust as a tertiary beneficiary of the Raftland Trust and the resolutions of the trustee of the Raftland Trust to distribute income to the trustee of the E & M Unit Trust should be disregarded [see paragraph 180].", "ATO_View_of_Decision": "This decision confirms and reinforces the Commissioner's ability to challenge trust loss trafficking arrangements by ascertaining the true intentions of the parties. As such, the case demonstrates that it will not always be necessary to look to complex anti-avoidance rules to defeat tax avoidance arrangements. | With respect to the sham issue, the Commissioner understands the decision of the Court to be as follows: • Sham is just one of various situations in which a court may take an agreement or other instrument, such as a settlement on trust, as not disclosing, or disclosing fully, the legal rights and entitlements for which it provides on its face (ie. by way of exception to the parol evidence rule) [see Gleeson CJ and Gummow and Crennan JJ at paragraphs 33-34 and Kirby J at 142-143]; • Another case is where the document is 'a mere piece of machinery' for serving some purpose other than that of constituting the whole of the arrangement; in such a case the existence of the writing does not preclude the reception of other evidence as to the terms of the broader arrangement or contract (see Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 at 144; Hawke v Edwards (1947) 48 SR (NSW) 21 at 23 and Jervis v Berridge (1873) LR 8 Ch 351 at 359) [see Gleeson CJ, Gummow and Crennan JJ at paragraphs 33-34 and Heydon J at 177]; • Although it appears to be generally understood that the term 'sham' is an expression which refers to steps which take the form of a legally effective transaction but which the parties intend should not have its apparent, or any, legal consequences (see Equuscorp (2004) 218 CLR 471 at 486 [46]) [see Kirby J at paragraph 131 and 145], there is ambiguity and uncertainty surrounding its meaning and application [see Gleeson CJ, Gummow and Crennan JJ at paragraph 35 but compare Kirby J at paragraphs 134 and 136]; • The real question in a tax case will usually be whether a transaction is intended to have its apparent consequences rather than whether it is properly described as a 'sham'. The conclusion that a transaction is not intended to have its apparent effect may appear from an examination of the whole of the relevant circumstances, and these are not confined to the terms of the instrument but include all objective facts [see Gleeson CJ, Gummow and Crennan JJ at paragraph 36 and Kirby J at paragraph 136] - a court may also examine the parties' explanations as to their dealings [see Kirby J at paragraph 147] and evidence describing their subsequent conduct [see Gleeson CJ, Gummow and Crennan JJ at paragraph 49 and Kirby J at paragraph 147]; • A key to a finding of sham in this sense will often be the demonstration, by evidence or available inference, of a disparity between the transaction evidenced in the documentation (and related conduct of the parties) and the reality disclosed elsewhere in the evidence [see Gleeson CJ, Gummow and Crennan JJ at paragraph 33 and Kirby J at paragraph 145]; • Where the question is whether an express trust apparently created was wholly or partly a pretence, the relevant intention will be that of the person alleged to have created it (on the facts of this case that was the Heran brothers because the settlor and her employer, Mr Tobin, had no intention independent of the Herans) [see Gleeson CJ, Gummow and Crennan JJ at paragraphs 44, 47, 48, and 57]; • A part of an instrument may be a pretence [see Gleeson CJ, Gummow and Crennan JJ at paragraph 47]; • Just because a tax objective will not be achieved unless a transaction has a particular effect, it does not follow that the transaction will therefore have that effect. As the facts in Raftland illustrate, taxpayers may pursue mutually inconsistent objectives. Where this is the case it will always be necessary to consider whether the parties' other intentions would be defeated if the fiscal objectives were given effect to [see Gleeson CJ, Gummow and Crennan JJ at paragraph 56]; and • While it is not necessarily a fraud to cast a transaction in a form suggesting it has an effect it is not intended to have (ie. where the parties had no intention to deceive other persons), it is a fraud for the parties to a transaction to represent to another person (eg. the Commissioner) that the transaction has an effect that they know it was not intended to have (in the present case Chief Justice Gleeson and Justices Gummow and Crennan were of the view that there was something less than fraud on the facts in Raftland ) [see paragraphs 35-36]. | • Sham is just one of various situations in which a court may take an agreement or other instrument, such as a settlement on trust, as not disclosing, or disclosing fully, the legal rights and entitlements for which it provides on its face (ie. by way of exception to the parol evidence rule) [see Gleeson CJ and Gummow and Crennan JJ at paragraphs 33-34 and Kirby J at 142-143]; • Another case is where the document is 'a mere piece of machinery' for serving some purpose other than that of constituting the whole of the arrangement; in such a case the existence of the writing does not preclude the reception of other evidence as to the terms of the broader arrangement or contract (see Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 at 144; Hawke v Edwards (1947) 48 SR (NSW) 21 at 23 and Jervis v Berridge (1873) LR 8 Ch 351 at 359) [see Gleeson CJ, Gummow and Crennan JJ at paragraphs 33-34 and Heydon J at 177]; • Although it appears to be generally understood that the term 'sham' is an expression which refers to steps which take the form of a legally effective transaction but which the parties intend should not have its apparent, or any, legal consequences (see Equuscorp (2004) 218 CLR 471 at 486 [46]) [see Kirby J at paragraph 131 and 145], there is ambiguity and uncertainty surrounding its meaning and application [see Gleeson CJ, Gummow and Crennan JJ at paragraph 35 but compare Kirby J at paragraphs 134 and 136]; • The real question in a tax case will usually be whether a transaction is intended to have its apparent consequences rather than whether it is properly described as a 'sham'. The conclusion that a transaction is not intended to have its apparent effect may appear from an examination of the whole of the relevant circumstances, and these are not confined to the terms of the instrument but include all objective facts [see Gleeson CJ, Gummow and Crennan JJ at paragraph 36 and Kirby J at paragraph 136] - a court may also examine the parties' explanations as to their dealings [see Kirby J at paragraph 147] and evidence describing their subsequent conduct [see Gleeson CJ, Gummow and Crennan JJ at paragraph 49 and Kirby J at paragraph 147]; • A key to a finding of sham in this sense will often be the demonstration, by evidence or available inference, of a disparity between the transaction evidenced in the documentation (and related conduct of the parties) and the reality disclosed elsewhere in the evidence [see Gleeson CJ, Gummow and Crennan JJ at paragraph 33 and Kirby J at paragraph 145]; • Where the question is whether an express trust apparently created was wholly or partly a pretence, the relevant intention will be that of the person alleged to have created it (on the facts of this case that was the Heran brothers because the settlor and her employer, Mr Tobin, had no intention independent of the Herans) [see Gleeson CJ, Gummow and Crennan JJ at paragraphs 44, 47, 48, and 57]; • A part of an instrument may be a pretence [see Gleeson CJ, Gummow and Crennan JJ at paragraph 47]; • Just because a tax objective will not be achieved unless a transaction has a particular effect, it does not follow that the transaction will therefore have that effect. As the facts in Raftland illustrate, taxpayers may pursue mutually inconsistent objectives. Where this is the case it will always be necessary to consider whether the parties' other intentions would be defeated if the fiscal objectives were given effect to [see Gleeson CJ, Gummow and Crennan JJ at paragraph 56]; and • While it is not necessarily a fraud to cast a transaction in a form suggesting it has an effect it is not intended to have (ie. where the parties had no intention to deceive other persons), it is a fraud for the parties to a transaction to represent to another person (eg. the Commissioner) that the transaction has an effect that they know it was not intended to have (in the present case Chief Justice Gleeson and Justices Gummow and Crennan were of the view that there was something less than fraud on the facts in Raftland ) [see paragraphs 35-36]. | With respect to the application of prior year losses made by a trustee of a trust, the Commissioner understands the decision of the Court to be as follows: • The general principle in Upton v Brown that business losses of one year must, in the absence of a contrary direction in the trust instrument, be made good out of the profits of subsequent years and not out of capital, does not apply to a trust if there is only one person capable of benefiting under the trust, or if all the beneficiaries have the same interests in, or rights to be considered in respect of, the income and capital of the trust (ie. a single class of beneficiaries or objects). The general principle does not apply in cases such as these because there is no relevant sense in which a decision by a trustee to charge a loss to income or capital can disadvantage one beneficiary over another. • That is not to say, however, that in a case to which the principle in Upton v Brown does not apply, an intention that profits of subsequent years should be applied to make good losses of an earlier year could not be disclosed by the trust instrument itself, either expressly or by implication. | • The general principle in Upton v Brown that business losses of one year must, in the absence of a contrary direction in the trust instrument, be made good out of the profits of subsequent years and not out of capital, does not apply to a trust if there is only one person capable of benefiting under the trust, or if all the beneficiaries have the same interests in, or rights to be considered in respect of, the income and capital of the trust (ie. a single class of beneficiaries or objects). The general principle does not apply in cases such as these because there is no relevant sense in which a decision by a trustee to charge a loss to income or capital can disadvantage one beneficiary over another. • That is not to say, however, that in a case to which the principle in Upton v Brown does not apply, an intention that profits of subsequent years should be applied to make good losses of an earlier year could not be disclosed by the trust instrument itself, either expressly or by implication.", "Administrative_Treatment": "Implications for current Public Rulings & Determinations | None | Implications for general administration | The Commissioner will continue to challenge trust loss trafficking arrangements by seeking to ascertain the true intentions of the parties, by applying section 100A (where applicable) and/or by applying other general anti-avoidance and integrity provisions of the taxation law. | With respect to prior year business losses, the question of whether a trustee is under an obligation or has a power to make good lost capital of an earlier year out of income of a later year will depend on: • whether the trust deed explicitly or implicitly permits or requires the trustee to make good the lost capital; and • if not, whether the rule in Upton v Brown applies. | • whether the trust deed explicitly or implicitly permits or requires the trustee to make good the lost capital; and • if not, whether the rule in Upton v Brown applies. | In a trust to which the rule in Upton v Brown does not apply and where the trust instrument, expressly or by implication, does not provide the trustee with an obligation or a power to make good lost capital of an earlier year out of income of a later year, the loss will rest where it falls and constitute a permanent diminution of the capital of the trust.", "Related_Documents": "None. | 2008 ATC 20-029 | 99A | 100A | (1966) 14 ATD 333 | (2004) 211 ALR 101 | 57 ATR 556 | (1988) 18 FCR 449 | (1919) 27 CLR 133 | [1990] 1 AC 417 | [1988] 3 All ER 1058 | (1998) 98 ATC 4241 | (2005) 2005 ATC 4647", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) 99A 100A 226H", "Case_References": "Scott v Commissioner of Taxation (No 2) (1966) 40 ALJR 265 (1966) 14 ATD 333 (1966) 10 AITR 290 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 [2004] HCA 55 (2004) 211 ALR 101 57 ATR 556 Upton v Brown (1884) 26 CH D 588 Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 (1988) 82 ALR 530 Hawke v Edwards (1947) 48 SR (NSW) 21 (1947) 64 WN (NSW) 211 Hoyt's Pty Ltd v Spencer (1919) 27 CLR 133 (1919) 20 SR (NSW) 430 (1919) 26 ALR 21 Jervis v Berridge (1873) LR 8 Ch App 351 A G. Securities v Vaughan [1990] 1 AC 417 [1988] 3 All ER 1058 [1988] 3 WLR 1205 Commissioner of Taxation v Prestige Motors Pty Ltd (1998) 82 FCR 195 (1998) 38 ATR 568 (1998) 153 ALR 19 (1998) 98 ATC 4241 Idlecroft Pty Ltd v Commissioner of Taxation (2005) 144 FCR 501 (2005) 60 ATR 224 [2005] FCAFC 141 (2005) 2005 ATC 4647", "Subject_References": "Facade Present entitlement to income of a trust estate Reimbursement agreements Sham Tax schemes Trust losses Loss trafficking", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/B39/2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Rebmik Contractors Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "2007/553", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "24 April 2008", "Date_Published": "5 August 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Off-road credits for diesel fuel used in excavation work carried out for the construction of an aged care facility and a medical school. Imposition of penalty for failure to exercise reasonable care. | Imposition of penalty for failure to exercise reasonable care.", "Overview_of_Facts": "The applicant claimed entitlement to an off-road credit (and, therefore, an energy grant) pursuant to s 53(4) of the Energy Grants Act for diesel fuel used in excavation activities connected with construction of two separate facilities (an aged care facility and a medical school). The aged care facility was erected on land on which a hospital was also situated. The medical school was linked by a walkway over a highway to an adjacent hospital. | The applicant's claim was refused as, in the Commissioner's view; the diesel fuel used in the construction of the two facilities was not eligible for credits under the Energy Grants Act. | The Tax Office also imposed administrative penalty at 25% for lack of reasonable care at the time the claim for an energy grant was made. | Issues decided by the court or tribunal | Whether diesel fuel used in earthwork activities for the construction of an aged care facility and a medical school near hospitals is eligible for energy grant credits per s 53 (4) (c) of the Energy Grants Act being \" use at a hospital or nursing home or at any other institution providing medical or nursing care \". | The Tribunal also considered the use of ATO Interpretive Decisions and the imposition of penalty for a failure to take reasonable care. | The Tribunal affirmed the reviewable decisions. | The applicant's claim for off road credits under the Energy Grants Act failed. The Tribunal found that the Applicant used the diesel fuel for which credits were claimed in excavation works adjacent to the relevant Hospital. However, the fuel was not used for the purposes of the hospital and, therefore the Applicant could not meet the purposive element of the relevant provision. Similar reasoning was applied in relation to the claims in respect of diesel fuel used in the excavation work at the site of the medical school. | The applicant could not have relied on ATOID 2006/280 as it was issued after its claim was lodged. In any event interpretative decisions are not binding on the Commissioner nor do they necessarily accurately state the law. | Tribunal also found that prior to making a claim for off-road credits, the applicant failed to take reasonable care as it did not seek advice from the ATO nor did it seek any legal advice regarding the interpretation of the relevant sections of the Energy Grants Act. The Tribunal considered that the administrative penalty of 25% should be applied. | At the hearing the Applicant made no submissions on the penalty issue. The Tribunal made the finding that the administrative penalty of 25% should be applied having regard to the facts and circumstances of the case.", "Issues_Decided": "Whether diesel fuel used in earthwork activities for the construction of an aged care facility and a medical school near hospitals is eligible for energy grant credits per s 53 (4) (c) of the Energy Grants Act being \" use at a hospital or nursing home or at any other institution providing medical or nursing care \". The Tribunal also considered the use of ATO Interpretive Decisions and the imposition of penalty for a failure to take reasonable care. The Tribunal affirmed the reviewable decisions. The applicant's claim for off road credits under the Energy Grants Act failed. The Tribunal found that the Applicant used the diesel fuel for which credits were claimed in excavation works adjacent to the relevant Hospital. However, the fuel was not used for the purposes of the hospital and, therefore the Applicant could not meet the purposive element of the relevant provision. Similar reasoning was applied in relation to the claims in respect of diesel fuel used in the excavation work at the site of the medical school. The applicant could not have relied on ATOID 2006/280 as it was issued after its claim was lodged. In any event interpretative decisions are not binding on the Commissioner nor do they necessarily accurately state the law. Tribunal also found that prior to making a claim for off-road credits, the applicant failed to take reasonable care as it did not seek advice from the ATO nor did it seek any legal advice regarding the interpretation of the relevant sections of the Energy Grants Act. The Tribunal considered that the administrative penalty of 25% should be applied. At the hearing the Applicant made no submissions on the penalty issue. The Tribunal made the finding that the administrative penalty of 25% should be applied having regard to the facts and circumstances of the case.", "ATO_View_of_Decision": "The decision of the Tribunal accords with the Commissioner's views on the operation of paragraph 53(4)(c). The Commissioner considers that the provision requires diesel fuel purchased for use and used at a hospital or nursing home or at any other institution providing medical or nursing care to be used in the operations of and for the purposes of these institutions to satisfy the purposive elements of the provision. | In relation to the penalty issue, whether there has been a failure to take reasonable care turns on an evaluation of all the circumstances surrounding the making of the false or misleading statement. The Commissioner does not take the remarks made by the Tribunal that the Applicant: \" failed to take reasonable care as it did not seek advice from the ATO nor did it seek any legal advice regarding the interpretation of the relevant sections of the Energy Grants Act \" (Tribunal decision paragraph 33) as imposing a requirement for taxpayers or applicants to seek, in every case, advice from the Tax Office or legal advice. Although the Commissioner considers that not obtaining ATO advice or legal advice may, in the particular circumstances of a matter, be relevant considerations, the mere fact that ATO advice or legal advice was not obtained does not necessarily lead to a conclusion that reasonable care was not taken. | The Commissioner's considered views on penalties relating to statements are set out in draft Miscellaneous Tax Ruling 2008/D1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard, in particular, paragraph 28.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Nil", "Related_Documents": "MT 2008/D1 | PS LA 2006/2 | [2008] AATA 335 | 72 ATR 230 | 53(4)(c) | 284-75", "Legislative_References": "Energy Grants (Credits) Scheme Act 2003 53(4)(c) Taxation Administration Act 1953 284-75", "Case_References": "", "Subject_References": "Energy grants Off-road credits Use at a hospital Location test Purpose Test Reliance on ATOID Administrative penalty Reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/553/00001", "Unmatched_Content": "Relevant Rulings/Determinations: Draft Miscellaneous Taxation Ruling MT 2008/D1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard | See also Practice Statement Law Administration PS LA 2006/2 Administration of shortfall penalty for false or misleading statement"}
{"Case_Name": "Roche Products Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "NT 2005/7 & 56-65", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "22 July 2008", "Date_Published": "23 January 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office view in relation to this decision which was the first decision by an Australian tribunal or court in a substantive transfer pricing matter involving the application of the current Division 13 of the Income Tax Assessment Act 1936.", "Overview_of_Facts": "The Applicant is an Australian subsidiary of the Roche Group, the parent company of which is a resident of Switzerland. Roche is a major pharmaceutical corporation with integrated operations in many countries. It carries on research and development, manufacturing, marketing, selling and distribution of pharmaceuticals, vitamins, chemicals, diagnostic and other products. During the 1993 to 2003 income years (the relevant income years) the Applicant carried on business in Australia marketing, selling and distributing Roche products through three divisions: the Prescription Division (dealing in prescribed drugs), the Consumer Health Division (dealing in over the counter pharmaceuticals) and Diagnostic Products (dealing in diagnostic equipment and supplies). | The Commissioner audited the transfer prices of the Roche products acquired by the Applicant as trading stock during the relevant income years from related companies located in Switzerland and Singapore and formed the view that those prices were excessive. | The Commissioner issued assessments increasing the Applicant's taxable incomes in the relevant income years by a total of approximately $126 million by: 1) increasing the amount of profit of the Applicant pursuant to the associated enterprises articles of the Swiss Double Tax Agreement (Swiss DTA) and Singapore Double Tax Agreement (Singapore DTA) ; and 2) determinations pursuant to Division 13 of the Income Tax Assessment Act 1936 (Division 13, ITAA 1936) disallowing deductions claimed by the Applicant for the portion of the purchases that were considered to exceed the arm's length consideration. | 1) increasing the amount of profit of the Applicant pursuant to the associated enterprises articles of the Swiss Double Tax Agreement (Swiss DTA) and Singapore Double Tax Agreement (Singapore DTA) ; and 2) determinations pursuant to Division 13 of the Income Tax Assessment Act 1936 (Division 13, ITAA 1936) disallowing deductions claimed by the Applicant for the portion of the purchases that were considered to exceed the arm's length consideration. | The Applicant objected to the assessments. In determining the objections the Commissioner reduced the adjustments to a total of approximately $110 million for the 1993-2003 income years. The Applicant then sought a review of the Commissioner's objection decisions by the Administrative Appeals Tribunal. The application was heard by the President, Downes J. | Before the Tribunal both parties sought to support their case as to the determination of the arm's length consideration for the products acquired by the Applicant by evidence from economists with expertise in transfer pricing. While the economists' evidence was consistent in most respects with general OECD principles relating to the economic methods used to apply the arms length principle, their choice and application of the various methods were not aligned and their conclusions on the data used by them differed. | The first economist (engaged by the Commissioner prior to the litigation to assist in determining the objections) used the resale price method, the cost plus method (although not by reference to actual sales or transactions) or the Transactional Net Margin Method (TNMM), to calculate the adjustments for each division. | The second economist (engaged by the Applicant in the course of the litigation) used the Comparable Uncontrolled Price (CUP) method on some transactions which he extended into a Resale Price analysis for other dealings of the Prescription Division. In the absence of transactional data he used TNMM for Consumer Health. No method was used for Diagnostic Division but he opined that the outcome was arm's length. | The third economist (engaged by the Commissioner in the course of the litigation) used the CUP/Resale Price extension approach of the second economist but he obtained a different result after making different judgments about some of the data. He used TNMM for Consumer Health and Diagnostics. | The first economist agreed in principle that a CUP method is to be preferred for determining arm's length prices but disagreed with the other economists that that method could be properly applied on the transactional data presented. Each expert's application of TNMM produced a different answer because of the different data, judgments and assumptions they used. The evaluation of and weight to be given to the expert opinion was further complicated by the emergence during the hearing of certain evidence from the witnesses of fact, including evidence relating to agreements made by the Applicant's parent company with independent third parties for the sale of Roche pharmaceutical drugs in Australia. | His Honour gave a decision on 2 April 2008 that the Applicant's taxable incomes should be adjusted by reference to a gross profit margin within the Applicant's Prescription Division of 40%. In relation to the other Divisions, the decision set aside the Commissioner's transfer pricing adjustments. The result was a substantial reduction in the overall transfer pricing adjustment for the period under review. However, the decision implied an increase in the transfer pricing adjustment and liability to tax in three of the eleven years under consideration. | The Tribunal's reasons of 2 April 2008 were handed down in a preliminary form and the parties given leave to make further submissions on a limited range of matters affecting the final orders. With the benefit of further written and oral submissions, His Honour handed down his final decision on 22 July 2008. In the result the aggregate transfer pricing adjustment reduced to approximately $45 million. | Issues decided by the court | Issues | 1. Whether Article 9 of the Swiss DTA and Article 6 of the Singapore DTA authorise the Commissioner to make transfer pricing assessments, independently of Division 13; | 2. Whether the Commissioner correctly made determinations for the purposes of Division 13 by reference to the correct considerations; | 3. Whether the Tribunal is empowered to make a decision resulting in increases in the assessments in particular years, and whether the Commissioner would be empowered to give effect to those assessments, pursuant to the previous form of amendment powers contained in subsections 170(2), (7), (9B) and (9C) ITAA 1936; | 4. Whether by reference to the evidence adduced including the evidence of expert economists, it could be concluded that: (a) the profits of the Applicant were consistent with the profits that could have been expected to have accrued; and / or (b) the prices paid by the Applicant for trading stock purchased from other entities within the Roche Group were consistent with the prices the Applicant would have paid if the Applicant had been dealing at arm's length with the other entities within the Roche Group. | (a) the profits of the Applicant were consistent with the profits that could have been expected to have accrued; and / or (b) the prices paid by the Applicant for trading stock purchased from other entities within the Roche Group were consistent with the prices the Applicant would have paid if the Applicant had been dealing at arm's length with the other entities within the Roche Group. | Answers to Issues | 1) Treaty Power | Not necessary to decide: It was common ground that Division 13 applied and His Honour dealt with the matter on that basis. However he commented: \"...I note that there is a lot to be said for the proposition that the treaties, even as enacted as part of the law of Australia, do not go past authorising legislation and do not confer power on the Commissioner to assess. They allocate taxing power between the treaty parties rather than conferring any power to assess on the assessing body.\" | 2) Division 13 | Subsection 136AD(3) of Division 13 applied. However, the arm's length consideration for the relevant property acquired by the Applicant was less than that determined by the Commissioner. | 3) Power to Increase Assessments | Subsection 170(7) did not confer on the Tribunal power that the Commissioner did not have at the time that the objection decisions under review were decided. The Tribunal in exercising its function under subsection 43(1) of the AAT Act could properly order an increase in the assessments for the 2002 and 2003 years as the period under section 170(2) for the issue of an amended assessment increasing liability had not expired when the relevant objections were decided. That was not the position in relation to the 1997 year. The amendment period under subsection 170(2) having expired, the Commissioner raised the 1997 assessment in reliance on subsection 170(9B), which authorises amendment to implement transfer pricing adjustments at any time, subject to subsection 170(9C). At the time that he determined the objection, the Commissioner was precluded by subsection 170(9C) from amending the assessment to increase the liability with respect to the same transfer pricing matters. The Tribunal was similarly constrained. | 4) Arm's Length Outcomes | In relation to the Prescription Division, His Honour took an overall view of the material before him and moderated the result of the CUP/Resale Price extension method with the other evidence to arrive at a 40 % gross margin that was applied to all acquisitions by the prescription division. | In setting the gross margin percentage he had regard to: • expert evidence (particularly that of the second and third economists who used some adjusted CUP data to calculate a Resale Price Margin); • evidence of dealings with generic supplier Alphapharm; • the 60-65% gross margin for a new patented drug Inhibace which was licensed to Bayer; • the involvement of the tax department of Roche in Switzerland; and the low level of profitability of the Applicant, but this was given relatively little weight. | • expert evidence (particularly that of the second and third economists who used some adjusted CUP data to calculate a Resale Price Margin); • evidence of dealings with generic supplier Alphapharm; • the 60-65% gross margin for a new patented drug Inhibace which was licensed to Bayer; • the involvement of the tax department of Roche in Switzerland; and the low level of profitability of the Applicant, but this was given relatively little weight. | There were no comparable sales for the Consumer Health Division and the expert evidence analysed the outcome using TNMM. A question arose as to whether it was more appropriate to analyse the Division as a whole or by reference to sub-categories of products within the Division. The experts took differing approaches. His Honour's decision was that the proper conclusion, accepting that the overall operating profit of the Consumer Division was well in the arm's length range, was that the acquisition prices for the relevant products from the least profitable subcategory were acceptable. | For the Diagnostic Division the Commissioner's assessment was supported by expert evidence using a profit based approach as no comparable product sales were available. Evidence for the Applicant concerned commercial factors impacting upon the diagnostics business and gave reasons for the lack of profits over the period. The totality of the evidence satisfied His Honour that the prices for which the Diagnostic Division acquired the products were not excessive.", "Issues_Decided": "Issues: 1. Whether Article 9 of the Swiss DTA and Article 6 of the Singapore DTA authorise the Commissioner to make transfer pricing assessments, independently of Division 13; 2. Whether the Commissioner correctly made determinations for the purposes of Division 13 by reference to the correct considerations; 3. Whether the Tribunal is empowered to make a decision resulting in increases in the assessments in particular years, and whether the Commissioner would be empowered to give effect to those assessments, pursuant to the previous form of amendment powers contained in subsections 170(2), (7), (9B) and (9C) ITAA 1936; 4. Whether by reference to the evidence adduced including the evidence of expert economists, it could be concluded that: (a) the profits of the Applicant were consistent with the profits that could have been expected to have accrued; and / or (b) the prices paid by the Applicant for trading stock purchased from other entities within the Roche Group were consistent with the prices the Applicant would have paid if the Applicant had been dealing at arm's length with the other entities within the Roche Group. (a) the profits of the Applicant were consistent with the profits that could have been expected to have accrued; and / or (b) the prices paid by the Applicant for trading stock purchased from other entities within the Roche Group were consistent with the prices the Applicant would have paid if the Applicant had been dealing at arm's length with the other entities within the Roche Group. | 1) Treaty Power: Not necessary to decide: It was common ground that Division 13 applied and His Honour dealt with the matter on that basis. However he commented: \"...I note that there is a lot to be said for the proposition that the treaties, even as enacted as part of the law of Australia, do not go past authorising legislation and do not confer power on the Commissioner to assess. They allocate taxing power between the treaty parties rather than conferring any power to assess on the assessing body.\" | 2) Division 13: Subsection 136AD(3) of Division 13 applied. However, the arm's length consideration for the relevant property acquired by the Applicant was less than that determined by the Commissioner. | 3) Power to Increase Assessments: Subsection 170(7) did not confer on the Tribunal power that the Commissioner did not have at the time that the objection decisions under review were decided. The Tribunal in exercising its function under subsection 43(1) of the AAT Act could properly order an increase in the assessments for the 2002 and 2003 years as the period under section 170(2) for the issue of an amended assessment increasing liability had not expired when the relevant objections were decided. That was not the position in relation to the 1997 year. The amendment period under subsection 170(2) having expired, the Commissioner raised the 1997 assessment in reliance on subsection 170(9B), which authorises amendment to implement transfer pricing adjustments at any time, subject to subsection 170(9C). At the time that he determined the objection, the Commissioner was precluded by subsection 170(9C) from amending the assessment to increase the liability with respect to the same transfer pricing matters. The Tribunal was similarly constrained. | 4) Arm's Length Outcomes: In relation to the Prescription Division, His Honour took an overall view of the material before him and moderated the result of the CUP/Resale Price extension method with the other evidence to arrive at a 40 % gross margin that was applied to all acquisitions by the prescription division. In setting the gross margin percentage he had regard to: • expert evidence (particularly that of the second and third economists who used some adjusted CUP data to calculate a Resale Price Margin); • evidence of dealings with generic supplier Alphapharm; • the 60-65% gross margin for a new patented drug Inhibace which was licensed to Bayer; • the involvement of the tax department of Roche in Switzerland; and the low level of profitability of the Applicant, but this was given relatively little weight. • expert evidence (particularly that of the second and third economists who used some adjusted CUP data to calculate a Resale Price Margin); • evidence of dealings with generic supplier Alphapharm; • the 60-65% gross margin for a new patented drug Inhibace which was licensed to Bayer; • the involvement of the tax department of Roche in Switzerland; and the low level of profitability of the Applicant, but this was given relatively little weight. There were no comparable sales for the Consumer Health Division and the expert evidence analysed the outcome using TNMM. A question arose as to whether it was more appropriate to analyse the Division as a whole or by reference to sub-categories of products within the Division. The experts took differing approaches. His Honour's decision was that the proper conclusion, accepting that the overall operating profit of the Consumer Division was well in the arm's length range, was that the acquisition prices for the relevant products from the least profitable subcategory were acceptable. For the Diagnostic Division the Commissioner's assessment was supported by expert evidence using a profit based approach as no comparable product sales were available. Evidence for the Applicant concerned commercial factors impacting upon the diagnostics business and gave reasons for the lack of profits over the period. The totality of the evidence satisfied His Honour that the prices for which the Diagnostic Division acquired the products were not excessive.", "ATO_View_of_Decision": "The tax office has not appealed against the Tribunal's decision. | Treaty Power - The Commissioner is not bound by the observations made by His Honour on this point and will continue to adhere to the position outlined in TR 92/11, TR 94/14 and TR 2001/13 that the business profits or associated enterprises article of a DTA may provide a separate basis for assessing transfer pricing adjustments, independently of Division 13 | Division 13 - The Tribunal was entitled, on the evidence before it, to form its own view of the amount of the arm's length consideration for the relevant property and decide that subsection 136AD(3) applied. If warranted, the Tribunal had the power to apply subsection 136AD(4) to determine the arm's length consideration. | Power to Increase Assessments - The reasoning regarding the Tribunal's power to order an increase in the liability is accepted. It should be noted that the provisions of the ITAA 1936 that authorise amendment of assessments were amended in 2005 and this may have a bearing on the position in circumstances to which the amended provisions apply. | Arm's Length Outcomes - The conclusions reached in relation to the determination of the arm's length consideration were open on the evidence before the Tribunal. The decision is confined to the facts of the case.", "Administrative_Treatment": "The legislative provisions considered in this matter have been present in the Act for many years and during that period the Commissioner has maintained a focus on transfer pricing issues as part of audit programs. While this decision has assumed some importance as the first substantive consideration of the application of the present form of Division 13 of the ITAA 1936, in essence it concerns the determination of the arm's length consideration for the acquisition of property under an international agreement in the particular circumstances of this case. All things considered it is seen as having limited significance for the administration of transfer pricing laws generally. | His Honour's comments about the broad consideration of CUPs and the concerns expressed about the application of indirect profit based methods such as the TNMM as a means of determining the arm's length consideration is consistent with and highlights the need in the particular circumstances to identify the available data that may establish an arm's length consideration for each of the dealings and for the dealings taken in their entirety, as per Step 2 of the process described in TR 98/11. In this step it is important to ascertain the extent and reliability of the uncontrolled data that is available. | Implications on current Public Rulings & Determinations | No amendments to current public rulings & determinations are warranted.", "Related_Documents": "TR 92/11 | TR 94/14 | TR 97/20 | TR 98/11 | TR 2001/13 | 2008 ATC 10-036 | 14ZYA | 14ZZ | 14ZZK | 14ZZL(1) | 170(2) | 170(7) | 170(14) | Schedule 5 | 43(1) | 88 ATC 4834 | [2008] FCA 125 | (1959) 101 CLR 298 | 1 FCR 354 | [2007] FCAFC 59 | (1907) 5 CLR 418 | 91 ATC 4476 | 2007 ATC 4679", "Legislative_References": "Taxation Administration Act 1953 14ZYA 14ZZ 14ZZK 14ZZL(1) Income Tax Assessment Act 1936 136AD(3) 136AD(4) 170(2) 170(7) 170(9B) 170(9C) 170(14) International Tax Agreements Act 1953 Schedule 5 Schedule 5A Schedule 15 Patents Act 1952 93(b) Administrative Appeals Tribunal Act 1975 43(1)", "Case_References": "Bayer AG v Minister for Health (1988) 96 FLR 50 Fletcher v Commissioner of Taxation (1988) 19 FCR 442 19 ATR 1765 88 ATC 4834 Green v Minister for Immigration and Citizenship [2008] FCA 125 Jones v Dunkel (1959) 101 CLR 298 McDonald v Director General of Social Security (1984) 6 ALD 6 1 FCR 354 Shi v Migration Agents Registration Authority (2007) 158 FCR 525 [2007] FCAFC 59 Spencer v The Commonwealth (1907) 5 CLR 418 Stevenson v Commissioner of Taxation (1991) 29 FCR 282 22 ATR 56 91 ATC 4476 W R Carpenter Holdings Pty Ltd v Federal Commissioner of Taxation (2007) 161 FCR 1 66 ATR 336 2007 ATC 4679", "Subject_References": "TAXATION income tax transfer pricing application of Division 13 of Part IIIA, Income Tax Assessment Act 1936 or international treaties conferral of power by international treaties to assess for tax \"arm's length\" prices for pharmaceutical products transfer pricing methods comparable transactions conflicting expert opinions assessment excessive assessment set aside", "Other_References": "Agreement between Australia and Switzerland for the Avoidance of Double Taxation with respect to Taxes on Income [1981] ATS 5 Article 9; Agreement between the Government of Australia and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1969] ATS 14 Article 6;", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NT2005/7/00001", "Unmatched_Content": ""}
{"Case_Name": "Romanin v Commissioner of Taxation", "Venue_Reference_No": "WAD 19/2008", "Venue": "Federal Court of Australia", "Judgment_Date": "16 October 2008", "Date_Published": "11 January 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether legal expenses incurred in the conduct of proceedings in an industrial tribunal to receive a payment in lieu of termination notice is deductible under section 8-1 ITAA 1997.", "Overview_of_Facts": "The taxpayer claimed a deduction of $283,565.14 under section 8-1 of the ITAA 1997 for legal expenses incurred by him in the 2000-04 income years. | The legal expenses were incurred in proceedings the taxpayer commenced before the Industrial Relations Commission of NSW ('IRC') seeking an order that 12 months' pay in lieu of notice was fair after his employment was terminated on seven days notice. | The IRC found that it was fair that the taxpayer be paid the total value of his remuneration package for 12 months' in lieu of notice, less any earnings actually achieved by the taxpayer during that period, plus interest. The taxpayer received $202,829.90. Of the original award of $142,476.49, $40,000 was deposited into a superannuation fund and $102,476.49 was returned and assessed as an eligible termination payment. Interest of $60,353.41 was also assessed as ordinary income. | The IRC ordered the employer to pay an amount to be agreed with the taxpayer in respect of his legal expenses. The employer paid the taxpayer the agreed amount of $210,000 in the 2005 income year. | Issues decided by the Federal Court | McKerracher J held that: 1. The payment for legal expenses was deductible under section 8-1 of the ITAA 1997 because: • The proceedings were undertaken to enforce an entitlement to income (not to compensation or damages) that was contractually owed to the taxpayer (paragraphs 41 and 52). • The character of the payment received by the taxpayer was of an income and not of a capital nature. The amount received was described in the orders pursuant to the IRC's judgment as remuneration, was computed by reference to his entitlement to income, was set off against other income actually earned, and was financial reward for exertion that would have been carried out had his employment not been (invalidly) terminated (paragraph 56). 2. The taxpayer could not make a full claim for the deductibility of the payment without also allowing for the receipt of a contribution for his costs but there was no evidence of any receipt in the 2004 year. The receipt is a matter to be addressed in the subsequent year (paragraph 57). 3. The receipt of the award of $142,476.49 was income and correctly assessed as an eligible termination payment (paragraph 42). | 1. The payment for legal expenses was deductible under section 8-1 of the ITAA 1997 because: • The proceedings were undertaken to enforce an entitlement to income (not to compensation or damages) that was contractually owed to the taxpayer (paragraphs 41 and 52). • The character of the payment received by the taxpayer was of an income and not of a capital nature. The amount received was described in the orders pursuant to the IRC's judgment as remuneration, was computed by reference to his entitlement to income, was set off against other income actually earned, and was financial reward for exertion that would have been carried out had his employment not been (invalidly) terminated (paragraph 56). 2. The taxpayer could not make a full claim for the deductibility of the payment without also allowing for the receipt of a contribution for his costs but there was no evidence of any receipt in the 2004 year. The receipt is a matter to be addressed in the subsequent year (paragraph 57). 3. The receipt of the award of $142,476.49 was income and correctly assessed as an eligible termination payment (paragraph 42). | • The proceedings were undertaken to enforce an entitlement to income (not to compensation or damages) that was contractually owed to the taxpayer (paragraphs 41 and 52). • The character of the payment received by the taxpayer was of an income and not of a capital nature. The amount received was described in the orders pursuant to the IRC's judgment as remuneration, was computed by reference to his entitlement to income, was set off against other income actually earned, and was financial reward for exertion that would have been carried out had his employment not been (invalidly) terminated (paragraph 56).", "Issues_Decided": "McKerracher J held that: 1. The payment for legal expenses was deductible under section 8-1 of the ITAA 1997 because: • The proceedings were undertaken to enforce an entitlement to income (not to compensation or damages) that was contractually owed to the taxpayer (paragraphs 41 and 52). • The character of the payment received by the taxpayer was of an income and not of a capital nature. The amount received was described in the orders pursuant to the IRC's judgment as remuneration, was computed by reference to his entitlement to income, was set off against other income actually earned, and was financial reward for exertion that would have been carried out had his employment not been (invalidly) terminated (paragraph 56). 2. The taxpayer could not make a full claim for the deductibility of the payment without also allowing for the receipt of a contribution for his costs but there was no evidence of any receipt in the 2004 year. The receipt is a matter to be addressed in the subsequent year (paragraph 57). 3. The receipt of the award of $142,476.49 was income and correctly assessed as an eligible termination payment (paragraph 42). 1. The payment for legal expenses was deductible under section 8-1 of the ITAA 1997 because: • The proceedings were undertaken to enforce an entitlement to income (not to compensation or damages) that was contractually owed to the taxpayer (paragraphs 41 and 52). • The character of the payment received by the taxpayer was of an income and not of a capital nature. The amount received was described in the orders pursuant to the IRC's judgment as remuneration, was computed by reference to his entitlement to income, was set off against other income actually earned, and was financial reward for exertion that would have been carried out had his employment not been (invalidly) terminated (paragraph 56). 2. The taxpayer could not make a full claim for the deductibility of the payment without also allowing for the receipt of a contribution for his costs but there was no evidence of any receipt in the 2004 year. The receipt is a matter to be addressed in the subsequent year (paragraph 57). 3. The receipt of the award of $142,476.49 was income and correctly assessed as an eligible termination payment (paragraph 42). • The proceedings were undertaken to enforce an entitlement to income (not to compensation or damages) that was contractually owed to the taxpayer (paragraphs 41 and 52). • The character of the payment received by the taxpayer was of an income and not of a capital nature. The amount received was described in the orders pursuant to the IRC's judgment as remuneration, was computed by reference to his entitlement to income, was set off against other income actually earned, and was financial reward for exertion that would have been carried out had his employment not been (invalidly) terminated (paragraph 56).", "ATO_View_of_Decision": "The Commissioner lodged an appeal with the Full Court against his Honour's decision, but later decided to withdraw the appeal after further considering the correctness of the decision. | 1. The taxpayer was entitled to a deduction under section 8-1 for the legal expenses he incurred in this case because the Court found that the occasion of the expenditure was the enforcement of his contractual entitlement as an employee to income (in the form of payment in lieu of notice). | The legal expenses were found not to be capital in nature because the character of the advantage which the taxpayer sought in bringing the proceedings was on revenue account, namely receipt of his contractual entitlement to salary he would have received had he been given 12 months notice. | An employee may be paid an amount in lieu of notice of termination of his or her employment in many ways (see Delaney v Staples [1992] 1 All ER 944 at 946). The deductibility of legal expenses incurred in obtaining such a payment will depend upon the particular circumstances of each case. | This case can be distinguished from cases in which legal expenses are incurred in seeking compensation for loss of employment, such as in an action for wrongful dismissal or loss of office (Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215) where the advantage sought is of a capital nature. In such cases, the legal expenses are of a capital nature, even if the amount awarded is calculated by reference to unpaid salary or lost income, or is assessable as statutory income. | The payment to the taxpayer in respect of his legal costs is assessable to him in the 2005 income year either as ordinary income or as an assessable recoupment under subdivision 20-A of the ITAA 1997.", "Administrative_Treatment": "No further Administrative treatment is necessary.", "Related_Documents": "TD 93/29 | AID 2002/656 | AID 2002/657 | 2008 ATC 20-055 | 8-1 | 54 CLR 295 | 2007 ATC 5426 | 2008 ATC 20-064 | 2001 ATC 4027 | 91 ATC 4950 | 2002 ATC 4907 | [1949] HCA 15 | 78 CLR 47 | 61 CLR 337", "Legislative_References": "Income Assessment Tax Act 1997 (Cth) 8-1", "Case_References": "Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation [1935] HCA 81 54 CLR 295 Federal Commissioner of Taxation v Day (2007) 164 FCR 250 67 ATR 936 2007 ATC 5426 Commissioner of Taxation v Day [2008] HCA 53 2008 ATC 20-064 70 ATR 14 Federal Commissioner of Taxation v Payne [2001] HCA 3 202 CLR 93 2001 ATC 4027 46 ATR 228 Fletcher v Federal Commissioner of Taxation [1991] HCA 42 173 CLR 1 22 ATR 613 91 ATC 4950 Le Grand v Commissioner of Taxation (2002) 124 FCR 53 2002 ATC 4907 51 ATR 139 Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation [1949] HCA 15 78 CLR 47 Sun Newspapers Limited v Federal Commissioner of Taxation 61 CLR 337", "Subject_References": "Deductions Legal expenses Capital outgoings Eligible termination payment Assessable Recoupment", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD19/2008/00001", "Unmatched_Content": ""}
{"Case_Name": "Sanchez and Commissioner of Taxation", "Venue_Reference_No": "2007/3667", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "8 October 2008", "Date_Published": "3 August 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the costs incurred by a travel agent in respect of overseas travel were deductible under section 8-1, and substantiated under Division 900, of the ITAA 1997.", "Overview_of_Facts": "The applicant was employed at STA Travel (\"STA\") as a travel sales consultant for about 31/2 years, commencing January 2004. His duties included the selling of travel related products. During the 2005 year of income, the applicant received a base salary of $23,000, commissions of about $15,000, a productivity bonus of $1,000 for exceeding sales targets in the 2004 calendar year and superannuation. His overall salary increased during the 2006 and 2007 income years. | The applicant travelled overseas on annual leave to the USA, Spain and Germany in August 2004 and to the USA in June to July 2005. The applicant did not receive any allowance from STA in relation to the overseas trips, made all of his own travel arrangements and incurred all the associated travel, accommodation and food expenses. | The applicant claimed a deduction of $9,853 for expenses associated with the overseas travel in his tax return for the 2005 income year. This amount comprised of $8,348 of actual travel expenses and $1,505 for foods and incidental costs calculated at $50.00 per day (30.1 days). | Before the Tribunal, the applicant adjusted his claim for expenditure incurred on the overseas trips to $10,136. | The Commissioner accepted the applicant had incurred at least $8,316 on airfares, accommodation and tours, and had provided written evidence to substantiate the expenses. The Commissioner did not accept that the applicant had substantiated the amended claim of $1,820 for food and incidental costs. | Issues decided by the court or tribunal | Overseas travel expenses | The Tribunal decided that the overseas travel undertaken by the applicant was not private or domestic in nature, but was sufficiently connected and relevant to his income producing activities as a travel sales consultant (paragraphs 37 and 42). | The Tribunal was also satisfied, on the evidence, that the applicant's calling as a travel sales consultant required degrees of knowledge and skill that benefited from personal experience of the travel components he sold to his customers (paragraph 27). | The Tribunal also found, on the evidence, that the overseas travel expenses claimed by the applicant directly contributed to his knowledge and skills as a travel sales consultant, and also contributed (or were likely to contribute) to his earning increased income (paragraph 32). | The Tribunal decided that the expenses incurred by the applicant in the 2005 year of income on overseas airfares, accommodation and tours were allowable deductions under section 8-1. | Substantiation | The Tribunal found, on the evidence, that although the applicant maintained contemporaneous diary notes of his activities on the overseas trips, there were largely no references in the notes to expenditure incurred on food and incidentals, nor were any receipts kept. The Tribunal also noted that when the applicant incorporated details of expenditure in his more detailed notes years later, it became clear that these approximates were largely, if not solely, the result of his recollection (paragraphs 43 and 45). | The Tribunal found that the \"food and incidentals\" claim made in relation to the overseas trips did not satisfy any direct substantiation provision in Division 900, and that the nature and quality of the applicant's evidence did not warrant the exercise of the discretion available under section 900-195 (paragraphs 43 and 45).", "Issues_Decided": "Overseas travel expenses The Tribunal decided that the overseas travel undertaken by the applicant was not private or domestic in nature, but was sufficiently connected and relevant to his income producing activities as a travel sales consultant (paragraphs 37 and 42). The Tribunal was also satisfied, on the evidence, that the applicant's calling as a travel sales consultant required degrees of knowledge and skill that benefited from personal experience of the travel components he sold to his customers (paragraph 27). The Tribunal also found, on the evidence, that the overseas travel expenses claimed by the applicant directly contributed to his knowledge and skills as a travel sales consultant, and also contributed (or were likely to contribute) to his earning increased income (paragraph 32). The Tribunal decided that the expenses incurred by the applicant in the 2005 year of income on overseas airfares, accommodation and tours were allowable deductions under section 8-1. Substantiation The Tribunal found, on the evidence, that although the applicant maintained contemporaneous diary notes of his activities on the overseas trips, there were largely no references in the notes to expenditure incurred on food and incidentals, nor were any receipts kept. The Tribunal also noted that when the applicant incorporated details of expenditure in his more detailed notes years later, it became clear that these approximates were largely, if not solely, the result of his recollection (paragraphs 43 and 45). The Tribunal found that the \"food and incidentals\" claim made in relation to the overseas trips did not satisfy any direct substantiation provision in Division 900, and that the nature and quality of the applicant's evidence did not warrant the exercise of the discretion available under section 900-195 (paragraphs 43 and 45).", "ATO_View_of_Decision": "Based on the facts as found by the Tribunal, the decision is consistent with established general principles of deductibility under section 8-1 of the ITAA 1997 in relation to expenses incurred by employees. | The Tribunal was satisfied that the applicant's calling as a travel sales consultant required degrees of knowledge and skill that would benefit from personal experience of the travel components he sold to his customers, and that the 2005 overseas travel directly contributed to that knowledge and skill, and also contributed (or was likely to contribute) to his earning increased income. | Whether expenses incurred by an employee in relation to an overseas trip taken on unpaid or annual leave are deductible under section 8-1, or are properly characterised as expenses incurred on a private holiday, will depend on whether the facts demonstrate that there is a sufficient connection with the course of the employee's income earning activities. | The Commissioner's Fact Sheet entitled 'Travel agents - what travel expenses can I claim?' has been amended to take account of the decision in this case.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 98/9 | 2008 ATC 10-054 | 8-1 | 900-15 | 900-20 | 900-115 | 900-125 | 900-130 | 900-150 | 900-195 | 106 CLR 60 | 71 ATC 4184 | 86 ATC 4838 | 91 ATC 5006", "Legislative_References": "Income Tax Assessment Act 1997 8-1 900-15 900-20 900-115 900-125 900-130 900-150 900-195", "Case_References": "Commissioner of Taxation v Finn [1961] HCA 61 106 CLR 60 Federal Commissioner of Taxation v Hatchett [1971] HCA 47 125 CLR 494 2 ATR 557 71 ATC 4184 Griffin v Federal Commissioner of Taxation (1986) 87 FLR 86 86 ATC 4838 (1986) 18 ATR 23 Commissioner of Taxation v Studdert (1991) 33 FCR 75 22 ATR 762 91 ATC 5006", "Subject_References": "Income tax Allowable deduction Travel agent Overseas travel", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/3667/00001", "Unmatched_Content": ""}
{"Case_Name": "Sonntag and Commissioner of Taxation", "Venue_Reference_No": "NT2006/38-9", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "3 January 2008", "Date_Published": "10 September 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the taxpayer's income tax assessments for the relevant years were excessive and whether administrative penalties imposed for the intentional disregard of a tax law should be remitted.", "Overview_of_Facts": "• The taxpayer claimed credits for tax withheld, under the PAYG system in his income tax returns for the 2002 and 2003 years, to which he was not entitled. The taxpayer's returns for the 2002 and 2003 years were audited. As a result of the audit, the credits claimed were disallowed and the taxpayer's taxable income in each of the years was reduced by the amount of the credits claimed. In respect of the 2002 year, the Applicant's taxable income was reduced. Notices of Amended Assessment were issued in respect of the 2002 and 2003 years and tax shortfall penalties were imposed at 75% of the tax shortfall amount for an intentional disregard of a taxation law. • The taxpayer objected against the amended assessments and the imposition of the penalties. In his Notice of Objection, the Applicant claimed that his net salary should be $58,921. In the written closing submissions, the Applicant submitted that his taxable income should be $46,290.05. • The Commissioner disallowed the taxpayer's objection and the taxpayer appealed to the Administrative Appeals Tribunal. | • The taxpayer claimed credits for tax withheld, under the PAYG system in his income tax returns for the 2002 and 2003 years, to which he was not entitled. The taxpayer's returns for the 2002 and 2003 years were audited. As a result of the audit, the credits claimed were disallowed and the taxpayer's taxable income in each of the years was reduced by the amount of the credits claimed. In respect of the 2002 year, the Applicant's taxable income was reduced. Notices of Amended Assessment were issued in respect of the 2002 and 2003 years and tax shortfall penalties were imposed at 75% of the tax shortfall amount for an intentional disregard of a taxation law. • The taxpayer objected against the amended assessments and the imposition of the penalties. In his Notice of Objection, the Applicant claimed that his net salary should be $58,921. In the written closing submissions, the Applicant submitted that his taxable income should be $46,290.05. • The Commissioner disallowed the taxpayer's objection and the taxpayer appealed to the Administrative Appeals Tribunal. | Issues decided by the court | 1. The Tribunal found that the Applicant's income tax assessment for the year ended 30 June 2002 was excessive. The Tribunal reduced the Applicant's taxable income for the 2002 year to $90,767.38. This amount of $90,767.38 was the total amount of deposits received to the Applicant's bank account during the 2002 income year. 2. Penalties imposed in respect of the 2002 and 2003 years at 75% of the tax shortfall for intentional disregard were remitted by the Tribunal to 25% of the tax shortfall amount. The Tribunal found that there were extenuating circumstances that warranted the reduction in penalties. | 1. The Tribunal found that the Applicant's income tax assessment for the year ended 30 June 2002 was excessive. The Tribunal reduced the Applicant's taxable income for the 2002 year to $90,767.38. This amount of $90,767.38 was the total amount of deposits received to the Applicant's bank account during the 2002 income year. 2. Penalties imposed in respect of the 2002 and 2003 years at 75% of the tax shortfall for intentional disregard were remitted by the Tribunal to 25% of the tax shortfall amount. The Tribunal found that there were extenuating circumstances that warranted the reduction in penalties.", "Issues_Decided": "1. The Tribunal found that the Applicant's income tax assessment for the year ended 30 June 2002 was excessive. The Tribunal reduced the Applicant's taxable income for the 2002 year to $90,767.38. This amount of $90,767.38 was the total amount of deposits received to the Applicant's bank account during the 2002 income year. 2. Penalties imposed in respect of the 2002 and 2003 years at 75% of the tax shortfall for intentional disregard were remitted by the Tribunal to 25% of the tax shortfall amount. The Tribunal found that there were extenuating circumstances that warranted the reduction in penalties. 1. The Tribunal found that the Applicant's income tax assessment for the year ended 30 June 2002 was excessive. The Tribunal reduced the Applicant's taxable income for the 2002 year to $90,767.38. This amount of $90,767.38 was the total amount of deposits received to the Applicant's bank account during the 2002 income year. 2. Penalties imposed in respect of the 2002 and 2003 years at 75% of the tax shortfall for intentional disregard were remitted by the Tribunal to 25% of the tax shortfall amount. The Tribunal found that there were extenuating circumstances that warranted the reduction in penalties.", "ATO_View_of_Decision": "The decision to partially remit the penalty was open to the Tribunal in view of the evidence. The Tribunal's decision does not disclose an error of law. The decision turns on its facts and the Tax Office has not appealed against the decision.", "Administrative_Treatment": "N/A", "Related_Documents": "TR 94/5 | TR 94/7 | 2008 ATC 10-000 | 14ZZK | 12-35 | 284-75 | 284-90(1) | 298-20 | 79 ATC 4111 | 90 ATC 4088 | 56 CLR 63", "Legislative_References": "Taxation Administration Act 1953 14ZZK 12-35 284-75 284-90(1) 298-20", "Case_References": "McCormack v Federal Commissioner of Taxation [1979] HCA 18 143 CLR 284 23 ALR 583 79 ATC 4111 Federal Commissioner of Taxation v Dalco [1990] HCA 3 168 CLR 614 90 ALR 341 90 ATC 4088 Trautwein v Federal Commissioner of Taxation [1936] HCA 77 [1936] ALR 425 56 CLR 63", "Subject_References": "Income tax Tax shortfall penalty remission", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NT2006/38-9/00001", "Unmatched_Content": ""}
{"Case_Name": "Summers and Commissioner of Taxation", "Venue_Reference_No": "2007/0345", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "26 February 2008", "Date_Published": "8 July 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the application of the CGT main residence exemption in Subdivision 118-B of the Income Tax Assessment Act 1997 and whether certain expenses formed part of the cost base of a CGT asset.", "Overview_of_Facts": "The case dealt with the amount of a capital gain on the sale of land. The applicant purchased a vacant block of land in 1996 for $166,000. In June 2002, she entered into a contract with a builder to erect a house on the land, but the contract was terminated in September 2002, the parties agreeing that a 2-room shed erected by the builder on the land would stay. The applicant sold the property in June 2004 for $380,000, and later claimed that she had lived in the shed as her main residence for 4 months from January 2003. The main question in this case was whether, as a matter of fact, the shed was the applicant's main residence for a period of 4 months. If the answer was yes, the capital gain would be disregarded under section 118-110. There was then a subsidiary question about whether the CGT exemption, for the purposes of sections 118-45 and 118-185, was limited to the period from January 2003 to June 2004, or whether it extended from January 1999 to June 2004, through the operation of section 118-150. | On the main question, the Commissioner took the view, based on the indicia in TD 51 , that there was insufficient evidence to support the view that the shed was the applicant's main residence for 4 months from January 2003 (she did not cook meals at the shed; she showered at work; no electricity or gas was connected to the shed, though mains water and sewerage was; and her parents' house was her mailing address). On the subsidiary question, the Commissioner submitted that, even if the shed was found to be the applicant's main residence, she was not entitled to the four year extension of the exemption under s118-150 as she had not moved into the shed \"as soon as practicable\" after its completion. | There was a final issue about whether various expenses claimed by the applicant should be included in the cost base of the land. | Issues decided by the court or tribunal | The Tribunal accepted that the shed was the applicant's main residence for 4 months from January 2003, based on her oral evidence that she slept at the shed over this period, and a statutory declaration from her sister that she had visited the applicant at the property (paragraph 8). | On the subsidiary question, the Tribunal found that, given the applicant's minimal level of living at the shed from January 2003, it did not become her main residence as soon as practicable after it was constructed sometime before September 2002. Accordingly, the applicant was not entitled to an extension of the CGT exemption under section 118-150 for the four years prior to moving into the shed. Under sections 118-145 and 118-185, the applicant was entitled to partial exemption for the period from January 2003 until the sale of the land in June 2004 (paragraphs 9 and 10). | In relation to the cost base, the Tribunal was satisfied that the applicant had shown that there were further additions to the cost base which should be allowed.", "Issues_Decided": "The Tribunal accepted that the shed was the applicant's main residence for 4 months from January 2003, based on her oral evidence that she slept at the shed over this period, and a statutory declaration from her sister that she had visited the applicant at the property (paragraph 8). On the subsidiary question, the Tribunal found that, given the applicant's minimal level of living at the shed from January 2003, it did not become her main residence as soon as practicable after it was constructed sometime before September 2002. Accordingly, the applicant was not entitled to an extension of the CGT exemption under section 118-150 for the four years prior to moving into the shed. Under sections 118-145 and 118-185, the applicant was entitled to partial exemption for the period from January 2003 until the sale of the land in June 2004 (paragraphs 9 and 10). In relation to the cost base, the Tribunal was satisfied that the applicant had shown that there were further additions to the cost base which should be allowed.", "ATO_View_of_Decision": "The Commissioner did not appeal to the Federal Court from this decision. This was a case that depended on its own particular facts. | While the applicant's occupation of the shed lacked most of the normal indicia of a main residence, there was no obvious error in the Tribunal accepting that the shed was the applicant's main residence because she slept in it under minimal living conditions. | The decision reinforces the statement in TD 51 that the relevance and weight to be given to any factor in determining whether a dwelling is a taxpayer's main residence will depend upon the circumstances of each particular case.", "Administrative_Treatment": "None, the case was decided on its facts. | Implications on current Public Rulings & Determinations | None", "Related_Documents": "TD 51 | 2008 ATC 10-007 | 110-25 | 118-110 | 118-145 | 118-150 | 118-185", "Legislative_References": "Income Tax Assessment Act 1997 110-25 118-110 118-145 118-150 118-185", "Case_References": "", "Subject_References": "Income Tax Capital Gains Tax Main residence exemption Cost base", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/0345/00001", "Unmatched_Content": ""}
{"Case_Name": "Tavco Group Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "2007/6119", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "22 September 2008", "Date_Published": "4 December 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "(Favourable/Adverse) Partly adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether administrative penalty at the rate of 50% for recklessness was correctly assessed and when an invoice is issued for GST purposes.", "Overview_of_Facts": "On 30 June 2005 the Applicant prepared and subsequently issued invoices to two different persons, each separately identifying an amount of GST charged. GST payable in respect of the transaction referred to in one invoice was included in the Applicant's activity statement for the quarterly tax period ended 30 June 2005. The GST in respect of the other invoice was omitted entirely. The Tribunal accepted that the omitted invoice, although dated 30 June 2005, was not sent to the recipient until 3 July 2005. | On 2 June 2006 the Commissioner advised the Applicant that an audit would be undertaken. On 3 July 2006 the Applicant amended its activity statement for the tax period ended 30 September 2005 to include the GST on the omitted invoice. | The Commissioner considered that the Applicant's behaviour was reckless with respect to the shortfall in respect of the GST relating to the invoice that was omitted and assessed administrative penalty at the rate of 50% (base penalty amount). | Before the hearing, the Commissioner conceded that a reduction in the base penalty of 20% was appropriate on the basis that the Applicant disclosed the shortfall on 3 July 2006 after the audit had begun on 31 May 2006. | Issues decided by the court or tribunal: | 1. Whether the Applicant was liable to an administrative penalty within the meaning of s284-75 of Schedule 1 to the Taxation Administration Act 1953 . Yes. 2. Whether the shortfall resulted from the Applicant's recklessness. Yes. 3. Whether the base penalty amount should be further remitted. Yes, by 10%. 4. Whether the invoice was \"issued\" in the tax period ended 30 June 2005. No, it was issued in the tax period ended 30 September 2005. | 1. Whether the Applicant was liable to an administrative penalty within the meaning of s284-75 of Schedule 1 to the Taxation Administration Act 1953 . Yes. 2. Whether the shortfall resulted from the Applicant's recklessness. Yes. 3. Whether the base penalty amount should be further remitted. Yes, by 10%. 4. Whether the invoice was \"issued\" in the tax period ended 30 June 2005. No, it was issued in the tax period ended 30 September 2005. | The Tribunal noted that the Applicant adduced no evidence to explain how the omission occurred which made it difficult to conclude that the Applicant had not been reckless. Evidence regarding the Applicant's overall record in accounting for GST was only relevant to remission and not to the question of whether the Applicant was reckless which must focus upon the particular act or omission leading to the shortfall. The Tribunal also noted the substantial amount of the shortfall (omitted GST of $80,271). | However, the Tribunal accepted that the evidence showed that the omission was an isolated error and there was no evidence that the Applicant had not acted honestly. Accordingly, the Tribunal concluded that a further remission of 10% of the base penalty amount was warranted. | In respect of issue 4, the Tribunal concluded that an invoice is issued for the purposes of s 29-5(1)(b) of the A New Tax System (Goods and Services Tax) Act 1999 when some act has been done to convey it to the intended recipient. In the absence of contrary evidence, the date appearing on an invoice could be taken to be the date on which that act was done. However, the Tribunal accepted evidence that in this case the invoice, although dated 30 June 2005, was not sent until 3 July 2005. | This conclusion did not affect the decision under review. However, the Tribunal noted that calculation of the general interest charge on the shortfall, which was not before the Tribunal, should be undertaken on the basis that the invoice was issued in the tax period ended 30 September 2005.", "Issues_Decided": "1. Whether the Applicant was liable to an administrative penalty within the meaning of s284-75 of Schedule 1 to the Taxation Administration Act 1953 . Yes. 2. Whether the shortfall resulted from the Applicant's recklessness. Yes. 3. Whether the base penalty amount should be further remitted. Yes, by 10%. 4. Whether the invoice was \"issued\" in the tax period ended 30 June 2005. No, it was issued in the tax period ended 30 September 2005. 1. Whether the Applicant was liable to an administrative penalty within the meaning of s284-75 of Schedule 1 to the Taxation Administration Act 1953 . Yes. 2. Whether the shortfall resulted from the Applicant's recklessness. Yes. 3. Whether the base penalty amount should be further remitted. Yes, by 10%. 4. Whether the invoice was \"issued\" in the tax period ended 30 June 2005. No, it was issued in the tax period ended 30 September 2005. The Tribunal noted that the Applicant adduced no evidence to explain how the omission occurred which made it difficult to conclude that the Applicant had not been reckless. Evidence regarding the Applicant's overall record in accounting for GST was only relevant to remission and not to the question of whether the Applicant was reckless which must focus upon the particular act or omission leading to the shortfall. The Tribunal also noted the substantial amount of the shortfall (omitted GST of $80,271). However, the Tribunal accepted that the evidence showed that the omission was an isolated error and there was no evidence that the Applicant had not acted honestly. Accordingly, the Tribunal concluded that a further remission of 10% of the base penalty amount was warranted. In respect of issue 4, the Tribunal concluded that an invoice is issued for the purposes of s 29-5(1)(b) of the A New Tax System (Goods and Services Tax) Act 1999 when some act has been done to convey it to the intended recipient. In the absence of contrary evidence, the date appearing on an invoice could be taken to be the date on which that act was done. However, the Tribunal accepted evidence that in this case the invoice, although dated 30 June 2005, was not sent until 3 July 2005. This conclusion did not affect the decision under review. However, the Tribunal noted that calculation of the general interest charge on the shortfall, which was not before the Tribunal, should be undertaken on the basis that the invoice was issued in the tax period ended 30 September 2005.", "ATO_View_of_Decision": "The Tax Office accepts that the decision to further remit the penalty by 10% was open to the Tribunal in the circumstances of this case. | The Tax Office respectfully agrees with the Tribunal's conclusion that an invoice is issued when it is sent to the intended recipient. That is consistent with the paragraph 33 of GSTR 2000/34 which remains the Tax Office view. | The comments to the contrary by the Tax Office representative at the hearing were made in error in response to an unanticipated question from the Tribunal on an issue that had not previously been raised during the course of the application for review. | The Tax Office remains committed to arguing cases consistently with published Tax Office views of the law in accordance with PS LA 2007/12, paragraph 4(viii).", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "TR 94/4 | GSTR 2000/34 | 2008 ATC 10-049 | 14ZZK | 284-75 | 284-220 | 29-5 | 2003 ATC 4375 | 2001 ATC 4111 | 96 ATC 662 | 2003 ATC 4665 | PS LA 2006/2", "Legislative_References": "Taxation Administration Act 1953 (Cth) 14ZZK 284-75 284-220 A New Tax System (Goods and Services Tax) Act 1999 (Cth) 29-5", "Case_References": "Kajewski v Federal Commissioner of Taxation [2003] FCA 258 2003 ATC 4375 (2003) 52 ATR 455 BRK (Brisbane) Pty Ltd v Federal Commissioner of Taxation [2001] FCA 164 2001 ATC 4111 (2001) 46 ATR 347 AAT Case 74/96 96 ATC 662 34 ATR 1128 Hart v Commissioner of Taxation (2003) 131 FCR 203 2003 ATC 4665 (2003) 53 ATR 371 Koon Wing Lau v Calwell (1949) 80 CLR 533 (1949) 24 ALJ 25 [1950] ALR 97 Attorney-General v Birkbeck (1884) 12 QBD 605 53 LJQB 378 32 WR 905 (1883-84) LR 12 QBD 605", "Subject_References": "Whether penalty for recklessness was correctly applied meaning of recklessness whether base penalty amount should be further remitted when is an invoice issued?", "Other_References": "PS LA 2006/2", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/6119/00001", "Unmatched_Content": ""}
{"Case_Name": "Touram Pty Ltd atf the GKA Family Trust and Commissioner of Taxation", "Venue_Reference_No": "2008/365", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "23 December 2008", "Date_Published": "12 August 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the sale of a vacant block of land, held by the vendor in an unimproved state for 11 years, was a taxable supply being a supply in course or the furtherance of an enterprise.", "Overview_of_Facts": "The case concerned whether the applicant was entitled to an input tax credit of $20,612 on its acquisition of a vacant allotment in 2006. The issue turned upon whether the sale to the applicant was a taxable supply by the vendors of the land. | The vendors, who were husband and wife, acquired the property in 1994 as vacant residential land and in 1997 made a successful application to change the zoning from residential to business. The rezoning application included a development proposal but the Tribunal accepted that the vendors had no intention of developing the property themselves and during the eleven year period that the vendors owned the property the land remained vacant and unused. They acquired the land with a view to selling it in due course at a profit and had no other objective in relation to the land. | While the vendors were registered for GST purposes as a partnership, the Tribunal accepted that their dealing with this land was separate from their other activities. However, the vendors recorded the purchase price and holding and other costs in respect of the land in the partnership's financial accounts. The wife gave evidence that the vendors tended to put all of their assets (apart from the family car) in the partnership accounts but she did not appreciate the significance, if any, of doing so. However, the Tribunal noted that it did not accept that the land was included in the partnership accounts 'by accident'. | The contract of sale between the vendors and the applicant specified that the price 'includes any GST payable on the supply of the Property to the Buyer'. The vendors' solicitor, at the request of the applicant and without instructions from the vendors, provided a tax invoice to the applicant, but advised 'we are not representing that our client does have a GST liability'. | Issues decided by the court or tribunal | The Tribunal identified the relevant issue to be whether the vendors were carrying on an enterprise in relation the land pursuant to the definition of \"enterprise\" in subsection 9-20(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). Subsection 9-20(1) relevantly states: (1) An enterprise is an activity, or a series of activities, done (a) in the form of a business; or (b) in the form of an adventure or concern in the nature of trade... | (a) in the form of a business; or (b) in the form of an adventure or concern in the nature of trade... | The Tribunal considered the critical question to be: '[Paragraph 9-20(1)(a)] refers to activities done \" in the form of a *business \" (emphasis added by Tribunal). Is there any evidence of this activity - the acquisition and sale of the vacant land - being carried on in a business-like way?' (at [23]) | In considering the evidence, the Tribunal determined that the vendors were carrying out activities in the form of a business and therefore were conducting a property investment enterprise as: • they had acquired the property for the sole purpose of selling it for a profit; • while they did not intend to develop the property themselves they went about doing the groundwork for a development in a business-like way; and • (describing this as 'the more important indicia'), the practice of recording the purchase price, holding costs and 'development' costs in the partnership financial reports exhibited 'the sort of system and regularity one expects to see in a business'. | • they had acquired the property for the sole purpose of selling it for a profit; • while they did not intend to develop the property themselves they went about doing the groundwork for a development in a business-like way; and • (describing this as 'the more important indicia'), the practice of recording the purchase price, holding costs and 'development' costs in the partnership financial reports exhibited 'the sort of system and regularity one expects to see in a business'. | Accordingly, the Tribunal concluded that the vendors made a taxable supply of the land and the applicant, having acquired the land in the course of its enterprise, was entitled to an input tax credit.", "Issues_Decided": "The Tribunal identified the relevant issue to be whether the vendors were carrying on an enterprise in relation the land pursuant to the definition of \"enterprise\" in subsection 9-20(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). Subsection 9-20(1) relevantly states: (1) An enterprise is an activity, or a series of activities, done (a) in the form of a business; or (b) in the form of an adventure or concern in the nature of trade... (a) in the form of a business; or (b) in the form of an adventure or concern in the nature of trade... The Tribunal considered the critical question to be: '[Paragraph 9-20(1)(a)] refers to activities done \" in the form of a *business \" (emphasis added by Tribunal). Is there any evidence of this activity - the acquisition and sale of the vacant land - being carried on in a business-like way?' (at [23]) In considering the evidence, the Tribunal determined that the vendors were carrying out activities in the form of a business and therefore were conducting a property investment enterprise as: • they had acquired the property for the sole purpose of selling it for a profit; • while they did not intend to develop the property themselves they went about doing the groundwork for a development in a business-like way; and • (describing this as 'the more important indicia'), the practice of recording the purchase price, holding costs and 'development' costs in the partnership financial reports exhibited 'the sort of system and regularity one expects to see in a business'. • they had acquired the property for the sole purpose of selling it for a profit; • while they did not intend to develop the property themselves they went about doing the groundwork for a development in a business-like way; and • (describing this as 'the more important indicia'), the practice of recording the purchase price, holding costs and 'development' costs in the partnership financial reports exhibited 'the sort of system and regularity one expects to see in a business'. Accordingly, the Tribunal concluded that the vendors made a taxable supply of the land and the applicant, having acquired the land in the course of its enterprise, was entitled to an input tax credit.", "ATO_View_of_Decision": "The Tribunal placed particular importance on the activity of recording the purchase, 'development' and holding costs of the land in the partnership accounts. The Tax Office understands that it is common practice for investment assets, which are unrelated to the partnership business, to be included in the financial accounts of small family partnerships, particularly husband and wife partnerships. | The Tax Office notes that it does not necessarily follow from the adoption of this practice that a subsequent sale of the asset is to be characterised as in the course of carrying on an enterprise. The accounting treatment may be relevant, but a conclusion regarding the nature of relevant activity will depend upon all of the facts in the particular case. Because it was not anticipated that the Tribunal would place such weight on the accounting practices, evidence on this point was not adduced at the hearing. However, it is noted that the Tribunal also took into account other factors, including the evidence, which it accepted, that the property was acquired with the intention of resale at a profit, the undertaking of rezoning and development plans and the engagement of professional assistance. | The Tax Office accepts that the conclusion of the Tribunal was open to it on the evidence accepted by the Tribunal. | The Federal Court's recent decision in Commissioner of Taxation v Swansea Services Pty Ltd [2009] FCA 402, also was concerned with the definition of 'enterprise' for GST purposes.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Nil", "Related_Documents": "MT 2006/1 | GSTR 2001/7 | TR 92/3 | 2008 ATC 10-070 | 9-20(1) | 79 ATC 4261 | 2004 ATC 2056", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-20(1)", "Case_References": "Ferguson v Commissioner of Taxation [1979] FCA 29 9 ATR 873 79 ATC 4261 Re Body Corporate, Villa Edgewater Cts 23092 and Commissioner of Taxation [2004] AATA 425 55 ATR 1162 2004 ATC 2056", "Subject_References": "GST Sale of Land Enterprise In the form of a business", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2008/365/00001", "Unmatched_Content": ""}
{"Case_Name": "Trustee for the Amabalad Family Trust and Commissioner of Taxation", "Venue_Reference_No": "2007/0460", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "11 September 2008", "Date_Published": "23 December 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly Adverse", "Summary_of_Decision": "Whether the applicant was liable to pay GST when its accounting method was changed from cash to accruals. Whether the applicant was entitled to various input tax credits. Whether the applicant was liable for an administrative penalty.", "Overview_of_Facts": "The applicant was subject to a GST audit for the tax periods from 1 October 2001 to 30 June 2004 and amended assessments were issued as a result of the audit. As a result of the applicant's objection, a number of issues were resolved between the parties. | The matters remaining in dispute before the Tribunal were: 1. $55,016 GST the Commissioner asserted to be payable on invoices issued prior to the applicant changing its accounting method from cash to accruals in the March 2004 tax period. 2. $60,000 input tax credits disallowed in relation to invoices relating to acquisition of intellectual property in the December 2001 tax period. 3. $84,393 input tax credit disallowed in relation to an invoice relating to assumption of a debt of a company whose business was acquired by the applicant. 4. $292 input tax credits disallowed in relation to the reimbursement of telephone bills of staff and other representatives. 5. $3650 input tax credits disallowed in relation to invoices in the names of related parties. 6. $91,855 shortfall penalty at 25% in relation to the March 2004 and June 2004 tax periods. The Commissioner submitted that the penalty assessment at the rate of 60% should be reduced to 25%. | 1. $55,016 GST the Commissioner asserted to be payable on invoices issued prior to the applicant changing its accounting method from cash to accruals in the March 2004 tax period. 2. $60,000 input tax credits disallowed in relation to invoices relating to acquisition of intellectual property in the December 2001 tax period. 3. $84,393 input tax credit disallowed in relation to an invoice relating to assumption of a debt of a company whose business was acquired by the applicant. 4. $292 input tax credits disallowed in relation to the reimbursement of telephone bills of staff and other representatives. 5. $3650 input tax credits disallowed in relation to invoices in the names of related parties. 6. $91,855 shortfall penalty at 25% in relation to the March 2004 and June 2004 tax periods. The Commissioner submitted that the penalty assessment at the rate of 60% should be reduced to 25%. | Issues decided by the court or tribunal | The Tribunal held that: 1. The applicant was not liable to pay GST of $55,016 in the March 2004 tax period on the basis that it had been previously accounted for. 2. The applicant was entitled to input tax credits of $60,000 on the invoices relating to the acquisition of intellectual property on the basis that the intellectual property was acquired for the purpose of carrying on an enterprise. 3. The applicant was not entitled to input tax credits of $84,393 as no basis for entitlement to the credit was established. 4. The applicant was not entitled to input tax credits of $292 in relation to the phone bills, as a supply was made by the telephone carrier to the individuals concerned, and there was simply a payment by the applicant to the individuals under an arrangement to reimburse the expenditure of the individuals. 5. The applicant was not entitled to input tax credits of $3650. However, nor was any supply made by the applicant, so the amount of GST also charged and accounted for by the applicant should be deducted from the amount returned as GST on sales, resulting in a reduction in the GST shortfall of that amount. 6. There was a lack of reasonable care in making the relevant claims in the March 2004 and June 2004 tax periods and it was not appropriate to remit the penalty of 25%. | 1. The applicant was not liable to pay GST of $55,016 in the March 2004 tax period on the basis that it had been previously accounted for. 2. The applicant was entitled to input tax credits of $60,000 on the invoices relating to the acquisition of intellectual property on the basis that the intellectual property was acquired for the purpose of carrying on an enterprise. 3. The applicant was not entitled to input tax credits of $84,393 as no basis for entitlement to the credit was established. 4. The applicant was not entitled to input tax credits of $292 in relation to the phone bills, as a supply was made by the telephone carrier to the individuals concerned, and there was simply a payment by the applicant to the individuals under an arrangement to reimburse the expenditure of the individuals. 5. The applicant was not entitled to input tax credits of $3650. However, nor was any supply made by the applicant, so the amount of GST also charged and accounted for by the applicant should be deducted from the amount returned as GST on sales, resulting in a reduction in the GST shortfall of that amount. 6. There was a lack of reasonable care in making the relevant claims in the March 2004 and June 2004 tax periods and it was not appropriate to remit the penalty of 25%.", "Issues_Decided": "The Tribunal held that: 1. The applicant was not liable to pay GST of $55,016 in the March 2004 tax period on the basis that it had been previously accounted for. 2. The applicant was entitled to input tax credits of $60,000 on the invoices relating to the acquisition of intellectual property on the basis that the intellectual property was acquired for the purpose of carrying on an enterprise. 3. The applicant was not entitled to input tax credits of $84,393 as no basis for entitlement to the credit was established. 4. The applicant was not entitled to input tax credits of $292 in relation to the phone bills, as a supply was made by the telephone carrier to the individuals concerned, and there was simply a payment by the applicant to the individuals under an arrangement to reimburse the expenditure of the individuals. 5. The applicant was not entitled to input tax credits of $3650. However, nor was any supply made by the applicant, so the amount of GST also charged and accounted for by the applicant should be deducted from the amount returned as GST on sales, resulting in a reduction in the GST shortfall of that amount. 6. There was a lack of reasonable care in making the relevant claims in the March 2004 and June 2004 tax periods and it was not appropriate to remit the penalty of 25%. 1. The applicant was not liable to pay GST of $55,016 in the March 2004 tax period on the basis that it had been previously accounted for. 2. The applicant was entitled to input tax credits of $60,000 on the invoices relating to the acquisition of intellectual property on the basis that the intellectual property was acquired for the purpose of carrying on an enterprise. 3. The applicant was not entitled to input tax credits of $84,393 as no basis for entitlement to the credit was established. 4. The applicant was not entitled to input tax credits of $292 in relation to the phone bills, as a supply was made by the telephone carrier to the individuals concerned, and there was simply a payment by the applicant to the individuals under an arrangement to reimburse the expenditure of the individuals. 5. The applicant was not entitled to input tax credits of $3650. However, nor was any supply made by the applicant, so the amount of GST also charged and accounted for by the applicant should be deducted from the amount returned as GST on sales, resulting in a reduction in the GST shortfall of that amount. 6. There was a lack of reasonable care in making the relevant claims in the March 2004 and June 2004 tax periods and it was not appropriate to remit the penalty of 25%.", "ATO_View_of_Decision": "The decision of the Tribunal to set aside the decision of the Commissioner in relation to some of the issues in dispute was made on the basis of the findings of fact made by the Tribunal, having regard mainly to the oral evidence presented by the applicant. Although the Commissioner argued there was not sufficient evidence to support the applicant's position in relation to these issues, it is accepted that the decision of the Tribunal was open to it on the particular facts of the case.", "Administrative_Treatment": "There are no implications for administrative treatment. | Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | 2008 ATC 10-046 | 284-90 | 284-220", "Legislative_References": "Taxation Administration Act 1953 (Cth) 284-90 284-220", "Case_References": "", "Subject_References": "GST Input tax credits Administrative penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/0460/00001", "Unmatched_Content": ""}
{"Case_Name": "VCF and Commissioner of Taxation", "Venue_Reference_No": "VT 2006/141", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 August 2008", "Date_Published": "4 September 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the issue of whether the Applicant was entitled to input tax credits on purchase of scrap metal from unregistered suppliers and whether the Applicant was liable for an administrative penalty.", "Overview_of_Facts": "1. The Applicant was engaged in the purchase, processing and sale of scrap metal, including purchases through \"door trade\", being cash purchases of scrap metal sold to it by individuals without ABNs. | 2. The Applicant recorded information regarding the purchases, including the door traders' names and the type, quantity (weight) and price paid for scrap metal ,on 'purchase documents'. However, there was no evidence that the information regarding the identity of the suppliers was verified. | 3. The Applicant claimed input tax credits for these purchases in reliance upon Division 66 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | 4. After sampling the records held by the Applicant, the Commissioner concluded that there were significant inconsistencies in the names, addresses and motor vehicle registrations of suppliers. The results were extrapolated and the Commissioner determined that many of the records of door trades involving amounts of over $300 were false. | 5. The Commissioner issued adjustments disallowing claims for $364,048 for the period 1 July 2000 to 30 October 2002. | 6. An administrative penalty of 75% was imposed on the shortfall amount. | Issues decided by the tribunal | 1. The Applicant did not meet the record-keeping requirements of section 66-17 or section 66-55 of the GST Act; | 2. The Commissioner applied an acceptable methodology to calculate the amount of the assessments, however should have allowed a discount of 5% for a margin for error (except upon the purchase of cars); | 3. Consistent with the methodology applied by the Commissioner, it was reasonable to disallow a percentage of the input tax credits claimed by the Applicant on the purchase of scrap metal; | 4. An administrative penalty of 50% of the shortfall amount for recklessness, rather than 75% for intentional disregard of the law was appropriate in the circumstances. No remission of the penalty was warranted.", "Issues_Decided": "1. The Applicant did not meet the record-keeping requirements of section 66-17 or section 66-55 of the GST Act; 2. The Commissioner applied an acceptable methodology to calculate the amount of the assessments, however should have allowed a discount of 5% for a margin for error (except upon the purchase of cars); 3. Consistent with the methodology applied by the Commissioner, it was reasonable to disallow a percentage of the input tax credits claimed by the Applicant on the purchase of scrap metal; 4. An administrative penalty of 50% of the shortfall amount for recklessness, rather than 75% for intentional disregard of the law was appropriate in the circumstances. No remission of the penalty was warranted.", "ATO_View_of_Decision": "Methodology and margin for error | The Tax Office accepts that the minor adjustment to the sampling methodology made by the Tribunal was open to the Tribunal on the evidence in this case. | Penalty | The Tax Office accepts that a conclusion that the Applicant acted with recklessness, rather than intentional disregard of the law was open to the Tribunal on the evidence accepted in this case. The Tribunal's decision reaffirms, in the context of section 66-17 of the GST Act, the onus on taxpayers to keep accurate and reliable records. Further the Tribunal confirmed that the failure of a taxpayer, in these circumstances, to assure itself that the record was correct may amount to reckless disregard of a taxation law.", "Administrative_Treatment": "None. | Implications on current Public Rulings & Determinations | None.", "Related_Documents": "None. | 2008 ATC 1-004 | 66-5 | 66-10 | 66-17 | Part 4-2 | Sch 1 Div 284-B | 284-15 | 284-75 | 284-90 | 284-225 | 298-20 | 2003 ATC 4665 | 2005 ATC 4796", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 66-5 66-10 66-17 Part 4-2 Taxation Administration Act 1953 Sch 1 Div 284-B 284-15 284-75 284-90 284-225 298-20", "Case_References": "Hart v Commissioner of Taxation [2003] FCAFC 105 2003 ATC 4665 (2003) 53 ATR 371 Sterling Guardian Pty Ltd v Commissioner of Taxation [2005] FCA 1166 2005 ATC 4796 (2005) 60 ATR 502", "Subject_References": "GST Second-hand goods Scrap metal Door trade Identity of suppliers Sampling methodology Administrative penalty Intentional disregard Recklessness", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VT2006/141/00001", "Unmatched_Content": ""}
{"Case_Name": "Victorian Women Lawyers Association Inc v Commissioner of Taxation", "Venue_Reference_No": "VID 1369, 1370, 1371 of 2006 and VID 728, 729, 730 of 2007", "Venue": "Federal Court of Australia", "Judgment_Date": "27 June 2008", "Date_Published": "2 June 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The Victorian Women Lawyers' Association (\"VWLA\") sought income tax exemption on the basis that it was a charitable institution established for purposes beneficial to the community or alternatively as an association established for community service purposes.", "Overview_of_Facts": "The VWLA was an incorporated not for profit association. It lodged tax returns for the 1997 to 2001 income years claiming income tax exempt status or alternatively that certain items of its income were not assessable. | Its general objects are: (a) to provide a common meeting ground for women lawyers; (b) to foster the continuing education and development of women lawyers in all matters of legal interest; (c) to encourage and provide for the entry of women into the legal profession and their advancement within the legal profession; (d) to work towards the reform of the law; (e) to participate as a body in matters of interest to the legal profession; (f) to promote the understanding and support of women's legal and human rights; and (g) such other objects as the Association may in General Meeting decide. | (a) to provide a common meeting ground for women lawyers; (b) to foster the continuing education and development of women lawyers in all matters of legal interest; (c) to encourage and provide for the entry of women into the legal profession and their advancement within the legal profession; (d) to work towards the reform of the law; (e) to participate as a body in matters of interest to the legal profession; (f) to promote the understanding and support of women's legal and human rights; and (g) such other objects as the Association may in General Meeting decide. | It also adopted the following purposes of the Australian Women Lawyers Association: (a) to achieve justice and equality for all women; (b) further understanding of and support for the legal rights of all women; (c) identify, highlight and eradicate discrimination against all women in law and in the legal system; (d) advance equality for women in the legal profession; and (e) create and enhance awareness of women's contribution to the practice and development of the law | (a) to achieve justice and equality for all women; (b) further understanding of and support for the legal rights of all women; (c) identify, highlight and eradicate discrimination against all women in law and in the legal system; (d) advance equality for women in the legal profession; and (e) create and enhance awareness of women's contribution to the practice and development of the law | The activities of the VWLA including seminars, social functions, publication of a quarterly magazine and production of flexible work practice guidelines, were mainly for the advancement and benefit of women lawyers. It also undertook some activities aimed at advancing women's rights generally and contributed to debate on law reform issues. | Issues decided by the court or tribunal | French J was prepared to take judicial notice of the disadvantage of women practitioners in the legal profession (paragraph 116). His Honour also accepted that the existence of sex discrimination laws in Australia is indicative of a longstanding social norm that attaches public benefit to the removal of barriers to the advancement of women in all fields of human endeavour (paragraph 122). | The Commissioner had argued that the VWLA was not a charitable institution because its purposes were not those which are 'beneficial to the community', rather its main objects were for the private advancement of women within the legal profession. However, his Honour concluded that the VWLA's primary purpose of advancing women in the legal profession in Victoria was a purpose 'beneficial to the community', particularly having regard to the social norms reflected in the sex discrimination laws (paragraphs 147 and 148). | His Honour did not consider it necessary to reach a concluded position about whether the VWLA was an association established for community service purposes (paragraphs 163 and 164). | The Incorporated Council of Law Reporting of the State of Queensland v Commissioner of Taxation (1971) 125 CLR 659", "Issues_Decided": "French J was prepared to take judicial notice of the disadvantage of women practitioners in the legal profession (paragraph 116). His Honour also accepted that the existence of sex discrimination laws in Australia is indicative of a longstanding social norm that attaches public benefit to the removal of barriers to the advancement of women in all fields of human endeavour (paragraph 122). The Commissioner had argued that the VWLA was not a charitable institution because its purposes were not those which are 'beneficial to the community', rather its main objects were for the private advancement of women within the legal profession. However, his Honour concluded that the VWLA's primary purpose of advancing women in the legal profession in Victoria was a purpose 'beneficial to the community', particularly having regard to the social norms reflected in the sex discrimination laws (paragraphs 147 and 148). His Honour did not consider it necessary to reach a concluded position about whether the VWLA was an association established for community service purposes (paragraphs 163 and 164). The Incorporated Council of Law Reporting of the State of Queensland v Commissioner of Taxation (1971) 125 CLR 659", "ATO_View_of_Decision": "The Court followed established jurisprudence regarding what constitutes a \"charitable institution\". | It also took judicial notice of the disadvantage of women in society and of women practitioners in the legal profession and noted the statutory indications of community recognition of gender based discrimination to conclude that an association established to remove these barriers and increase opportunities was for purposes beneficial to the public. | Having reached this conclusion it was open to the Court to make a finding of fact on the evidence that the association was established for this purpose, taking into account the VWLA's objects and activities. | The decision does not represent a real expansion of the law governing charitable institutions. In light of the findings of fact, it is not inconsistent with the Tax Office view in TR 2005/21 that member benefits will be consistent with charity where the member benefits are no more than incidental or ancillary to the purpose of benefiting the community. Nor is it inconsistent with the view in TR 2005/21 that if an institution's purpose is otherwise charitable its status is not affected by political or lobbying activities which are incidental to the charitable end. In this regard it is to be noted that while the VWLA was an advocate for change, during the income years under consideration they engaged in a range of practical activities directed at the principal purpose of removing barriers and increasing the opportunities for participation by, and advancement of, women in the legal profession in Victoria. | It is also considered appropriate to bear in mind that the question of exemption is one that calls for the application of the relevant law having regard to the objects and activities during each income year. In this case, the finding of charitable purpose is premised on the existence of the particular problem for the legal profession of the substantial under-representation of women, especially in senior positions. This may prove to be an historical phenomenon with on-going change to the profession and the composition of the judiciary. Also, if the association's priorities change, it may evolve into a different organisation in terms of its central focus and this could potentially affect the characterisation of its objects for determining eligibility for exemption. Other organisations that seek exemption on the basis of charitable objects beneficial to the community also need to be aware that changing circumstances may affect their status under the taxation law over time. | The Court found it unnecessary to provide a concluded answer to the question whether the VWLA qualified for exemption as having been established for community service purposes (not being political purposes or lobbying purposes). The comments by His Honour on this issue are clearly obiter. Nevertheless, with respect, we agree with His Honour that the provisions were intended to extend to a range of service organisations that would not qualify as charitable institutions. It is also agreed that the concepts of political purposes and lobbying purposes are not to be construed narrowly.", "Administrative_Treatment": "The decision in this case will be considered in determining the status of other similar organisations claiming exemption as a charitable institution. However, the outcome in each case will depend on the particular facts and circumstances. Whether an organisation is to be characterised as a charitable institution on the ground that it exists for purposes beneficial to the community is to be decided based on an examination of its objects and activities. | Taxpayers who are uncertain whether their particular circumstances qualify for exemption and require greater certainty may apply for a private ruling. Taxpayers are reminded that charities must apply for exemption and be endorsed by the Commissioner in order to become exempt. To apply for endorsement you should complete and forward an Application for endorsement as a tax concession charity or income tax exempt fund. The application forms and instructions may be obtained from the website at http://www.ato.gov.au/nonprofit/ under 'Forms & instructions', 'Endorsement' or by phoning the information line on 1 300 130 248. | Implications on current Public Rulings & Determinations | TR 2005/21 was replaced by TR 2011/D2 as from 11 May 2011. TR 2011/D2 incorporates references to this decision.", "Related_Documents": "TR 2005/21 | TD 93/190 | 2008 ATC 20-035 | 23(e) | 50-1 | [1937] HCA 64 | [1917] AC 406 | 2006 ATC 4610 | 37 CLR 317 | 32 ALR 9 | [1926] AC 128 | [2004] HCA 6 | [1891] AC 531 | 2005 ATC 4891 | 2007 ATC 5164 | 90 ATC 4215 | 97 ATC 4722 | 71 ATC 4206 | 98 ATC 2124 | 2007 ATC 4568 | [1997] 2 Qd R 567 | [1965] VR 238 | [1963] VR 257 | 68 CLR 436 | 60 CLR 396 | [1968] AC 138 | [1967] 3 All ER 215 | 10 CLR 218", "Legislative_References": "Income Tax Assessment Act 1936 23(e) 23(g)(v) Income Tax Assessment Act 1997 50-1 Evidence Act 1995 (Cth) 144 Sex Discrimination Act 1984 (Cth) 3 4A(1) 14", "Case_References": "Barby v Perpetual Trustee Co Ltd 58 CLR 316 11 ALJ 306 [1937] HCA 64 Bowman v Secular Society Ltd [1917] AC 406 [1915] 2 Ch 447 Central Bayside General Practice Association Ltd v Commissioner of State Revenue 2006 ATC 4610 229 ALR 1 63 ATR 220 Chesterman v Federal Commissioner of Taxation 37 CLR 317 32 ALR 9 [1926] AC 128 Gattellaro v Westpac Banking Corporation 78 ALJR 394 [2004] HCA 6 204 ALR 258 Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 Commissioner of Taxation v The Triton Foundation 147 FCR 362 2005 ATC 4891 60 ATR 451 Commissioner of Taxation v Word Investments Ltd 2007 ATC 5164 164 FCR 194 [2007] FCAFC 171 243 ALR 44 Cronulla Sutherland Leagues Club Ltd v Commissioner of Taxation 90 ATC 4215 23 FCR 82 21 ATR 300 Douglas v Commissioner of Taxation 77 FCR 112 36 ATR 532 97 ATC 4722 Gattellaro v Westpac Banking Corporation [2004] HCA 6 78 ALJR 394 204 ALR 258 Halpin v Seear [1977] Ch Com Rep Incorporated Council of Law Reporting of the State of Queensland v Federal Commissioner of Taxation [1971] HCA 44 125 CLR 659 2 ATR 515 71 ATC 4206 National Council of Women of Tasmania v Federal Commissioner of Taxation 38 ATR 1174 98 ATC 2124 Navy Health Ltd v Deputy Federal Commissioner of Taxation 2007 ATC 4568 68 ATR 215 Public Trustee v Attorney-General (1997) 42 NSWLR 600 Re Belcher [1950] VLR 11 [1950] ALR 152 24 ALJ 124 Re Blyth [1997] 2 Qd R 567 Re Inman [1965] VR 238 Re Lowin [1965] NSWR 1624 Re Weave [1963] VR 257 Royal Australian College of Surgeons v Federal Commissioner of Taxation [1943] HCA 34 68 CLR 436 [1943] ALR 377 Royal North Shore Hospital of Sydney v Attorney-General (NSW) [1938] HCA 39 60 CLR 396 Scottish Burial Reform and Cremation Society Ltd v Glasgow City Corporation [1968] AC 138 [1967] 3 All ER 215 Taylor v Taylor [1910] HCA 4 10 CLR 218 16 ALR 129 The Incorporated Council of Law Reporting of the State of Queensland v Commissioner of Taxation [1971] HCA 44 125 CLR 659 2 ATR 515 71 ATC 4206", "Subject_References": "Income Tax Charitable institution Association for the advancement of women in legal profession Purposes beneficial to the public Community services purposes Political or lobbying purposes", "Other_References": "TD 93/190 Dal Pont G. 'Charity Law in Australia and New Zealand' (Oxford University Press, 2000)", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1369/00001", "Unmatched_Content": ""}
{"Case_Name": "Weston and Commissioner of Taxation", "Venue_Reference_No": "2007/5645 and 2008/2832-2833", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "30 September 2008", "Date_Published": "14 October 2009", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case, which concerned whether the applicant had a liability to Superannuation Guarantee Charge and whether an additional Superannuation Guarantee Charge should be further remitted.", "Overview_of_Facts": "1. The taxpayer engaged workers to work in his nut farming business. | 2. The Commissioner conducted a Superannuation Guarantee audit and requested the taxpayer to provide Superannuation Guarantee Statements. The taxpayer did not respond. | 3. The Commissioner determined that the taxpayer had not satisfied his employer superannuation contribution obligations and was therefore liable to a Superannuation Guarantee Charge ( \"SGC\" ) of $14,558.36 for the year ended 30 June 2003 and the quarterly periods from 30 June 2003 to 31 December 2005. | 4. The Commissioner imposed a penalty under subsection 59(1) of Part 7 of the Superannuation Guarantee (Administration) Act 1992 ( \"SGA\" ) equal to double the amount of SGC payable by the taxpayer for each period. The penalty was then remitted to a rate of 10% of the amount of SGC payable (penalty of $1,455.77). | 5. After making his objection decision, the Commissioner recalculated the liabilities for SGC and penalty and requested the Tribunal to increase the total SGC to $15,191.04 and the total penalty to $1,519.10. | 6. The taxpayer considered that he satisfied his superannuation obligations. He had telephoned Wageline, and was advised of the appropriate hourly rate for one of his employees and to add 10% to cover superannuation. The taxpayer paid that additional 10% directly to the employee to manage. | 7. The taxpayer also hired workers to perform casual labour. He claimed that the workers were contractors and that he wasn't required to make superannuation contributions on their behalf. Alternatively, he argued that he paid one worker the wage of several other workers and that if they were paid individually each worker would be under the superannuation eligibility threshold of $450 salary per month. | Issues decided by the Administrative Appeals Tribunal | Senior Member Pascoe found that: | 1. The taxpayer had not discharged the burden of proving that the amounts paid to his workers were not salary or wages under the SGA. | 2. The taxpayer was required to make superannuation contributions on behalf of his employees and he had failed to do so. | 3. The taxpayer was liable to the SGC. The Tribunal accepted the Commissioner's recalculation of the amount of SGC to be assessed for the relevant periods. | 4. The penalty should be remitted in full. The taxpayer believed that paying an additional 10% to one of his employees satisfied his superannuation obligations. It was also possible that the payments to other workers may not have attracted a liability for SGC if they had been dealt with and recorded correctly.", "Issues_Decided": "Senior Member Pascoe found that: 1. The taxpayer had not discharged the burden of proving that the amounts paid to his workers were not salary or wages under the SGA. 2. The taxpayer was required to make superannuation contributions on behalf of his employees and he had failed to do so. 3. The taxpayer was liable to the SGC. The Tribunal accepted the Commissioner's recalculation of the amount of SGC to be assessed for the relevant periods. 4. The penalty should be remitted in full. The taxpayer believed that paying an additional 10% to one of his employees satisfied his superannuation obligations. It was also possible that the payments to other workers may not have attracted a liability for SGC if they had been dealt with and recorded correctly.", "ATO_View_of_Decision": "The Tax Office accepts that the Tribunal's decision to remit the penalty in full was open to it on the facts as found. The Tribunal accepted that the taxpayer made honest mistakes in respect of his employer superannuation obligations. The Tribunal's decision recognises that issues involving the remission of penalty must be determined on the particular circumstances of each case.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "N/A | [2008] AATA 869 | 2008 ATC 10-052 | 11 | 12 | 62", "Legislative_References": "Superannuation Guarantee (Administration) Act 1992 11 12 62", "Case_References": "", "Subject_References": "Superannuation Superannuation guarantee charge Superannuation contributions shortfall Penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/5645/00001", "Unmatched_Content": ""}
{"Case_Name": "XPMX and Commissioner of Taxation", "Venue_Reference_No": "2007/3265-2007/3633", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "5 November 2008", "Date_Published": "22 December 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether a notice of non-compliance issued to the trustee of a superannuation fund should be revoked or withdrawn.", "Overview_of_Facts": "• The Applicant is a self managed superannuation fund created on 15 February 1998. • Following its establishment, the fund was accepted as a complying superannuation fund under the Superannuation Industry (Supervision) Act 1993 (SIS Act). • However, over a period of years the trustees of the fund failed to comply with a number of regulatory requirements under the SIS Act, including the appointment of an auditor and lodgement of returns. • Consequently, the Commissioner issued a notice of non-compliance in respect of the 1998 year of income. • Following a review of the decision to issue the notice, which confirmed the decision, the trustees applied to the Administrative Appeals Tribunal for review of the decision to issue the notice of non-compliance. • The Tribunal set aside the decision to issue the notice and substituted a decision that: '(a) pursuant to s 262A of the SIS Act, the trustees of the Fund are provided the opportunity to furnish a written undertaking to transfer and roll-over the Fund into a nominated industry, retail or public offer fund which is a complying superannuation fund; and (b) within the period of 14 days of publication of these reasons, the trustees furnish the written undertaking to the respondent and then, within that period, they give effect to the undertaking by transferring and rolling-over the Fund to the industry, retail or public offer fund so nominated'. | • The Applicant is a self managed superannuation fund created on 15 February 1998. • Following its establishment, the fund was accepted as a complying superannuation fund under the Superannuation Industry (Supervision) Act 1993 (SIS Act). • However, over a period of years the trustees of the fund failed to comply with a number of regulatory requirements under the SIS Act, including the appointment of an auditor and lodgement of returns. • Consequently, the Commissioner issued a notice of non-compliance in respect of the 1998 year of income. • Following a review of the decision to issue the notice, which confirmed the decision, the trustees applied to the Administrative Appeals Tribunal for review of the decision to issue the notice of non-compliance. • The Tribunal set aside the decision to issue the notice and substituted a decision that: | Issues decided by the court or tribunal | The Tribunal decided that: • The fund was at all times during the year ended 30 June 1998 a self managed superannuation fund. • Because it was expressed to be based upon the failure of the fund to satisfy conditions in s 42(1) of the SIS Act, which does not apply to self managed superannuation funds, the notice of non-compliance was invalid and ineffective. • The decision to issue the notice would have been sustainable had the decision been based upon s 42A(1) and s 42A(5) of the SIS Act which do apply to self managed superannuation funds. | • The fund was at all times during the year ended 30 June 1998 a self managed superannuation fund. • Because it was expressed to be based upon the failure of the fund to satisfy conditions in s 42(1) of the SIS Act, which does not apply to self managed superannuation funds, the notice of non-compliance was invalid and ineffective. • The decision to issue the notice would have been sustainable had the decision been based upon s 42A(1) and s 42A(5) of the SIS Act which do apply to self managed superannuation funds.", "Issues_Decided": "The Tribunal decided that: • The fund was at all times during the year ended 30 June 1998 a self managed superannuation fund. • Because it was expressed to be based upon the failure of the fund to satisfy conditions in s 42(1) of the SIS Act, which does not apply to self managed superannuation funds, the notice of non-compliance was invalid and ineffective. • The decision to issue the notice would have been sustainable had the decision been based upon s 42A(1) and s 42A(5) of the SIS Act which do apply to self managed superannuation funds. • The fund was at all times during the year ended 30 June 1998 a self managed superannuation fund. • Because it was expressed to be based upon the failure of the fund to satisfy conditions in s 42(1) of the SIS Act, which does not apply to self managed superannuation funds, the notice of non-compliance was invalid and ineffective. • The decision to issue the notice would have been sustainable had the decision been based upon s 42A(1) and s 42A(5) of the SIS Act which do apply to self managed superannuation funds.", "ATO_View_of_Decision": "The Tax Office respectfully disagrees with the decision of the Tribunal for these reasons: • Although, at the time of the hearing, the fund was a 'self managed superannuation fund', that description was first introduced by the Superannuation Legislation Amendment Act (No 3) 1999 , with effect from 8 October 1999. • Accordingly, it is the Tax Office's view that: - the fund was not a self managed superannuation fund in respect of the 1998 year of income; and - the trustees having failed to satisfy the conditions in s 42(1) of the SIS Act, the Tax Office was entitled to issue the notice of non-compliance in respect of that year under the transitional provisions in Division 3 of Part 24B of the SIS Act. • In any case, a decision to issue a notice is made under s 40 of the SIS Act, which authorises the giving of notices stating whether a fund is complying or non-complying, rather than under the specific provision under which non-compliance arises. Accordingly, it is the Tax Office's view that a decision to give a notice of non-compliance is valid if justified under either s 42 or s 42A of the SIS Act. | • Although, at the time of the hearing, the fund was a 'self managed superannuation fund', that description was first introduced by the Superannuation Legislation Amendment Act (No 3) 1999 , with effect from 8 October 1999. • Accordingly, it is the Tax Office's view that: - the fund was not a self managed superannuation fund in respect of the 1998 year of income; and - the trustees having failed to satisfy the conditions in s 42(1) of the SIS Act, the Tax Office was entitled to issue the notice of non-compliance in respect of that year under the transitional provisions in Division 3 of Part 24B of the SIS Act. • In any case, a decision to issue a notice is made under s 40 of the SIS Act, which authorises the giving of notices stating whether a fund is complying or non-complying, rather than under the specific provision under which non-compliance arises. Accordingly, it is the Tax Office's view that a decision to give a notice of non-compliance is valid if justified under either s 42 or s 42A of the SIS Act. | - the fund was not a self managed superannuation fund in respect of the 1998 year of income; and - the trustees having failed to satisfy the conditions in s 42(1) of the SIS Act, the Tax Office was entitled to issue the notice of non-compliance in respect of that year under the transitional provisions in Division 3 of Part 24B of the SIS Act. | However, the Tax Office has decided that, in the particular circumstances of this matter, it would not be a responsible use of resources for an appeal to the Federal Court to be undertaken. In reaching that view, regard has been given to: • The cost to the Tax Office and the trustees of conducting litigation in the Federal Court; • The limited ongoing relevance of the decision - the issues in the case would only arise in respect of notices issued in respect of the 1998 and 1999 years of income; • The range of compliance strategies available to the Tax Office in respect of trustees of self managed superannuation funds. | • The cost to the Tax Office and the trustees of conducting litigation in the Federal Court; • The limited ongoing relevance of the decision - the issues in the case would only arise in respect of notices issued in respect of the 1998 and 1999 years of income; • The range of compliance strategies available to the Tax Office in respect of trustees of self managed superannuation funds. | The decision not to lodge a notice of appeal in this case has been taken for these reasons associated with effective use of Commonwealth resources. | However, it should be noted the Tax Office remains committed to ensuring compliance by trustees with their obligations under the SIS Act and in that regard has substantially increased its compliance activities in respect of self managed superannuation funds. | Where those compliance activities identify failures to meet obligations, the Tax Office will apply an appropriate treatment. In the more serious cases, this will include consideration of all or any of the following options: • referral for civil or criminal prosecution; • disqualification of trustees; and • the issuing of a notice of non-compliance which will result in the fund losing its tax concessions. | • referral for civil or criminal prosecution; • disqualification of trustees; and • the issuing of a notice of non-compliance which will result in the fund losing its tax concessions. | Less serious breaches may be dealt with by rectification and on-going monitoring.", "Administrative_Treatment": "None", "Related_Documents": "Law Administration Practice Statement PS LA 2006/19 | [2008] AATA 981 | 40 | 42 | 42A | 262A", "Legislative_References": "Superannuation Industry (Supervision) Act 1993 40 42 42A 262A", "Case_References": "", "Subject_References": "Complying superannuation fund self managed superannuation fund notice of non compliance", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2007/3265/00001", "Unmatched_Content": ""}
{"Case_Name": "ABB Australia Pty Ltd & Anor v Commissioner of Taxation", "Venue_Reference_No": "NSD 1171 of 2004", "Venue": "Federal Court of Australia", "Judgment_Date": "20 July 2007", "Date_Published": "16 November 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case about a non-resident company's liability to withholding tax on a dividend declared by its Australian resident subsidiary company and paid to an unrelated Australian resident company pursuant to assignments of the right to receive the dividend.", "Overview_of_Facts": "ABB Asea Brown Boveri Ltd (\"ABB Zurich\"), a non-resident company incorporated in Switzerland, was the sole shareholder in ABB Australia Pty Ltd (\"ABB Australia\"), a resident company incorporated in New South Wales. ABB Zurich was the holding company of some 1,000 companies in the ABB corporate group around the world. ABB Australia declared a final dividend of $49,000,000 payable on a later date to the registered shareholders as at the declaration. After the declaration but before payment of the dividend, ABB Zurich, for valuable consideration of $48,816,995, assigned its right to receive the dividend to Barclays de Zoete Wedd Ltd (\"BZW\"), a non-resident company incorporated in the United Kingdom. Then BZW, for valuable consideration of $48,826,480, assigned its right to receive the dividend to Barclays Australia Limited (\"BAL\"), a resident company incorporated in New South Wales. BAL paid the consideration payable to BZW, BZW paid the consideration payable to ABB Zurich, BAL gave notice to ABB Zurich of the assignment from BZW to itself (BAL), and BAL requested ABB Zurich to instruct ABB Australia to pay the amount of the dividend into BAL's bank account in Sydney. ABB Zurich directed ABB Australia to pay the amount of the dividend into BAL's bank account in Sydney. ABB Australia paid the amount of the dividend into that bank account. The Commissioner issued notices to ABB Zurich and ABB Australia demanding payment of withholding tax in respect of the dividend. ABB Zurich and ABB Australia sought declarations pursuant to s 39B of the Judiciary Act 1903 that ABB Zurich was not liable to withholding tax on the dividend of $49 million, and that ABB Australia was not required to make a deduction from that sum in respect of withholding tax. | Issues decided by the court or tribunal | 1. The dividend income was derived by ABB Zurich when the members of ABB Australia declared the dividend on 30 May 1996. | ABB Zurich was carrying on a business consisting of managing its investments in, and the affairs of, some 1,000 subsidiaries around the world. ABB Zurich controlled ABB Australia, and the decision to declare the dividend and defer payment of it. For accounting purposes ABB Zurich recognised dividends on an accruals basis at the time of declaration, and the evidence indicated that that practice accorded with Australian accounting standards applicable to the ordinary business practices of reporting companies in Australia at the time. Business, commercial and accounting practice was relevant to the question of when income consisting of a dividend 'came home' and was derived by a company in the circumstances of ABB Zurich. In the circumstances of this case and under the specific provisions of Division 11A [s 128B(1)], ABB Zurich derived the dividend when it was declared. | 2. Alternatively, the dividend income was derived by ABB Zurich on 21 June 1996, as it was paid to ABB Zurich on that date because the payment by ABB Australia to BAL was the agreed mode of discharge of ABB Australia's monetary obligation to ABB Zurich, was an amount with which ABB Zurich was to be credited with in its dealings with BZW and BAL, and was the payment of a dividend necessarily paid to a shareholder. | On 30 May 1996 ABB Zurich became entitled to a present indebtedness payable in the future, and retained legal title to that debt notwithstanding the assignments. Payment on 21 June 1996 by ABB Australia to the bank account of BAL discharged ABB Australia's indebtedness to ABB Zurich and the contractual obligations that ABB Zurich had undertaken under the deeds of assignment, guarantee and indemnity and offshore custody deed. The payment to BAL was also payment to ABB Zurich. ABB Australia had a monetary obligation to ABB Zurich and the companies agreed that that monetary obligation should be discharged by ABB Australia paying the amount to BAL. | 3. ABB Zurich was liable to pay withholding tax upon an amount of A$49,000,000 being income derived by it that consisted of a dividend paid by ABB Australia under s 128B(1) and (4) and s 128C(1) of the Income Tax Assessment Act 1936 (\"ITAA 1936\"). | 4. ABB Australia was obliged (but failed) to make a deduction of A$7,350,000 before the amount of A$49,000,000 was paid by ABB Australia as required by s 221YL(1) of the ITAA 1936. | 5. ABB Australia was liable to pay to the respondent the amount of A$7,350,000 (and an amount of additional tax) under s 221YQ(1) of the ITAA 1936.", "Issues_Decided": "1. The dividend income was derived by ABB Zurich when the members of ABB Australia declared the dividend on 30 May 1996.: ABB Zurich was carrying on a business consisting of managing its investments in, and the affairs of, some 1,000 subsidiaries around the world. ABB Zurich controlled ABB Australia, and the decision to declare the dividend and defer payment of it. For accounting purposes ABB Zurich recognised dividends on an accruals basis at the time of declaration, and the evidence indicated that that practice accorded with Australian accounting standards applicable to the ordinary business practices of reporting companies in Australia at the time. Business, commercial and accounting practice was relevant to the question of when income consisting of a dividend 'came home' and was derived by a company in the circumstances of ABB Zurich. In the circumstances of this case and under the specific provisions of Division 11A [s 128B(1)], ABB Zurich derived the dividend when it was declared. | 2. Alternatively, the dividend income was derived by ABB Zurich on 21 June 1996, as it was paid to ABB Zurich on that date because the payment by ABB Australia to BAL was the agreed mode of discharge of ABB Australia's monetary obligation to ABB Zurich, was an amount with which ABB Zurich was to be credited with in its dealings with BZW and BAL, and was the payment of a dividend necessarily paid to a shareholder.: On 30 May 1996 ABB Zurich became entitled to a present indebtedness payable in the future, and retained legal title to that debt notwithstanding the assignments. Payment on 21 June 1996 by ABB Australia to the bank account of BAL discharged ABB Australia's indebtedness to ABB Zurich and the contractual obligations that ABB Zurich had undertaken under the deeds of assignment, guarantee and indemnity and offshore custody deed. The payment to BAL was also payment to ABB Zurich. ABB Australia had a monetary obligation to ABB Zurich and the companies agreed that that monetary obligation should be discharged by ABB Australia paying the amount to BAL. 3. ABB Zurich was liable to pay withholding tax upon an amount of A$49,000,000 being income derived by it that consisted of a dividend paid by ABB Australia under s 128B(1) and (4) and s 128C(1) of the Income Tax Assessment Act 1936 (\"ITAA 1936\").", "ATO_View_of_Decision": "The Tax Office considers that the correct decision was reached by the Federal Court. In relation to the obiter dicta comments concerning the Commissioner's further alternative submission that ABB Zurich could not avoid the derivation of income consisting of a dividend when it was paid on 21 June 1996 by an equitable assignment of the right to receive the dividend, the Tax Office will consider the issue after the decision of the High Court of Australia in Bluebottle UK Ltd & ors v DCT & anor S302/2007, which was heard on 29 August 2007. | Lindgren J stated that the decision was confined to the factual circumstances of the case and to the specific provisions of Division 11A [at paragraphs 150 and 153]. | Lindgren J observed at [97] that unlike s 44(1), s 128B(1) does not expressly require that the dividend be paid to the shareholder: whereas s 44(1) includes in the assessable income of a taxpayer 'dividends paid to him by the company', s 128B does not identify the payee. Lindgren J also stated at [150] that: \"Generally speaking dividend income is derived when it is received\", and noted at [7] that: \"it is an express condition of the operation of s 44(1) that the dividend be paid to the shareholder\". | Under section 44(1) the assessable income of a shareholder in a company includes \"dividends that are paid to the shareholder by the company out of profits ...\". Under s 6(1) \" paid in relation to dividends includes credited or distributed\". Under s 128B(1) and (4) a non-resident is liable to withholding tax in respect of income that \"is derived\" and \"consists of a dividend paid by a company that is a resident\". | The decision establishes that for the purposes of liability to dividend withholding tax under s 128B of Division 11A, companies that carry on a business managing investments in, and the affairs of, subsidiary companies derive dividend income upon declaration. The Commissioner is of the view that for the purposes of liability to dividend withholding tax under s 128B of Division 11A, the principles of the decision would also apply to any entity that carries on a business of managing investments in other companies such that it derives dividend income on an accruals basis upon declaration, whether or not the companies in which shares are held are wholly owned or controlled subsidiaries of the entity. | The Commissioner may consider any wider implications of dividend assignments for the interpretation or application of s 44(1) after the decision of the High Court of Australia in Bluebottle . | The decision concerns a final dividend declared by a private company giving rise to an immediate debt owed by the company to shareholders, which was declared in accordance with the legislation and case law as it stood prior to the enactment of the Company Law Review Act 1998 . The decision does not deal with dividends determined pursuant to the replaceable rules in ss 254U and 254V of the Corporations Act . Under those rules a company can fix the amount, time and method of payment of a dividend, and a debt only arises when the time for payment arrives. The decision to pay the dividend may be revoked any time before then. The Tax Office may consider this issue further in relation to the decision of the High Court of Australia in Bluebottle .", "Administrative_Treatment": "None | Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 98/1 considered briefly (at para 152) | [2007] FCA 1063 | 2007 ATC 4765 | 12", "Legislative_References": "Judiciary Act 1903 (Cth) 39B Conveyancing Act 1919 (NSW) 12", "Case_References": "", "Subject_References": "Taxation withholding tax section 128B(1) of Division 11A of Pt III of the Income Tax Assessment Act 1936 whether income consisting of a dividend derived upon declaration assignment of right to receive dividend accruals business and accounting practice payment of dividends 'dividend' 'paid' 'derived' declaration timing of derivation", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1171of2004/00001", "Unmatched_Content": ""}
{"Case_Name": "Barakat and Ors and Commissioner of Taxation", "Venue_Reference_No": "NT2006/393", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "19 July 2007", "Date_Published": "16 November 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether a taxpayer is liable for an administrative penalty on the basis that the taxpayer's behaviour when lodging activity statements was reckless.", "Overview_of_Facts": "• The Applicant was a partnership carrying on a project management and construction business, acquiring land on which it constructed townhouses. • The Applicant was registered for GST and accounted for GST monthly on a cash basis. • In May and June 2004, the Applicant settled sales of townhouses but did not report the sales in its activity statements. • The Applicant retained a tax agent who prepared year end financial statements and income tax returns, but not activity statements which were prepared by Mr M Barakat of the Applicant partnership. • After lodgement of the activity statements for May and June 2004, Mr Barakat had a conversation with the Tax Office following which the Applicant's GST registration was cancelled with effect from that date. • The Tribunal was satisfied that Mr Barakat believed that the officer with whom he spoke advised that GST on the sales could be included in the partnership's final income tax return to be prepared by the tax agent, but was not satisfied that the officer in fact gave that advice. • In other words, Mr Barakat misunderstood the tax officer's advice. He was heading overseas after the end of the construction project and mistakenly believed that the GST would be brought to account with the final income tax return as the outstanding liability depended on valuations to be obtained by professional advisers. | • The Applicant was a partnership carrying on a project management and construction business, acquiring land on which it constructed townhouses. • The Applicant was registered for GST and accounted for GST monthly on a cash basis. • In May and June 2004, the Applicant settled sales of townhouses but did not report the sales in its activity statements. • The Applicant retained a tax agent who prepared year end financial statements and income tax returns, but not activity statements which were prepared by Mr M Barakat of the Applicant partnership. • After lodgement of the activity statements for May and June 2004, Mr Barakat had a conversation with the Tax Office following which the Applicant's GST registration was cancelled with effect from that date. • The Tribunal was satisfied that Mr Barakat believed that the officer with whom he spoke advised that GST on the sales could be included in the partnership's final income tax return to be prepared by the tax agent, but was not satisfied that the officer in fact gave that advice. • In other words, Mr Barakat misunderstood the tax officer's advice. He was heading overseas after the end of the construction project and mistakenly believed that the GST would be brought to account with the final income tax return as the outstanding liability depended on valuations to be obtained by professional advisers. | Issue decided by the Court or Tribunal | The issue decided by the Tribunal was whether the Applicant is liable for an administrative penalty for recklessness as to the operation of the law in respect of the GST shortfall, arising out of the failure to include the sales of the townhouses in the relevant activity statements, pursuant to Division 284 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | The Tribunal decided that, in accordance with s284-15(2), the Applicant is not liable for an administrative penalty, as the Applicant exercised reasonable care.", "Issues_Decided": "The issue decided by the Tribunal was whether the Applicant is liable for an administrative penalty for recklessness as to the operation of the law in respect of the GST shortfall, arising out of the failure to include the sales of the townhouses in the relevant activity statements, pursuant to Division 284 of Schedule 1 to the Taxation Administration Act 1953 (TAA). The Tribunal decided that, in accordance with s284-15(2), the Applicant is not liable for an administrative penalty, as the Applicant exercised reasonable care.", "ATO_View_of_Decision": "The Tax Office position is that s.284-215(2) in Schedule 1 to the TAA requires a decision maker to consider whether, at the time of making the statement, the taxpayer or taxpayer's agent took reasonable care to ensure the statement was not false or misleading. | The Tribunal took into account a telephone call made by the taxpayer, which the Tribunal found had occurred after the lodgement of the activity statements. With respect, to the extent that the Tribunal took into account the telephone conversation, we consider that the Tribunal took into account a consideration that was not relevant to whether the Applicant exercised reasonable care in the preparation and lodgement of the activity statements. | However, the Tax Office considers that overall the outcome in this case is one that turned on its own particular facts. For example, the Tribunal noted that Mr Barakat was endeavouring to finalise his affairs at a time of stress before leaving the country. He did make contact with the Tax Office and did seek to obtain advice. The Tribunal considered that he was not frivolous or irrational and noted there was no evidence of errors or mistakes in the past. It is clear that this is a case where the Tribunal, upon hearing the Applicant's evidence, decided that the Applicant was genuinely mistaken and acted with reasonable care. | Further, the Tribunal indicated that if, contrary to its view, a penalty was applicable, it would have remitted the penalty. Accordingly, even if on appeal it was concluded that the Tribunal took into account an irrelevant consideration, the Federal Court might well decline to remit the decision to the Tribunal. | In those circumstances, we consider that it would not be a responsible use of resources for the Tax Office to appeal against this decision. Accordingly, the Tax Office will not appeal to the Federal Court against the decision of the Tribunal in this matter.", "Administrative_Treatment": "None | Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 94/4 | PS LA 2006/2 | PS LA 2002/8 | 2007 ATC 2363 | 284-15 | 284-75 | 284-90 | 284-225 | 298-20 | section 9-40 | Division 75 | 2001 ATC 4111 | [2004] AATA 786", "Legislative_References": "Taxation Administration Act 1953 284-15 284-75 284-90 284-225 298-20 A New Tax System (Goods and Services Tax) Act 1999 section 9-40 Division 75", "Case_References": "BRK (Bris) Pty Limited v Federal Commissioner of Taxation 2001 ATC 4111 (2001) 46 ATR 347 Re Michael and Sara Kowaldo and Commissioner of Taxation [2004] AATA 786", "Subject_References": "GST administrative penalty recklessness reasonable care", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NT2006/393/00001", "Unmatched_Content": ""}
{"Case_Name": "BHP Billiton Direct Reduced Iron Pty Ltd v Deputy Commissioner of Taxation & Anor", "Venue_Reference_No": "WAD 66/2006", "Venue": "Federal Court of Australia", "Judgment_Date": "2 October 2007", "Date_Published": "17 December 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse. Decision quashed and application remitted to be determined according to law", "Summary_of_Decision": "", "Overview_of_Facts": "Unless the Commissioner grants an extension of time, a loss transfer agreement must be made on or before the day of lodgement of the income company's income tax return for the deduction year. On 8 June 2005 the Applicants requested an extension of time for making an agreement under s 170-50(2)(d) of the ITAA to transfer a loss of $89,848,357 from BHP Billiton Direct Reduced Iron Pty Ltd (DRI) to BHP Development Finance Pty Ltd (Development Finance). The circumstances leading up to the application for an extension of time are set out in detail in His Honour's reasons. | The Deputy Commissioner refused the Applicants' request. The decision-maker's reasons took into account the fact that although the losses were available for transfer from 30 August 2002, DRI chose not to immediately transfer the losses but chose to wait until an audit into the internal finance arrangements of the BHP group was completed and an amended assessment issued to Development Finance disallowing a bad debt deduction of $524,864,748. However the factor of delay was not weighed heavily against the favourable exercise of the discretion because there were both unavoidable and avoidable delays on the part of the Applicants. | The decision-maker also took into account the circumstances in which the amended assessment issued to Development Finance, noting that its behaviour had been found by the Tax Office to be culpable and that tax shortfall penalty of $8,086,352.13 was imposed. The reasons stated that it was appropriate to take into account that \"an audit has been undertaken, the group's position on bad debts has been found to be unreasonably arguable and a penalty was imposed\". It was considered that \"a rating should be applied in relation to the behaviour of [Development Finance] less than the high value ascribed in Taxation Ruling TR 98/12 to, for example, tax avoidance.\" The reasons also stated that as Part IVA had been applied, this was \"a factor to be taken into account and heavily weighted\" against the exercise of the discretion to extend time. This was said to reflect \"the need to penalise to a greater extent any taxpayers who are involved in these serious non-compliance activities\". | Issues decided by the court or tribunal | His Honour Justice French concluded that the decision-maker's discretion miscarried. His Honour summarised his reasons for quashing the decision under review as follows (at [6]): \"...the narrow focus of [the decision-maker's] reasons for refusing to extend time to allow [the Applicants] to enter into a transfer agreement has led him to overlook matters directly relevant to the exercise of the discretion including the legislative purpose of the loss transfer provisions, the absence of any adverse impact of the proposed extension on the administration of the Act and the repeatedly stated intention of the group to seek to transfer the losses in question on crystallisation of the relevant company's tax position. In addition the discretion has miscarried because the decision-maker took the view that allegedly culpable conduct on the part of Development Finance attracted a heavy weighting said to reflect the need to penalise \"to a greater extent\" taxpayers involved in serious non-compliance activities. The decision will be quashed and the matter remitted for reconsideration in accordance with law\" | His Honour set out relevant factors in the exercise of the discretion at [122] of his judgement as follows: (i) The length of the delay in making the agreement. If the delay is short that would be a factor which, depending upon its explanation, will weigh against any adverse impact on good administration. (ii) The explanation for the delay. If a delay has occurred by reason of error or inadvertence on the part of the taxpayer rather than an unwarranted assumption that time would be extended, that may be a factor weighing in favour of the exercise of the discretion to extend time. The Commissioner would, at the same time, be entitled to take the view that corporate taxpayers should have in place systems to ensure that error and inadvertence do not occur and that, absent such systems, error or inadvertence may not warrant the grant of the extension sought. (iii) The delay being the product of an understanding or arrangement with the Commissioner to defer making the transfer agreement until the tax position of the relevant companies for the income year in question has crystallised. While such understandings or arrangements would not give rise to an \"administrative estoppel\" it would be a mandatory relevant consideration to ensure that the primary purpose of the loss transfers facility is not defeated by the Commissioner's own actions. (iv) Related to the above, whether the group has kept the Commissioner informed of its intention to seek to effect a transfer of losses upon crystallisation of the tax position of relevant companies in the group. (v) As was set out in [20] of Taxation Ruling TR 98/12, where an agreement is made out of time as the result of an adjustment to the tax position of the company group by the Commissioner, that may be a factor weighing in favour of the exercise of the discretion. However where the adjustment and the consequential delay is the result of fraud or evasion on the part of a company in the group, then that is a factor which would weigh against the exercise of the discretion. The refusal to extend time in such a case would be based on the entirely legitimate consideration that time should not readily be extended for a delay flowing from an unsuccessful attempt to defeat the broader policy objectives of the ITAA 1997. (vi) Whether the delay would have any adverse impact on the administration of the Act if the extension of time were allowed. | (i) The length of the delay in making the agreement. If the delay is short that would be a factor which, depending upon its explanation, will weigh against any adverse impact on good administration. (ii) The explanation for the delay. If a delay has occurred by reason of error or inadvertence on the part of the taxpayer rather than an unwarranted assumption that time would be extended, that may be a factor weighing in favour of the exercise of the discretion to extend time. The Commissioner would, at the same time, be entitled to take the view that corporate taxpayers should have in place systems to ensure that error and inadvertence do not occur and that, absent such systems, error or inadvertence may not warrant the grant of the extension sought. (iii) The delay being the product of an understanding or arrangement with the Commissioner to defer making the transfer agreement until the tax position of the relevant companies for the income year in question has crystallised. While such understandings or arrangements would not give rise to an \"administrative estoppel\" it would be a mandatory relevant consideration to ensure that the primary purpose of the loss transfers facility is not defeated by the Commissioner's own actions. (iv) Related to the above, whether the group has kept the Commissioner informed of its intention to seek to effect a transfer of losses upon crystallisation of the tax position of relevant companies in the group. (v) As was set out in [20] of Taxation Ruling TR 98/12, where an agreement is made out of time as the result of an adjustment to the tax position of the company group by the Commissioner, that may be a factor weighing in favour of the exercise of the discretion. However where the adjustment and the consequential delay is the result of fraud or evasion on the part of a company in the group, then that is a factor which would weigh against the exercise of the discretion. The refusal to extend time in such a case would be based on the entirely legitimate consideration that time should not readily be extended for a delay flowing from an unsuccessful attempt to defeat the broader policy objectives of the ITAA 1997. (vi) Whether the delay would have any adverse impact on the administration of the Act if the extension of time were allowed.", "Issues_Decided": "His Honour Justice French concluded that the decision-maker's discretion miscarried. His Honour summarised his reasons for quashing the decision under review as follows (at [6]): \"...the narrow focus of [the decision-maker's] reasons for refusing to extend time to allow [the Applicants] to enter into a transfer agreement has led him to overlook matters directly relevant to the exercise of the discretion including the legislative purpose of the loss transfer provisions, the absence of any adverse impact of the proposed extension on the administration of the Act and the repeatedly stated intention of the group to seek to transfer the losses in question on crystallisation of the relevant company's tax position. In addition the discretion has miscarried because the decision-maker took the view that allegedly culpable conduct on the part of Development Finance attracted a heavy weighting said to reflect the need to penalise \"to a greater extent\" taxpayers involved in serious non-compliance activities. The decision will be quashed and the matter remitted for reconsideration in accordance with law\" His Honour set out relevant factors in the exercise of the discretion at [122] of his judgement as follows: (i) The length of the delay in making the agreement. If the delay is short that would be a factor which, depending upon its explanation, will weigh against any adverse impact on good administration. (ii) The explanation for the delay. If a delay has occurred by reason of error or inadvertence on the part of the taxpayer rather than an unwarranted assumption that time would be extended, that may be a factor weighing in favour of the exercise of the discretion to extend time. The Commissioner would, at the same time, be entitled to take the view that corporate taxpayers should have in place systems to ensure that error and inadvertence do not occur and that, absent such systems, error or inadvertence may not warrant the grant of the extension sought. (iii) The delay being the product of an understanding or arrangement with the Commissioner to defer making the transfer agreement until the tax position of the relevant companies for the income year in question has crystallised. While such understandings or arrangements would not give rise to an \"administrative estoppel\" it would be a mandatory relevant consideration to ensure that the primary purpose of the loss transfers facility is not defeated by the Commissioner's own actions. (iv) Related to the above, whether the group has kept the Commissioner informed of its intention to seek to effect a transfer of losses upon crystallisation of the tax position of relevant companies in the group. (v) As was set out in [20] of Taxation Ruling TR 98/12, where an agreement is made out of time as the result of an adjustment to the tax position of the company group by the Commissioner, that may be a factor weighing in favour of the exercise of the discretion. However where the adjustment and the consequential delay is the result of fraud or evasion on the part of a company in the group, then that is a factor which would weigh against the exercise of the discretion. The refusal to extend time in such a case would be based on the entirely legitimate consideration that time should not readily be extended for a delay flowing from an unsuccessful attempt to defeat the broader policy objectives of the ITAA 1997. (vi) Whether the delay would have any adverse impact on the administration of the Act if the extension of time were allowed. (i) The length of the delay in making the agreement. If the delay is short that would be a factor which, depending upon its explanation, will weigh against any adverse impact on good administration. (ii) The explanation for the delay. If a delay has occurred by reason of error or inadvertence on the part of the taxpayer rather than an unwarranted assumption that time would be extended, that may be a factor weighing in favour of the exercise of the discretion to extend time. The Commissioner would, at the same time, be entitled to take the view that corporate taxpayers should have in place systems to ensure that error and inadvertence do not occur and that, absent such systems, error or inadvertence may not warrant the grant of the extension sought. (iii) The delay being the product of an understanding or arrangement with the Commissioner to defer making the transfer agreement until the tax position of the relevant companies for the income year in question has crystallised. While such understandings or arrangements would not give rise to an \"administrative estoppel\" it would be a mandatory relevant consideration to ensure that the primary purpose of the loss transfers facility is not defeated by the Commissioner's own actions. (iv) Related to the above, whether the group has kept the Commissioner informed of its intention to seek to effect a transfer of losses upon crystallisation of the tax position of relevant companies in the group. (v) As was set out in [20] of Taxation Ruling TR 98/12, where an agreement is made out of time as the result of an adjustment to the tax position of the company group by the Commissioner, that may be a factor weighing in favour of the exercise of the discretion. However where the adjustment and the consequential delay is the result of fraud or evasion on the part of a company in the group, then that is a factor which would weigh against the exercise of the discretion. The refusal to extend time in such a case would be based on the entirely legitimate consideration that time should not readily be extended for a delay flowing from an unsuccessful attempt to defeat the broader policy objectives of the ITAA 1997. (vi) Whether the delay would have any adverse impact on the administration of the Act if the extension of time were allowed.", "ATO_View_of_Decision": "The tax office has not appealed against His Honour's decision. | The decision confirms that the policy reflected in Taxation Ruling TR 98/12 guiding the exercise of the discretion to extend time in s 170 50(2)(d) does not offend against general principles of administrative law. | The decision emphasises the need to consider the full range of factors relevant to the statutory purposes and policy to which the transfer provisions in Subdivision 170-A and the relevant time limit are directed. The major factors to be taken into account are set out in His Honour's reasons and include statutory purposes, the length and reason for the delay, prejudice on both sides and whether there was ongoing advice of the intention to effect loss transfers. | The decision also affirms the decision in Commissioner of Taxation v Asiamet (No 1) Resources Pty Ltd (2004) 137 FCR 146. It is permissible to consider, amongst the full range of factors warranting consideration, the conduct of a company group giving rise to an adjustment and whether the exercise of the discretion to grant an extension of time would undermine the policy of other provisions that seek to deter taxpayers from taking positions that are not reasonably arguable or are based on a tax avoidance purpose, or provisions that otherwise seek to deter taxpayers from engaging in culpable conduct.", "Administrative_Treatment": "", "Related_Documents": "TR 98/12 | 2007 ATC 5071 | 170-50(2)(d) | (1984) 3 FCR 344 | (1998) 98 ATC 4634 | (1999) 99 ATC 4516 | (2004) 2004 ATC 4303 | (1986) 162 CLR 24 | (2003) 2003 ATC 4495 | (1999) 99 ATC 4711", "Legislative_References": "Income Tax Assessment Act 1997 170-50(2)(d)", "Case_References": "Hunter Valley Developments v Cohen (1984) 3 FCR 344 Bellinz v Commissioner of Taxation (1998) 84 FCR 154 (1998) 39 ATR 198 (1998) 98 ATC 4634 Brown v Federal Commissioner of Taxation (1999) 42 ATR 118 (1999) 99 ATC 4516 Commissioner of Taxation v Asiamet (No 1) Resources Pty Ltd (2004) 137 FCR 146 (2004) 55 ATR 239 (2004) 2004 ATC 4303 Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 Minister for Immigration, Local Government and Ethnic Affairs v Gray (1994) 50 FCR 189 Ross Palmer Holdings v Federal Commissioner of Taxation (2003) 52 ATR 805 (2003) 2003 ATC 4495 Zizza v Federal Commissioner of Taxation (1999) 42 ATR 371 (1999) 99 ATC 4711", "Subject_References": "Corporate groups discretion in Commissioner of Taxation to extend time for making agreement to transfer losses statutory purposes factors relevant to exercise of discretion refusal of extension of time whether exercise of discretion miscarried failure to consider mandatory relevant factors tax avoidance activity by group member express use of discretion to penalise taxpayer irrelevant consideration", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD66/2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Block & Ors v Commissioner of Taxation", "Venue_Reference_No": "WT 2006/754-770", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "26 October 2007", "Date_Published": "15 February 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "1. The first applicant (the partnership) was formed in 1996. | 2. The second and third applicants are the partners in the partnership. | 3. The partnership had carried on horse racing and breeding and sheep breeding activities since 1996 on a property owned by the partners. | 4. The partnership registered for GST and lodged business activity statements for the tax periods ended 31 December 2001 to 30 September 2005. | 5. The partnership's activities incurred significant losses. | 6. The partners claimed deductions for their respective shares of the partnership losses in their individual tax returns. | 7. The Commissioner considered that the partnership's activities did not amount to carrying on a business or an enterprise for GST purposes. | 8. Consequently, the Commissioner disallowed income tax deductions claimed by the partners for their shares of the partnership losses, cancelled the GST registration and issued assessments of net amounts for the relevant tax periods. | 9. Objections were lodged by the applicants and disallowed by the Commissioner. The applicants applied for review of the objection decisions. | 10. The Tribunal accepted the evidence given by the third applicant and found that the partnership conducted its activities in a businesslike and commercial manner, preparing and maintaining all appropriate books and records and engaging accountants to prepare the tax returns and accounts for the business. The Tribunal had regard to a range of other matters which included substantial improvements made to the property and the partners' history and experience relevant to the industry. | 11. While the partnership incurred significant losses, the Tribunal accepted that these were the result of capital costs in setting up the business, the subsequent restructuring of the business and a series of unforeseeable setbacks. | 12. The objection decisions were therefore set aside. | Issues decided by the court or tribunal | 1. The first applicant was carrying on a business of horse and sheep breeding at all relevant times and was entitled to be registered for GST. | 2. The first applicant correctly returned taxable supplies and creditable acquisitions in its business activity statements. | 3. The first applicant was entitled to the deductions claimed in its income tax returns. | 4. The second and third applicants were entitled to deductions for their respective interests in the first applicant's net loss incurred in each of the years of income.", "Issues_Decided": "1. The first applicant was carrying on a business of horse and sheep breeding at all relevant times and was entitled to be registered for GST. 2. The first applicant correctly returned taxable supplies and creditable acquisitions in its business activity statements. 3. The first applicant was entitled to the deductions claimed in its income tax returns. 4. The second and third applicants were entitled to deductions for their respective interests in the first applicant's net loss incurred in each of the years of income.", "ATO_View_of_Decision": "The Commissioner accepts that the decision is one that was open to the Tribunal on the view of the evidence taken by the Tribunal and will not appeal the decision.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 2007/D9 | 2007 ATC 2735 | 9-5 | 9-20(1) | 9-20(2) | 9-40 | 11-5 | 11-20 | 23-10 | 195-1 | 8-1 | 92(2)", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-5 9-20(1) 9-20(2) 9-40 11-5 11-20 23-10 195-1 Income Tax Assessment Act 1997 8-1 Income Tax Assessment Act 1936 92(2)", "Case_References": "", "Subject_References": "Income tax GST partnership enterprise horse racing horse breeding sheep breeding", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WT2006/754-770/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Indooroopilly Childrens Services Pty Ltd", "Venue_Reference_No": "QUD 253 OF 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "22 February 2007", "Date_Published": "25 February 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether FBT applied to the gift of shares to a trust established for the benefit of a class of employees.", "Overview_of_Facts": "• The respondent applied for a private ruling under Part IVAA of the Taxation Administration Act 1953 as to whether a liability for fringe benefits tax arose on the basis of a certain proposed arrangement set out in the ruling request. • ABC Development Learning Centres Pty Ltd (ABC) is licensed to operate childcare centres. It licences or franchises Regional Management Companies (RMCs) to carry on the operation of the childcare centres. The RMCs employ their own staff. The respondent was one such RMC. • ABC is the wholly owned subsidiary of ABC Learning Centres Ltd (ABC Public). ABC Public indicated an intention to: 1) establish an employee share plan scheme which would provide shares in ABC Public to current and future employees of the RMCs; 2) settle a trust - a Carers Share Plan (CSP) - with an arm's length trustee; 3) gift shares to the trustee of the CSP. The RMCs, including the respondent, were intended to have no role in the operation of the CSP. • The initial share issue was to be calculated by reference to the number of employees of the RMCs who had signed AWAs, the length of employment with RMCs and other criteria. The issue was not to involve any specification as to the number or value of shares to which any individual employee would be entitled. The trustee would exercise its discretion to issue shares to particular employees at a later time having regard to matters such as their employment position and their years of service. • The Commissioner ruled that the initial issue of shares by ABC Public would give rise to the provision of a fringe benefit in respect of the respondent's employees. The Commissioner relied on his views in Taxation Ruling TR 1999/5. The respondent objected to the ruling and the Commissioner disallowed the objection. The respondent appealed to the Federal Court. • The decision of Collier J was handed down on 14 June 2006. Her Honour decided that the view expressed in Essenbourne Pty Ltd v FC of T 2002 ATC 5201, about how the law should apply, was not clearly wrong and should be followed. Her Honour also decided that the facts of the case were not relevantly distinguishable from Essenbourne . • In Essenbourne , Kiefel J held that a benefit provided to a trust will not be a 'fringe benefit' unless it is provided in respect of the employment of a particular employee. This view has been followed in a number of later single judge decisions - Walstern Pty Ltd v FC of T (2003) 138 FCR 1, Spotlight Stores Pty Ltd v FC of T 2004 ATC 4674, Caelli Constructions (Vic) Pty Ltd v FC of T (2005) 147 FCR 449 and Cameron Brae Pty Ltd v FC of T 2006 ATC 4433. • The Commissioner's view of the law, as expressed in TR 1999/5, was that a benefit provided in respect of the employment of more than one employee is a 'fringe benefit', notwithstanding that it is not provided in respect of a particular employee; alternatively, that a benefit provided in respect of more than one employee is provided in relation to each and every employee. • The Commissioner appealed from the decision of Collier J | • The respondent applied for a private ruling under Part IVAA of the Taxation Administration Act 1953 as to whether a liability for fringe benefits tax arose on the basis of a certain proposed arrangement set out in the ruling request. • ABC Development Learning Centres Pty Ltd (ABC) is licensed to operate childcare centres. It licences or franchises Regional Management Companies (RMCs) to carry on the operation of the childcare centres. The RMCs employ their own staff. The respondent was one such RMC. • ABC is the wholly owned subsidiary of ABC Learning Centres Ltd (ABC Public). ABC Public indicated an intention to: 1) establish an employee share plan scheme which would provide shares in ABC Public to current and future employees of the RMCs; 2) settle a trust - a Carers Share Plan (CSP) - with an arm's length trustee; 3) gift shares to the trustee of the CSP. The RMCs, including the respondent, were intended to have no role in the operation of the CSP. • The initial share issue was to be calculated by reference to the number of employees of the RMCs who had signed AWAs, the length of employment with RMCs and other criteria. The issue was not to involve any specification as to the number or value of shares to which any individual employee would be entitled. The trustee would exercise its discretion to issue shares to particular employees at a later time having regard to matters such as their employment position and their years of service. • The Commissioner ruled that the initial issue of shares by ABC Public would give rise to the provision of a fringe benefit in respect of the respondent's employees. The Commissioner relied on his views in Taxation Ruling TR 1999/5. The respondent objected to the ruling and the Commissioner disallowed the objection. The respondent appealed to the Federal Court. • The decision of Collier J was handed down on 14 June 2006. Her Honour decided that the view expressed in Essenbourne Pty Ltd v FC of T 2002 ATC 5201, about how the law should apply, was not clearly wrong and should be followed. Her Honour also decided that the facts of the case were not relevantly distinguishable from Essenbourne . • In Essenbourne , Kiefel J held that a benefit provided to a trust will not be a 'fringe benefit' unless it is provided in respect of the employment of a particular employee. This view has been followed in a number of later single judge decisions - Walstern Pty Ltd v FC of T (2003) 138 FCR 1, Spotlight Stores Pty Ltd v FC of T 2004 ATC 4674, Caelli Constructions (Vic) Pty Ltd v FC of T (2005) 147 FCR 449 and Cameron Brae Pty Ltd v FC of T 2006 ATC 4433. • The Commissioner's view of the law, as expressed in TR 1999/5, was that a benefit provided in respect of the employment of more than one employee is a 'fringe benefit', notwithstanding that it is not provided in respect of a particular employee; alternatively, that a benefit provided in respect of more than one employee is provided in relation to each and every employee. • The Commissioner appealed from the decision of Collier J | Issues decided by the court or tribunal | The court was unanimous in dismissing the Commissioner's appeal. Edmonds J provided reasons for decision, with which Stone and Allsop JJ agreed in separate judgements. | Edmonds J said that it was necessary, as Kiefel J had held in Essenbourne , to identify a particular employee in respect of whose employment a benefit is provided (paragraph 35). References to 'the employee' in the definition of fringe benefits support the view that there had to be a particular employee identified. Those references limited the term 'in relation to an employee' at the beginning of the definition. | His Honour also said that the requirement to identify a particular employee in respect of whom a benefit is provided is consistent with the identification of an 'associate' to whom a benefit is provided - in many cases it will not be possible to determine whether a recipient of a benefit is an associate of an employee unless the identity of the relevant employee is known (paragraph 36). | His Honour accepted that a benefit provided to a common associate of a number of employees, such as the trustee of a trust under which those employees are capable of benefiting, can be a fringe benefit provided that the identity of each employee who will take a benefit is known with sufficient particularity at the time that the benefit is provided (paragraph 37). However, the shares provided to the trustee in this case were not provided in respect of the employment of any particular employee nor all of the employees capable of benefiting who will in fact receive a benefit - only some employees may later benefit, and their identity is not known (paragraph 38). | His Honour said that his conclusion was consistent with his view that there is no discernable legislative policy 'to accelerate and bring to charge.... a benefit which the employee may never get as against a policy of deferring taxes on the benefit unless and until it comes home to the employee' (paragraph 39). | If he were wrong on the main construction point, his Honour concluded that paragraph (e) of the definition of fringe benefit would not apply because it did not appear that there was any arrangement between ABC Public and the respondent for the provision of the benefit (paragraph 40); however, he would have held that paragraph (ea) applied, the respondent participating in or facilitating a scheme or plan involving the provision of the benefit. | Allsop J criticised what he perceived as the Taxation Office administering the law contrary to the earlier single judge decisions of the court about the meaning and content of the definition of a 'fringe benefit'. If the Commissioner has the view that the courts have misunderstood the meaning of the law, his Honour pointed out that the proper course would be to appeal a decision, by 'prompt institution of other proceedings', or the executive can refer the matter for consideration of legislative change. Stone and Edmonds JJ agreed with his Honour's comments, the latter adding that the Commissioner could have earlier sought 'a declaration from the Court as to the proper construction' of the relevant law (paragraph 47).", "Issues_Decided": "The court was unanimous in dismissing the Commissioner's appeal. Edmonds J provided reasons for decision, with which Stone and Allsop JJ agreed in separate judgements. Edmonds J said that it was necessary, as Kiefel J had held in Essenbourne , to identify a particular employee in respect of whose employment a benefit is provided (paragraph 35). References to 'the employee' in the definition of fringe benefits support the view that there had to be a particular employee identified. Those references limited the term 'in relation to an employee' at the beginning of the definition. His Honour also said that the requirement to identify a particular employee in respect of whom a benefit is provided is consistent with the identification of an 'associate' to whom a benefit is provided - in many cases it will not be possible to determine whether a recipient of a benefit is an associate of an employee unless the identity of the relevant employee is known (paragraph 36). His Honour accepted that a benefit provided to a common associate of a number of employees, such as the trustee of a trust under which those employees are capable of benefiting, can be a fringe benefit provided that the identity of each employee who will take a benefit is known with sufficient particularity at the time that the benefit is provided (paragraph 37). However, the shares provided to the trustee in this case were not provided in respect of the employment of any particular employee nor all of the employees capable of benefiting who will in fact receive a benefit - only some employees may later benefit, and their identity is not known (paragraph 38). His Honour said that his conclusion was consistent with his view that there is no discernable legislative policy 'to accelerate and bring to charge.... a benefit which the employee may never get as against a policy of deferring taxes on the benefit unless and until it comes home to the employee' (paragraph 39). If he were wrong on the main construction point, his Honour concluded that paragraph (e) of the definition of fringe benefit would not apply because it did not appear that there was any arrangement between ABC Public and the respondent for the provision of the benefit (paragraph 40); however, he would have held that paragraph (ea) applied, the respondent participating in or facilitating a scheme or plan involving the provision of the benefit. Allsop J criticised what he perceived as the Taxation Office administering the law contrary to the earlier single judge decisions of the court about the meaning and content of the definition of a 'fringe benefit'. If the Commissioner has the view that the courts have misunderstood the meaning of the law, his Honour pointed out that the proper course would be to appeal a decision, by 'prompt institution of other proceedings', or the executive can refer the matter for consideration of legislative change. Stone and Edmonds JJ agreed with his Honour's comments, the latter adding that the Commissioner could have earlier sought 'a declaration from the Court as to the proper construction' of the relevant law (paragraph 47).", "ATO_View_of_Decision": "The Commissioner announced on 22 February 2007 that he would not be seeking special leave to appeal from the decision of the Full Court and that the ATO will be reviewing the FBT assessments associated with outstanding employee benefit arrangement cases that are affected by the decision of the Full Court. The decision has now been applied to the affected cases. | In view of the Court's critical comments the Tax Office sought further advice from the Solicitor-General on the appropriateness of our conduct and what avenues are available for using the declaratory powers of the Court to clarify the proper construction of the taxation laws in a more timely way as suggested by the Court. | The joint advice led by the Solicitor-General has been received. The advice received refers to two previous advices, dated 15 December 2005 and 16 January 2006 . | Declaratory Proceedings | The Solicitor-General and counsel have advised that it would not usually be appropriate for the Commissioner to seek to use declaratory proceedings to resolve taxation disputes. In many cases, a declaration from the court would not be available to test an interpretation of the law because the question would be hypothetical or advisory. The advice confirms that the usual objection and appeal processes involving assessments and private rulings should be used to resolve issues between a taxpayer and the ATO. | Single Judge Decisions | The Solicitor-General and counsel have confirmed their earlier advice that the ATO is not required to follow a single judge decision if, on the basis of legal advice, there are good arguments that, as a matter of law, the decision is incorrect and prompt action is being taken to clarify the position. In the rare circumstances where the Commissioner does not appeal a decision which is considered incorrect, the ATO will seek to take prompt action to test the issue before the Full Court. | The Tax Office accepts that it would have been better if the FBT issue decided by the court in Indooroopilly could have been considered by the Full Court more promptly.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Taxation Ruling TR 1999/5 has been withdrawn. | The decision in the Caelli Constructions case supports the views that a trustee of a trust or a non-complying superannuation fund can be an 'associate' of an employee where the employee is capable of benefiting under the trust or fund, and that the payment of money by an employer to the trustee of a trust in respect of the employment of an employee is the provision of a property fringe benefit.", "Related_Documents": "PS LA 2007/2 | TR 1999/5 | 2007 ATC 4236 | 136(1) | 2002 ATC 5201 | 2003 ATC 5076 | 2004 ATC 4674 | 2005 ATC 4938 | 2006 ATC 4433 | TR 99/5 | PSLA 2007/2", "Legislative_References": "Fringe Benefits Tax Assessment Act 1986 136(1) definition of \"fringe benefit\" definition of \"in respect of\"", "Case_References": "Essenbourne Pty Ltd v Federal Commissioner of Taxation [2002] FCA 1577 2002 ATC 5201 51 ATR 629 Walstern v Federal Commissioner of Taxation (2003) 138 FCR 1 (2003) 54 ATR 423 2003 ATC 5076 Spotlight Stores Pty Ltd v Federal Commissioner of Taxation [2004] FCA 650 2004 ATC 4674 (2004) 55 ATR 745 Caelli Constructions (Vic) Pty Ltd v Commissioner of Taxation (2005) 147 FCR 449 60 ATR 542 2005 ATC 4938 Cameron Brae Pty Ltd v Commissioner of Taxation (2006) FCA 918 2006 ATC 4433 63 ATR 488", "Subject_References": "Fringe Benefits Tax Carers share plan Employee benefit trust", "Other_References": "TR 99/5 PSLA 2007/2", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD253OF2006/00001", "Unmatched_Content": "Implications on Law Administration Practice Statements: PSLA 2007/2 has been withdrawn and replaced with PSLA 2009/9"}
{"Case_Name": "Commissioner of Taxation v McNeil", "Venue_Reference_No": "S56/2006", "Venue": "High Court", "Judgment_Date": "22 February 2007", "Date_Published": "10 January 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the assessability of the value of sell-back rights provided to a shareholder of St George Bank Limited. This statement takes account of the effect of amending legislation on the application of the case.", "Overview_of_Facts": "In McNeil the High Court (Gummow ACJ, Hayne, Heydon, and Crennan JJ, with Callinan J dissenting) decided that the value of sell-back rights issued by St George Bank Ltd (SGL) to Mrs McNeil, a shareholder, was income according to ordinary concepts, derived by her at the time of the granting of the rights. | In February 2001, SGL issued to its shareholders, including Mrs McNeil, one sell-back right for every twenty shares they held. The rights permitted the holder of the rights to sell back some of their shares at a price somewhat above their market value at the time the rights were granted to SGL shareholders. For any right, the shareholders could exercise their right and sell back a share of theirs to SGL for a sum in excess of its market value; sell the right on market, enabling another shareholder to sell back a share of their own to SGL for a sum in excess of its market value; or do nothing, in which case their right would be sold and they would receive payment from the price. | Under the arrangement, shareholders were advised that they did not have to sell any of their shares to SGL. Conversely, shareholders could purchase additional sell-back rights on the Australian Securities Exchange (ASX) and increase the number of shares they could oblige SGL to acquire. | Mrs McNeil chose to do nothing, and her sell back rights were sold and the money realised paid over to her. The sell-back right had a value when issued to Mrs McNeil, which was agreed between the parties to the case to be $1.89. | All of the purchase price of the SGL shares bought back on exercise of sell-back rights issued under the arrangement was debited by SGL to the SGL share capital account, and was funded from existing cash resources of SGL. | The Tax Office issued Class Ruling CR 2001/75 stating that those shareholders who received sell-back rights would be liable to pay income tax on the value of the rights when granted to them. | St George funded litigation on behalf of shareholders to challenge the class ruling. | The income tax laws were amended by Tax Laws Amendment (2008 Measures No 3) Act 2008 , Schedule 1, with application to rights issued on or after 1 July 2001, and these amendments must be taken into account in understanding the effect of McNeil . | Issues decided by the court | On 22 February 2007 the High Court allowed the Commissioner's appeal from the Full Federal Court that the value of share sell-back rights granted to SGL shareholders in 2001 are considered income and therefore assessable. | The sell-back rights, and the embedded value of the right to sell back SGL shares for more than their market value, were not dividends for the purposes of the income tax law [1] . The majority decided that this did not preclude the rights being income according to general concepts [2] . | In coming to their decision that the sell back rights were income in Mrs McNeil's hands though not dividends, the majority relied on established principles that determine the character of income. The first principle holds that whether a particular receipt has the character of the derivation of income depends upon its quality in the hands of the recipient [3] and not the character of the expenditure by the other party. | In applying this first principle it is critical to appreciate that those characteristics of a receipt which determine its income nature must be present at the point of derivation. They do not include characteristics that may be acquired thereafter when the receipt has already become the taxpayer's asset to be used or enjoyed as they see fit. It did not matter in this case that the sell-back rights held for Mrs McNeil arose out of the decision by SGL to undertake a share buyback or that the buyback involved capital restructuring by SGL [4] . | The second principle is that a gain derived from holding property has the character of income and this includes a gain to an owner who has waited passively for that return from property [5] . The sell-back rights which had value represented some sort of financial gain to Mrs McNeil. The deeds poll were the means by which the gain was realised and conveyed to Mrs McNeil, as she did not exercise or sell her rights herself. But the gain on receiving her rights was a gain from property (from her shares), something of value proceeding from the property and that was received by Mrs McNeil for her separate use. In these circumstances, the gain is to be regarded as income. | The question for the Court then became whether the sell back rights enjoyed by Mrs McNeil represented a gain to her from property rather than a realisation of or of part of the property. In other words, the question was whether the rights were severed from, and were a product of, her shareholding in SGL which she retained after receiving her rights. If the grant to her of the sell-back rights were for giving up part of the profit-yielding structure represented by her shareholding, or were carved out of that structure, the grant would not have left her shareholding intact and untouched but might have represented merely a re-expression of the rights which constituted the share. In such circumstances the sell-back right would not constitute a gain from property in her hands but rather a receipt of capital [6] . | The majority of the Court did not see the receipt of the sell back rights as altering the capital structure that was Mrs McNeil's shareholding in SGL. Rather, \"[t]he issue of the 272 sell-back rights for the taxpayer and what then ensued did not involve any return of capital paid up on her shares, nor any variation or re-expression of her rights as a shareholder.\" [7] | Their Honours dismissed the taxpayer's submission that SGL issued the sell-back rights '\"in partial satisfaction of the shareholders' right to participate in reductions of capital\" being \"within the congeries of rights comprising the shares.\"' Rather, the majority pointed out, \"[i]t is the character of grant of rights to the shareholders that ... is decisive. It is not the reduction of capital effected by SGL pursuant to the new statutory process provided by the Corporations Law. [8] \" In other words, the sell-back rights were characterised as something of independent value which was the product of and severed and detached from Mrs McNeil's shareholding in SGL and thus constituted her income according to ordinary concepts, as income from the property constituted by her shares. | The majority concluded: \"the sell-back rights which the taxpayer enjoyed and which were turned to account on her behalf did not represent any portion of her rights as a shareholder under the constitution of SGL.\" [9] | Consequently, in becoming entitled to the rights, the taxpayer derived income.", "Issues_Decided": "On 22 February 2007 the High Court allowed the Commissioner's appeal from the Full Federal Court that the value of share sell-back rights granted to SGL shareholders in 2001 are considered income and therefore assessable. The sell-back rights, and the embedded value of the right to sell back SGL shares for more than their market value, were not dividends for the purposes of the income tax law [1] . The majority decided that this did not preclude the rights being income according to general concepts [2] . In coming to their decision that the sell back rights were income in Mrs McNeil's hands though not dividends, the majority relied on established principles that determine the character of income. The first principle holds that whether a particular receipt has the character of the derivation of income depends upon its quality in the hands of the recipient [3] and not the character of the expenditure by the other party. In applying this first principle it is critical to appreciate that those characteristics of a receipt which determine its income nature must be present at the point of derivation. They do not include characteristics that may be acquired thereafter when the receipt has already become the taxpayer's asset to be used or enjoyed as they see fit. It did not matter in this case that the sell-back rights held for Mrs McNeil arose out of the decision by SGL to undertake a share buyback or that the buyback involved capital restructuring by SGL [4] . The second principle is that a gain derived from holding property has the character of income and this includes a gain to an owner who has waited passively for that return from property [5] . The sell-back rights which had value represented some sort of financial gain to Mrs McNeil. The deeds poll were the means by which the gain was realised and conveyed to Mrs McNeil, as she did not exercise or sell her rights herself. But the gain on receiving her rights was a gain from property (from her shares), something of value proceeding from the property and that was received by Mrs McNeil for her separate use. In these circumstances, the gain is to be regarded as income. The question for the Court then became whether the sell back rights enjoyed by Mrs McNeil represented a gain to her from property rather than a realisation of or of part of the property. In other words, the question was whether the rights were severed from, and were a product of, her shareholding in SGL which she retained after receiving her rights. If the grant to her of the sell-back rights were for giving up part of the profit-yielding structure represented by her shareholding, or were carved out of that structure, the grant would not have left her shareholding intact and untouched but might have represented merely a re-expression of the rights which constituted the share. In such circumstances the sell-back right would not constitute a gain from property in her hands but rather a receipt of capital [6] . The majority of the Court did not see the receipt of the sell back rights as altering the capital structure that was Mrs McNeil's shareholding in SGL. Rather, \"[t]he issue of the 272 sell-back rights for the taxpayer and what then ensued did not involve any return of capital paid up on her shares, nor any variation or re-expression of her rights as a shareholder.\" [7] Their Honours dismissed the taxpayer's submission that SGL issued the sell-back rights '\"in partial satisfaction of the shareholders' right to participate in reductions of capital\" being \"within the congeries of rights comprising the shares.\"' Rather, the majority pointed out, \"[i]t is the character of grant of rights to the shareholders that ... is decisive. It is not the reduction of capital effected by SGL pursuant to the new statutory process provided by the Corporations Law. [8] \" In other words, the sell-back rights were characterised as something of independent value which was the product of and severed and detached from Mrs McNeil's shareholding in SGL and thus constituted her income according to ordinary concepts, as income from the property constituted by her shares. The majority concluded: \"the sell-back rights which the taxpayer enjoyed and which were turned to account on her behalf did not represent any portion of her rights as a shareholder under the constitution of SGL.\" [9] Consequently, in becoming entitled to the rights, the taxpayer derived income.", "ATO_View_of_Decision": "Application of the McNeil decision to call options | The McNeil decision applied established principles for determining the character of income to a specific set of facts, in this case, in relation to rights issued that were not (and the value of which was not) a dividend for income tax purposes. Those rights were for shareholders in a company to sell back their shares to the company for a sum in excess of the market value of the shares. | The value of the rights issued in McNeil was income from property constituted by shares. In particular, the majority focused on the specific relationship between a company and shareholder, and on the specific right issued to that shareholder by the company in relation to equity in the company. | For 'put' options, that is, for rights to a shareholder to sell back shares in their company, under section 112-37 of the Income Tax Assessment Act 1997 (the ITAA 1997) the first element of their CGT cost base is the sum of any amount included in assessable income as ordinary income as a result of the shareholder acquiring the right, and any amount paid to acquire the right. So any amount of income for such 'put' options will be included in the cost base for the rights. The legislation also provides by paragraph 104-155(ea) that a shareholder has no CGT event H2 from such a right, and by item 7 of the table to subsection 112-20(3) that the market value substitution rule does not apply to a shareholder getting such a right. (Specific provisions relating to unit holders are not needed in relation to provisions that do not apply to unit holders.) | The McNeil decision is equally applicable in determining the character of the value of other rights where not a dividend for income tax purposes. Where those rights are for shareholders in a company to subscribe for shares in the company at less than their market value, the value of those rights ('call' options) will be income on ordinary concepts in the same way as in relation to the 'put' options considered in McNeil itself. | The High Court made it clear that, in characterising the derivation from issue of the right in the hands of the shareholders, it did not matter that the option, if exercised, would result in a reduction of share capital by the company. [10] That suggests that it also does not matter that an option to subscribe for shares at less than their market value, if exercised, results in a further contribution of share capital to the company on subscription if the value of the right otherwise leads to the derivation of assessable income. | In Class Ruling CR 2007/42 , the Tax Office applied the principles outlined in the McNeil decision to options issued to shareholders of Hutchison Telecommunications (Australia) Limited (HTAL) to acquire further shares in HTAL under an arrangement relating to the raising of additional equity funding. Under the terms of the arrangement the call options were issued to shareholders at no cost, were tradable on the ASX, and shareholders could choose whether to exercise the options, trade them or let them lapse. The call options were for $0.21 per share acquired, below the market value of HTAL shares, and so were themselves of value. | For 'call' options, that is, for rights to a shareholder to acquire further shares in their company or to a unit holder to acquire additional units in their trust, section 59-40 of the ITAA 1997 may now apply to treat the value of the rights at the time of issue as non-assessable and non-exempt income of the shareholder or unit holder. The section will apply where conditions are met, including that the rights are issued to the equity holder because of their ownership of the equity, that the original equity and the rights be neither revenue assets nor trading stock at the time the rights issue, that the rights not be acquired under an employee share scheme, that the original equity be neither traditional securities nor convertible interests for tax purposes, and that the rights not be traditional securities for tax purposes. | The amendments also provide by paragraph 104-135(1)(b) that the value of a 'call' option will be disregarded in working out a capital payment for shares giving rise to CGT event G1, under section 104-135. Such payments arise in relation to shares when a company pays a shareholder certain amounts which are non-assessable. (Specific provisions relating to unit holders are not needed in relation to provisions that do not apply to unit holders.) | Application of the McNeil decision to dividends | The McNeil decision may apply to some dividends, in that even if they were not dividends they would be income on general principles by application of the decision. However, where a right (or the value of a right), or compensation when a right is unavailable or is not exercised, is a dividend, the McNeil decision does not operate in substitution for the application of the income tax law to dividends. | Application of the McNeil decision to other types of rights | The essence of McNeil is that a person who owns property, derives a gain from that property, and does not dispose of, or otherwise 'affect', the property by deriving the gain, derives income. However, the decision in McNeil relies upon established principles of characterising income (see Commissioner of Taxation v Montgomery (1999) 198 CLR 639), and those wider principles will apply on their terms whether or not there is an option involved, and whether or not the gain arises in an arrangement involving a company and its shareholders. An arrangement that is structured in such a way as to provide the owner of property with a gain from that property which is severed from and does not affect the property will result in the gain being treated as income of the recipient, in accordance with McNeil and the wider principles which it applies. | Such an arrangement can only result in the participant deriving income at the time of granting of rights in relation to the property if the terms on which the rights may be exercised, taking account of the cost of acquiring them, is such that the rights have value. This will be true if the exercise of the rights is on non-market-value terms. In the McNeil case the sell-back rights had value for SGL shareholders because the terms of the rights permitted shareholders to sell their shares to SGL at a price that exceeded the market value of the shares at the time the rights were granted. | It is impossible to make general statements about the application of the principles expressed in Montgomery and McNeil to materially different facts. However, in the closely analogous case of a unit trust estate conducted for the purpose of profit, and in which units are held by unit holders for the purpose of deriving income from those units as items of property, where the trustee issues put back rights to unit holders in respect of units entitling unit holders to redeem units in the trust at above market values, in corresponding circumstances the same result would follow as in McNeil : the issue of the rights would result in the unit holders deriving income of the value of the rights. | In the same way, issuing rights to unit holders to subscribe for units in the trust at less than their market value would result in the unit holders deriving income of the value of the rights. As noted above and for similar rights issued to shareholders, section 59-40 of the ITAA 1997 may now apply to treat the value of the rights at the time of issue as non-assessable and non-exempt income of the unit holder. The section will apply where conditions are met, including that the rights are issued to the unit holder because of their ownership of the units, that the original units and the rights be neither revenue assets nor trading stock at the time the rights issue, that the rights not be acquired under an employee share scheme, that the original units be neither traditional securities nor convertible interests for tax purposes, and that the rights not be traditional securities for tax purposes. | 'Renounceable' and 'non-renounceable' rights | The decision in McNeil does not depend on a distinction between 'renounceable' and 'non-renounceable' rights. As a matter of commercial terminology, different rights are likely to be described as renounceable or as non-renounceable in circumstances which do not necessarily correspond to the principles applied in McNeil . Nor are the terms used commercially with a single consistent meaning. | Rights issued to a shareholder or unit holder which can be traded, assigned or otherwise dealt with as commercial objects in their own right by or for the holder (as well as being exercised or being allowed to lapse), and which are received by a shareholder or unit holder by reason of their share or unit holding, will be income according to ordinary concepts. This follows from the fundamental principles articulated in Montgomery and McNeil concerning income from property. For 'call' options, that is, for rights to a shareholder to acquire further shares in their company or to a unit holder to acquire additional units in their trust, section 59-40 of the ITAA 1997 may now apply to treat the value of the rights at the time of issue as non-assessable and non-exempt income of the shareholder or unit holder, as noted above. | Where a right issued to a shareholder or unit holder cannot be traded, assigned or otherwise dealt with as a commercial object in its own right by or for the holder, but can only be exercised by the shareholder or unit holder or allowed to lapse without compensation or consideration to the shareholder or unit holder, the value of the right issued will not be income from the share or unit and will not be derived when the right is granted. In such a case any gain embodied in the right is not severed from the shareholding or unit holding but can be realised only by selling back the equity holder's share or unit (for a sell-back right) or by the equity holder themselves acquiring more shares or units and selling them (for a call right). This situation is analogous to that of entitlements to bonus shares. | Where such a right is issued to a shareholder or unit holder under arrangements which provide that the shareholder or unit holder is to be compensated should the rights neither be exercised nor dealt with, or should arrangements provide compensation to a shareholder or unit holder for not being issued such a right, that compensation will be income accruing to the shareholder or unit holder. So far as the value of the right has already been included in assessable income on issue of the right, the compensation will not be assessable again, so the compensation is included in income only to the extent that it exceeds the amount included in assessable income arising from issue of the right. To the extent that this compensation is less than the income arising from the issue of the right, the shareholder or unit holder will be entitled to a deduction. The value of the rights in McNeil was itself income, with the shareholder's rights being sold for the shareholder for more than the value of the rights when issued and the net proceeds paid to the shareholder; the High Court did not need to decide the consequences of the disparity between them. Tax consequences in a case where the shareholder was entitled to compensation rather than to the proceeds were not explored in the judgments. | Dividend reinvestment | Where a shareholder decides to apply a dividend they have derived to subscribe for additional equity, the shareholder's right to subscribe arises from the derivation of the dividend and the decision of the shareholder to apply it in that way. The right may have value (such as because the dividend may be able to be subscribed for equity worth more than the amount of the dividend). However, Taxation Determination TD 2000/3 expresses the Commissioner's view that the shares subscribed for are not issued in relation to the original shares. The right to subscribe is itself in relation to the dividend, rather than in relation to the original shares on which the dividend is derived. The McNeil decision does not alter the view of the Commissioner expressed in TD 2000/3. | Rights in relation to equity in another entity | Valuable rights an equity holder gets in relation to equity in another entity are not income by reason of McNeil . Depending on the circumstances, they may involve a derivation of income for other reasons. | Where a company provides its shareholders with rights to subscribe for equity in another entity for less than the market value of the equity, or with rights to sell back equity in another entity for more than the market value of the equity, the special issues on which McNeil focused may not arise at all, or may do so only in a minor way. Where the value of such rights is income, this is likely to be for more general reasons. | Suppose the entity in relation to which the company provides rights is not owned by, or the subject of any equity investment by, the company. Then the valuable rights are no different to any other valuable thing provided by a company to its shareholders. They aren't a re-expression of the profit-yielding structure represented by their shareholdings. If the company is to provide the rights, it must first secure them, and will ordinarily do so only for value. | Suppose that the entity in relation to which the company provides rights is owned by, or the subject of equity investment by, the company. Shareholders have no direct interests in the assets of the company of which they are shareholders; the valuable rights are not a re-expression of the profit-yielding structure represented by their shareholdings. The company's interest in the entity may be such that it can secure the rights other than for value, or for less than full value. | In either case, where the company secures the rights and provides them to its shareholders, the value of those rights is likely to be income from the shares, and will commonly be a dividend for the purposes of the income tax law. | Where an equity holder gets valuable rights because they are an equity holder but not from and not in relation to the entity in which they hold equity, those rights are not a dividend or in the nature of a dividend. This situation arose in Allina Pty Ltd v Commissioner of Taxation (1991) 21 ATR 1320; 91 ATC 4195. There, rights obtained by an equity holder from a different entity and held on capital account were found to have a deemed market value cost base for CGT purposes, so that no material gain arose when the rights were sold. The exception in item 4, Table, subsection 112-20(3) now means that such rights would not have a deemed market value consideration in similar circumstances to those in Allina . | The rights may be income in some cases, but where this is so it is not by reason of McNeil . | Rights in relation to convertible interests | The principles enunciated in McNeil's case are not easily applied to convertible interests. Whether the value of any right arising in respect of a convertible interest in a company or trust and given by the company or trust to its shareholders or unit holders is income will depend on the application of general principles to the particular circumstances. Rights to holders of convertible interests are not made non-assessable non-exempt income under the recent legislative amendments. | Implications on current Public Rulings & Determinations | There are four Class Rulings to which McNeil is relevant, and none of these requires adjustment. There are no other Public Rulings or Determinations for which McNeil has implications.", "Administrative_Treatment": "There are no Law Administration Practice Statements for which McNeil has implications. | [1] Para.42 | [2] Para.50 | [3] Para.20 | [4] Para.20 | [5] Para.21 | [6] Para.22 | [7] Para.13 | [8] Para.36 | [9] Para.23 | [10] Para.36", "Related_Documents": "CR 2001/75 | CR 2007/42 | 2007 ATC 4223 | Pt III, Div 2, subdiv D | 6-5 | (1937) 59 CLR 80 | (1951) 82 CLR 388 | (1965) 112 CLR 630 | 84 ATC 4883 | 74 ATC 4034 | (1976) 76 ATC 4180 | [1921] 2 AC 171 | (1952) 86 CLR 540 | 75 ATC 4213 | (1999) 99 ATC 4749", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) Pt III, Div 2, subdiv D Income Tax Assessment Act 1997 (Cth) 6-5", "Case_References": "Commissioner of Taxation (NSW) v Stevenson (1937) 59 CLR 80 Thornett v Federal Commissioner of Taxation (1938) 59 CLR 787 Federal Commissioner of Taxation v Blakely (1951) 82 CLR 388 Federal Commissioner of Taxation v Uther (1965) 112 CLR 630 Federal Commissioner of Taxation v Slater Holdings Ltd (1984) 156 CLR 447 84 ATC 4883 15 ATR 1299 Ord Forrest Pty Ltd v Federal Commissioner of Taxation (1974) 130 CLR 124 74 ATC 4034 4 ATR 230 Federal Commissioner of Taxation v Miranda (1976) 11 ALR 85 (1976) 76 ATC 4180 (1976) 6 ATR 367 Inland Revenue Commissioners v Blott [1921] 2 AC 171 Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 Reseck v Federal Commissioner of Taxation (1975) 133 CLR 45 75 ATC 4213 5 ATR 538 Commissioner of Taxation v Montgomery [1999] HCA 34 (1999) 99 ATC 4749 (1999) 198 CLR 639 (1999) 73 ALJR 1160 (1999) 42 ATR 475 (1999) 164 ALR 435", "Subject_References": "Income tax Derivation of income Respondent acquired shares which were later the subject of a buy-back arrangement that gave the respondent \"sell-back rights\"", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S56/2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v R & D Holdings Pty Ltd", "Venue_Reference_No": "NSD 1798, 1799, 1790 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "13 July 2007", "Date_Published": "5 March 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partly unfavourable", "Summary_of_Decision": "This case • applied the same business test where a mortgagee had entered into possession; • concluded that interest accrued but not paid after the business had ceased and which, as a matter of commercial certainty, would never be paid, was deductible. | • applied the same business test where a mortgagee had entered into possession; • concluded that interest accrued but not paid after the business had ceased and which, as a matter of commercial certainty, would never be paid, was deductible.", "Overview_of_Facts": "In this matter, the taxpayer, R & D Holdings Pty Ltd (\"R&D\"), claimed to be entitled to carry forward the losses of its wholly owned subsidiary, 410 Chapel Road Pty Ltd (\"Chapel Road\"). | In 1987, Chapel Road, as its sole enterprise, bought land and built a commercial building in order to let it, borrowing in order to finance the purchase and construction. In March 1990, Chapel Road refinanced the loan, borrowing $14 million. | At the time of the refinancing, approximately 60 per cent of the lettable space in the building was leased to commercial tenants; some tenants had temporary rent holidays; and interest rates were at historically high levels. The rent received was insufficient to cover all of the outgoings including interest, and, from the first interest payment date after the financing, Chapel Road was in default on the loan. | In May 1990, the mortgagee exercised its rights to receive the rents of the property, which were henceforward paid directly to its agent. The property continued to be managed by the taxpayer's agent until January 1991 when the mortgagee's agent took over that role, and thereafter, the mortgagee was a mortgagee in possession. From May 1990, from the rent it received, the mortgagee paid the outgoings of the building. The mortgagee supplied Chapel Road with annual statements which showed that the net income from the property, after outgoings had been paid, was applied on a monthly basis to reduce the interest on the loan balance of Chapel Road. However, as the interest expense far exceeded the amounts so applied, with compounding, the loan balance had grown to over $20 million at the beginning of the 1992 tax year, and to over $65 million by the end of the 1997 tax year. | The mortgagee sold the building in 2000, for a price of $11.75 million. | Chapel Road, which was otherwise inactive during this period, continued to claim deductions in respect of interest and other property expenses. These deductions gave rise to tax losses that were transferred to the taxpayer. | In July 1997 there was change in the beneficial ownership of the shares in Chapel Road such that it failed the continuity of beneficial ownership test. | Before the Federal Court at first instance, the taxpayer was successful in part. Justice Finn held that in the relevant income years, Chapel Road's monthly losses in respect of interest were allowable deductions, and the taxpayer was thus entitled to a deduction for the loss transferred to it by Chapel Road in the year ended 30 June 1997. However, due to the change of ownership, for the 1998 and 1999 years, the losses were only transferable if Chapel Road satisfied the same business test and it did not do so because in those years it did not carry on a business at all. | Each of the parties appealed to the Full Court, the Commissioner in respect of His Honour's decision in respect of the 1997 year and the taxpayer in respect of the decision for the 1998 and 1999 years. The Full Court dismissed both parties' appeals, Heerey and Edmonds JJ in one judgment and Stone J in a separate judgment. | Each party applied to the High Court for special leave to appeal the decision. Special leave was denied by the High Court on 14 December 2007. | Issues decided by the court | The issues on appeal were: 1. The Commissioner argued that each interest accrual in this case, where it was a matter of commercial certainty that the accrued interest would never be paid and that the company's financial position was irretrievably lost, was not a \"loss or outgoing\" for the purposes of section 51(1) of the Income Tax Assessment Act 1936 . The Court did not accept the Commissioner's argument. 2. The Commissioner argued that the interest accruals were not incurred in gaining or producing assessable income, on the basis that each accrual for a period did not secure the continued use of funds for an income-producing purpose, and thus the nexus was lost. The Court did not accept the Commissioner's argument, holding that each monthly application by the mortgagee to the mortgagor's loan account was income, and that the interest accruals were incurred in gaining or producing such income. 3. The taxpayer argued that Chapel Road was carrying on a business after the mortgagee went into possession. The Court did not accept the taxpayer's argument, holding that after the mortgagee had entered into possession, Chapel Road carried on no business. 4. The taxpayer also appealed in relation to the level of penalty imposed. The Court did not uphold the taxpayer's appeal on this issue. | 1. The Commissioner argued that each interest accrual in this case, where it was a matter of commercial certainty that the accrued interest would never be paid and that the company's financial position was irretrievably lost, was not a \"loss or outgoing\" for the purposes of section 51(1) of the Income Tax Assessment Act 1936 . The Court did not accept the Commissioner's argument. 2. The Commissioner argued that the interest accruals were not incurred in gaining or producing assessable income, on the basis that each accrual for a period did not secure the continued use of funds for an income-producing purpose, and thus the nexus was lost. The Court did not accept the Commissioner's argument, holding that each monthly application by the mortgagee to the mortgagor's loan account was income, and that the interest accruals were incurred in gaining or producing such income. 3. The taxpayer argued that Chapel Road was carrying on a business after the mortgagee went into possession. The Court did not accept the taxpayer's argument, holding that after the mortgagee had entered into possession, Chapel Road carried on no business. 4. The taxpayer also appealed in relation to the level of penalty imposed. The Court did not uphold the taxpayer's appeal on this issue.", "Issues_Decided": "The issues on appeal were: 1. The Commissioner argued that each interest accrual in this case, where it was a matter of commercial certainty that the accrued interest would never be paid and that the company's financial position was irretrievably lost, was not a \"loss or outgoing\" for the purposes of section 51(1) of the Income Tax Assessment Act 1936 . The Court did not accept the Commissioner's argument. 2. The Commissioner argued that the interest accruals were not incurred in gaining or producing assessable income, on the basis that each accrual for a period did not secure the continued use of funds for an income-producing purpose, and thus the nexus was lost. The Court did not accept the Commissioner's argument, holding that each monthly application by the mortgagee to the mortgagor's loan account was income, and that the interest accruals were incurred in gaining or producing such income. 3. The taxpayer argued that Chapel Road was carrying on a business after the mortgagee went into possession. The Court did not accept the taxpayer's argument, holding that after the mortgagee had entered into possession, Chapel Road carried on no business. 4. The taxpayer also appealed in relation to the level of penalty imposed. The Court did not uphold the taxpayer's appeal on this issue. 1. The Commissioner argued that each interest accrual in this case, where it was a matter of commercial certainty that the accrued interest would never be paid and that the company's financial position was irretrievably lost, was not a \"loss or outgoing\" for the purposes of section 51(1) of the Income Tax Assessment Act 1936 . The Court did not accept the Commissioner's argument. 2. The Commissioner argued that the interest accruals were not incurred in gaining or producing assessable income, on the basis that each accrual for a period did not secure the continued use of funds for an income-producing purpose, and thus the nexus was lost. The Court did not accept the Commissioner's argument, holding that each monthly application by the mortgagee to the mortgagor's loan account was income, and that the interest accruals were incurred in gaining or producing such income. 3. The taxpayer argued that Chapel Road was carrying on a business after the mortgagee went into possession. The Court did not accept the taxpayer's argument, holding that after the mortgagee had entered into possession, Chapel Road carried on no business. 4. The taxpayer also appealed in relation to the level of penalty imposed. The Court did not uphold the taxpayer's appeal on this issue.", "ATO_View_of_Decision": "In this matter, the Tax Office sought to test the scope of the jurisprudential approach to incurrence under the general deduction provision. The Commissioner accepts the decision of the Full Federal Court that the outcome flows from the application of established principles to the facts.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "TR 2004/4 | TR 1999/9 | 2007 ATC 4731 | 8-1 | 165-10 | 165-13 | 170-35 | (1926) 38 CLR 153 | 81 ATC 4114 | (1953) 88 CLR 492 | 2002 ATC 4608 | 2006 ATC 4404 | 95 ATC 4459 | 99 ATC 4600 | 2002 ATC 4135 | 2007 ATC 4265 | 90 ATC 4567 | 79 ATC 4279 | 91 ATC 4950 | (1998) 193 CLR 605 | 98 ATC 4585 | 2001 ATC 4111 | 2005 ATC 4001 | 2003 ATC 5076", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) 51(1) 80E 80G 226H 226K Income Tax Assessment Act 1997 (Cth) 8-1 165-10 165-13 170-35", "Case_References": "Federal Commissioner of Taxation v Munro (1926) 38 CLR 153 Commissioner of Taxation v Smith (1981) 147 CLR 578 81 ATC 4114 11 ATR 538 Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492 Hart v Commissioner of Taxation (2002) 121 FCR 206 2002 ATC 4608 50 ATR 369 Commissioner of Taxation (Cth) v Citylink Melbourne Ltd (2006) 228 ALR 301 2006 ATC 4404 62 ATR 648 228 CLR 1 Steele v Deputy Federal Commissioner of Taxation (1999) 197 CLR 459 41 ATR 139 Placer Pacific Management Pty Ltd v Federal Commissioner of Taxation (1995) 31 ATR 253 95 ATC 4459 Federal Commissioner of Taxation v Brown (1999) 43 ATR 1 99 ATC 4600 Federal Commissioner of Taxation v Jones (2002) 117 FCR 95 2002 ATC 4135 49 ATR 188 Guest v Commissioner of Taxation (2007) 65 ATR 815 2007 ATC 4265 Commissioner of Taxation v Riverside Road Lodge Pty Ltd (In Liq) (1990) 23 FCR 305 90 ATC 4567 21 ATR 499 Federal Commissioner of Taxation v Total Holdings (Aust) Pty Ltd (1979) 9 ATR 885 79 ATC 4279 Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1 91 ATC 4950 22 ATR 613 Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 98 ATC 4585 39 ATR 129 R v McKinnon [1959] 1 QB 150 [1958] 3 All ER 657 Pollard v Director of Public Prosecutions (1992) 28 NSWLR 659 BRK (Brisbane) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347 2001 ATC 4111 Pridecraft Pty Ltd v Federal Commissioner of Taxation (2004) 213 ALR 450 2005 ATC 4001 58 ATR 210 Walstern v Commissioner of Taxation (2003) 138 FCR 1 2003 ATC 5076 54 ATR 423", "Subject_References": "Interest deduction interest deduction after cessation of business outgoing rental property default on mortgage mortgagee in possession loss transfer same business test", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1798of2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Starr", "Venue_Reference_No": "WAD 28 of 2007", "Venue": "Federal Court of Australia", "Judgment_Date": "21 December 2007", "Date_Published": "21 April 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the meaning of the phrase 'tax avoidance scheme' in the former subsection 224(2) of the Income Tax Assessment Act 1936 (ITAA 36).", "Overview_of_Facts": "The taxpayers claimed deductions in relation to investments in the Active Cattle Management (ACM) scheme. In an earlier decision of the Court, in Vincent v FC of T [2002] FCA 656, French J found that part of the deductions claimed by the taxpayer in relation to her investment in the ACM scheme were not incurred for the purposes of subsection 51(1) of the ITAA 36. However, his Honour found that the cash outlaid by the taxpayer was deductible under subsection 51(1), but was disallowable under Part IVA. On appeal, the Full Court (2002) 124 FCR 350 found that the cash outlaid was an outgoing of capital and that, therefore, as the cash was not deductible under subsection 51(1), there was no tax benefit for the purposes of Part IVA. The Full Court also found that no penalty was payable under section 226 because Part IVA did not apply. Neither French J, nor the Full Court, considered the application of section 226L. | These cases involved the possible application of section 226L in circumstances where the taxpayers had accepted, after the decisions in Vincent , that the expenses claimed in relation to the scheme were not allowable under subsection 51(1). | The only issue in dispute before the AAT was whether, for the purposes of paragraph 226L(c), the ACM scheme was a 'tax avoidance scheme' within the meaning of section 224. The taxpayers did not dispute that the ACM scheme was 'a scheme within the meaning of Part IVA', but contended that they did not enter into or carry out the scheme 'for the sole or dominant purpose of enabling a person to pay no tax or less tax'. The taxpayers contended that the reference to 'sole or dominant purpose' was a reference to the actual purpose of a person in entering into or carrying out a scheme, and that their actual purpose in entering into the ACM scheme was to make a commercial return and not 'to pay no tax or less tax'. The Commissioner argued that the requisite purpose was to be determined objectively by reference only to the observable facts and circumstances of the operation of the scheme. The Commissioner did not cross examine the taxpayers about their actual purpose in entering into the ACM scheme or lead any evidence to the contrary, on the basis that it was irrelevant, but merely relied on the finding of French J in Vincent that the taxpayer entered into the ACM scheme for the objective purpose of obtaining tax benefits. | The AAT decision of 19 August 2005 agreed with the Commissioner's approach to the interpretation of 'tax avoidance scheme' and found that, apart from their irrelevant evidence about their actual purpose in entering into the ACM scheme, the taxpayers had not adduced any evidence to show that their position was any different to the findings about objective purpose made by French J in Vincent . | French J allowed the taxpayers' appeals to the Federal Court against the AAT decision [2007] FCA 23. His Honour agreed with the taxpayers that the 'purpose' referred to in the definition of 'tax avoidance scheme' in subsection 224(2) was their actual purpose in entering into the ACM scheme. He found that the AAT erred in excluding consideration of the stated purposes of the taxpayers, and that there was no point in remitting the matters to the AAT for reconsideration because the taxpayers' evidence about their actual purpose was not contested by the Commissioner. | Importantly, at paragraph 52 of his decision, French J noted 'Of course, purpose could be assessed even under s224(2) by reference to objective factors. It may also be that the statements of individual taxpayers about their purposes relevant to the imposition of penalty would be given little weight. But the relative weight and extent of subjective and objective evidence relevant to that determination will be an accident of the particular proceedings in which the question arises. In this case the evidence of the taxpayers and the advisors was unchallenged.' | The Commissioner appealed to the Full Federal Court | Issues decided by the court or tribunal | The Full Court was unanimous in dismissing the Commissioner's appeals and in agreeing with French J that the 'purpose' referred to in the definition of 'tax avoidance scheme' in subsection 224(2) was the actual purpose of the taxpayers in entering into the ACM scheme. | The Court noted that the construction adopted by French J was consistent with the approach taken by the High Court in FC of T v Students World (Australia) Pty Ltd (1978) 138 CLR 251 to similar wording in the former subsection 80B(5) of the ITAA 36 (paragraphs 42, 55 and 56). | The Court also rejected the Commissioner's contention that the construction adopted by French J could not have been intended because it would lead to anomalies in relation to the imposition of penalty for participation in tax avoidance schemes depending on what provision applied. The Court considered that the differences in application of various penalty provisions related to schemes merely reflected the difference in language which was chosen between schemes to which Part IVA applied and other schemes (paragraphs 61 to 63). | Finally, the Court concluded that it was open for French J to have concluded, on the evidence before the AAT, that it was not the sole or dominant purpose of the taxpayers to pay no tax or less tax (paragraph 67).", "Issues_Decided": "The Full Court was unanimous in dismissing the Commissioner's appeals and in agreeing with French J that the 'purpose' referred to in the definition of 'tax avoidance scheme' in subsection 224(2) was the actual purpose of the taxpayers in entering into the ACM scheme. The Court noted that the construction adopted by French J was consistent with the approach taken by the High Court in FC of T v Students World (Australia) Pty Ltd (1978) 138 CLR 251 to similar wording in the former subsection 80B(5) of the ITAA 36 (paragraphs 42, 55 and 56). The Court also rejected the Commissioner's contention that the construction adopted by French J could not have been intended because it would lead to anomalies in relation to the imposition of penalty for participation in tax avoidance schemes depending on what provision applied. The Court considered that the differences in application of various penalty provisions related to schemes merely reflected the difference in language which was chosen between schemes to which Part IVA applied and other schemes (paragraphs 61 to 63). Finally, the Court concluded that it was open for French J to have concluded, on the evidence before the AAT, that it was not the sole or dominant purpose of the taxpayers to pay no tax or less tax (paragraph 67).", "ATO_View_of_Decision": "The Commissioner has not sought special leave to appeal from the decision of the Full Court to the High Court. The Tax Office accepts the decisions of French J and the Full Court that the 'purpose' referred to in the definition of 'tax avoidance scheme' in subsection 224(2) is the actual purpose of a taxpayer in entering into a scheme. | However, the Tax Office notes the comments of French J in paragraph 52 of his decision that the relative weight and extent of subjective and objective evidence relevant to the determination of a taxpayer's actual purpose will depend on the evidence given in the particular proceedings in which the question arises. | In that regard, the Tax Office notes the further decision of the AAT of 13 March 2008 [2008] AATA 199 that follows an earlier decision in Petersen & Anor v FC of T [2007] AATA1896. In Petersen , the AAT decided that the taxpayers were not entitled to deductions in relation to their investment in the Banalasta Joint Venture (BJV) project. In particular, the AAT found that the taxpayers were 'not genuinely concerned with making a return at all. Their assertions to the contrary are not accepted'. In the decision of 13 March 2008, the AAT further considered the application of section 226L to the taxpayers. The AAT concluded, after weighing up the subjective and objective evidence that occurred in the earlier decision, that the taxpayers' actual purpose in entering into the BJV project was to pay no or less tax.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "None. | 2007 ATC 5447 | (2002) 2002 ATC 4490 | (2002) 2002 ATC 4742 | (1978) 78 ATC 4708 | (1978) 78 ATC 4040 | (2007) 2007 ATC 2700 | [2008] AATA 199", "Legislative_References": "Income Tax Assessment Act 1936 80B(5) 224(2) 226L", "Case_References": "Vincent v Federal Commissioner of Taxation [2002] FCA 656 (2002) 2002 ATC 4490 (2002) 50 ATR 20 Vincent v Commissioner of Taxation (2002) 124 FCR 350 (2002) 2002 ATC 4742 (2002) 51 ATR 18 News Ltd v South Sydney District Rugby League Football Club Ltd (2003) 215 CLR 563 (2003) 200 ALR 157 [2003] HCA 45 Federal Commissioner of Taxation v Lutovi Investments Pty Ltd (1978) 140 CLR 434 (1978) 78 ATC 4708 (1978) 9 ATR 351 Federal Commissioner of Taxation v Students World (Australia) Pty Ltd (1978) 138 CLR 251 (1978) 78 ATC 4040 (1978) 8 ATR 356 Petersen & Anor v Federal Commissioner of Taxation [2007] AATA 1896 (2007) 2007 ATC 2700 70 ATR 644 Petersen & Anor v Federal Commissioner of Taxation [2008] AATA 199 71 ATR 325", "Subject_References": "Penalty tax Tax avoidance scheme", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD28of2007/00001", "Unmatched_Content": "Implications for general administration: For other cases currently before the AAT dealing with taxpayers who have invested in the ACM scheme, the Tax Office accepts that section 226L does not apply to impose penalty in relation to any tax shortfalls in those cases. On a weighing up of the subjective evidence of the taxpayers and the objective findings made by French J and the Full Court in the Vincent case, the Tax Office accepts that it would probably be found that the taxpayers' actual purpose in entering into the ACM scheme was not to pay less tax or no tax. Of particular relevance is the fact that, although the Full Court in Vincent concluded that the cash outlaid by the taxpayer was an outgoing of capital, it did not disagree with the earlier finding of French J that the taxpayer had incurred the cash to gain or produce assessable income. | For cases currently before the AAT or the Federal Court dealing with the possible application of section 226L to taxpayers who have invested in other schemes, the Tax Office will apply the decisions in Starr according to the views set out in this statement. Submissions will be made in each case that the determination of the taxpayer's purpose in entering into the scheme be undertaken by weighing up the relevant subjective and objective evidence in the case. As occurred in the Petersen case, the Tax Office will invite the AAT or the Court to consider any findings of fact that may have been made in that case or other related cases about whether a deduction was allowable in relation to an investment in the scheme."}
{"Case_Name": "Condell v Commissioner of Taxation", "Venue_Reference_No": "QUD 349 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "28 March 2007", "Date_Published": "20 March 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable. Appeal dismissed by majority (Kenny and Allsop JJ) with Gyles J dissenting", "Summary_of_Decision": "HP paid a dividend by way of an in specie distribution of shares in its subsidiary to its shareholders. The Full Court found that the dividend was paid wholly out of profits although the market value of the shares (approx $29 billion) exceeded the amount debited to HP's books of account (US$4.2 billion).", "Overview_of_Facts": "1. Hewlett-Packard Company (HP) was incorporated in the United States. The respondent was a shareholder. | 2. On 2 March 1999, HP announced its intention to effect a demerger of its test and measurement semiconductor products, chemical analysis and healthcare solutions businesses (\"discontinued operations\"). | 3. On 12 August 1999, HP entered into a Master Separation & Distribution Agreement (\"Separation Agreement\") with Agilent Technologies Inc (Agilent), then a wholly owned subsidiary of HP. | 4. On 1 November 1999, pursuant to the Separation Agreement HP transferred assets and liabilities of the discontinued operations to Agilent. | 5. On 18 November 1999, Agilent launched an initial public offering of 15.9% of its common stock (the \"IPO\"). Thereafter HP's shares in Agilent represented approximately 84.1% of Agilent's common stock. Pursuant to the Separation Agreement, Agilent transferred the net proceeds of the IPO to HP by way of a dividend distribution. | 6. On 7 April 2000, HP declared a stock dividend of substantially all of its shares in Agilent. The dividend was distributed on 2 June 2000 to HP shareholders on record as of 2 May 2000. 1327 shares in Agilent were distributed as a dividend by HP to the respondent. The market value of the respondent's shares, as at 2 June 2000, was $168,961, based on a market price for Agilent shares of US$77.0068 per share and an exchange rate of US$0.6048. | 7. The market value of the total distribution was approximately $29 billion which HP accounted for by eliminating the net assets of the discontinued operations and reducing retained earnings by $4.2 billion. | Issues decided by the court | The issue before the Court was whether the dividend, paid by HP to its shareholders by way of a distribution of in-specie shares in its subsidiary, Agilent, was paid wholly out of profits derived by HP in circumstances where the market value of the distribution greatly exceeded the amount debited to retained earnings. | The majority held the distribution was paid wholly out of profits. The correct perspective to determine the source of the distribution is from the point of view of HP: Slater Holdings . The source identified by HP was its retained earnings account. The \"discrepancy [between the market value of the shares and the amount debited to the retained earnings account] did not represent any inadequacy, error or lack of truth and fairness in the accounts. Rather, the shares in Agilent and the assets that were transferred to Agilent had been carried in Hewlett Packard's accounts at less than current market value. That wholly unremarkable state of affairs did not alter the fact that from the point of view of Hewlett-Packard the distribution of the shares had its source in retained earnings. ... The shares were distributed out of a profit account. That was the complete explanation given by Hewlett-Packard for the distribution of the shares and the extent of the adjustment in the accounts does not, in our view, require a further explanation of the source of that additional value to understand what, from the company's perspective, is the source of the distribution of the shares.\"", "Issues_Decided": "The issue before the Court was whether the dividend, paid by HP to its shareholders by way of a distribution of in-specie shares in its subsidiary, Agilent, was paid wholly out of profits derived by HP in circumstances where the market value of the distribution greatly exceeded the amount debited to retained earnings. The majority held the distribution was paid wholly out of profits. The correct perspective to determine the source of the distribution is from the point of view of HP: Slater Holdings . The source identified by HP was its retained earnings account. The \"discrepancy [between the market value of the shares and the amount debited to the retained earnings account] did not represent any inadequacy, error or lack of truth and fairness in the accounts. Rather, the shares in Agilent and the assets that were transferred to Agilent had been carried in Hewlett Packard's accounts at less than current market value. That wholly unremarkable state of affairs did not alter the fact that from the point of view of Hewlett-Packard the distribution of the shares had its source in retained earnings. ... The shares were distributed out of a profit account. That was the complete explanation given by Hewlett-Packard for the distribution of the shares and the extent of the adjustment in the accounts does not, in our view, require a further explanation of the source of that additional value to understand what, from the company's perspective, is the source of the distribution of the shares.\"", "ATO_View_of_Decision": "The majority judgment aligns with the Commissioner's view, explained in TR 2003/8 , that the money value of property paid to a resident shareholder by way of a dividend will be included in the shareholder's assessable income if it is sourced out of profits derived by the company. For these purposes there need not be a correspondence between the amount debited to the company's books of accounts and the value of the distribution in the hands of the shareholder. Where a company properly keeps its accounts on a basis that does not record its assets at current market value, there will often be a discrepancy between the amount debited to the account of profits and the value of the assets distributed. It will not be necessary for the additional value of the assets accounting for that discrepancy to be recognised in the accounts as a profit and debited on the distribution for the distribution of the assets to be seen as sourced entirely in profits. That is to say, where distributed assets representing profits are identified by the company as a distribution of profits the requirements of section 44 are satisfied, and it is not necessary for the company to take the further step of identifying the value of the assets as the amount of the profit distributed. | Different considerations may arise where the company's accounts are not kept properly. | The decision does not deal with the case where a distribution of assets is debited to an account of share capital and the value of the assets distributed exceeds the amount debited to share capital. The Commissioner considers that in such a case there will generally be a distribution out of profits; the provisions of subsection 44(1B) may also be relevant.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Decision confirmed correctness of TR 2003/8 and ATO ID 2002/639", "Related_Documents": "TR 2003/8: Income Tax: distribution of property by companies to shareholders - amount to be included in assessable income | TR 2003/8 | ATO ID 2002/639 | 2007 ATC 4404 | 6 | 44(1) | 6-5 | 86 ATC 4477 | 84 ATC 4883 | (1958) 100 CLR 392 | (1986) 162 CLR 1 | 2001 ATC 4377 | [2006] FCAFC 125 | (1936) 55 CLR 80 | 2005 ATC 4955 | ATO ID 2002/639: Shares received as result of a company split - treated as dividend", "Legislative_References": "Income Tax Assessment Act 1936 (ITAA36) 6 44(1) Income Tax Assessment Act 1997 (ITAA97) 6-5", "Case_References": "McFarlane v FC of T (1986) 13 FCR 356 86 ATC 4477 17 ATR 808 FC of T v Slater Holdings Ltd (1984) 156 CLR 447 84 ATC 4883 15 ATR 1299 Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW) (1958) 100 CLR 392 Commissioner of Taxation v Condell [2006] FCA 1047 Birdseye v Australian Securities and Investments Commission [2003] FCAFC 232 Australian Securities and Investments Commission v Saxby Bridge Financial Planning Pty Ltd (2003) 133 FCR 290 Australia Telecommunications Corporation v Lambroglou (1990) 12 AAR 515 Comcare v Etheridge (2006) 149 FCR 522 Coulton v Holcombe (1986) 162 CLR 1 Dismin Investments Pty Ltd v FC of T (2001) 183 ALR 565 2001 ATC 4377 47 ATR 292 Ergon Energy Corporation Ltd v Commissioner of Taxation (2006) 153 FCR 551 64 ATR 130 [2006] FCAFC 125 Evans v DFC of T for Sth Aust (1936) 55 CLR 80 FC of T v Sun Alliance Investments Pty Ltd (in liq) (2005) 222 ALR 286 2005 ATC 4955 60 ATR 560", "Subject_References": "Income tax assessable income in-specie distribution of shares dividend whether paid wholly out of profits derived", "Other_References": "ATO ID 2002/639: Shares received as result of a company split - treated as dividend", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD349of2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Deputy Commissioner of Taxation v George Dow Taylor Dick", "Venue_Reference_No": "CA 40614/06; CA 40656/06; DC 128/04", "Venue": "Supreme Court", "Judgment_Date": "3 August 2007", "Date_Published": "4 March 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "This case concerned whether section 1318 of the Corporations Act 2001 (Cth) can operate to relieve a director from liability for a penalty arising under Part VI Division 9 of the Income Tax Assessment Act 1936 (Cth).", "Overview_of_Facts": "George Dick was a director of the Northern Spirit Football Club 2000 Pty Ltd (\"the company\") between 19 January 2001 and 14 March 2003. | During the period 1 June 2002 to 31 March 2003, the company failed to remit monthly PAYG withholding tax to the Commissioner by the relevant due dates. | As a director of the company, Mr Dick had a duty pursuant to subsection 222AOB(1) of the Income Tax Assessment Act 1936 (Cth) (\"ITAA 1936\") to ensure that the company either remitted the tax or took other proper steps to remedy the situation as outlined in that subsection. | Mr Dick failed to act under subsection 222AOB(1) of the ITAA 1936. Due to Mr Dick's failure to act, the Commissioner took steps to recover from Mr Dick, in accordance with section 222AOE of the ITAA 1936, a penalty in the amount of $141,295.19 (this amount being equal to the tax withheld by the company during Mr Dick's tenure as a director). Mr Dick failed to comply with the penalty notices of the Commissioner within the required timeframe. | The Commissioner thereby became entitled to recover a penalty in the amount of $141,295.19 and sought to do so in the District Court of NSW. Mr Dick denied liability and sought to make out the defence in subsection 222AOJ(2) of the ITAA 1936 (i.e. that for a good reason he had not participated in the management of the company over the relevant period). The trial judge held that this defence was not made out. | Mr Dick also argued that he ought to be excused from any default under the ITAA 1936 by section 1318 of the Corporations Act 2001 (Cth) (\"Corporations Act\"). | The trial Judge found that the Court had a discretion to relieve Mr Dick under section 1318 and also that it was appropriate to exercise the discretion in Mr Dick's favour. Accordingly a verdict was entered for Mr Dick on 6 September 2006. | The Commissioner appealed to the NSW Court of Appeal, where Spigelman CJ, Santow and Basten JJA all allowed the Commissioner's appeal, holding that section 1318 of the Corporations Act cannot operate to relieve a director from director penalty liabilities imposed under Part VI Division 9 of the ITAA 1936, although with some difference of reasoning. | Mr Dick then sought special leave to appeal to the High Court of Australia. Special leave was denied by the High Court on 8 February 2008. | Issues decided by the court or tribunal | 1. Inconsistency Spigelman CJ, Santow and Basten JJA ultimately agreed that section 1318 is inconsistent with Division 9 of Part VI of the ITAA 1936, and cannot operate to relieve a director from liability thereunder: • per Santow JA at paragraph 132: \"I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply.\" • per Basten JA at paragraph 143: \"In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act.\" • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: \"... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA.\" | Spigelman CJ, Santow and Basten JJA ultimately agreed that section 1318 is inconsistent with Division 9 of Part VI of the ITAA 1936, and cannot operate to relieve a director from liability thereunder: • per Santow JA at paragraph 132: \"I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply.\" • per Basten JA at paragraph 143: \"In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act.\" • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: \"... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA.\" | • per Santow JA at paragraph 132: \"I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply.\" • per Basten JA at paragraph 143: \"In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act.\" • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: \"... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA.\" | There were some differences in reasoning in relation to other issues: | 2. Does section 1318 apply outside of the Corporations Act? • Spigelman CJ held that section 1318 does not apply to any statutory obligations imposed by legislation other than the Corporations Act. He found that, having regard to the language of the section and its legislative history, section 1318 was only intended to apply to civil proceedings with respect to duties imposed by or contraventions of the Corporations Act (particularly as many of the statutory duties reflect the general law); [paragraphs 15 and 20.] • Santow JA found that section 1318 could extend to statutory duties outside the Corporations Act where those duties had the requisite corporate character. He further found that director penalties do have the requisite corporate character, as they were introduced as part of a regime that abolished the Commissioner's priority in liquidation. [paragraph 111.] • Basten JA did not consider this issue. | • Spigelman CJ held that section 1318 does not apply to any statutory obligations imposed by legislation other than the Corporations Act. He found that, having regard to the language of the section and its legislative history, section 1318 was only intended to apply to civil proceedings with respect to duties imposed by or contraventions of the Corporations Act (particularly as many of the statutory duties reflect the general law); [paragraphs 15 and 20.] • Santow JA found that section 1318 could extend to statutory duties outside the Corporations Act where those duties had the requisite corporate character. He further found that director penalties do have the requisite corporate character, as they were introduced as part of a regime that abolished the Commissioner's priority in liquidation. [paragraph 111.] • Basten JA did not consider this issue. | 3. Are proceedings under Part VI, Division 9 of the ITAA 1936 proceedings for \"negligence, default, breach of trust or breach of duty\" within the meaning of that phrase in section 1318? • Spigelman CJ stated that words such as \"negligence\" and \"breach of trust\" would not extend in their natural and ordinary meanings to statutory obligations. [paragraphs 11 and 15.] • Santow JA stated that the word \"for\" should be read as \"in respect of\" and accordingly found that director penalty proceedings are proceedings with respect to a breach of duty. [paragraphs 93 and 94.] • Basten JA did not consider this issue. | • Spigelman CJ stated that words such as \"negligence\" and \"breach of trust\" would not extend in their natural and ordinary meanings to statutory obligations. [paragraphs 11 and 15.] • Santow JA stated that the word \"for\" should be read as \"in respect of\" and accordingly found that director penalty proceedings are proceedings with respect to a breach of duty. [paragraphs 93 and 94.] • Basten JA did not consider this issue.", "Issues_Decided": "1. Inconsistency Spigelman CJ, Santow and Basten JJA ultimately agreed that section 1318 is inconsistent with Division 9 of Part VI of the ITAA 1936, and cannot operate to relieve a director from liability thereunder: • per Santow JA at paragraph 132: \"I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply.\" • per Basten JA at paragraph 143: \"In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act.\" • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: \"... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA.\" Spigelman CJ, Santow and Basten JJA ultimately agreed that section 1318 is inconsistent with Division 9 of Part VI of the ITAA 1936, and cannot operate to relieve a director from liability thereunder: • per Santow JA at paragraph 132: \"I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply.\" • per Basten JA at paragraph 143: \"In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act.\" • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: \"... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA.\" • per Santow JA at paragraph 132: \"I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s.1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s.1318 to apply.\" • per Basten JA at paragraph 143: \"In a practical sense, the provisions cannot operate together. the inconsistency must be resolved by denying s. 1318 operation in relation to the liability of a director under ss. 222AOB and 222AOC of the Assessment Act.\" • Spigelman CJ decided the case on another point, which made it unnecessary for him to discuss the inconsistency point in detail, but commented at paragraph 55: \"... I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s.1318 then I would agree, for the reasons his Honour gives, that s.1318 has no application to a director's liability under s.222AOC of the ITAA.\" There were some differences in reasoning in relation to other issues: 2. Does section 1318 apply outside of the Corporations Act? • Spigelman CJ held that section 1318 does not apply to any statutory obligations imposed by legislation other than the Corporations Act. He found that, having regard to the language of the section and its legislative history, section 1318 was only intended to apply to civil proceedings with respect to duties imposed by or contraventions of the Corporations Act (particularly as many of the statutory duties reflect the general law); [paragraphs 15 and 20.] • Santow JA found that section 1318 could extend to statutory duties outside the Corporations Act where those duties had the requisite corporate character. He further found that director penalties do have the requisite corporate character, as they were introduced as part of a regime that abolished the Commissioner's priority in liquidation. [paragraph 111.] • Basten JA did not consider this issue. • Spigelman CJ held that section 1318 does not apply to any statutory obligations imposed by legislation other than the Corporations Act. He found that, having regard to the language of the section and its legislative history, section 1318 was only intended to apply to civil proceedings with respect to duties imposed by or contraventions of the Corporations Act (particularly as many of the statutory duties reflect the general law); [paragraphs 15 and 20.] • Santow JA found that section 1318 could extend to statutory duties outside the Corporations Act where those duties had the requisite corporate character. He further found that director penalties do have the requisite corporate character, as they were introduced as part of a regime that abolished the Commissioner's priority in liquidation. [paragraph 111.] • Basten JA did not consider this issue. 3. Are proceedings under Part VI, Division 9 of the ITAA 1936 proceedings for \"negligence, default, breach of trust or breach of duty\" within the meaning of that phrase in section 1318? • Spigelman CJ stated that words such as \"negligence\" and \"breach of trust\" would not extend in their natural and ordinary meanings to statutory obligations. [paragraphs 11 and 15.] • Santow JA stated that the word \"for\" should be read as \"in respect of\" and accordingly found that director penalty proceedings are proceedings with respect to a breach of duty. [paragraphs 93 and 94.] • Basten JA did not consider this issue. • Spigelman CJ stated that words such as \"negligence\" and \"breach of trust\" would not extend in their natural and ordinary meanings to statutory obligations. [paragraphs 11 and 15.] • Santow JA stated that the word \"for\" should be read as \"in respect of\" and accordingly found that director penalty proceedings are proceedings with respect to a breach of duty. [paragraphs 93 and 94.] • Basten JA did not consider this issue.", "ATO_View_of_Decision": "", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "n/a | 2007 ATC 4816 | Bankruptcy Act 1966 (Cth) | Betting & Gaming Duties Act 1972 (UK) | 32 | 152 | 372 | 448 | Companies Act 2006 (UK) | Companies Act 1958 (Vic) | 292(1)(a) | 588G | 588H | 588M | 588R | 588T | 588W | 588X | 588FGA | 1317JA | 556(1)(a) | 1317S | 1318 | Insolvency (Tax Priorities) Legislation Amendment Act 1993 (Cth) | 255-5(1) | 161 | 365 | (1992) 177 CLR 106 | 52 ATR 526 | 2002 ATC 4930 | 2006 ATC 4377 | 88 ATC 4443 | 2000 ATC 4141 | (1908) 7 CLR 1 | 89 ATC 4101 | [1975] VR 579 | [2006] NSWCA 207 | (2003) 211 CLR 476 | (1991) 172 CLR 1 | (1995) 13 ACLC 1622 | 123 FLR 368 | (1966) 117 CLR 412", "Legislative_References": "Bankruptcy Act 1966 (Cth) Betting & Gaming Duties Act 1972 (UK) Companies Act 1907 (UK) 32 Companies Act 1929 (UK) 152 372 Companies Act 1948 (UK) 448 Companies Act 2006 (UK) Companies Act 1958 (Vic) Companies Act 1961 (NSW) 292(1)(a) Corporations Law 588G 588H 588M 588R 588T 588W 588X 588FGA 1317JA Corporate Law Reform Act 1992 (Cth) Companies Code 1981 (Cth) 535 556 Corporations Act 2001 (Cth) 556(1)(a) 1317JA 1317S 1318 Judiciary Act 1903 (Cth) 64 Income Tax Assessment Act 1936 (Cth) Pt 6 Div 8 Pt 6 Div 9 221P 221YHJ 222ANA 222AOB 222AOC 222AOE 222AOG 222AOJ Insolvency (Tax Priorities) Legislation Amendment Act 1993 (Cth) Taxation Administration Act 1953 (Cth) 255-5(1) Uniform Companies Act 1961 161 365", "Case_References": "Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Traders Union Australia (1932) 47 CLR 1 Australian Capital Television Pty Ltd v The Commonwealth (1992) 177 CLR 106 Australian Securities & Investment Commission v Vines (2005) 65 NSWLR 281 (2006) 56 NSWCCA 231 City Equitable Fire Insurance Co Ltd, In re [1925] Ch 407 Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 Customs & Excise Commissioners v Hedon Alpha Limited [1981] QB 818 Daniels v Anderson (1995) 37 NSWLR 438 Dao v Australian Postal Commission (1987) 162 CLR 317 David Grant & Co Pty Ltd (Receiver appointed) v Westpac Banking Corporation (1995) 184 CLR 265 Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113 52 ATR 526 Deputy Commissioner of Taxation v George (2002) 55 NSWLR 511 2002 ATC 4930 51 ATR 130 Deputy Commissioner of Taxation v Keck [2006] NSWSC 677 63 ATR 310 2006 ATC 4377 Deputy Commissioner of Taxation v Moorebank Pty ltd (1988) 165 CLR 55 88 ATC 4443 19 ATR 1156 Deputy Commissioner of Taxation (Cth) v Woodhams (2000) 199 CLR 370 2000 ATC 4141 43 ATR 757 Edwards v Attorney General (2004) 60 NSWLR 667 Evans v Stevens (1791) 4 TR 224 100 ER 986 Ferdinands v Commissioner for Public Employment (2006) 225 CLR 130 Goodwin v Phillips (1908) 7 CLR 1 John v Federal Commissioner of Taxation (1989) 166 CLR 417 89 ATC 4101 20 ATR 1 Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 32 ACSR 430 Lawson v Mitchell [1975] VR 579 Lend Lease Real Estate Investment Limited v GPT Re Limited [2006] NSWCA 207 Leon Fink Holdings Pty Ltd v Australia Film Commission (1979) 141 CLR 672 Letang v Cooper [1965] 1 QB 232 National Roads & Motorists Association v Whitlam [2007] NSWCA 81 Northern Territory v GPAO (1999) 196 CLR 553 Plaintiffs S 157/2002 v The Commonwealth (2003) 211 CLR 476 Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meant and Live-stock Corporation (No. 2) (1980) 29 ALR 333 Saraswati v R (1991) 172 CLR 1 Southern Star Group Pty Ltd v Byron (1995) 13 ACLC 1622 123 FLR 368 Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290 State Government Insurance Office (QLD) v Crittenden (1966) 117 CLR 412 Switz Pty Limited v Glowbind Pty Ltd (2000) 48 NSWLR 661", "Subject_References": "CORPORATIONS Corporations Act 2001 (Cth) s1318 availability of power to relieve director of liability to penalty under s222AOC of Income Tax Assessment Act 1936 (Cth) legislative history considered possible relevance of s1317S noted STATUTORY CONSTRUCTION reconciling provisions in two Acts of same legislature maxim generalia specialibus non derogant considered TAXATION Corporations Availability of relief under s1318 of the Corporations Act 2001 (Cth) to a director liable under s222AOC of the Income Tax Assessment Act 1936 (Cth) for a penalty in relation to tax moneys withheld from employees under PAYG and not remitted to the Tax Commissioner whether relief under s1318 only applicable in the case of a default or breach of duty arising under the Corporations Act whether Part VI, Divisions 8 and 9 of the ITAA constitute an exhaustive or exclusive legislative scheme or code covering the field whether the mandate of Part VI, Divisions 8 and 9 is inconsistent with the dispensing power under s1318 of the Corporations Act. WORDS AND PHRASES 'default', 'breach of duty'", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/CA40614/06/00001", "Unmatched_Content": ""}
{"Case_Name": "Deputy Commissioner of Taxation v Meredith", "Venue_Reference_No": "CA 40251 of 2007", "Venue": "Supreme Court", "Judgment_Date": "10 December 2007", "Date_Published": "9 May 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the giving of a Director Penalty Notice (DPN) by post under s222AOF of the Income Tax Assessment Act 1936 (Cth) could be rebutted by evidence of non-receipt or non-delivery.", "Overview_of_Facts": "1. A company of which the taxpayer was a director withheld amounts on account of tax from the salary entitlements of its employees, but failed to remit those amounts to the Commissioner of Taxation (\"the Commissioner\"). Upon the company failing to make such payments, the taxpayer, as a director, became automatically liable to a penalty equal to the amount which the company had failed to remit: s 222AOC of the Income Tax Assessment Act 1936 (Cth) ('ITAA 36') | 2. On 27 July 2004, the Commissioner gave notice by way of director penalty notice (\"DPN\") to the taxpayer of her liability and setting out ways in which it might be remitted. The Commissioner was required to take this step at least 14 days before commencing proceedings to recover the amount of the penalty: s222AOE of the ITAA 36. By way of defence, the taxpayer stated that she had not received the notice and was therefore not liable. | 3. At the hearing of the matter in the District Court of NSW, it was accepted by the Deputy Commissioner that the defence could succeed (if at all) only on the basis that the taxpayer proved non-delivery of the notice. In a judgment delivered on 27 October 2006, Quirk DCJ of the District Court found on the balance of probabilities that the DPN had not been delivered and dismissed the Commissioner's claim. The Deputy Commissioner appealed to the NSW Court of Appeal. | Issues decided by the court or tribunal | The New South Wales Court of Appeal decision: | In a judgment delivered on 10 December 2007, the NSW Court of Appeal, by majority (Basten JA with whom Ipp JA agreed, Giles J dissenting), held as follows: 1. Section 222AOF provides for a method of service of a DPN such that, if the procedure set out by the provisions is followed, service is deemed to have been effected and this deemed service may not be rebutted by any evidence of non-receipt or non-delivery. 2. Section 222AOF reveals a clear intention that the Commissioner will satisfy the precondition to the entitlement to recover the penalty if a DPN is sent by post to the director's address as found in Australian Securities & Investments Commission (ASIC) records. Section 222AOF provides a self-contained means of satisfying the precondition to recovery specified in s 222AOE, and is not subject to the operation of s 29 of the Acts Interpretation Act . If it had applied, the effect of s29 would be that the DPN would be taken to be served when it would have been delivered in the ordinary course of post. 3. As the statutory precondition to recovery under s222AOE was satisfied by sending the DPN by post to the relevant address and there was no challenge to the Commissioner's evidence that the notice had been sent, s222AOE was satisfied in this case. | 1. Section 222AOF provides for a method of service of a DPN such that, if the procedure set out by the provisions is followed, service is deemed to have been effected and this deemed service may not be rebutted by any evidence of non-receipt or non-delivery. 2. Section 222AOF reveals a clear intention that the Commissioner will satisfy the precondition to the entitlement to recover the penalty if a DPN is sent by post to the director's address as found in Australian Securities & Investments Commission (ASIC) records. Section 222AOF provides a self-contained means of satisfying the precondition to recovery specified in s 222AOE, and is not subject to the operation of s 29 of the Acts Interpretation Act . If it had applied, the effect of s29 would be that the DPN would be taken to be served when it would have been delivered in the ordinary course of post. 3. As the statutory precondition to recovery under s222AOE was satisfied by sending the DPN by post to the relevant address and there was no challenge to the Commissioner's evidence that the notice had been sent, s222AOE was satisfied in this case.", "Issues_Decided": "The New South Wales Court of Appeal decision:: In a judgment delivered on 10 December 2007, the NSW Court of Appeal, by majority (Basten JA with whom Ipp JA agreed, Giles J dissenting), held as follows: 1. Section 222AOF provides for a method of service of a DPN such that, if the procedure set out by the provisions is followed, service is deemed to have been effected and this deemed service may not be rebutted by any evidence of non-receipt or non-delivery. 2. Section 222AOF reveals a clear intention that the Commissioner will satisfy the precondition to the entitlement to recover the penalty if a DPN is sent by post to the director's address as found in Australian Securities & Investments Commission (ASIC) records. Section 222AOF provides a self-contained means of satisfying the precondition to recovery specified in s 222AOE, and is not subject to the operation of s 29 of the Acts Interpretation Act . If it had applied, the effect of s29 would be that the DPN would be taken to be served when it would have been delivered in the ordinary course of post. 3. As the statutory precondition to recovery under s222AOE was satisfied by sending the DPN by post to the relevant address and there was no challenge to the Commissioner's evidence that the notice had been sent, s222AOE was satisfied in this case. 1. Section 222AOF provides for a method of service of a DPN such that, if the procedure set out by the provisions is followed, service is deemed to have been effected and this deemed service may not be rebutted by any evidence of non-receipt or non-delivery. 2. Section 222AOF reveals a clear intention that the Commissioner will satisfy the precondition to the entitlement to recover the penalty if a DPN is sent by post to the director's address as found in Australian Securities & Investments Commission (ASIC) records. Section 222AOF provides a self-contained means of satisfying the precondition to recovery specified in s 222AOE, and is not subject to the operation of s 29 of the Acts Interpretation Act . If it had applied, the effect of s29 would be that the DPN would be taken to be served when it would have been delivered in the ordinary course of post. 3. As the statutory precondition to recovery under s222AOE was satisfied by sending the DPN by post to the relevant address and there was no challenge to the Commissioner's evidence that the notice had been sent, s222AOE was satisfied in this case.", "ATO_View_of_Decision": "Before the Court of Appeal's decision in the Meredith matter, the Commissioner accepted that a DPN under s222AOE or s222APE sent to a director by ordinary pre-paid post was 'given' to the intended recipient at the time the DPN would have been delivered in the ordinary course of post and that the director had 14 days after the day of delivery in the ordinary course of post to cause the company to comply with s222AOB and achieve remission of the penalties. | The Commissioner now accepts the decision of the Court of Appeal that a DPN under s222AOE or s222APE sent to a director by ordinary pre-paid post will be 'given' to the intended recipient at the time the DPN is posted.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The decision is limited to the giving of a s222AOE or s222APE DPN pursuant to s222AOF. Section 222AOF prescribes a method for giving such a DPN to a director who is registered with the ASIC as a current director. | In the case of DPNs given by the Commissioner pursuant to s222AOF, the Commissioner will calculate the time for compliance with the DPN from the date on which the DPN was posted, irrespective of whether or when the DPN was received or delivered. Accordingly, where compliance with the DPN does not occur within 14 days after the DPN is posted to the current director, the Commissioner will regard the relevant s222AOC or s222APC penalties as being recoverable from that director.", "Related_Documents": "None | 2007 ATC 5353 | 2 | 28A | 29 | 40 | 13 | 39 | 109Y | 100 | 127 | 950-100 | 16 | 76 | 42 | 56 | 628 | 710 | 75A | Pt 51 r 4 | (1986) 20 A Crim R 107 | 52 ATR 700 | 2007 ATC 4816 | 2002 ATC 4930 | 98 ATC 4317 | 88 ATC 4153 | 2006 ATC 4693 | 2002 ATC 5135 | 83 ATC 4539 | [2007] FCA 776 | 2000 ATC 4141 | 99 ATC 4062 | (1983) 154 CLR 87 | 2005 ATC 4025 | (2005) 62 NSWLR 361 | [1999] NSWSC 1231 | (1991) 100 ALR 255 | [2007] NSWSC 278", "Legislative_References": "Acts Interpretation Act 1901 (Cth) 2 28A 29 40 Acts Interpretation Act 1956 (Qld) 13 39 Corporations Law 109Y Civil Procedure Act 2005 (NSW) 100 District Court Act 1973 (NSW) 127 Evidence Act 1995 (Cth) 4 5 160 163 182 Income Tax Assessment Act 1936 (Cth) 222ANA 222AOC 222AOE 222AOF Division 9 Pt 6 Income Assessment Act 1997 (Cth) 950-100 Insolvency (Tax Priorities) Legislation Amendment Act 1993 (Cth) 16 Interpretation Act 1987 (NSW) 76 Hire-Purchase Act 1959 (Qld) 42 Justices Act 1886 (Qld) 56 Local Government Act 1919 (NSW) 628 Local Government Act 1993 (NSW) 710 Migration Act 1958 (Cth) 494A 494B Supreme Court Act 1970 (NSW) 75A Supreme Court Rules 1970 (NSW) Pt 51 r 4", "Case_References": "Alexander v Stocks & Holdings (Sales) Pty Ltd [1975] VR 843 Buresti v Beveridge [1998] 1136 FCA (1998) 88 FCR 399 Cheong v Webster (1986) 20 A Crim R 107 Cousins v Gosford Shire Council (1970) 92 WN(NSW) 263 Deputy Commissioner of Taxation v Coco [2003] QSC 119 52 ATR 700 Deputy Commissioner of Taxation v Dick [2007] NSWCA 190 2007 ATC 4816 67 ATR 762 Deputy Commissioner of Taxation v George (2002) 55 NSWLR 511 2002 ATC 4930 51 ATR 130 Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR 271 98 ATC 4317 38 ATR 434 Deputy Commissioner of Taxation v Mutton (1988) 12 NSWLR 104 88 ATC 4153 19 ATR 890 Deputy Commissioner of Taxation v Nercessian (2006) 67 NSWLR 215 2006 ATC 4693 64 ATR 360 Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722 2002 ATC 5135 51 ATR 435 Deputy Commissioner of Taxation v Taylor [1983] 2 NSWLR 139 83 ATC 4539 14 ATR 567 Deputy Commissioner of Taxation v Trio Site Services Pty Ltd [2007] FCA 776 Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 2000 ATC 4141 43 ATR 757 Deputy Commissioner of Taxation (Cth) v Woodhams (1998) 148 FLR 230 99 ATC 4062 41 ATR 204 Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 Forsyth v Deputy Commissioner of Taxation (2004) 62 NSWLR 132 2005 ATC 4025 58 ATR 179 In re 88 Berkeley Road, NW9; Rickwood v Turnsek [1971] Ch 648 [1971] All ER 254 Kyogle Shire Council v Muli Muli Local Aboriginal Land Council (2005) 62 NSWLR 361 McCallum v Purvis [1906] VLR 578 McClelland v Amcil Industries Pty Ltd [1983] 1 NSWLR 615 Murphy v Teakbridge [1999] NSWSC 1231 R v Westminster Unions Assessment Committee [1917] 1 KB 832 Repatriation Commission v Gordon (1991) 100 ALR 255 Scope Data Systems Pty Ltd v Goman [2007] NSWSC 278 Skalkos v T & S Recoveries Pty Ltd [2004] FCAFC 321 (2004) 141 FCR 107", "Subject_References": "EVIDENCE presumption of delivery in course of post relationship of Evidence Act 1995 (Cth) to other Acts Evidence Act 1995 (Cth), ss 160 and 163 NOTICE service by post letter from Commonwealth agency evidence of non-delivery or non-receipt Acts Interpretation Act 1901 (Cth) s 29 Income Tax Assessment Act 1936 (Cth) s 222AOF Evidence Act 1995 (Cth) ss 160 and 163 TAXATION liability for failure to remit tax withheld from salary entitlements Income Tax Assessment Act 1936 (Cth) s 222AOE \"contrary intention\" in statute \"give\", \"serve\", \"send\" a notice \"sending it by post\"", "Other_References": "Pearce and Geddes, Statutory Interpretation in Australia (6th ed, 2006) at [6.1]", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/CA40251of2007/00001", "Unmatched_Content": ""}
{"Case_Name": "DG Empire as trustee for the DG Empire Trust and Commissioner of Taxation", "Venue_Reference_No": "NT2006/032", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "29 July 2007", "Date_Published": "30 August 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Partially adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether an administrative penalty for failure to take reasonable care should be remitted in full or in part.", "Overview_of_Facts": "• The taxpayer purchased a commercial property for $2,280,000. Although the directors were involved in the property industry, this was their first acquisition of a commercial property and the taxpayer's first acquisition of property. • In the contract of sale of the property, the box indicating whether the supply was a taxable supply was not completed and the box indicating whether the sale was a GST-free supply of a going concern was marked 'Yes'. • The taxpayer's business activity statement (BAS) was prepared by a tax agent who mistakenly believed that the taxpayer was entitled to an input tax credit on the acquisition of the property. Thus an input tax credit of $207,769 was claimed. • The Tax Office reviewed the BAS. However, contrary to its standard procedures, the evidence did not establish that the Tax Office offered the taxpayer an opportunity to make a voluntary disclosure at the commencement of the review. • As a result of the review, the Tax Office amended the taxpayer's BAS to disallow the input tax credit and assessed an administrative penalty at the rate of 25% of the shortfall amount for a failure to take reasonable care, in accordance with section 284-90 of the Taxation Administration Act 1953 . The Tax Office declined to remit the penalty imposed under the Act in whole or in part. • The taxpayer applied to the Tribunal for review of the Tax Office objection decision disallowing the taxpayer's objection against the decision not to remit the penalty in whole or in part. | • The taxpayer purchased a commercial property for $2,280,000. Although the directors were involved in the property industry, this was their first acquisition of a commercial property and the taxpayer's first acquisition of property. • In the contract of sale of the property, the box indicating whether the supply was a taxable supply was not completed and the box indicating whether the sale was a GST-free supply of a going concern was marked 'Yes'. • The taxpayer's business activity statement (BAS) was prepared by a tax agent who mistakenly believed that the taxpayer was entitled to an input tax credit on the acquisition of the property. Thus an input tax credit of $207,769 was claimed. • The Tax Office reviewed the BAS. However, contrary to its standard procedures, the evidence did not establish that the Tax Office offered the taxpayer an opportunity to make a voluntary disclosure at the commencement of the review. • As a result of the review, the Tax Office amended the taxpayer's BAS to disallow the input tax credit and assessed an administrative penalty at the rate of 25% of the shortfall amount for a failure to take reasonable care, in accordance with section 284-90 of the Taxation Administration Act 1953 . The Tax Office declined to remit the penalty imposed under the Act in whole or in part. • The taxpayer applied to the Tribunal for review of the Tax Office objection decision disallowing the taxpayer's objection against the decision not to remit the penalty in whole or in part. | Issue decided by the Court or Tribunal | The Tribunal decided that the penalty should be remitted in part, pursuant to section 298-20 of Schedule 1 to the Taxation Administration Act 1953 , set aside the objection decision and reduced the penalty from 25% of the shortfall amount to 15% of the shortfall amount. | In reaching this decision, the Tribunal had regard to the following matters: • The taxpayer did not have a good compliance record, most of its BASs having been lodged late and amounts of tax and penalties not paid. • The use of a tax agent does not absolve a taxpayer from the requirement to take reasonable care personally. In this case, signing the BAS claiming such a large input tax credit without reading it or querying anything in it cannot be regarded as reasonable. • However, the failure of the Tax Office to follow its own established procedures was a mitigating factor. While nothing amounting to a voluntary disclosure was made, the Tax Office's contention that such a disclosure would not have been made in any case was too speculative; an offer of voluntary compliance may have galvanised the tax agent into action to organise a proper voluntary disclosure. | • The taxpayer did not have a good compliance record, most of its BASs having been lodged late and amounts of tax and penalties not paid. • The use of a tax agent does not absolve a taxpayer from the requirement to take reasonable care personally. In this case, signing the BAS claiming such a large input tax credit without reading it or querying anything in it cannot be regarded as reasonable. • However, the failure of the Tax Office to follow its own established procedures was a mitigating factor. While nothing amounting to a voluntary disclosure was made, the Tax Office's contention that such a disclosure would not have been made in any case was too speculative; an offer of voluntary compliance may have galvanised the tax agent into action to organise a proper voluntary disclosure.", "Issues_Decided": "The Tribunal decided that the penalty should be remitted in part, pursuant to section 298-20 of Schedule 1 to the Taxation Administration Act 1953 , set aside the objection decision and reduced the penalty from 25% of the shortfall amount to 15% of the shortfall amount. In reaching this decision, the Tribunal had regard to the following matters: • The taxpayer did not have a good compliance record, most of its BASs having been lodged late and amounts of tax and penalties not paid. • The use of a tax agent does not absolve a taxpayer from the requirement to take reasonable care personally. In this case, signing the BAS claiming such a large input tax credit without reading it or querying anything in it cannot be regarded as reasonable. • However, the failure of the Tax Office to follow its own established procedures was a mitigating factor. While nothing amounting to a voluntary disclosure was made, the Tax Office's contention that such a disclosure would not have been made in any case was too speculative; an offer of voluntary compliance may have galvanised the tax agent into action to organise a proper voluntary disclosure. • The taxpayer did not have a good compliance record, most of its BASs having been lodged late and amounts of tax and penalties not paid. • The use of a tax agent does not absolve a taxpayer from the requirement to take reasonable care personally. In this case, signing the BAS claiming such a large input tax credit without reading it or querying anything in it cannot be regarded as reasonable. • However, the failure of the Tax Office to follow its own established procedures was a mitigating factor. While nothing amounting to a voluntary disclosure was made, the Tax Office's contention that such a disclosure would not have been made in any case was too speculative; an offer of voluntary compliance may have galvanised the tax agent into action to organise a proper voluntary disclosure.", "ATO_View_of_Decision": "The Commissioner accepts that the decision to partially remit the penalty is one that was open to the Tribunal on the view of the evidence taken by the Tribunal and will not appeal the decision.", "Administrative_Treatment": "The Tax Office has reviewed its procedures in the light of its experience in this case. | Implications on current Public Rulings & Determinations | Nil", "Related_Documents": "Practice Statement Law Administration PS LA 2004/5 | 2007 ATC 2307 | Schedule 1, 284-75(1) | Schedule 1, 298-20", "Legislative_References": "Taxation Administration Act 1953 Schedule 1, 284-75(1) Schedule 1, 298-20", "Case_References": "", "Subject_References": "Goods and Services Tax Penalty remission", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NT2006/032/00001", "Unmatched_Content": ""}
{"Case_Name": "Dixon Consulting Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "NT2007/0568", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 September 2007", "Date_Published": "3 December 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The case concerned whether the Applicant satisfied the business premises test and as a result was entitled to a personal services business determination from the Commissioner. This was the first case to consider the application of the business premises test in section 87-30. The findings of the Federal Court and the Tribunal confirm the ATO view in ruling TR 2001/8. | This was the first case to consider the application of the business premises test in section 87-30. The findings of the Federal Court and the Tribunal confirm the ATO view in ruling TR 2001/8.", "Overview_of_Facts": "The Company applied for a personal services business determination for the year ended 2002 on the basis that it satisfied the business premises test. | In the application, the Company stated that the loft above the Garage on the principal employee's residential property was the business premises. The Garage and the Dwelling shared the same title and there was only one driveway for the whole property. | The Commissioner refused to make the determination on the ground that the business premises test was not satisfied. The Applicant failed the test because the business premises were not physically separate from the premises used for private purposes. | At the first AAT hearing, the Applicant argued that the entire Garage building was the business premises. As a result the Respondent contended the Applicant failed the business premises test on a further ground; that being the Applicant did not have exclusive use of the business premises because the Applicant's employees and their children stored personal items in the Garage and the cars that were parked in the Garage were used by the Applicant's employees for private purposes. | The Tribunal considered two questions: firstly, whether the Applicant had exclusive use of the business premises; and secondly, whether the business premises was physically separate from any premises used by the Applicant's employees or the family of the Applicant's employees for private purposes. | The Tribunal set aside the Respondent's decision in first instance. The Commissioner appealed to the Federal Court and the appeal was upheld. The Federal Court remitted the matter back the Tribunal for further consideration. | Issues decided by the tribunal | Whether the company met the business premises test? Whether the company had exclusive use of the business premises? Whether the business premises were physically separate from any premises used by the applicant's employees and their family for private purposes? | Whether the company met the business premises test? Whether the company had exclusive use of the business premises? Whether the business premises were physically separate from any premises used by the applicant's employees and their family for private purposes?", "Issues_Decided": "Whether the company met the business premises test? Whether the company had exclusive use of the business premises? Whether the business premises were physically separate from any premises used by the applicant's employees and their family for private purposes? Whether the company met the business premises test? Whether the company had exclusive use of the business premises? Whether the business premises were physically separate from any premises used by the applicant's employees and their family for private purposes?", "ATO_View_of_Decision": "Exclusive use | The Tribunal was satisfied on the basis of the evidence before it, that the use of the Garage by the Dixon family was not de minimis use and was not \"so slight that it should be ignored\". | Accordingly the Tribunal concluded that the Applicant did not have exclusive use of the Garage area in the sense expounded by the Federal Court, and therefore the Applicant failed the business premises test. | Physically Separate | In light of the Tribunal's finding on exclusive use, the Tribunal did not find it necessary to consider whether the Garage was physically separate from the private premises. However, the Tribunal did observe that it was doubtful the Garage, comprising the office, store and workshop areas, could be considered as premises physically separate from the remainder of the Dural Property. This is because there is no physical separation between the office, store and workshop areas and the rest of the Dural Property.", "Administrative_Treatment": "None", "Related_Documents": "TR 2001/8 | 2007 ATC 2550 | 87-15 | 87-30", "Legislative_References": "Income Tax Assessment Act 1997 (Cth) 87-15 87-30", "Case_References": "", "Subject_References": "Income tax personal services business determination whether the company met the business premises test whether the company had exclusive use of the business premises whether the business premises was physically separate from any premises used by the applicant's employees or the employees' family for private purposes", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NT2007/0568/00001", "Unmatched_Content": "Decision Outcome: Favourable"}
{"Case_Name": "Ergon Energy Corporation Ltd v Commissioner of Taxation", "Venue_Reference_No": "B30 of 2006", "Venue": "High Court", "Judgment_Date": "", "Date_Published": "10 May 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether purchase of diesel fuel 'for use' by public utility provider 'at' residential and other premises satisfies the criteria in s78A(1) of the Excise Act 1901. Whether a question of law was sufficiently formulated.", "Overview_of_Facts": "1. The claim was for rebates of duty pursuant to s.164 of the Customs Act 1901 or s.78A of the Excise Act 1901 paid in respect of a proportion of diesel fuel used in generating electricity for use by communities at Gununa (Mornington Island), Mabuaig Island, Murray Island (Mer) and Thursday Island (Waiben). | 2. The diesel fuel was purchased for the generation of electricity at Gununa during the period from 20 November 1996 to 30 June 1999 and at Mabuiag, Mer and Waiben from 10 June 1997 to 7 April 2000. | 3. The basis of the claim was that a proportion of diesel fuel had been used to generate electricity at residential premises (all islands), at hospitals or medical facilities (Gununa, Mabuaig and Waiben) and at aged care facilities (Gununa and Waiben), thereby attracting a rebate under the legislation. | 4. The Commissioner accepted that Ergon Energy purchased diesel fuel to power generators located on each of the islands and that a proportion of the fuel purchases was used to generate electricity supplied to residential premises (all islands), hospitals or medical facilities ((Gununa, Mabuaig and Waiben) and to aged care facilities (Gununa and Waiben). | 5. It was also accepted that the residents of all communities used the electricity supplied to their homes for the provision of lighting, refrigeration and other household purposes. | 6. Ergon Energy was obliged to supply electricity to residents and other retail customers on all four islands by virtue of section 49 of the Electricity Act 1994 . | 7. Ergon Energy charged all users on all four islands for the electricity supplied at the rate of 12 cents per kilowatt hour. | 8. The price had been decided by the Minister pursuant to s90 of the Electricity Act . The price varied according to the category of use, but was the same throughout Queensland for each category | 9. Thus, the rate of 12 cents per kilowatt hour was charged by Ergon Energy to all similar users throughout Queensland. | 10. The cost of generating and supplying electricity (including the cost of diesel fuel) on all four islands exceeded the price paid by users. Such cost varied from 28 cents per kilowatt hour at Waiben to 62 cents per kilowatt hour at Mabuiag. | 11. Ergon Energy also received payment from the Queensland Government in the nature of a grant to subsidise the cost of community service obligations although Ergon Energy had not provided any evidence of the extent of the payment. | Gununa | 12. At Gununa, there were three diesel generators. | 13. During the relevant period, there were approximately 1300 people living on the island. The residential premises were between 30 metres and 1.26 km from the generators. The hospital and aged nursing home were, respectively, 210 metres and 750 metres from the generators. Prior to early 1998, the aged nursing home was located 195 metres from the generators. | 14. During the relevant period, 38.97% of all electricity generated was supplied to 29 installations other than residential premises, the hospital and aged nursing home. There were 165 residential premises. | Mabuiag | 15. At Mabuiag, there were three diesel generators. | 16. During the relevant period, there were about 210 people living in the community. The residential premises were between 20 metres and 660 metres from the generators. The medical and nursing centre was located 120 metres from the generators. | 17. During the relevant period, 5.52% of all electricity generated was supplied to 11 installations other than residential premises and the medical facility. There were 51 residential premises. | Murray Island | 18. At Mer (Murray Island), there were three diesel generators. | 19. During the relevant period, there were about 450 people living there. The residential premises were between 10 metres and 1.6 km from the generators. | 20. During the relevant period, 23.97% of all electricity generated was supplied to 15 installations other than residential premises. There were 93 residential premises. | Waiben | 21. At Waiben (Thursday Island), there were five diesel generators. | 22. During the relevant period, there were approximately 3,500 people living on the island. The residences were between 320 metres and 1.5 km from the generators. The hospital and aged care facility were, respectively, 1.6 km and 1.2 km from the generators. | 23. During the relevant period, 51.99% of all electricity generated was supplied to 64 installations other than residential premises, the hospital and aged care facility. There were 340 residential premises. | Issues decided by the court or tribunal | Ergon Energy applied for Special Leave to appeal from the majority decision of the Full Federal Court ( [2006] FCAFC 125 ). | The Special Leave application raised the issue of whether the notice of appeal contesting the decision of the AAT raised any question of law. | The Majority of the Full Federal Court decided there was a question of law. | Ergon Energy argued that the question stated was a question of fact as it fell within the exception to the fifth proposition in the test stated in Pozzolanic . This exception, was set out by the Full Court in Pozzolanic as follows: This principle is qualified when a statute uses words according to their ordinary meaning and the question is whether the facts as found fall within those words. Where it is reasonably open to hold that they do, then the question whether they do or not is one of fact - | In addition, the issue of whether the criteria in paragraphs 78A(1)(b), (c) and (d) of the Excise Act 1901 were satisfied was raised. | The Majority of the Full Federal Court decided it was not open to the AAT to find that, at the time of purchase, Ergon Energy purchased the fuel for use by it for the specific purpose(s) contemplated by paragraphs 78A(1)(b), (c) and (d), including for use by it \"at\" residential premises in meeting domestic requirements or at a hospital or home for the aged. Ergon Energy used the diesel fuel purchased by it to generate electricity for sale to, amongst others, residential customers for use in meeting their domestic needs and to hospitals and aged persons' homes. | The High Court considered that the majority of the Full Court of the Federal Court found that the Tribunal had addressed the wrong question and made findings that were not open on the facts. Classically, these were questions of law. Accordingly, the matter did not raise a question suitable for the grant of special leave and special leave was refused.", "Issues_Decided": "Ergon Energy applied for Special Leave to appeal from the majority decision of the Full Federal Court ( [2006] FCAFC 125 ). The Special Leave application raised the issue of whether the notice of appeal contesting the decision of the AAT raised any question of law. The Majority of the Full Federal Court decided there was a question of law. Ergon Energy argued that the question stated was a question of fact as it fell within the exception to the fifth proposition in the test stated in Pozzolanic . This exception, was set out by the Full Court in Pozzolanic as follows: This principle is qualified when a statute uses words according to their ordinary meaning and the question is whether the facts as found fall within those words. Where it is reasonably open to hold that they do, then the question whether they do or not is one of fact - In addition, the issue of whether the criteria in paragraphs 78A(1)(b), (c) and (d) of the Excise Act 1901 were satisfied was raised. The Majority of the Full Federal Court decided it was not open to the AAT to find that, at the time of purchase, Ergon Energy purchased the fuel for use by it for the specific purpose(s) contemplated by paragraphs 78A(1)(b), (c) and (d), including for use by it \"at\" residential premises in meeting domestic requirements or at a hospital or home for the aged. Ergon Energy used the diesel fuel purchased by it to generate electricity for sale to, amongst others, residential customers for use in meeting their domestic needs and to hospitals and aged persons' homes. The High Court considered that the majority of the Full Court of the Federal Court found that the Tribunal had addressed the wrong question and made findings that were not open on the facts. Classically, these were questions of law. Accordingly, the matter did not raise a question suitable for the grant of special leave and special leave was refused.", "ATO_View_of_Decision": "The decision of the Full Court aligns with policy intent in that electricity generators who generate and provide electricity to \"all and sundry\" were not entitled to the rebate under the provisions. The decision of the High Court to refuse Special Leave to appeal aligns with the Commissioner's view that the matter involved a question of law.", "Administrative_Treatment": "None", "Related_Documents": "None | [2006] FCAFC 125 | [2007] HCATrans 101 | 49 | (1985) 7 FCR 205 | 60 ALR 717 | (1993) 43 FCR 280 | 115 ALR 1", "Legislative_References": "Excise Act 1901 78A(1) Customs Act 1901 164(1) Electricity Act 1994 (Qld) 49", "Case_References": "Ergon Energy v Commissioner of Taxation [2006] FCAFC 125 (2006) 153 FCR 551 (2006) 64 ATR 130 Collector of Customs, Tasmania v Flinders Island Community Association (1985) 7 FCR 205 60 ALR 717 Collector of Customs v Rottnest Island Authority (1994) 48 GCR 177 Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 115 ALR 1 Vetter v Lake Macquarie City Council (2001) 202 CLR 439 Cowell Electric Supply Company Ltd v Collector of Customs (1995) 54 FCR 1 127 ALR 257", "Subject_References": "Diesel Fuel Rebate", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/B30of2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Food Supplier and Commissioner of Taxation", "Venue_Reference_No": "NT 2005/468", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "16 July 2007", "Date_Published": "16 November 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office response to this case which concerned the supply of a GST-free food product packaged with a non-food product for a single price and whether GST was payable on the supply of the non-food product.", "Overview_of_Facts": "The Applicant was a food supplier. The Applicant sold GST-free food products like instant coffee. | Sometimes the Applicant supplied its food product packaged with a non-food product. It did this for the purposes of promotion. The non-food products included items such as mugs, alarm clocks, radios and cricket balls. The non-food products were branded with the Applicant's name. The combined packages were sold for the same price as the food product alone. The non-food product was labelled as 'free'. The non-food product could only be acquired in packages with the food products. The Applicant did not supply the non-food products alone free of charge. | The Applicant was assessed to GST on the supply of the non-food products. The food products were GST-free. General interest charge (GIC) was imposed for failure to pay its GST liability in respect of the supply of the non-food products on time. The Applicant objected, and following the disallowance of the objection, applied to the AAT for review of the objection decision and the GIC. | Issues before the AAT | Whether GST was payable on the supply of the non-food product. | How the GST payable was to be calculated. | Whether GIC should be remitted. | Issues as decided by the AAT | The AAT found against the Applicant and held that the supply of the non-food product was taxable and that the AAT had no jurisdiction to entertain the application to remit GIC. President Downes decided as follows. • The supply of the packaged products was for consideration. • The consideration was for the supply of the packaged products as a whole, including the non-food product. The consideration for the supply of the food and non-food products was the single price paid for the two of them. The purchaser made a payment 'in connection with' the supply as a whole. • It was dangerous to equate 'free' with the absence of consideration. While the non-food product was labelled 'free', it did not follow that, as a component of the package, the non-food product was without consideration. • It did not matter that the food product was simultaneously sold separately for the same price - the food product was actually being sold at a discount. • The supply of the packaged products was a mixed supply. The non-food products were not integral, ancillary or incidental to the main food products. The non-food products had intrinsic value, would not be consumed with the food and were mostly unconnected with the food. This was so even where, for example, the food product was a jar of coffee and the non-food product was a mug in which the coffee could be served. • The United Kingdom decisions of Kimberly-Clark Ltd v Customs and Excise Commissioners [2004] STC 473 and Tesco plc v Customs and Excise Commissioners [2003] STC 1561 were found to be distinguishable on the facts, with the latter case also distinguishable on the legislation. • The supply of the packaged products was partly taxable (the non-food product) and partly GST-free (the food product). • Section 9-80 required apportionment of the value of the packaged products as between the taxable non-food product and the GST-free food product. • The Commissioner's discretion to remit GIC under section 8AAG of the Taxation Administration Act 1953 was not a reviewable decision because it was not a part of the Commissioner's assessment. | • The supply of the packaged products was for consideration. • The consideration was for the supply of the packaged products as a whole, including the non-food product. The consideration for the supply of the food and non-food products was the single price paid for the two of them. The purchaser made a payment 'in connection with' the supply as a whole. • It was dangerous to equate 'free' with the absence of consideration. While the non-food product was labelled 'free', it did not follow that, as a component of the package, the non-food product was without consideration. • It did not matter that the food product was simultaneously sold separately for the same price - the food product was actually being sold at a discount. • The supply of the packaged products was a mixed supply. The non-food products were not integral, ancillary or incidental to the main food products. The non-food products had intrinsic value, would not be consumed with the food and were mostly unconnected with the food. This was so even where, for example, the food product was a jar of coffee and the non-food product was a mug in which the coffee could be served. • The United Kingdom decisions of Kimberly-Clark Ltd v Customs and Excise Commissioners [2004] STC 473 and Tesco plc v Customs and Excise Commissioners [2003] STC 1561 were found to be distinguishable on the facts, with the latter case also distinguishable on the legislation. • The supply of the packaged products was partly taxable (the non-food product) and partly GST-free (the food product). • Section 9-80 required apportionment of the value of the packaged products as between the taxable non-food product and the GST-free food product. • The Commissioner's discretion to remit GIC under section 8AAG of the Taxation Administration Act 1953 was not a reviewable decision because it was not a part of the Commissioner's assessment. | President Downes' reasons for decision also included a tentative opinion that the apportionment made by the Commissioner (based on the price paid by Food Supplier to acquire the non-food products) was reasonable.", "Issues_Decided": "Whether GST was payable on the supply of the non-food product. How the GST payable was to be calculated. Whether GIC should be remitted. | Issues as decided by the AAT: The AAT found against the Applicant and held that the supply of the non-food product was taxable and that the AAT had no jurisdiction to entertain the application to remit GIC. President Downes decided as follows. • The supply of the packaged products was for consideration. • The consideration was for the supply of the packaged products as a whole, including the non-food product. The consideration for the supply of the food and non-food products was the single price paid for the two of them. The purchaser made a payment 'in connection with' the supply as a whole. • It was dangerous to equate 'free' with the absence of consideration. While the non-food product was labelled 'free', it did not follow that, as a component of the package, the non-food product was without consideration. • It did not matter that the food product was simultaneously sold separately for the same price - the food product was actually being sold at a discount. • The supply of the packaged products was a mixed supply. The non-food products were not integral, ancillary or incidental to the main food products. The non-food products had intrinsic value, would not be consumed with the food and were mostly unconnected with the food. This was so even where, for example, the food product was a jar of coffee and the non-food product was a mug in which the coffee could be served. • The United Kingdom decisions of Kimberly-Clark Ltd v Customs and Excise Commissioners [2004] STC 473 and Tesco plc v Customs and Excise Commissioners [2003] STC 1561 were found to be distinguishable on the facts, with the latter case also distinguishable on the legislation. • The supply of the packaged products was partly taxable (the non-food product) and partly GST-free (the food product). • Section 9-80 required apportionment of the value of the packaged products as between the taxable non-food product and the GST-free food product. • The Commissioner's discretion to remit GIC under section 8AAG of the Taxation Administration Act 1953 was not a reviewable decision because it was not a part of the Commissioner's assessment. • The supply of the packaged products was for consideration. • The consideration was for the supply of the packaged products as a whole, including the non-food product. The consideration for the supply of the food and non-food products was the single price paid for the two of them. The purchaser made a payment 'in connection with' the supply as a whole. • It was dangerous to equate 'free' with the absence of consideration. While the non-food product was labelled 'free', it did not follow that, as a component of the package, the non-food product was without consideration. • It did not matter that the food product was simultaneously sold separately for the same price - the food product was actually being sold at a discount. • The supply of the packaged products was a mixed supply. The non-food products were not integral, ancillary or incidental to the main food products. The non-food products had intrinsic value, would not be consumed with the food and were mostly unconnected with the food. This was so even where, for example, the food product was a jar of coffee and the non-food product was a mug in which the coffee could be served. • The United Kingdom decisions of Kimberly-Clark Ltd v Customs and Excise Commissioners [2004] STC 473 and Tesco plc v Customs and Excise Commissioners [2003] STC 1561 were found to be distinguishable on the facts, with the latter case also distinguishable on the legislation. • The supply of the packaged products was partly taxable (the non-food product) and partly GST-free (the food product). • Section 9-80 required apportionment of the value of the packaged products as between the taxable non-food product and the GST-free food product. • The Commissioner's discretion to remit GIC under section 8AAG of the Taxation Administration Act 1953 was not a reviewable decision because it was not a part of the Commissioner's assessment. President Downes' reasons for decision also included a tentative opinion that the apportionment made by the Commissioner (based on the price paid by Food Supplier to acquire the non-food products) was reasonable.", "ATO_View_of_Decision": "The decision of the AAT is consistent with the views expressed by the Commissioner in GSTR 2001/8 entitled 'apportioning the consideration for a supply that includes taxable and non-taxable parts'.", "Administrative_Treatment": "Not relevant. | Implications on current Public Rulings & Determinations | None.", "Related_Documents": "GSTR 2001/8 | [2007] AATA 1550 | 2007 ATC 157 | 9-5 | 9-10 | 9-15 | 9-80 | 11-5 | 11-20 | 38-2 | 8AAG | 2005 ATC 2297 | 2005 ATC 4052 | 2005 ATC 4571 | 2005 ATC 2173 | 2004 ATC 2029 | [2005] AATA 1039 | 2005 ATC 213", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 9-5 9-10 9-15 9-80 11-5 11-20 38-2 Taxation Administration Act 1953 8AAG 105-50", "Case_References": "Cachia v Commissioner of Taxation (No 2) [2005] AATA 819 2005 ATC 2297 61 ATR 1015 Chief Commissioner of State Revenue v Dick Smith Electronics Holding Pty Limited [2005] HCA 3 (2005) 221 CLR 496 2005 ATC 4052 58 ATR 241 213 ALR 230 HP Mercantile Pty Limited v Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 60 ATR 106 219 ALR 591 Kimberly-Clark Ltd v Customs and Excise Commissioners [2004] STC 473 Nationwide News Pty Limited v Australian Competition and Consumer Commission (1996) 71 FCR 215 142 ALR 212 Nyack Investments Pty Limited v Commissioner of Taxation [2005] AATA 469 2005 ATC 2173 59 ATR 1116 Pye v Commissioner of Taxation [2004] AATA 143 2004 ATC 2029 55 ATR 1024 Tesco pc v Customs and Excise Commissioners [2003] STC 1561 The Taxpayer v Commissioner of Taxation [2005] AATA 1039 2005 ATC 213 61 ATR 1044", "Subject_References": "Goods and services tax supply consideration in connection with mixed and composite supplies apportionment packages containing food and non-food products General interest charge no jurisdiction to remit", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NT2005/468/00001", "Unmatched_Content": ""}
{"Case_Name": "Forsyth v Deputy Commissioner of Taxation", "Venue_Reference_No": "S543/2005", "Venue": "High Court", "Judgment_Date": "1 March 2007", "Date_Published": "30 March 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the District Court of NSW had jurisdiction, at the relevant time, to deal with a tax-related debt recovery matter. | Courts and judges - Federal jurisdiction in State courts - Whether s 39(2) of the Judiciary Act 1903 (Cth) conferred jurisdiction on the District Court of New South Wales to hear and determine an action to recover a penalty under the Income Tax Assessment Act 1936 (Cth). | Federal jurisdiction in State courts - Limitations on the jurisdiction of State courts - Whether s 44(1)(a) of the District Court Act 1973 (NSW) was a limit on the jurisdiction of the District Court of New South Wales within the meaning of the Judiciary Act 1903 (Cth). | Federal jurisdiction in State courts - Statutory interpretation - s 44(1)(a) of the District Court Act 1973 (NSW) gave the District Court of New South Wales jurisdiction to hear and dispose of certain classes of actions - Whether s 44(1)(a) should be given an ambulatory or fixed time construction. | Statutory interpretation - Subsequent regulatory change - s 44(1)(a) of the District Court Act 1973 (NSW) defined the jurisdiction of the District Court of New South Wales by reference to the allocation of work between the Divisions of the Supreme Court of New South Wales - Whether a subsequent reallocation of work between the Divisions of the Supreme Court of New South Wales alters the jurisdiction of the District Court of New South Wales.", "Overview_of_Facts": "The taxpayer appealed to the High Court on the basis that the NSW Court of Appeal erred in deciding that the District Court of NSW had jurisdiction, at the relevant time, to hear and determine the tax-related debt recovery matter. | Issues decided by the court | Did the District Court have jurisdiction invested by section 39(2) of the Judiciary Act 1903 to hear and determine an action by the Deputy Commissioner against the appellant to recover a penalty imposed by the Income Tax Assessment Act 1936? | The High Court held by a majority of 6 to 1 that the District Court did have jurisdiction.", "Issues_Decided": "Did the District Court have jurisdiction invested by section 39(2) of the Judiciary Act 1903 to hear and determine an action by the Deputy Commissioner against the appellant to recover a penalty imposed by the Income Tax Assessment Act 1936? The High Court held by a majority of 6 to 1 that the District Court did have jurisdiction.", "ATO_View_of_Decision": "The High Court's decision means that judgments entered by the NSW District Court during the period 1 August 2000 to 26 November 2004 are valid. It should be noted that the decision is not relevant for judgments entered into before 1 August 2000 and after 26 November 2004 where there was no doubt about the District Court having the relevant jurisdiction.", "Administrative_Treatment": "Pending the High Court's decision in Forsyth, the Tax Office deferred legal recovery action in a small number of NSW cases that were potentially affected by this matter. | Now that the decision has been handed down, the Tax Office will adopt the following procedure for finalising those cases where legal recovery action was deferred and the tax-related debt remains outstanding: 1. Telephone each taxpayer, explain the current legal position and propose that the taxpayer enter into a payment arrangement; 2. Decide, on a case by case basis, whether remission of the general interest charge is appropriate; 3. Decide, on a case by case basis, whether not pursuing judgment interest is appropriate; 4. Where a taxpayer cannot be contacted by phone on three separate occasions, a letter will be sent to the taxpayer proposing that a payment arrangement be entered into within 21 days; 5. In the event that the taxpayer does not agree to enter into a payment arrangement, legal action will continue / commence as appropriate. | 1. Telephone each taxpayer, explain the current legal position and propose that the taxpayer enter into a payment arrangement; 2. Decide, on a case by case basis, whether remission of the general interest charge is appropriate; 3. Decide, on a case by case basis, whether not pursuing judgment interest is appropriate; 4. Where a taxpayer cannot be contacted by phone on three separate occasions, a letter will be sent to the taxpayer proposing that a payment arrangement be entered into within 21 days; 5. In the event that the taxpayer does not agree to enter into a payment arrangement, legal action will continue / commence as appropriate. | Implications on current Public Rulings & Determinations | None", "Related_Documents": "None | 2007 ATC 4278 | The Act | 44(1) | 2005 ATC 4025 | 58 ATR 178 | 2000 ATC 4141 | (1997) 187 CLR 384", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) Part VI, Division 9, Subdivision B Part VI, Division 2 (repealed) Judiciary Act 1903 (Cth) 39(2) Taxation Laws Amendment Act (No 3) 1998 (Cth) The Act Courts Legislation Further Amendment Act 1998 (NSW) The Act District Court Act 1973 (NSW) 44(1)", "Case_References": "Forsyth v Deputy Commissioner of Taxation (2004) 62 NSWLR 132 2005 ATC 4025 58 ATR 178 Le Mesurier v Connor (1929) 42 CLR 481 Minister for Army v Parbury Henty & Co; Carrier Air Conditioning Ltd. Brickworks Ltd v Minister for Army (1945) 70 CLR 459 Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 2000 ATC 4141 43 ATR 757 Pelechowski v Registrar, Court of Appeal (NSW) (1999) 198 CLR 435 Vale v TMH Haulage Pty Ltd 31 NSWLR 702 Victor Chandler International Ltd v Customs and Excise Commissioners [2000] 1 WLR 1296 [2000] 2 All ER 315 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384", "Subject_References": "ambulatory amount payable court of competent jurisdiction penalty", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/S543/2005/00001", "Unmatched_Content": ""}
{"Case_Name": "GE Capital Finance Pty Ltd (as trustee for the Highland Finance Unit Trust) v Commissioner of Taxation", "Venue_Reference_No": "VID 1210", "Venue": "Federal Court of Australia", "Judgment_Date": "19 April 2007", "Date_Published": "9 August 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This case examines whether interest income to which a non resident beneficiary is presently entitled, should be assessed to the trustee at the corporate rate of 30% or at the withholding rate of 10%.", "Overview_of_Facts": "GE Capital Finance Pty Ltd (the Applicant) is an Australian company and a resident of Australia for Australian tax purposes. It is the trustee of the Highland Finance Unit Trust (HFUT). | The sole beneficiary of the HFUT is GE Capital International Holdings (the beneficiary), a United States corporation that is a resident of that country for the purposes of the United States Convention. The beneficiary does not carry on business in Australia. | In the relevant income years, the trust business carried on in Australia by the Applicant included making short term loans in Australia to businesses to finance the payment of insurance policy premiums and professional fees. | The Applicant set aside to the beneficiary the whole of the net income of the trust, including interest and other income. The Applicant retained and remitted to the Respondent, withholding tax under section 128B of Div 11A of ITAA 1936 at the rate of 10% of the interest income. | The Commissioner assessed the net income to which the beneficiary was entitled pursuant to subsection 98(3) of the ITAA 1936 at the corporate rate of tax. | The Applicant objected to the inclusion of the interest income in the assessments and the matter was heard before Middleton J in the Federal Court on the 9 November 2006. | Issues decided by the court or tribunal | The correctness of the subsection 98(3) assessments depended on: 1. Whether subsection 3(11) of the Agreements Act deems the beneficiary to have a permanent establishment (PE) in Australia; and 2. If so, whether this affects the ITAA 1936, including subparagraph 128B(3)(h)(ii) of the ITAA 1936? | 1. Whether subsection 3(11) of the Agreements Act deems the beneficiary to have a permanent establishment (PE) in Australia; and 2. If so, whether this affects the ITAA 1936, including subparagraph 128B(3)(h)(ii) of the ITAA 1936? | Subparagraph 128B(3)(h)(ii) excludes interest income from being subject to withholding tax under section 128B where it is derived by the non-resident taxpayer at or through a PE of the taxpayer in Australia. If the interest income is excluded from withholding tax, section 128D does not apply to make the interest income non-assessable and non-exempt income. | His Honour did not find it necessary to decide the first issue. As for the second, His Honour held that even if the beneficiary was deemed to have a PE by virtue of subsection 3(11) and the Business Profits Article applies, this does not affect subparagraph 128B(3)(h)(ii). Subsection 3(11) is not concerned with the operation of withholding tax imposed under section 128B. The two provisions can operate without any inconsistency. The relevant definition of PE for the withholding tax provisions is to be found in subsection 6(1) of the ITAA 1936.", "Issues_Decided": "The correctness of the subsection 98(3) assessments depended on: 1. Whether subsection 3(11) of the Agreements Act deems the beneficiary to have a permanent establishment (PE) in Australia; and 2. If so, whether this affects the ITAA 1936, including subparagraph 128B(3)(h)(ii) of the ITAA 1936? 1. Whether subsection 3(11) of the Agreements Act deems the beneficiary to have a permanent establishment (PE) in Australia; and 2. If so, whether this affects the ITAA 1936, including subparagraph 128B(3)(h)(ii) of the ITAA 1936? Subparagraph 128B(3)(h)(ii) excludes interest income from being subject to withholding tax under section 128B where it is derived by the non-resident taxpayer at or through a PE of the taxpayer in Australia. If the interest income is excluded from withholding tax, section 128D does not apply to make the interest income non-assessable and non-exempt income. His Honour did not find it necessary to decide the first issue. As for the second, His Honour held that even if the beneficiary was deemed to have a PE by virtue of subsection 3(11) and the Business Profits Article applies, this does not affect subparagraph 128B(3)(h)(ii). Subsection 3(11) is not concerned with the operation of withholding tax imposed under section 128B. The two provisions can operate without any inconsistency. The relevant definition of PE for the withholding tax provisions is to be found in subsection 6(1) of the ITAA 1936.", "ATO_View_of_Decision": "Justice Middleton has not accepted the Commissioner's arguments in relation to the operation of subsection 3(11) and section 4 of the Agreements Act. | In light of the decision, the Commissioner accepts that the operation of the withholding tax provisions is not affected by subsection 3(11) of the Agreements Act where the treaty party resident beneficiary is deemed to carry on, through an Australian PE of the beneficiary, the business carried on in Australia by the trustee. | Where a treaty partner resident beneficiary's share of the net income of an Australian business trust is not connected to the carrying on of business by the beneficiary at or through a PE of the beneficiary in Australia as defined in subsection 6(1) of the ITAA 1936, the distribution to the beneficiary of that share of net income derived that consists of interest will be subject to tax by withholding in accordance with section 128B, provided that the requirements of that provision are satisfied.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "None | 2007 ATC 4487 | 6 | 98(3) | 128A | 128B | 128D | 3(11) | 4 | 14ZZ | (1944) 70 CLR 362 | (1944) 7 ATD 471 | [1944] ALR 401 | [1998] HCA 78 | 159 ALR 268 | (1990) 169 CLR 214 | 91 ALR 16 | (1994) 49 FCR 534 | (1994) 122 ALR 464 | IT 2680", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) (ITAA 1936) 6 98(3) 128A 128B 128D International Tax Agreements Act 1953 (Cth) 3(11) 4 Tax Administration Act 1953 (Cth) 14ZZ", "Case_References": "Amalgamated Television Services Pty Ltd v Australian Broadcasting Tribunal (1984) 1 FCR 409 (1984) 54 ALR 57 Cadbury - Fry - Pascall v Commissioner of Taxation (1944) 70 CLR 362 (1944) 7 ATD 471 [1944] ALR 401 Director of Public Prosecutions (NSW) v Alderman (1998) 45 NSWLR 526 (1998) 104 A Crim R 116 James Hardie & Coy Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53 [1998] HCA 78 159 ALR 268 McGillivray v Piper (2000) 182 ALR 282 [2000] WASCA 245 (2000) 157 FLR 196 Mills v Meeking (1990) 169 CLR 214 91 ALR 16 R v L (1994) 49 FCR 534 (1994) 122 ALR 464", "Subject_References": "Income Tax interest income non resident beneficiary entitlement trustee corporate rate withholding tax permanent establishment statutory interpretation construction inconsistency", "Other_References": "IT 2680 Convention Between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (6 August 1982) (entered into force 31 October 1983), Article 7, 11", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID1220/00001", "Unmatched_Content": ""}
{"Case_Name": "Guest v Commissioner of Taxation; Guest v Commissioner of Taxation (No 2)", "Venue_Reference_No": "VID 376 of 2004", "Venue": "Federal Court of Australia", "Judgment_Date": "23 February 2007", "Date_Published": "30 August 2007", "Document_Type": "Impact of Court Decisions Report", "Decision_Outcome": "", "Summary_of_Decision": "This case concerns claims for interest accrued in 1998 - 2001 on a loan taken out in 1987 to invest in a blueberry growing project which ceased in 1991. The loan was fully recourse if two early repayments were not made on time. | The Commissioner's appeal against the decision was discontinued.", "Overview_of_Facts": "Mr John David Guest invested in the Corindi Blueberry Project in June 1987 to grow blueberries. He together with 3 other individuals borrowed $55,000 to fund their investment from a finance company associated with the project which required two payments to be made by a specified date with the expectation of the balance being repaid out of the proceeds of the sale of fruit, without recourse to the borrowers. Mr Guest's interest was one sixth. The project was not successful and Receivers were appointed to the companies involved in 1991. In 1997 the loan was assigned by the finance company to Equuscorp Pty Ltd (\"Equus\") which held a first ranking charge over the company and numerous associated companies. Equus commenced proceedings against Mr Guest in 2002 seeking principal and interest due pursuant to the original loan agreement. Mr Guest admitted liability for the amount owing of $117,251.42 and agreed to pay $59,000 over six income years in return for the debt being assigned to a party nominated by Mr Guest. Mr Guest claimed deductions for his one sixth share of the interest accrued on the loan for the 1998 to 2001 income years. | The Commissioner argued that: • There was no liability to pay interest as the loan was without recourse to the borrowers. • The finance company had in its discretion allowed further time for payment. • The terms of the loan agreement provided that any amounts due were not interest but damages for the loss of use of money and that in fact the loan agreement ceased on maturity of the loan in 1992. • The nexus with the gaining or producing of assessable income was broken either by Mr Guest's decision in 1992 not to repay the loan or by the period of time that had lapsed since the project had ceased. • Amounts received from fruit sales in the relevant year ought to be deducted from the principal before calculating the balance on which interest was charged in respect of that year. • In the 1991 income year proceeds of fruit sales of $26,400 should have been applied against the balance of the loan pursuant to the sale of fruit agreement instead $11,400 was credited to the loan account and $15,000 was paid to the project's farm management company. | • There was no liability to pay interest as the loan was without recourse to the borrowers. • The finance company had in its discretion allowed further time for payment. • The terms of the loan agreement provided that any amounts due were not interest but damages for the loss of use of money and that in fact the loan agreement ceased on maturity of the loan in 1992. • The nexus with the gaining or producing of assessable income was broken either by Mr Guest's decision in 1992 not to repay the loan or by the period of time that had lapsed since the project had ceased. • Amounts received from fruit sales in the relevant year ought to be deducted from the principal before calculating the balance on which interest was charged in respect of that year. • In the 1991 income year proceeds of fruit sales of $26,400 should have been applied against the balance of the loan pursuant to the sale of fruit agreement instead $11,400 was credited to the loan account and $15,000 was paid to the project's farm management company. | Issues decided by the court or tribunal | • By reason of the failure to pay the two $5,000 instalments on time Mr Guest became legally liable for repayment of the full amount of the loan and interest • There was no election by the finance company to accept late payment. • The liability incurred after the term of the loan was interest. • The interest liabilities had a real connection with Mr Guest's blueberry growing business. • The period of time is not really disproportionate to the periods that have been considered not sufficient to destroy proximity in those cases concerning a loss or outgoing incurred some years after a business, or the taxpayer's involvement in it, has ceased. • Mr Guest was carrying on a business. • Under the terms of the loan agreement until the proceeds of fruit were applied on 31 March of the relevant year the whole amount due at the beginning of the year was outstanding. • The Court found that $15,000 was never paid to the credit of the loan account and was applied to keep things afloat in the Corindi project at the expense of investors like Mr Guest. | • By reason of the failure to pay the two $5,000 instalments on time Mr Guest became legally liable for repayment of the full amount of the loan and interest • There was no election by the finance company to accept late payment. • The liability incurred after the term of the loan was interest. • The interest liabilities had a real connection with Mr Guest's blueberry growing business. • The period of time is not really disproportionate to the periods that have been considered not sufficient to destroy proximity in those cases concerning a loss or outgoing incurred some years after a business, or the taxpayer's involvement in it, has ceased. • Mr Guest was carrying on a business. • Under the terms of the loan agreement until the proceeds of fruit were applied on 31 March of the relevant year the whole amount due at the beginning of the year was outstanding. • The Court found that $15,000 was never paid to the credit of the loan account and was applied to keep things afloat in the Corindi project at the expense of investors like Mr Guest.", "Issues_Decided": "• By reason of the failure to pay the two $5,000 instalments on time Mr Guest became legally liable for repayment of the full amount of the loan and interest • There was no election by the finance company to accept late payment. • The liability incurred after the term of the loan was interest. • The interest liabilities had a real connection with Mr Guest's blueberry growing business. • The period of time is not really disproportionate to the periods that have been considered not sufficient to destroy proximity in those cases concerning a loss or outgoing incurred some years after a business, or the taxpayer's involvement in it, has ceased. • Mr Guest was carrying on a business. • Under the terms of the loan agreement until the proceeds of fruit were applied on 31 March of the relevant year the whole amount due at the beginning of the year was outstanding. • The Court found that $15,000 was never paid to the credit of the loan account and was applied to keep things afloat in the Corindi project at the expense of investors like Mr Guest. • By reason of the failure to pay the two $5,000 instalments on time Mr Guest became legally liable for repayment of the full amount of the loan and interest • There was no election by the finance company to accept late payment. • The liability incurred after the term of the loan was interest. • The interest liabilities had a real connection with Mr Guest's blueberry growing business. • The period of time is not really disproportionate to the periods that have been considered not sufficient to destroy proximity in those cases concerning a loss or outgoing incurred some years after a business, or the taxpayer's involvement in it, has ceased. • Mr Guest was carrying on a business. • Under the terms of the loan agreement until the proceeds of fruit were applied on 31 March of the relevant year the whole amount due at the beginning of the year was outstanding. • The Court found that $15,000 was never paid to the credit of the loan account and was applied to keep things afloat in the Corindi project at the expense of investors like Mr Guest.", "ATO_View_of_Decision": "Material findings of Fact | The decision of the Court was open to it on the basis of the factual findings made by the Court. | The nexus argument and the cessation of the project | The finding of the Court that the nexus between a business and loan is not necessarily broken by a moderately lengthy period of time conforms with the approach described in TR 2004/4 (which addresses the Commissioner's view in relation to deductibility of interest incurred after the cessation of business). | It was open to the court to conclude, as it did, that the two instalment payments were not made on time thus making the investors liable for the loan, the interest was in fact incurred and the interest incurred was correctly calculated. We will not be applying the decision to other investors in Corindi, where these facts are not present. If the circumstances of other investors are distinguishable, we will seek to have another more representative case brought before a court or tribunal.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 2004/4 | 2007 ATC 4265 | [2007] FCA 412 | 8-1 | (1981) 81 ATC 4031 | (1944) 71 CLR 388 | (1932) 48 CLR 113 | 95 ATC 4459 | 99 ATC 4600 | 2002 ATC 4135 | 2006 ATC 4472 | 90 ATC 4567 | 99 ATC 4242 | (1979) 79 ATC 4279 | 2004 ATC 4477", "Legislative_References": "Income Tax Assessment Act 1997 8-1", "Case_References": "Nilsen Development Laboratories Pty Ltd v Federal Commissioner of Taxation (1981) 144 CLR 616 (1981) 81 ATC 4031 (1981) 11 ATR 505 Cook v Fowler (1874) LR 7 HL 27 Gair v Federal Commissioner of Taxation (1944) 71 CLR 388 [1944] ALR 394 The Herald and Weekly Times Ltd v Federal Commissioner of Taxation (1932) 48 CLR 113 Placer Pacific Management Pty Ltd v Federal Commissioner of Taxation 95 ATC 4459 (1995) 31 ATR 253 Federal Commissioner of Taxation v Brown 99 ATC 4600 [1999] FCA 721 43 ATR 1 Federal Commissioner of Taxation v Jones 2002 ATC 4135 [2002] FCAFC 41 49 ATR 188 R & D Holdings Pty Ltd v Deputy Federal Commissioner of Taxation 2006 ATC 4472 [2006] FCA 981 64 ATR 71 Commissioner of Taxation v Riverside Road Lodge Pty Ltd (in liq) (1990) 23 FCR 305 90 ATC 4567 21 ATR 499 Steele v Deputy Commissioner of Taxation 99 ATC 4242 (1999) 197 CLR 449 41 ATR 139 Federal Commissioner of Taxation v Total Holdings (Aust) Pty Ltd (1979) 79 ATC 4279 (1979) 24 ALR 401 9 ATR 885 Commissioner of Taxation v Sleight 2004 ATC 4477 (2004) 136 FCR 211 55 ATR 555", "Subject_References": "Deductions and expenses Interest expenses", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID376/2004/00001", "Unmatched_Content": ""}
{"Case_Name": "Hamilton v Commissioner of Taxation", "Venue_Reference_No": "QS2005/62 & QS2006/24", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 August 2007", "Date_Published": "23 October 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "Whether the applicant who elected to withdraw contributions and interest as a lump sum by commuting his entitlement to a non indexed pension and commenced receiving a CSS indexed pension on retirement is entitled to a rebate of tax and an Undeducted Purchase Price deductible amount in respect to the CSS indexed pension.", "Overview_of_Facts": "1. The applicant had been a contributing member of the Commonwealth Superannuation Scheme (\"CSS\") and resigned from the Commonwealth Public Service on 28 February 2001. | 2. The applicant commenced receiving a CSS indexed pension from ComSuper on 6 March 2001. | 3. The applicant elected to withdraw his personal contributions, his employer's productivity contributions and interest as a lump sum by commuting his entitlement to an unindexed pension. | 4. The applicant's CSS indexed pension is paid from the Consolidated Revenue Fund (\"CRF\"). | Issues decided by the tribunal | 1. Whether the applicant is entitled to a rebate of tax under subsection 159SM(1) of the Income Tax Assessment Act 1936 (\"ITAA36\") in relation to his CSS indexed pension for the income year ended 30 June 2001? No - Justice Downes found the indexed pension was not 'in effect, funded' from a complying superannuation fund so would not treat it as such under s159ST of the ITAA36 as the applicant had already benefited from an equivalent taxation concession when he received his lump sum. | 2. Whether the applicant is entitled to an UPP deductible amount under subsection 27H(2) of the ITAA36 in respect to his CSS indexed pension for the income year ended 30 June 2001? No, as the applicant had received a taxation concession in respect of the whole of the UPP when he elected to commute his unindexed pension to a lump sum, he was not entitled to a UPP in relation to his indexed pension. | Tax Office view of Decision • Decision aligns with the Commissioner's view that the applicant was not entitled to: • a rebate of tax as his indexed pension is paid from the CRF and is not 'in effect' funded from a complying superannuation fund; or • an UPP as the applicant had taken his personal contributions, his employer's productivity contributions and interest as a lump sum. • Decision is consistent with the taxation treatment of recipients of CCS indexed pensions prior to 1 July 2007 | • Decision aligns with the Commissioner's view that the applicant was not entitled to: • a rebate of tax as his indexed pension is paid from the CRF and is not 'in effect' funded from a complying superannuation fund; or • an UPP as the applicant had taken his personal contributions, his employer's productivity contributions and interest as a lump sum. • Decision is consistent with the taxation treatment of recipients of CCS indexed pensions prior to 1 July 2007", "Issues_Decided": "1. Whether the applicant is entitled to a rebate of tax under subsection 159SM(1) of the Income Tax Assessment Act 1936 (\"ITAA36\") in relation to his CSS indexed pension for the income year ended 30 June 2001? No - Justice Downes found the indexed pension was not 'in effect, funded' from a complying superannuation fund so would not treat it as such under s159ST of the ITAA36 as the applicant had already benefited from an equivalent taxation concession when he received his lump sum. 2. Whether the applicant is entitled to an UPP deductible amount under subsection 27H(2) of the ITAA36 in respect to his CSS indexed pension for the income year ended 30 June 2001? No, as the applicant had received a taxation concession in respect of the whole of the UPP when he elected to commute his unindexed pension to a lump sum, he was not entitled to a UPP in relation to his indexed pension. Tax Office view of Decision • Decision aligns with the Commissioner's view that the applicant was not entitled to: • a rebate of tax as his indexed pension is paid from the CRF and is not 'in effect' funded from a complying superannuation fund; or • an UPP as the applicant had taken his personal contributions, his employer's productivity contributions and interest as a lump sum. • Decision is consistent with the taxation treatment of recipients of CCS indexed pensions prior to 1 July 2007 • Decision aligns with the Commissioner's view that the applicant was not entitled to: • a rebate of tax as his indexed pension is paid from the CRF and is not 'in effect' funded from a complying superannuation fund; or • an UPP as the applicant had taken his personal contributions, his employer's productivity contributions and interest as a lump sum. • Decision is consistent with the taxation treatment of recipients of CCS indexed pensions prior to 1 July 2007", "ATO_View_of_Decision": "", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Not applicable", "Related_Documents": "IT 2157 | 2007 ATC 2451 | 27H | 267 | 40 | 45 | 81 ATC 4292 | 2002 ATC 4659 | 79 ATC 4429 | (1998) 194 CLR 355 | 2003 ATC 4042", "Legislative_References": "Income Tax Assessment Act 1936 (ITAA36) 27A 27AB 27B 27C 27H 159SA 159SJ 159SM 159ST 267 Superannuation Act 1976 17 26 40 45 59 60 61 64 65 110P 112 136 137 138 Superannuation Industry (Supervision) Act 1993 40 45", "Case_References": "Cooper Brooks (Wollongong) Pty Ltd v FC of T (1981) 147 CLR 297 81 ATC 4292 11 ATR 949 Harris v C of T (2002) 125 FCR 46 2002 ATC 4659 50 ATR 410 Investment Trust v Commissioner of Stamps (SA) (1979) 145 CLR 330 79 ATC 4429 10 ATR 97 Project Blue Sky Incorporated v Australian Broadcasting Authority (1998) 194 CLR 355 Austin v Commonwealth of Australia (2003) 215 CLR 185 2003 ATC 4042 51 ATR 654", "Subject_References": "Superannuation Commonwealth Superannuation Scheme standard early retirement pension pension paid out of Consolidated Revenue Fund undeducted purchase price entitlement to rebate", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QS2006/24/00001", "Unmatched_Content": ""}
{"Case_Name": "IRG Technical Services Pty Ltd and Anor v Federal Commissioner of Taxation", "Venue_Reference_No": "WAD 174 & 175", "Venue": "Federal Court of Australia", "Judgment_Date": "5 December 2007", "Date_Published": "18 March 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Favourable", "Summary_of_Decision": "These cases were funded to test the application of 'the results test' [one of the four personal services business tests in the personal services income legislation] and whether artificial arrangements operated to defeat the legislation for individuals working in employee-like circumstances.", "Overview_of_Facts": "The two cases were heard together and concerned two unrelated engineers who were engaged by personal services entities (\"the Entities\"). In the first case the personal services entity was a company, of which the first engineer was the sole director and shareholder and in the second case the personal services entity was a trust, of which the second engineer was the controller and a beneficiary. The Entities both operated as independent contractors providing the engineering services of the engineers. The Entities applied for Personal Services Business Determinations which were refused by the Commissioner. | The Entities separately contracted with a labour hire firm to provide each engineer's services to a joint venture of construction companies which was responsible for construction costing billions of dollars (\"the Joint Venture\"). The labour hire firm contracted with the Joint Venture to provide engineering and other services. The Joint Venture paid the labour hire firm for the services of the engineers and the labour hire firm then paid the Entities in accordance with their contracts with the labour hire firm. The engineers provided services only to the Joint Venture in the relevant period. The Joint Venture was not bound by the contracts between the labour hire firm and the Entities. | The use of a labour hire firm was standard practice for the relevant industry in Western Australia. | Prior to the relevant period both the Entities stopped using one labour hire firm and contracted with another labour hire firm to enable the Entities to be engaged under new contracts. The labour hire firm had drafted the terms of the contracts in an attempt to legitimately characterise the terms of engagement so that the results test was satisfied. The work of the engineers did not change after the engagement of the Entities by a different labour hire firm. | The Entities' contracts with the new labour hire firm provided that payment for work done by the engineers was calculated at a 'unit price' up to a maximum sum per fortnight which appeared to reflect a payment for results. The Joint Venture made fortnightly payments to the labour hire firm based on the timesheets of the engineers and a standard 45 hour working week. | The engineers worked as part of an integrated team with other staff and contract engineers to produce documents which were necessary for construction of the relevant infrastructure for the Joint Venture. | The contracts with the labour hire firm purported to require the entities to provide a laptop for the engineers. However the joint venture provided all equipment, office space, computers and software and essential templates for the work of the engineers. | The work of the engineers was performed for and overseen by the Joint Venture. Their work was done in consultation with peers and supervisors. Neither of the engineers maintained professional indemnity insurance. | Issues decided by the court or tribunal | Justice Allsop dismissed the appeals against the refusal of the Commissioner to grant Personal Services Business Determinations under s87-65 of ITAA97 to the Entities. | His Honour relied on the Ralph Report, [ A Tax System Redesigned , July 1999] as a seminal report in the development of revenue legislation in Australia to assist in understanding the mischief, underlying purposes and conceptions to which Part 2-42 was directed. He also relied on the Explanatory Memorandum to the New Business Tax System (Alienation of Personal Services Income) Bill 2000, and the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 6) 2001 . His Honour stated that it was not necessary to identify any ambiguity to examine the context of the legislation. | His Honour concluded that the Guide and the operative provisions of Part 2-42 make clear that the legislation is aimed at 'employee-like' and 'employment-like' arrangements [para 34]. The 2001 Explanatory Memorandum and s84-10 contemplate that the application of Part 2-42 to an individual does not mean that the individual is an employee and not an independent contractor, nor does it mean that the contract between the labour hire firm and the engineers were shams. He also concluded that not all of the common law criteria for characterising an independent contractor must be satisfied to satisfy the results test, only the three specific results test criteria [para 36-37]. | In assessing each of the three results tests, His Honour concluded that it is the substance and not the form of the circumstances surrounding the relationship of the individual whose exertions produce the personal services income and the party who acquires or receives the services which is of primary importance. The contract between the engineers and the labour hire firm assists in, but does not determine, this enquiry [para 50-52]. | In relation to the application of the results tests to the Entities His Honour held: • s 87-18(3)(a) was not satisfied. The income of the engineers was not for producing a result but to work as part of a team [110, 157]. The reformulation of the relevant contracts in terms of deliverables did not change the substance of the work required into the production of results [160]. • s 87-18(3)(b) was not satisfied. The engineers were not required by the Joint Venture to provide any plant and equipment or tools of trade, everything necessary was provided by the Joint Venture [118, 161]. • s 87-18(3)(c) was satisfied. Although the team work and incremental review of work by the team meant that it was unlikely that an individual could be held to account nevertheless as independent contractors if defective work of one of the engineers was identified he may have been criticised and asked to rectify it. His Honour held this was sufficient to satisfy the provision [para 105, 162]. | • s 87-18(3)(a) was not satisfied. The income of the engineers was not for producing a result but to work as part of a team [110, 157]. The reformulation of the relevant contracts in terms of deliverables did not change the substance of the work required into the production of results [160]. • s 87-18(3)(b) was not satisfied. The engineers were not required by the Joint Venture to provide any plant and equipment or tools of trade, everything necessary was provided by the Joint Venture [118, 161]. • s 87-18(3)(c) was satisfied. Although the team work and incremental review of work by the team meant that it was unlikely that an individual could be held to account nevertheless as independent contractors if defective work of one of the engineers was identified he may have been criticised and asked to rectify it. His Honour held this was sufficient to satisfy the provision [para 105, 162].", "Issues_Decided": "Justice Allsop dismissed the appeals against the refusal of the Commissioner to grant Personal Services Business Determinations under s87-65 of ITAA97 to the Entities. His Honour relied on the Ralph Report, [ A Tax System Redesigned , July 1999] as a seminal report in the development of revenue legislation in Australia to assist in understanding the mischief, underlying purposes and conceptions to which Part 2-42 was directed. He also relied on the Explanatory Memorandum to the New Business Tax System (Alienation of Personal Services Income) Bill 2000, and the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 6) 2001 . His Honour stated that it was not necessary to identify any ambiguity to examine the context of the legislation. His Honour concluded that the Guide and the operative provisions of Part 2-42 make clear that the legislation is aimed at 'employee-like' and 'employment-like' arrangements [para 34]. The 2001 Explanatory Memorandum and s84-10 contemplate that the application of Part 2-42 to an individual does not mean that the individual is an employee and not an independent contractor, nor does it mean that the contract between the labour hire firm and the engineers were shams. He also concluded that not all of the common law criteria for characterising an independent contractor must be satisfied to satisfy the results test, only the three specific results test criteria [para 36-37]. In assessing each of the three results tests, His Honour concluded that it is the substance and not the form of the circumstances surrounding the relationship of the individual whose exertions produce the personal services income and the party who acquires or receives the services which is of primary importance. The contract between the engineers and the labour hire firm assists in, but does not determine, this enquiry [para 50-52]. In relation to the application of the results tests to the Entities His Honour held: • s 87-18(3)(a) was not satisfied. The income of the engineers was not for producing a result but to work as part of a team [110, 157]. The reformulation of the relevant contracts in terms of deliverables did not change the substance of the work required into the production of results [160]. • s 87-18(3)(b) was not satisfied. The engineers were not required by the Joint Venture to provide any plant and equipment or tools of trade, everything necessary was provided by the Joint Venture [118, 161]. • s 87-18(3)(c) was satisfied. Although the team work and incremental review of work by the team meant that it was unlikely that an individual could be held to account nevertheless as independent contractors if defective work of one of the engineers was identified he may have been criticised and asked to rectify it. His Honour held this was sufficient to satisfy the provision [para 105, 162]. • s 87-18(3)(a) was not satisfied. The income of the engineers was not for producing a result but to work as part of a team [110, 157]. The reformulation of the relevant contracts in terms of deliverables did not change the substance of the work required into the production of results [160]. • s 87-18(3)(b) was not satisfied. The engineers were not required by the Joint Venture to provide any plant and equipment or tools of trade, everything necessary was provided by the Joint Venture [118, 161]. • s 87-18(3)(c) was satisfied. Although the team work and incremental review of work by the team meant that it was unlikely that an individual could be held to account nevertheless as independent contractors if defective work of one of the engineers was identified he may have been criticised and asked to rectify it. His Honour held this was sufficient to satisfy the provision [para 105, 162].", "ATO_View_of_Decision": "The decision is in accordance with the ATO view of the legislation expressed in TR 2001/8", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 2001/8 What is a personal services business | TR 2001/8 | 2007 ATC 5326 | Part 2-42 | 87-18(3) | 87-65", "Legislative_References": "Income Tax Assessment Act 1997 Part 2-42 87-18(3) 87-65", "Case_References": "", "Subject_References": "Taxation Income Tax alienation of personal services income the results test", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD174and175/00001", "Unmatched_Content": ""}
{"Case_Name": "IWEC Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "NT2006/90 & 315", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "8 February 2007", "Date_Published": "10 January 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The applicant (an employer) was negligent in making Superannuation Guarantee payments on 5 occasions. The applicant was as little as one day late, and as much as 5 days late. The applicant appealed against the imposition of Superannuation Guarantee Charge as well as the Part 7 penalties imposed", "Overview_of_Facts": "The applicant (an employer) ran into financial difficulties, and was unable to make some Superannuation Guarantee Charge (SGC) payments on time. In the end, 5 payments were late, by a quantum varying from six months to 1 day. | The first payment in question was over 3 months late. | The next payment was over 6 months late. | The next payment was over 3 months late. | The next payment was one day late. | The final payment was not completed until 5 days after the due date, although part payments were received before the due date. | The applicant was audited in respect of these periods, and SGC and Part 7 penalties (10%) were imposed. The applicant lodged 2 objections (the first objection for 4 of these periods, the second objection for the remaining period). | On objection, the size and timing of the shortfalls were amended. The penalty for the payment that was one day late was remitted in full. The remaining penalties were remitted to 8%. | The applicant appealed to the AAT in respect of the SGC and the Part 7 penalties imposed. | Issues decided by the court or tribunal | The Tribunal noted (at para 22) that the Commissioner has no discretion to remit any or all of the SGC and so considered that it was bound to affirm the decision on that issue. | The Tribunal (at para 31) noted their agreement with the decision to remit in full the penalty on the payment made one day late. | The Tribunal then referred to the practice statement dealing with Part 7 penalties (PS LA 2006/1) and noted that the default penalty where the employer provided the information is 10%. It then referred to para 17 of the statement, which says that genuine attempts to comply as well as a high level of co-operation \"may justify a higher level of remission\". The Tribunal held that, on this basis, the 8% penalty for the payment made 5 days late should be remitted to zero and that for the remaining 3 periods the penalty should be reduced to 5%.", "Issues_Decided": "The Tribunal noted (at para 22) that the Commissioner has no discretion to remit any or all of the SGC and so considered that it was bound to affirm the decision on that issue. The Tribunal (at para 31) noted their agreement with the decision to remit in full the penalty on the payment made one day late. The Tribunal then referred to the practice statement dealing with Part 7 penalties (PS LA 2006/1) and noted that the default penalty where the employer provided the information is 10%. It then referred to para 17 of the statement, which says that genuine attempts to comply as well as a high level of co-operation \"may justify a higher level of remission\". The Tribunal held that, on this basis, the 8% penalty for the payment made 5 days late should be remitted to zero and that for the remaining 3 periods the penalty should be reduced to 5%.", "ATO_View_of_Decision": "This was a case on its facts. The AAT applied the Commissioner's practice statement and came to a different conclusion on the facts which it was entitled to do having also the benefit of oral submissions from the applicant.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "None | 2007 ATC 2073 | 31 | 32 | 62(3) | 5 | 117(3) | [2006] AATA 955 | 2004 ATC 2029 | 97 ATC 2132 | [2000] AATA 276 | 2004 ATC 2126 | 2005 ATC 2058 | (1960) 103 CLR 529 | PS LA 2006/1 - Liability for penalties", "Legislative_References": "Superannuation Guarantee (Administration) Act 1992 31 32 62(3) Superannuation Guarantee Charge Act 1992 5 Superannuation Industry (Supervision) Act 1993 117(3)", "Case_References": "VCJ and Commissioner of Taxation [2006] AATA 955 64 ATR 1198 Re Pye and Federal Commissioner of Taxation (2004) 55 ATR 1024 2004 ATC 2029 Jarra Hills Pty Ltd v Federal Commissioner of Taxation 37 ATR 1022 97 ATC 2132 Robert Truelove and Commissioner of Taxation [2000] AATA 276 Re Kancroft Pty Ltd (acting as trustee for Robertson Family Trust) and Commissioner of Taxation [2004] AATA 591 2004 ATC 2126 56 ATR 1086 Re Williams and Commissioner of Taxation (2005) 58 ATR 1298 2005 ATC 2058 Tilley v The Official Receiver (1960) 103 CLR 529", "Subject_References": "Superannuation Guarantee Charge contributions paid to fund late one contribution paid to financial planner on time but not received by fund within time agency absence of discretion to remit all or part of the Charge decision varied and decision affirmed", "Other_References": "PS LA 2006/1 - Liability for penalties", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NT2006/90/00001", "Unmatched_Content": ""}
{"Case_Name": "Keitac Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "QT2006/329", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "4 April 2007", "Date_Published": "30 July 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "This case concerns whether an administrative penalty for lack of reasonable care was properly imposed and whether the penalty should have been remitted in full or in part.", "Overview_of_Facts": "• Keitac Pty Ltd atf McNamara Property Development Trust ('Keitac') was negotiating to purchase land for the purpose of property development. • A draft contract was prepared with no special conditions. • Keitac sought advice from its accountants as to whether the going concern exemption with respect to GST would apply, but was advised that the exemption did not apply. • Subsequently Keitac entered into a contract in which a special condition had been mistakenly inserted that the 'Margin Scheme is to be applied to the Supply of the Property'. Keitac was not aware of this special condition at the time of signing the contract and consequently did not advise its accountants of the special condition. • The accountants prepared an Activity Statement for Keitac and claimed an input tax credit (ITC) for the acquisition of the land pursuant to Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 ('the GST Act'). Section 75-20 of the GST Act provides that supplies under a margin scheme do not give rise to creditable acquisitions. • Prior to preparing the Activity Statement the accountants requested from Keitac the 'key terms' of the contract. Keitac provided to the accountants the first page only of the contract and did not provide page two of the contract which contained the special condition that the margin scheme was to apply. The information contained in the first page of the contract did not indicate that Keitac was not entitled to claim the input tax credit and was consistent with the earlier advice of the accountants. • Neither the accountants nor Keitac held a tax invoice for the acquisition of the land. • The Commissioner requested a full copy of the contract and after reviewing the special condition made the accountants aware that no entitlement existed for input tax credits. A GST assessment issued for the shortfall and a notice of assessment of penalty issued at a rate of 25% of the shortfall amount. The Commissioner decided that Keitac or the accountants had failed to exercise reasonable care in complying with a taxation law. The penalty was in the amount of $23,863.75. • The Commissioner did not exercise his discretion to remit the penalty imposed pursuant to subsection 298-20(1) of Schedule 1 to the Taxation Administration Act 1953 . | • Keitac Pty Ltd atf McNamara Property Development Trust ('Keitac') was negotiating to purchase land for the purpose of property development. • A draft contract was prepared with no special conditions. • Keitac sought advice from its accountants as to whether the going concern exemption with respect to GST would apply, but was advised that the exemption did not apply. • Subsequently Keitac entered into a contract in which a special condition had been mistakenly inserted that the 'Margin Scheme is to be applied to the Supply of the Property'. Keitac was not aware of this special condition at the time of signing the contract and consequently did not advise its accountants of the special condition. • The accountants prepared an Activity Statement for Keitac and claimed an input tax credit (ITC) for the acquisition of the land pursuant to Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 ('the GST Act'). Section 75-20 of the GST Act provides that supplies under a margin scheme do not give rise to creditable acquisitions. • Prior to preparing the Activity Statement the accountants requested from Keitac the 'key terms' of the contract. Keitac provided to the accountants the first page only of the contract and did not provide page two of the contract which contained the special condition that the margin scheme was to apply. The information contained in the first page of the contract did not indicate that Keitac was not entitled to claim the input tax credit and was consistent with the earlier advice of the accountants. • Neither the accountants nor Keitac held a tax invoice for the acquisition of the land. • The Commissioner requested a full copy of the contract and after reviewing the special condition made the accountants aware that no entitlement existed for input tax credits. A GST assessment issued for the shortfall and a notice of assessment of penalty issued at a rate of 25% of the shortfall amount. The Commissioner decided that Keitac or the accountants had failed to exercise reasonable care in complying with a taxation law. The penalty was in the amount of $23,863.75. • The Commissioner did not exercise his discretion to remit the penalty imposed pursuant to subsection 298-20(1) of Schedule 1 to the Taxation Administration Act 1953 . | Issues decided by the tribunal | The Tribunal affirmed the Commissioner's decision to impose a penalty of 25% on the tax shortfall and found: 'while there are some mitigating factors there is clearly negligence on the part of the applicant from a legal point of view'. | Further the Tribunal also concluded that 'the Tax Agent has demonstrated a lack of reasonable care in a number of respects in relation to its legal obligation of demonstrating 'reasonable care''. | The Tribunal set aside the Commissioner's decision not to remit the penalty (at least partially), determining that the penalty should be fixed at $12,000. | In doing so, the Tribunal concluded that not to grant some relief to the applicant would be unjust, observing: 'While he made a mistake and he was negligent, his legal obligations had been undermined by the level of service of the Real Estate Agent and to some degree, his Tax Agent'. The Tribunal also noted the applicant's otherwise good compliance record.", "Issues_Decided": "The Tribunal affirmed the Commissioner's decision to impose a penalty of 25% on the tax shortfall and found: 'while there are some mitigating factors there is clearly negligence on the part of the applicant from a legal point of view'. Further the Tribunal also concluded that 'the Tax Agent has demonstrated a lack of reasonable care in a number of respects in relation to its legal obligation of demonstrating 'reasonable care''. The Tribunal set aside the Commissioner's decision not to remit the penalty (at least partially), determining that the penalty should be fixed at $12,000. In doing so, the Tribunal concluded that not to grant some relief to the applicant would be unjust, observing: 'While he made a mistake and he was negligent, his legal obligations had been undermined by the level of service of the Real Estate Agent and to some degree, his Tax Agent'. The Tribunal also noted the applicant's otherwise good compliance record.", "ATO_View_of_Decision": "The Commissioner will not appeal the decision of the Tribunal setting aside the decision not to remit penalty and fixing the penalty at $12,000. | While the Commissioner considers that administrative penalty could not be remitted solely on the basis that an error was caused by a tax agent completing an activity statement on a taxpayer's behalf, in this case the Tribunal mainly had regard to the applicant's good compliance record and the actions of the real estate agent and only 'to some extent' those of the tax agent. | The Commissioner accepts that the decision to partially remit the penalty is one that was open to the Tribunal on the facts of the case.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | There are no implications with respect to any current Public Rulings or Determinations.", "Related_Documents": "None | [2007] AATA 1206 | 284-25 | 284-75 | 284-90 | 298-20 | 9-5 | 29-10 | 75-20 | 2006 ATC 4761 | 2005 ATC 2404 | 43 ATR 1324 | 98 ATC 2137 | [2004] AATA 786 | 2007 ATC 4080 | Practice Statement Law Administration PS LA 2006/2", "Legislative_References": "Taxation Administration Act 1953 284-25 284-75 284-90 298-20 A New Tax System (Goods and Services Tax ) Act 1999 9-5 29-10 75-20", "Case_References": "Commissioner of Taxation v Hornibrook [2006] FCAFC 170 (2006) 156 FCR 313 65 ATR 1 2006 ATC 4761 Graham Docker and Associates Pty Ltd and Commissioner of Taxation 61 ATR 1077 [2005] AATA 1180 2005 ATC 2404 Smith v Jones [1954] 2 All ER 823 [1954] 1 WLR 1089 Taylor v Johnson (1983) 151 CLR 422 (1983) 45 ALR 265 Solle v Butcher [1950] 1 KB 671 Goldsbrough Mort and Co Ltd v Quinn (1910) 10 CLR 674 (1910) 17 ALR 42 Re Sparks and Federal Commissioner of Taxation [2000] AATA 28 43 ATR 1324 Re Arnett and Federal Commissioner of Taxation 39 ATR 1095 98 ATC 2137 Re Kowadlo and Kowadlo and Commissioner of Taxation [2004] AATA 786 Starr v Commissioner of Taxation of the Commonwealth of Australia [2007] FCA 23 2007 ATC 4080 65 ATR 86", "Subject_References": "Goods and Service Tax Penalty Imposition Penalty Remission", "Other_References": "Practice Statement Law Administration PS LA 2006/2", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QT2006/329/00001", "Unmatched_Content": ""}
{"Case_Name": "Keycorp Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD121 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "7 February 2007", "Date_Published": "4 April 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the taxpayer was entitled to transfer a loss incurred in a particular part of an income year being that period after a disqualifying event of a change of ownership occurred.", "Overview_of_Facts": "1. In September 1982 Keycorp Ltd (KYC) was incorporated; | 2. On 21 August 2000 Keycorp Solutions Ltd (\"KSL\") was incorporated (wholly owned by KYC) as a special purpose entity to acquire a particular business from Telstra Corporation Ltd (\"Telstra\") but remained a dormant company until 14 December 2000; | 3. On 25 October 2000 Telstra through its wholly owned subsidiary Telstra cb.fs Ltd agreed to subscribe for 38,700,000 shares in the capital of KYC. The shares were not issued to Telstra until 14 December 2000 and represented approximately 51% of the total capital of KYC at the time of issue. | 4. On 14 December 2000 Telstra transferred the business to KSL. The only activity prior to this date was to enter into contracts for the acquisition of the business. On the basis that KSL did not trade from the time of incorporation until 14 December 2000, being the time of the transfer of the business from Telstra, the business of KSL commenced on that date. | 5. During the income year 2001 KYC reverted to a 30 June year end resulting in a transitional income year from 1 January 2000 to 30 June 2001. KYC incurred a tax loss of $39,068,802 in the 18 month period from 1 January 2000 to 30 June 2001. After utilising losses in that income year there were tax losses available to be carried forward of $27,470,209; | 6. In the 2002 year KSL derived a taxable income of $27,748,457. | 7. An attempt to transfer tax losses incurred by KYC for the period 1 January 2000 to 30 June 2001 was ineffective as KYC failed the continuity of ownership test in s165-12 due to the sale of its shares to Telstra on 14 December 2000. | 8. To overcome this difficulty, on 21 July 2005 KYC and KSL sought a private ruling from the Commissioner on whether the part of the tax loss incurred by KYC in the period 14 December 2000 to 30 June 2001 could be transferred to KSL The loss transfer agreement that would be entered into was to transfer $27,748,457 in tax losses from KYC to KSL to reduce the taxable income of KSL to nil. | 9. Subsequent to the ruling request KSL changed its name to Telstra Payment Solutions Ltd | Issues decided by the court or tribunal | 1. Does Subdivision 170-A of the ITAA 1997 allow the transfer of \"part of a tax loss incurred in part of an income year\" between companies in the same wholly-owned group? A key question in respect of this issue is whether the expression \"part of the tax loss\" in s 170-10 of the ITAA 1997 refers only to the amount of the tax loss to be transferred or extends to losses incurred in a particular part of an income year. | His Honour held that, 'Ultimately, I think the matter is capable of being rendered to one issue: Is Division 170 and, in particular, s 170-10 directed in any circumstances to the transfer of a tax loss that is referable to part of an income year and as such able to be described as \"part of a tax loss for an income year\"? The view that I have come to is that the answer to this question is, \"no\". ' | His Honour acknowledged that this leads to a lack of conformity between the regime for deduction under Division 165 and that for transfer under Division 170 but went on to say that \"I do not see that as an oddity or inconvenience. It is merely what Parliament has chosen. It would be odder and possibly more inconvenient if the taxpayer were left freely able to choose the time unit of its tax affairs to transfer its losses, in circumstances where the Parliament has set down a detailed regime for dealing with working out taxable income and tax loss where, for one reason, there are two or more temporal units of the basal income year.\"", "Issues_Decided": "1. Does Subdivision 170-A of the ITAA 1997 allow the transfer of \"part of a tax loss incurred in part of an income year\" between companies in the same wholly-owned group? A key question in respect of this issue is whether the expression \"part of the tax loss\" in s 170-10 of the ITAA 1997 refers only to the amount of the tax loss to be transferred or extends to losses incurred in a particular part of an income year. His Honour held that, 'Ultimately, I think the matter is capable of being rendered to one issue: Is Division 170 and, in particular, s 170-10 directed in any circumstances to the transfer of a tax loss that is referable to part of an income year and as such able to be described as \"part of a tax loss for an income year\"? The view that I have come to is that the answer to this question is, \"no\". ' His Honour acknowledged that this leads to a lack of conformity between the regime for deduction under Division 165 and that for transfer under Division 170 but went on to say that \"I do not see that as an oddity or inconvenience. It is merely what Parliament has chosen. It would be odder and possibly more inconvenient if the taxpayer were left freely able to choose the time unit of its tax affairs to transfer its losses, in circumstances where the Parliament has set down a detailed regime for dealing with working out taxable income and tax loss where, for one reason, there are two or more temporal units of the basal income year.\"", "ATO_View_of_Decision": "This decision accords with the longstanding treatment of this issue by the Commissioner.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "ATO ID 2005/285 | 2007 ATC 4176 | 36-10 | 36-17 | 165-10 | 165-12 | 165-13 | 165-20 | 170-10 | 170-10(2) | 170-15(1) | 170-30(2) | 170-40(2) | 170-50(2) | (1997) 187 CLR 384 | (1998) 193 CLR 605 | 2005 ATC 4255 | 2004 ATC 4303 | 86 ATC 4171 | 97 ATC 4986 | 87 ATC 5018 | 81 ATC 4563 | 2001 ATC 4394 | 2000 ATC 4566 | 89 ATC 5163", "Legislative_References": "Income Tax Assessment Act 1997 36-10 36-17 165-10 165-12 165-13 165-20 170-10 170-10(2) 170-15(1) 170-30(2) 170-40(2) 170-50(2)", "Case_References": "Braverus Maritime Inc v Port Kembla Coal Terminal Ltd (2005) 148 FCR 68 Brennan v R (1936) 55 CLR 253 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Commissioner of Taxation of the Commonwealth of Australia v Murry (1998) 193 CLR 605 Commissioner of Taxation of the Commonwealth of Australia v Linter Textiles Australia Limited (2005) 220 CLR 592 2005 ATC 4255 59 ATR 177 Commissioner of Taxation v Asiamet (No 1) Resources Pty Ltd (2004) 137 FCR 146 2004 ATC 4303 55 ATR 239 Federal Commissioner of Taxation v Comber (1986) 10 FCR 88 86 ATC 4171 17 ATR 413 Federal Commissioner of Taxation v McMahon (1997) 79 FCR 127 97 ATC 4986 37 ATR 167 Federal Commissioner of Taxation v Reynolds Australia Alumnia Ltd (1987) 77 ALR 543 87 ATC 5018 19 ATR 598 Federal Commissioner of Taxation v Top of the Cross Pty Ltd (1981) 37 ALR 623 81 ATC 4563 12 ATR 413 Harts Australia Ltd v Commissioner of Taxation (2001) 109 FCR 405 2001 ATC 4394 47 ATR 371 Harts Australia Pty Ltd v Commissioner of Taxation 2000 ATC 4566 45 ATR 51 Plessey Australia Pty Ltd v Federal Commissioner of Taxation (1989) 89 ALR 395 89 ATC 5163 20 ATR 1538", "Subject_References": "Company losses Continuity of ownership test Group company loss transfers Same business test Tax loss Part of a loss", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD121of2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Legal Practice Board v Computer Accounting and Tax Pty Ltd", "Venue_Reference_No": "CIV 1106 of 2007", "Venue": "Supreme Court", "Judgment_Date": "13 August 2007", "Date_Published": "22 October 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Not applicable - Commissioner not a party. Originating motion dismissed.", "Summary_of_Decision": "This decision involved the Legal Practice Act 2003 (WA). Simmons J dismissed the application, finding that the Respondent engaged in legal practice which would have been in breach of the Act, but section 123 under which the proceedings were brought was not applicable to corporations.", "Overview_of_Facts": "1. The Applicant brought an application against the Respondent for contempt under section 250 of the Legal Practice Act 2003 (WA) for preparing a trust deed. | 2. At all material times the Respondent company had two directors. One director was a registered tax agent and Fellow of the National Tax and Accountant's Association. Neither were legal practitioners. | 3. The Respondent advertised the preparation of trust deeds for $330 on its website. | 4. One of the directors obtained a pro-forma trust deed for self managed superannuation funds from an internet company. | 5. In her evidence, the director said she relied on advice from an officer of the superannuation section of the ATO that accountants could provide deeds to individual trustees in order to set up self managed superannuation funds on the basis of s 251L of the Income Tax Assessment Act 1936 . She also referred to page 31 of a book entitled \"Self Managed Superannuation Funds DIY super\", fact sheet No 2059 and a booklet entitled \"Role and responsibilities of trustees\" published by the ATO. | 6. In August 2006 the diector was asked to prepare a trust deed for a private or self-managed fund. She was paid $330 cash for the deed. | 7. There was no evidence that the deed was ever signed or that property was set aside or that any steps were taken to procure an ABN or TFN. | Issues decided by the court or tribunal | 1. Does the prohibition in s 123(1) of the Legal Practice Act , read if necessary with s 123(2), apply to corporations? No. | 2. If it does, was the conduct in this case engaging in legal practice within the Legal Practice Act , s 123(1) read with s 4(b) or (c)(i)? Yes however it was not necessary to decide. | 3. Was the respondent, directly or indirectly paid or remunerated or promised or expected payment or remuneration for that work within s 124(3)? Yes. | 4. Is it relevant that the director was induced, by statements of the Australian Taxation Office, to believe she, as an accountant who was a registered tax agent, could lawfully provide the trust deed? No.", "Issues_Decided": "1. Does the prohibition in s 123(1) of the Legal Practice Act , read if necessary with s 123(2), apply to corporations? No. 2. If it does, was the conduct in this case engaging in legal practice within the Legal Practice Act , s 123(1) read with s 4(b) or (c)(i)? Yes however it was not necessary to decide. 3. Was the respondent, directly or indirectly paid or remunerated or promised or expected payment or remuneration for that work within s 124(3)? Yes. 4. Is it relevant that the director was induced, by statements of the Australian Taxation Office, to believe she, as an accountant who was a registered tax agent, could lawfully provide the trust deed? No.", "ATO_View_of_Decision": "The ATO has undertaken a review of its current website and other guidance products covering superannuation matters and can confirm that none contain advice of the nature referred to in this decision. The main document referred to in the decision (NAT 2059) was removed during a regular review earlier this year. | Taxpayers who become aware of any inaccuracies in superannuation products or advice provided by the Australian Taxation Office are invited to contact the Australian Taxation Office in relation to that issue.", "Administrative_Treatment": "None", "Related_Documents": "Not applicable | [2007] WASC 184 | 9 | 206E | s 5 | s 3, s 4, s 27, s 45, s 47, s 48, s 69, s 70, s 75, s 76, s 86, s 87, s 123, s 124, s 125, s 250, s 253(2)(a) | 77", "Legislative_References": "Corporations Act 2001 (Cth) 9 206E Income Tax Assessment Act 1936 (Cth) 251L Interpretation Act 1984 (WA) s 5 Legal Practice Act 2003 (WA) s 3, s 4, s 27, s 45, s 47, s 48, s 69, s 70, s 75, s 76, s 86, s 87, s 123, s 124, s 125, s 250, s 253(2)(a) Legal Practitioners Act 1893 (WA) 77", "Case_References": "Heedes v Legal Practice Board [2005] WASCA 166 Legal Practice Board v Frichot [2006] WASC 230 The Barristers' Board v Palm Management Pty Ltd [1984] WAR 101 The Barristers' Board v Marbellup Nominees Pty Ltd [1984] WAR 335 Hoffman v Chief of Army (2004) 137 FCR 520 [2004] FCAFC 148 Legal Practice Board v Said [2002] WASC 35 Florida Bar v Town (1965) 174 So 2d 395 Re Matthews (1938) 79 P 2d 535 Green v Hoyle [1976] 2 All ER 633 Ostrowski v Palmer (2004) 218 CLR 493 R v Jorgensen [1995] 4 SCR 55", "Subject_References": "Statutory contempt under Legal Practice Act, s 250 Corporation shown as public accountant and registered tax agent providing services for self-managed superannuation funds, including providing trust deeds Whether engaging in legal practice contrary to s 123(1) Whether s 123(1) applies to corporations Whether corporation engaged in legal practice within s 4(b) Whether corporation engaged in legal practice within s 4(c)(i) Whether defence in s 124(3) applied Whether reliance on advice in federal government publications relevant", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/CIV1106of2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Long v Commissioner of Taxation", "Venue_Reference_No": "VT2004/237", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "30 April 2007", "Date_Published": "16 February 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "Adverse", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned the question of whether an eligible termination payment (ETP) is a bona fide redundancy payment where the person terminated is both employee and director of the employer, and also whether the amount paid was reasonable.", "Overview_of_Facts": "The Applicant, her husband and their sons were directors of a company, VBS Pty Ltd (VBS), which conducted the family business, involving the installation and maintenance of television satellite dishes as a contractor to Austar Entertainment Pty Ltd (Austar). | The Applicant and her husband were the active and joint controlling minds of VBS. Each member of the Long family was employed in the business by VBS as common law employees. The Applicant was employed full time, broadly fulfilling the duties of office manager. VBS employed 5 other unrelated employees as at December 2001. | In September 2001, Austar advised VBS that it decided to cease the contractual relationship. On 12 December 2001, VBS, through the Applicant and her husband in their roles as directors, determined that it would close the business and terminate the jobs of all employees, including their own. It was an agreed fact that all employees were terminated by reason of redundancy. | The Applicant, her husband and one of their sons each received an eligible termination payment of $18,535 from VBS. | The son and all of the 5 unrelated employees were also paid their accrued annual leave entitlements. The Applicant, her husband, their son and 3 of the 5 unrelated employees were paid through to 31 December 2001, in line with an undertaking the Applicant and her husband made to all employees just prior to the business closing. | Issues decided by the court or tribunal | Was the Applicant's receipt of an eligible termination payment (ETP) of $18,535 a bona fide redundancy payment (BFRP) within the meaning of s.27F of the Income Tax Assessment Act 1936 (the Act)? The Tribunal decided that the full amount was a BFRP as: 1. The Applicant was dismissed from her employment by reason of bona fide redundancy (paragraph 27F(1)(a))[BK 1]. 2. The amount the Applicant received was not in excess of the amount of an ETP that could reasonably be expected in relation to the Applicant had she and her employer been dealing with each other at arm's length in relation to the termination (paragraph 27F(1)(c)). 3. The amount that could reasonably be expected to be paid to the Applicant had she voluntarily retired from employment at the time of her termination was zero (closing words of subsection 27F(1)). | 1. The Applicant was dismissed from her employment by reason of bona fide redundancy (paragraph 27F(1)(a))[BK 1]. 2. The amount the Applicant received was not in excess of the amount of an ETP that could reasonably be expected in relation to the Applicant had she and her employer been dealing with each other at arm's length in relation to the termination (paragraph 27F(1)(c)). 3. The amount that could reasonably be expected to be paid to the Applicant had she voluntarily retired from employment at the time of her termination was zero (closing words of subsection 27F(1)).", "Issues_Decided": "Was the Applicant's receipt of an eligible termination payment (ETP) of $18,535 a bona fide redundancy payment (BFRP) within the meaning of s.27F of the Income Tax Assessment Act 1936 (the Act)? The Tribunal decided that the full amount was a BFRP as: 1. The Applicant was dismissed from her employment by reason of bona fide redundancy (paragraph 27F(1)(a))[BK 1]. 2. The amount the Applicant received was not in excess of the amount of an ETP that could reasonably be expected in relation to the Applicant had she and her employer been dealing with each other at arm's length in relation to the termination (paragraph 27F(1)(c)). 3. The amount that could reasonably be expected to be paid to the Applicant had she voluntarily retired from employment at the time of her termination was zero (closing words of subsection 27F(1)). 1. The Applicant was dismissed from her employment by reason of bona fide redundancy (paragraph 27F(1)(a))[BK 1]. 2. The amount the Applicant received was not in excess of the amount of an ETP that could reasonably be expected in relation to the Applicant had she and her employer been dealing with each other at arm's length in relation to the termination (paragraph 27F(1)(c)). 3. The amount that could reasonably be expected to be paid to the Applicant had she voluntarily retired from employment at the time of her termination was zero (closing words of subsection 27F(1)).", "ATO_View_of_Decision": "The Commissioner considers that the outcome in this case is one limited to the facts found by the Tribunal. In his decision, Senior Member Pascoe stated that decisions in cases of this nature depended on their particular facts. If a matter demonstrates essentially the same factual scenario as found by Senior Member Pascoe, the Commissioner will apply the outcome in this case. In matters that are factually inconsistent with this decision, the Commissioner will apply the law as reflected in the general principles set out in TR 94/12. | Nevertheless, the Commissioner accepts that the mere fact that an employee is involved in a decision to terminate their own employment may not automatically lead to a conclusion that the employee was not 'dismissed' by reason of having 'consented' to the termination decision in their capacity as an employee. | The facts in each case will reveal: • whether a person who is both an employee and a decision maker of the employer (a dual capacity employee) consented to the termination decision such that it amounts to a 'dismissal'; • whether the amount paid to the dual capacity employee could reasonably be expected had the parties been dealing at arm's length; • whether there was an agreement to employ the dual capacity employee after his or her termination; and • the amount that could reasonably be expected on the dual capacity employee's voluntary retirement. | • whether a person who is both an employee and a decision maker of the employer (a dual capacity employee) consented to the termination decision such that it amounts to a 'dismissal'; • whether the amount paid to the dual capacity employee could reasonably be expected had the parties been dealing at arm's length; • whether there was an agreement to employ the dual capacity employee after his or her termination; and • the amount that could reasonably be expected on the dual capacity employee's voluntary retirement.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Taxation Ruling TR2009/2, which issued on 22 April 2009, considers the issues associated with cases of this type, as well as a range of other issues relating to section 83-175 of Income Tax Assessment Act 1997, which deals with the tax treatment of genuine redundancy payments from 1 July 2007. TR 2009/2 replaced TR 94/12, the previous ATO ruling dealing with the treatment of BFRPs under section 27F of the Income Tax Assessment Act 1936. | The Commissioner also considers that the facts underlying ATO ID 2001/529 reveal a termination decision made by a dual capacity employee, precipitated by a voluntary sale of a business, to which the employee consented. Therefore, the Commissioner's view is that this ATO ID reflects a correct application of the relevant principles to the facts there stated.", "Related_Documents": "TR 94/12 | ATO ID 2001/529 | 2007 ATC 2155 | (1995) 60 IR 327", "Legislative_References": "Income Tax Assessment Act 1936 27F 27A(1)", "Case_References": "Smith v Director General of School Education (1993) 31 NSWLR 349 Quality Bakers of Australia Ltd v Goulding (1995) 60 IR 327", "Subject_References": "Bona fide redundancy payment applicant both employer's director and employee whether 'dismissal' whether arms' length amount expected amount if voluntary retirement", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VT2004/237/00001", "Unmatched_Content": ""}
{"Case_Name": "Peter Cumins v Commissioner of Taxation", "Venue_Reference_No": "WAD 53 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "2 March 2007", "Date_Published": "3 November 2016", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the ATO's response to this case which concerned the sale of listed shares by the taxpayer as trustee of one trust to himself as trustee of another trust to crystallise a loss and to entirely offset a capital gain made the previous day.", "Overview_of_Facts": "1. On 11 June 1998 the appellant, in his capacity as trustee of a family discretionary trust ('Trust 1'), disposed of shares and made a capital gain of $787,375. On 12 June 1998 the appellant also became the trustee of a separate family discretionary trust ('Trust 2'). Trust 2 had only been settled that day. While not identical the 'objects' of the two trusts were substantially the same. The appellant had the sole control of both trusts. | 2. On 12 June 1998 the appellant as trustee of Trust 1 sold 8 million shares to the appellant as trustee of Trust 2. The shares were at all relevant times mortgaged by Trust 1 to secure a bank loan and were registered in the bank's name. The bank was not informed of the sale and the purchase price was not paid. This share sale resulted in the appellant as trustee for Trust 1 making a capital loss of $800,000 which completely offset the capital gain made the previous day. | 3. The Commissioner increased the net capital gain included in the trust's assessable income by $800,000. The Commissioner relied upon a number of grounds including a Part IVA determination. | 4. The Tribunal found that the appellant had obtained a tax benefit connected to the scheme identified by the respondent and that a reasonable person would conclude that the sole purpose of the appellant in carrying out the scheme was to obtain the tax benefit and affirmed the respondent's Part IVA determination. | 5. On appeal from the Tribunal to the Federal Court, Justice Nicholson held that the Tribunal had properly exercised its discretion under Pt IVA as it found that the capital loss was a tax benefit associated with the scheme and had regard to the eight matters in paragraph 177D(b) in concluding that the appellant carried out the scheme to obtain a tax benefit. His Honour held that Part IVA may apply even where a scheme is 'genuine or directed at crystallising a loss'; although he noted that in this case no economic loss was suffered and the beneficial ownership of the shares did not change. His Honour also rejected the appellant's contention that the Tribunal erred by not taking into account two rulings relating to 'wash sales' as they were not relevant and also rejected the contention that the Tribunal had not adequately considered alternative transactions open to the appellant. | 6. The appellant appealed to the Full Federal Court. | Issues decided by the court or tribunal | The Full Federal Court delivered a joint judgment dismissing the appeal. | The Court considered that the Tribunal had properly exercised its power under subsection 177F(1). The court held that once the conclusion under section 177D was reached there was no 'super-imposed obligation' to take into account other matters when deciding whether to cancel a tax benefit. | The Court observed that Pt IVA applies to 'genuine' transactions and that, in any event, the genuineness of the transaction is not an issue to be considered under Part IVA. (The transaction was a 'genuine' transaction in the sense that it was not a sham, and the shares had depreciated in value. In making this observation the Court did not mean 'genuine' in the sense of an un-contrived, commercial dealing.) The Court also agreed that the two rulings relating to 'wash sales' were not relevant to the issues at hand. | The Court held that the Tribunal was entitled to conclude that the suggested alternative arrangements could not have been expected to take place as it was not satisfied on the evidence that the Bank would have consented to these alternative arrangements. The Court noted that because the statutory onus lay on the appellant the Tribunal was entitled to reach the conclusion it did. | It also held that the Tribunal had properly considered the issues relating to remission of additional tax imposed under subsection 227(3). The Tribunal's conclusion that it was not reasonably arguable that Part IVA did not apply to the scheme was in accordance with settled principle and open to the Tribunal.", "Issues_Decided": "The Full Federal Court delivered a joint judgment dismissing the appeal. The Court considered that the Tribunal had properly exercised its power under subsection 177F(1). The court held that once the conclusion under section 177D was reached there was no 'super-imposed obligation' to take into account other matters when deciding whether to cancel a tax benefit. The Court observed that Pt IVA applies to 'genuine' transactions and that, in any event, the genuineness of the transaction is not an issue to be considered under Part IVA. (The transaction was a 'genuine' transaction in the sense that it was not a sham, and the shares had depreciated in value. In making this observation the Court did not mean 'genuine' in the sense of an un-contrived, commercial dealing.) The Court also agreed that the two rulings relating to 'wash sales' were not relevant to the issues at hand. The Court held that the Tribunal was entitled to conclude that the suggested alternative arrangements could not have been expected to take place as it was not satisfied on the evidence that the Bank would have consented to these alternative arrangements. The Court noted that because the statutory onus lay on the appellant the Tribunal was entitled to reach the conclusion it did. It also held that the Tribunal had properly considered the issues relating to remission of additional tax imposed under subsection 227(3). The Tribunal's conclusion that it was not reasonably arguable that Part IVA did not apply to the scheme was in accordance with settled principle and open to the Tribunal.", "ATO_View_of_Decision": "The Court's decision confirms that under subsection 177F(1) the Commissioner is empowered or entitled to cancel a tax benefit if the requirements in section 177D are satisfied. | The Court observed at [41] that the term 'may' in subsection 177F(1) is used in the sense of a power of the Commissioner that arises when the requirements in section 177D are satisfied. There is no further \"over-arching\" or final discretion to be exercised by the Commissioner independently under subsection 177F(1). | Thus, the decision to cancel a tax benefit under subsection 177F(1) does not involve two stages. Once the Commissioner is empowered to cancel a tax benefit because the requirements in section 177D are satisfied, there is no further opinion he has to form. It follows that the power to cancel a tax benefit under subsection 177F(1) may be discretionary in the sense that it is not compulsory for the Commissioner to exercise the power, but it is not discretionary in the sense of being dependent on his forming an opinion, or state of satisfaction which could be subject to judicial review. | The conclusion reached by the Court in this respect is consistent with Hill J's reasoning (with whom Carr and Hely JJ agreed in this respect) in FC of T v Sleight [2004] FCAFC 94 that subsection 177F(1) permits the Commissioner in his discretion to determine that part only of a tax benefit be cancelled. | The Court's reasoning regarding the nature of the Commissioner's power under subsection 177F(1) is considered equally applicable to the power of the Commissioner to negate a GST benefit under section 165-40 in Division 165 of the A New Tax System (Goods and Services Tax) Act 1999.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None directly affected by the decision.", "Related_Documents": "PS LA 2005/24 - Application of General Anti-avoidance Rules | 2007 ATC 4303 | Pt IVA, ss 177C | 177D | 177F | Pt 3-1 | (1952) 86 CLR 183 | 90 ATC 4088 | 94 ATC 4663 | 2004 ATC 4599 | 2003 ATC 5041", "Legislative_References": "Income Tax Assessment Act 1936 Pt IVA, ss 177C 177D 177F Income Tax Assessment Act 1997 Pt 3-1", "Case_References": "George v FCT (1952) 86 CLR 183 FCT v Dalco (1990) 168 CLR 614 90 ATC 4088 20 ATR 1370 FCT v Peabody (1994) 181 CLR 359 94 ATC 4663 28 ATR 344 FCT v Hart (2004) 217 CLR 216 2004 ATC 4599 55 ATR 712 Walstern v FCT (2003) 137 FCR 1 2003 ATC 5041 54 ATR 449", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WAD53of2006/00001", "Unmatched_Content": "Implications on Law Administration Practice Statements: Law Administration Practice Statement PS LA 2005/24 Application of General Anti Avoidance Rules was updated on 16 September 2016 to reflect statements made by the Full Federal Court in relation to the nature of the Commissioner's discretion under subsection 177F(1) - refer to paragraph 47 of PS LA 2005/24. | Updated to reflect PS LA 2005/24 has been revised"}
{"Case_Name": "Re Applicant for an Australian Business Number and Registrar of the Australian Business Register", "Venue_Reference_No": "W2005/192", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "20 February 2007", "Date_Published": "5 June 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Cancellation of an Australian Business Number (ABN) with effect from an earlier date where it was considered that the taxpayer was not carrying on an enterprise because there was never any expectation of making a profit.", "Overview_of_Facts": "The applicant was audited by the Registrar who considered that the applicant was not carrying on an enterprise and that what he did do never had any likelihood of making a profit. His ABN was cancelled with effect from 1 July 2000. | The applicant attended the Tribunal with a DVD containing hundreds of photographs showing items that he constructed and sold and he gave oral evidence in relation to these. The Tribunal allowed the applicant to present this evidence and accepted that he carried on manufacturing and selling operations on a reasonably large scale and that he had a reasonable expectation of making a profit. | The applicant gave evidence that he ceased his business in late 2004. | Issues decided by the tribunal | The Tribunal decided that: 1. The applicant was carrying on an enterprise; 2. Viewed objectively, the applicant had a reasonable expectation of making a profit despite the fact that hindsight shows that he never actually achieved a profit. | 1. The applicant was carrying on an enterprise; 2. Viewed objectively, the applicant had a reasonable expectation of making a profit despite the fact that hindsight shows that he never actually achieved a profit. | The Tribunal set aside the decision under review and substituted a decision cancelling the ABN from 31 December 2004.", "Issues_Decided": "The Tribunal decided that: 1. The applicant was carrying on an enterprise; 2. Viewed objectively, the applicant had a reasonable expectation of making a profit despite the fact that hindsight shows that he never actually achieved a profit. 1. The applicant was carrying on an enterprise; 2. Viewed objectively, the applicant had a reasonable expectation of making a profit despite the fact that hindsight shows that he never actually achieved a profit. The Tribunal set aside the decision under review and substituted a decision cancelling the ABN from 31 December 2004.", "ATO_View_of_Decision": "The decision was open to the Tribunal on the basis of the evidence presented at the Tribunal hearing.", "Administrative_Treatment": "None", "Related_Documents": "MT 2006/1 | 2007 ATC 103 | 8 | 18", "Legislative_References": "A New Tax System (Australian Business Number) Act 1999 8 18 38", "Case_References": "", "Subject_References": "ABN Carrying on an enterprise Reasonable expectation of profit or gain", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/W2005/192/00001", "Unmatched_Content": ""}
{"Case_Name": "Reliance Carpet Co Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 724 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "5 July 2007", "Date_Published": "31 July 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Whether GST is payable on the forfeiture of a security deposit.", "Overview_of_Facts": "On 10 January 2002, the applicant vendor (taxpayer) entered into a contract of sale of a property for $2,975,000, with a deposit of 10%. Both the taxpayer and the purchaser were registered for GST. | The purchaser paid the deposit of $297,500 but failed to pay the balance of the purchase price by the due date of 10 July 2003. | On 11 July 2003, the taxpayer issued a rescission notice to the purchaser, requiring the purchaser to remedy its default within 14 days. The purchaser failed to remedy its default. | On or about 26 July 2003, the contract was rescinded and the deposit was forfeited to the taxpayer. | The taxpayer was assessed to GST on the forfeited deposit. The taxpayer objected and, following the disallowance of the objection, applied to the AAT for review of the objection decision. | The Tribunal found against the taxpayer and held that, upon execution of the contract and payment of the deposit by the purchaser, there was a supply and GST was payable on the forfeited deposit. | The taxpayer appealed to the Full Federal Court. In finding for the taxpayer the Court decided: 1. The taxpayer entered into a contract for the supply of real property, nothing more and nothing less. 2. There was no supply of interim obligations at the time of entry into the contract or subsequently. 3. A supply did not take place because the contract was rescinded. 4. The Commissioner's argument that Division 99 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deems there to have been a supply, based on the language of s99-5, was not accepted. | 1. The taxpayer entered into a contract for the supply of real property, nothing more and nothing less. 2. There was no supply of interim obligations at the time of entry into the contract or subsequently. 3. A supply did not take place because the contract was rescinded. 4. The Commissioner's argument that Division 99 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deems there to have been a supply, based on the language of s99-5, was not accepted.", "Issues_Decided": "", "ATO_View_of_Decision": "The Full Federal Court's decision is in contrast to the views expressed by the Commissioner in GSTR 2006/2 entitled \" Deposits held as security for the performance of an obligation \". | The Commissioner considers that both the scope of the definition of 'supply' and the GST treatment of forfeited security deposits are important issues for the community that warrant further consideration by the High Court. As a result, the Commissioner sought special leave to appeal to the High Court from the Full Federal Court's decision. The special leave application was heard on 14 December 2007 and special leave was granted.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "GSTR 2006/2 | PS LA 2006/8 | PS LA 2006/11 | 2007 ATC 4650 | 7-1 | 9-5 | 9-10 | 9-15 | 29-5 | 99-5 | 99-10 | Chapter 3 | Chapter 28 | Chapter 84", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 7-1 9-5 9-10 9-15 29-5 99-5 99-10", "Case_References": "", "Subject_References": "GST supply security deposits forfeiture", "Other_References": "GSTR 2006/2 PS LA 2006/8 PS LA 2006/11 Chapter 3 ATO Receivables Policy Chapter 28 ATO Receivables Policy Chapter 84 ATO Receivables Policy", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID724of2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Tyco Australia Pty Ltd v Federal Commissioner of Taxation", "Venue_Reference_No": "NSD 1137 of 2005; NSD 319 of 2006; NSD 320 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "20 July 2007", "Date_Published": "11 February 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "The taxpayer is an electronic security monitoring company which, in the relevant income years, derived income in the form of fees paid by home owners and small businesses for security monitoring services. The taxpayer engaged contractors (Authorised Dealers under a programme established by the taxpayer) to secure customers and to enter into alarm monitoring contracts directly with those customers. The taxpayer then paid these contractors a lump sum for the novation of each contract. The amount of each lump sum payment was calculated by reference to a multiple of the monthly fee payable by the customer. The lump sum represented most, if not all, of the total of the fees payable under the life of the contract. | Issues decided by the court or tribunal | The issue in the case was whether the payments made by the taxpayer to the authorised dealers were of a capital nature and therefore not deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | His Honour held that the payments were not of a capital nature. They were held to be on revenue account and therefore deductible under section 8-1 of the ITAA 1997. | Although the rights under the contracts could be seen to be assets purchased by the taxpayer, and the amount paid for each contract represented almost the whole of the contracted revenue stream, his Honour held that this did not make the matter an affair of capital. | It was held that the advantage sought by each payment was the winning of a customer to be retained for future revenue for services to be provided. Each payment was made to secure an incremental accretion to the customer base of the taxpayer and the expenditure was incurred in the ordinary business activity of winning customers. | This did not represent the purchase or creation of a business structure. Rather, it was \"the building of the extent of the profit-yielding subject (being the customer base...) as the product of the course of operations, by the incremental winning of customers by the chosen method of organising and remunerating an independent, but controlled, sales force\". | It was also held that the accounting treatment (the booking of the payments as assets to be amortised against the profit and loss account) could not be determinative of the issue and, in the circumstances of the case, it was of little assistance in characterising the payments as capital or revenue.", "Issues_Decided": "The issue in the case was whether the payments made by the taxpayer to the authorised dealers were of a capital nature and therefore not deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? His Honour held that the payments were not of a capital nature. They were held to be on revenue account and therefore deductible under section 8-1 of the ITAA 1997. Although the rights under the contracts could be seen to be assets purchased by the taxpayer, and the amount paid for each contract represented almost the whole of the contracted revenue stream, his Honour held that this did not make the matter an affair of capital. It was held that the advantage sought by each payment was the winning of a customer to be retained for future revenue for services to be provided. Each payment was made to secure an incremental accretion to the customer base of the taxpayer and the expenditure was incurred in the ordinary business activity of winning customers. This did not represent the purchase or creation of a business structure. Rather, it was \"the building of the extent of the profit-yielding subject (being the customer base...) as the product of the course of operations, by the incremental winning of customers by the chosen method of organising and remunerating an independent, but controlled, sales force\". It was also held that the accounting treatment (the booking of the payments as assets to be amortised against the profit and loss account) could not be determinative of the issue and, in the circumstances of the case, it was of little assistance in characterising the payments as capital or revenue.", "ATO_View_of_Decision": "This case was decided on its facts in accordance with long established authorities. The Tax Office considers that the application of principles relating to the capital/revenue distinction by his Honour was consistent with those authorities even though the Tax Office had previously reached a different conclusion on the particular facts of the case. Accordingly, the decision has no broader implications for Tax Office publications or administration.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "Not applicable | (2007) 2007 ATC 4799 | 8-1 | (1938) 61 CLR 337 | (1977) 77 ATC 4375 | [1966] AC 224 | (1965) 39 ALJR 190 | [1965] 3 All ER 209 | [1966] ALR 274 | (1965) 14 ATD 1 | (1965) 112 CLR 386 | [1965] 3 WLR 608 | [1965] TR 317 | (1965) 44 ATC 312 | (1946) 72 CLR 634", "Legislative_References": "Income Tax Assessment Act 1997 8-1", "Case_References": "Sun Newspapers Ltd v Commissioner of Taxation (Cth) (1938) 12 ALJ 411 [1938] ALR 498 (1938) 5 ATD 23 (1938) 61 CLR 337 Commercial and General Acceptance Ltd. v Federal Commissioner of Taxation (1977) 51 ALJR 842 (1977) 16 ALR 267 (1977) 77 ATC 4375 (1977) 7 ATR 716 (1977) 137 CLR 373 B.P. Australia Ltd. v Federal Commissioner of Taxation [1966] AC 224 (1965) 39 ALJR 190 [1965] 3 All ER 209 [1966] ALR 274 (1965) 14 ATD 1 (1965) 112 CLR 386 [1965] 3 WLR 608 [1965] TR 317 (1965) 44 ATC 312 Hallstroms Pty Ltd v Commissioner of Taxation (Cth) (1946) 20 ALJ 277 [1946] ALR 434 (1946) 8 ATD 190 (1946) 72 CLR 634", "Subject_References": "Income tax Deductions Capital v revenue expenditure", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1137of2005/00001", "Unmatched_Content": ""}
{"Case_Name": "Zolsan Pty Limited v Deputy Commissioner of Taxation", "Venue_Reference_No": "2711/2007", "Venue": "Supreme Court", "Judgment_Date": "21 November 2007", "Date_Published": "22 August 2008", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned, amongst other issues, the setting aside of a statutory demand which issued for a RBA debt (based on self-assessed GST and assessments following an audit) where the debt amount was disputed, but no objection had been lodged.", "Overview_of_Facts": "1. The proceedings involved an application by Zolsan Pty Ltd (Zolsan) to set aside a statutory demand issued by the Deputy Commissioner of Taxation (DCT) dated 18 April 2007 for $1,717,232.87. The statutory demand was based on self-assessed BAS liabilities for GST together with notices of assessments for four BAS periods and for penalty following an audit. | 2. The debt arose out of a partnership and a statutory demand had issued to the partner company as well; that company had failed to apply to have the statutory demand set aside and was subsequently wound up. | 3. There was no objection on foot in respect of the assessments. An objection had been lodged to the penalty assessment, but declined by the ATO. | 4. The basis of the application was that Zolsan alleged a genuine dispute as to the amount of the assessments and intended to lodge an objection but had not done so at trial. | 5. The matter was heard on 3 September 2007 before Young J and he invited further written submissions before giving judgment. Just before Young J was to give judgment, the Queensland Court of Appeal decision of Neutral Bay and Others v DCT (2007) QCA 312 was handed down. The Court of Appeal declined to follow the decision of the Full Court of the Federal Court in the matter of Hoare Bros Pty Ltd v Commissioner of Taxation (1996) 62 FCR 302. In Hoare Bros the Federal Court had found that a pending review under Part IVC of the Taxation Administration Act 1953 (TAA) does not constitute a genuine dispute to the debt for the purposes of 459H of the Corporations Act. In declining to follow Hoare Bros the Queensland Court of Appeal noted that there had been changes to the time when tax becomes due pursuant to section 204 of the Income Tax Assessment Act 1936 and that as the operation of that section (as it then read) was fundamental to the decision in Hoare Bros there were additional grounds for declining to follow that decision. | 6. Given the effect of the decision in Neutral Bay the DCT notified both the Court and Zolsan of the decision. His Honour requested the parties to provide additional written submissions on the effect of Neutral Bay on the matter before him. | 8. Judgement was given on 21 November 2007. | Issues decided by the court | 1. Authority of a DCT to issue a statutory demand | Young J held that by virtue of s255-5 of Sch 1 of the TAA the debt claimed by the DCT was a tax-related liability within the meaning of the TAA, and, on the basis of existing authority, the DCT had the authority to issue the statutory demand. | 2. Evidentiary certificate | Young J found that the subject proceedings were not proceedings for the recovery of an RBA deficit debt and accordingly that a certificate tendered by the DCT pursuant to section 8AAZJ had \"no significance in [the] proceedings\". | 3. Application of Hoare Bros | Young J found that the Queensland Court of Appeal in Neutral Bay had done a \"proper analysis\" of Hoare Bros and for good reasons did not follow it. The facts in Zolsan were similar to that of Neutral Bay in that there was a GST liability in dispute and therefore Hoare Bros could be distinguished and not followed consistent with the approach adopted by the Queensland Court of Appeal. | 4. Application of Neutral Bay decision | Young J referred to High Court's comments in the matter of Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485. In that matter the High Court said that an intermediate appellate court should not depart from the decisions of another intermediate appellate court unless convinced that that appellate court's reasoning is plainly wrong. | His Honour found that the reasoning in Neutral Bay was \"logical and correct\". | 5. Reliance on s.105-100 TAA | In Neutral Bay the Queensland Court of Appeal had found that s105-100 (which establishes the conclusiveness of an assessment other than in a review under Part IVC of the TAA) did not apply to winding up proceedings. Whilst Young J was not convinced of the correctness of this finding he went on to find that s105-100 did not play a vital part in the matter before him. | 6. Outcome | His Honour decided that, even though there was no objection or review on foot (pursuant to Part IVC of the TAA), this was a GST liability that arose outside of an assessment, and in view of Neutral Bay the chance that the debt could be successfully challenged at law was not \"feeble or non-existent.\" Therefore the statutory demand should be set aside either under s459H or 459J.", "Issues_Decided": "1. Authority of a DCT to issue a statutory demand Young J held that by virtue of s255-5 of Sch 1 of the TAA the debt claimed by the DCT was a tax-related liability within the meaning of the TAA, and, on the basis of existing authority, the DCT had the authority to issue the statutory demand. 2. Evidentiary certificate Young J found that the subject proceedings were not proceedings for the recovery of an RBA deficit debt and accordingly that a certificate tendered by the DCT pursuant to section 8AAZJ had \"no significance in [the] proceedings\". 3. Application of Hoare Bros Young J found that the Queensland Court of Appeal in Neutral Bay had done a \"proper analysis\" of Hoare Bros and for good reasons did not follow it. The facts in Zolsan were similar to that of Neutral Bay in that there was a GST liability in dispute and therefore Hoare Bros could be distinguished and not followed consistent with the approach adopted by the Queensland Court of Appeal. 4. Application of Neutral Bay decision Young J referred to High Court's comments in the matter of Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485. In that matter the High Court said that an intermediate appellate court should not depart from the decisions of another intermediate appellate court unless convinced that that appellate court's reasoning is plainly wrong. His Honour found that the reasoning in Neutral Bay was \"logical and correct\". 5. Reliance on s.105-100 TAA In Neutral Bay the Queensland Court of Appeal had found that s105-100 (which establishes the conclusiveness of an assessment other than in a review under Part IVC of the TAA) did not apply to winding up proceedings. Whilst Young J was not convinced of the correctness of this finding he went on to find that s105-100 did not play a vital part in the matter before him. 6. Outcome His Honour decided that, even though there was no objection or review on foot (pursuant to Part IVC of the TAA), this was a GST liability that arose outside of an assessment, and in view of Neutral Bay the chance that the debt could be successfully challenged at law was not \"feeble or non-existent.\" Therefore the statutory demand should be set aside either under s459H or 459J.", "ATO_View_of_Decision": "The Tax Office respectfully disagrees with the decision of Justice Young in respect of the following matters: (a) The Commissioner considers Neutral Bay to be wrongly decided. On 8 February 2008 the High Court gave the Commissioner special leave to appeal from the Queensland Court of Appeal's decision. The appeal was heard on 16 and 17 June 2008. (b) The Commissioner respectfully considers that Young J was in error in finding that the evidentiary certificate was of no significance in the proceedings. In the Neutral Bay High Court appeal, the Commissioner has directly invited the High Court to consider whether the relevant proceedings in relation to the issue of a statutory demand are recovery proceedings. (c) The Commissioner respectfully considers that Young J was in error to follow the decision in Neutral Bay rather than the decision of the Federal Court in Hoare Bros . (d) In addition, the Commissioner respectfully believes that Young J was in error to find that there can be a genuine dispute for the purposes of the Corporations Act notwithstanding that the taxpayer did not exercise its rights under Part IVC of the TAA to lodge a notice of objection which, in any event, it was out of time to do. The Commissioner's particular concern with Young J's decision is His Honour's finding that there was a genuine dispute in circumstances where there was a GST assessment, no Part IVC dispute and the taxpayer was out of time to challenge the assessment under Part IVC. Further, at the time of the hearing to set aside the statutory demand, the only action that the taxpayer had taken to dispute the GST liability was to dispute it in the proceedings to set aside the statutory demand. | (a) The Commissioner considers Neutral Bay to be wrongly decided. On 8 February 2008 the High Court gave the Commissioner special leave to appeal from the Queensland Court of Appeal's decision. The appeal was heard on 16 and 17 June 2008. (b) The Commissioner respectfully considers that Young J was in error in finding that the evidentiary certificate was of no significance in the proceedings. In the Neutral Bay High Court appeal, the Commissioner has directly invited the High Court to consider whether the relevant proceedings in relation to the issue of a statutory demand are recovery proceedings. (c) The Commissioner respectfully considers that Young J was in error to follow the decision in Neutral Bay rather than the decision of the Federal Court in Hoare Bros . (d) In addition, the Commissioner respectfully believes that Young J was in error to find that there can be a genuine dispute for the purposes of the Corporations Act notwithstanding that the taxpayer did not exercise its rights under Part IVC of the TAA to lodge a notice of objection which, in any event, it was out of time to do. The Commissioner's particular concern with Young J's decision is His Honour's finding that there was a genuine dispute in circumstances where there was a GST assessment, no Part IVC dispute and the taxpayer was out of time to challenge the assessment under Part IVC. Further, at the time of the hearing to set aside the statutory demand, the only action that the taxpayer had taken to dispute the GST liability was to dispute it in the proceedings to set aside the statutory demand.", "Administrative_Treatment": "Pending the outcome of the hearing of the Commissioner's appeal to the High Court in the Neutral Bay case, the Commissioner will continue to use statutory demands where a taxpayer has not taken any steps under Part IVC of the TAA to dispute an assessment or is out of time to challenge an assessment under Part IVC. | The Commissioner will seek to identify a suitable matter for an appellate court to review the decision of Young J in relation to what constitutes a genuine dispute for the purposes of s459H of the Corporations Act and to clarify the law in that respect. The Commissioner did not proceed with his appeal in this matter because the substantive matter giving rise to the GST liability was settled.", "Related_Documents": "No ATO rulings considered. | [2007] NSWSC 1326 | 67 ATR 652 | 459E | 459G | 459H | 459J | 459M | 459T | Part 5.4 | Income Tax Assessment Act 1936 (Cth) | 8AAZJ | Part IVC | 255-5 of Schedule 1 | (2000) 157 FLR 26 | 96 ATC 4163 | [2006] QSC 394 | 65 ATR 270 | [2007] QCA 312 | 2008 ATC 20-006", "Legislative_References": "Corporations Act 2001 (Cth) 459E 459G 459H 459J 459M 459T Part 5.4 Income Tax Assessment Act 1936 (Cth) Taxation Administration Act 1953 (Cth) 8AAZJ Part IVC 105-15 of Schedule 1 105-100 of Schedule 1 255-5 of Schedule 1", "Case_References": "Bluehaven Transport Pty Ltd v Commissioner of Taxation (2000) 157 FLR 26 [2000] QSC 268 Hoare Bros v DCT (1996) 62 FCR 302 32 ATR 148 96 ATC 4163 Neutral Bay and Others v DCT (at first instance) [2006] QSC 394 (2006) 205 FLR 470 65 ATR 270 Neutral Bay and Others v DCT (on appeal) [2007] QCA 312 2008 ATC 20-006 68 ATR 886", "Subject_References": "Application to set aside statutory demand Partnership debt for GST assessments for GST following audit no objection re GST assessment dispute re GST assessment.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2711/2007/00001", "Unmatched_Content": ""}
{"Case_Name": "Brown v Commissioner of Taxation", "Venue_Reference_No": "QT 2003/413", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 December 2006", "Date_Published": "21 February 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "In an original return lodged in September 2002 the applicant claimed a deduction under section 92 for a share of a partnership loss. The applicant lodged an amended return in February 2003 which did not include the section 92 deduction. | The Commissioner assessed the applicant on the basis of the original return on 26 May 2003. The Commissioner concluded that the section 92 deduction was not an allowable deduction and on 2 June 2003 he amended the assessment in accordance with the amended return. Given the lodgement of the amended return prior to an assessment of the original return being made, the Commissioner remitted any Subdivision 284-B shortfall penalty tax that would otherwise have been payable. | The applicant claimed in an objection against the amended assessment dated 2 June 2003 that the partnership loss was an allowable deduction. In considering the applicant's objection the Commissioner concluded that, if a deduction was allowable to the applicant under section 92, Part IVA applied to deny the deduction claimed for the partnership loss. The Commissioner made a Part IVA determination, and an amended assessment issued on 23 October 2003 to give effect to the Part IVA determination. A penalty assessment imposing scheme penalty under Subdivision 284-C of Schedule 1 to the Taxation Administration Act 1953 (TAA) was also made. In making the penalty assessment, it was contended that the Subdivision applied whether the scheme succeeded in obtaining a tax deduction for the taxpayer but for Part IVA, or failed to obtain a tax deduction; this being understood to have been the intended effect of the provision. | The applicant objected against the amended assessment dated 23 October 2003 and the penalty assessment. The Commissioner did not assess, and the applicant did not object against, penalty tax under Subdivision 284-B. | The Commissioner disallowed the objections and the applicant applied to the Administrative Appeals Tribunal ('Tribunal') for review of the Commissioner's objection decisions. | Before the Tribunal neither the taxpayer nor the Commissioner made any submissions about Subdivision 284-B, because it was not in issue, nor did the Tribunal seek submissions on this point from either party. | Issues decided by the court or tribunal | No partnership existed and the applicant was not entitled to any deduction for a share of the partnership loss. | No scheme penalty applied as Subdivision 284-C did not apply where the relevant deduction was not allowable under a primary provision. | Although the Commissioner did not impose any statement penalty under Subdivision 284-B of Schedule 1 to the TAA, and no Subdivision 284-B aspects were part of the applicant's objection, the Commissioner's objection decision, and the parties' submissions before the Tribunal, the Tribunal purported to make a Subdivision 284-B decision in reliance on subsection 43(1) of Administrative Appeals Tribunal Act 1975 . Subsection 43(1) provides that, for the purpose of reviewing a decision, the Tribunal may exercise all the powers and discretions that are conferred on the original decision maker. (It is to be assumed that the Tribunal considered that the Commissioner had that power, but we are advised that he did not: see further below.) | The Tribunal then held that no statement penalty applied because there was no basis for the application of Subdivision 284-B statement penalty because the statement constituting the incorrect claim in the original return was corrected before the return was assessed. In the words of the Tribunal, '... the tax shortfall did not result from a false or misleading statement by the applicant, it resulted from the respondent assessing on the basis of facts no longer put forward. Put another way, any falsity or inarguable position had been corrected before it had been acted upon.'", "Issues_Decided": "No partnership existed and the applicant was not entitled to any deduction for a share of the partnership loss. No scheme penalty applied as Subdivision 284-C did not apply where the relevant deduction was not allowable under a primary provision. Although the Commissioner did not impose any statement penalty under Subdivision 284-B of Schedule 1 to the TAA, and no Subdivision 284-B aspects were part of the applicant's objection, the Commissioner's objection decision, and the parties' submissions before the Tribunal, the Tribunal purported to make a Subdivision 284-B decision in reliance on subsection 43(1) of Administrative Appeals Tribunal Act 1975 . Subsection 43(1) provides that, for the purpose of reviewing a decision, the Tribunal may exercise all the powers and discretions that are conferred on the original decision maker. (It is to be assumed that the Tribunal considered that the Commissioner had that power, but we are advised that he did not: see further below.) The Tribunal then held that no statement penalty applied because there was no basis for the application of Subdivision 284-B statement penalty because the statement constituting the incorrect claim in the original return was corrected before the return was assessed. In the words of the Tribunal, '... the tax shortfall did not result from a false or misleading statement by the applicant, it resulted from the respondent assessing on the basis of facts no longer put forward. Put another way, any falsity or inarguable position had been corrected before it had been acted upon.'", "ATO_View_of_Decision": "Penalties relating to schemes (Subdivision 284-C) | Subsection 284-145(1) provides that an entity is liable for administrative penalty if the entity 'would, apart from a provision of a *taxation law or action taken under such a provision (the adjustment provision ), get a *scheme benefit from a *scheme ....' | Subsection 284-150(1) states that an entity gets a scheme benefit from a scheme if 'a tax related liability of the entity for an accounting period is, or could reasonably be expected to be, less than it would apart from the scheme or part of the scheme ....' | The scheme shortfall amount is the amount of the scheme benefit obtained from the scheme apart from the adjustment provision (subsection 284-150(2)). | The Tribunal's decision assumes that the phrases 'apart from a provision of a taxation law ... (the adjustment provision)' in subsection 284-145(1) and 'apart from the adjustment provision' in subsection 284-150(2) preclude the application of Subdivision 284-C where a scheme deduction is not allowable under a primary provision such as section 8-1. The possibility that Subdivision 284-C may not apply to a 'failed' scheme had previously been recognised. The decision of the Tribunal in this respect appears to be correct. | Administrative Penalty for Statements (Subdivision 284-B) | Natural Justice | The Commissioner's legal advice was that it was questionable whether the Tribunal had jurisdiction to make any decision in respect of Subdivision 284-B. The Commissioner did not impose any Subdivision 284-B penalty in relation any false or misleading statement. There were no Subdivision 284-B grounds of objection and the Commissioner did not consider Subdivision 284-B in making his objection decision. The Commissioner's understanding of the legal position is that he may not normally ask the Tribunal, in reviewing his decision on objection, to exercise any power he could not himself have exercised for the purpose of making a decision on the applicant' objection at the time he in fact made that decision. It is thought that if the applicant had been notified, as he ought to have been, that the Tribunal was proposing to consider this issue, it is probable that the applicant would have been entitled to object to the jurisdiction of the Tribunal to do so. Moreover, the Commissioner had already remitted any penalty arising under this Subdivision. | We are also advised that if the Tribunal had jurisdiction to make a decision under Subdivision 284-B, it did so in a way that denied procedural fairness to the parties. The parties did not address Subdivision 284-B at the Tribunal and the Tribunal decision on Subdivision 284-B was made without reference to the parties. As the parties were not heard on the issue we do not consider that they were accorded natural justice. | Accordingly the Tribunal should not have made any Subdivision 284-B decision. | However, it was not a case where an appeal by either the Commissioner or the applicant would have been appropriate. In the applicant's case, the decision on the point was ultimately favourable to him, so that an appeal would be pointless. It was likewise impossible for the Commissioner to appeal without contending that penalty under this Subdivision was in fact applicable, but we considered that the previous remission of penalties by the Commissioner meant that even if the Subdivision had applied before the remission, no penalties were payable in any event. | We were advised that the result of this unsatisfactory state of affairs was that there was no available means to correct the errors of law made by the Tribunal. | The Tax Shortfall | The Tribunal concluded that the Commissioner assessed the original return to create a tax shortfall when the false statement had already been corrected and that therefore no penalty had arisen. The correct position is this: | Penalty for a false or misleading statement imposed under subsection 284-75(1) applies where three conditions are satisfied: • the entity makes a statement; • the statement is false or misleading in a material particular; • there is a shortfall amount as a result of the statement. | • the entity makes a statement; • the statement is false or misleading in a material particular; • there is a shortfall amount as a result of the statement. | Under subsection 284-80(1) a shortfall amount exists if a tax related liability worked out on the basis of a statement is less than it would be if the statement were not false or misleading. The liability arises whether an assessment is, or is not, based on the false or misleading statement. The expression 'worked out on the basis of' means no more than 'calculated by reference to'. When a false or misleading statement is made to the Commissioner about a tax-related matter, a taxpayer thereupon becomes liable to penalty tax under Subdivision 284-B, regardless of whether, or when, the error in the statement is detected, and even regardless of any subsequent retraction by the taxpayer (although retraction is plainly relevant in deciding whether a penalty should be remitted). | In this case, the Commissioner had decided that it was appropriate to remit all penalties under Subdivision 284-B and had in fact remitted them. In an appropriate case, however, penalties for a false claim made in either a tax return or an objection might arise even though the Commissioner was not deceived by them; and penalties for a false or misleading statement would not ordinarily be remitted merely because they were detected before an assessment was made or an objection decided.", "Administrative_Treatment": "Implications for general administration | The general administration of the interaction between Subdivisions 284-B and 284-C is dealt with in PS LA 2008/18. | Implications on current Public Rulings & Determinations | MT 2008/1 issued on 12 November 2008.", "Related_Documents": "None | 2006 ATC 2573 | Schedule 1 | Subdivision 284-C | 284-145 | 284-150 | 284-80 | Subdivision 284-B | 284-75 | Subdivision 284-A | 284-35 | 2006 ATC 4761", "Legislative_References": "Taxation Administration Act 1953 Schedule 1 Subdivision 284-C 284-145 284-150 284-80 Subdivision 284-B 284-75 Subdivision 284-A 284-35", "Case_References": "Commissioner of Taxation v Hornibrook [2006] FCA 170 2006 ATC 4761 65 ATR 1", "Subject_References": "Administrative penalty for statements False or misleading statements Administrative penalty for schemes Scheme benefit Jurisdiction of Administrative Appeals Tribunal", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QT2003/413-QT2005/318/00001", "Unmatched_Content": "Implications on Law Administration Practice Statements: Reference to the Decision is included in PS LA 2008/18."}
{"Case_Name": "Cajkusic & Ors v Commissioner of Taxation", "Venue_Reference_No": "VID 279 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "24 November 2006", "Date_Published": "12 September 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The appeal by the taxpayers to the Federal Court concerned the meaning of the phrases 'income of the trust estate' in section 97 and 'income of a trust estate' in section 101 of the Income Tax Assessment Act 1936.", "Overview_of_Facts": "In its income tax return for the 1998 year of income the Cajkusic Family Trust (the trust) returned nil net income and a carry forward loss of $26,141 based on taxable income for the year of $28,697 and prior year tax losses of $54,838. | The 1998 trust accounts were identical to the income tax return and showed a net profit for the year of $28,697, accumulated prior year losses of $54,838, and accumulated losses of $26,141 as at 30 June 1998. | The Commissioner disallowed deductions claimed for $190,000 said to have been paid to an employee benefits trust, a further $7,125 as related costs, and the prior year tax losses claim of $54,838. The Commissioner considered that the deductions disallowed for income tax purposes were not proper expenses of the trust such that the section 95 net income of the trust and the net accounting income of the trust properly determined both amounted to $225,822. As the appellants were default income beneficiaries of the trust, and as there was no trustee income resolution, the Commissioner included the section 95 net income of the trust in the assessable income of each of the appellants in accordance with section 97. | The taxpayers disputed their assessments initially at the Administrative Appeals Tribunal (AAT) and subsequently on appeal to the Federal Court on the basis that there was no 'income of the trust estate' to which they could be presently entitled for the purposes of section 97. | The AAT decision of 17 February 2006 was favourable to the Commissioner (although the trust income assessed to each of the three trust beneficiaries was reduced to one-third of the section 95 net income). Deputy President Olney 'assumed that the payments said to have been made ... were in fact made' (paragraph 5), but concluded that the payments 'served no business purpose,' were made solely to obtain 'the tax saving the applicants sought to achieve' (paragraph 10), and were not allowable deductions. The AAT did not make any finding of fact in relation to 'the income of the trust estate' and seems to have assumed that it equalled the section 95 net income - see paragraph 18 of the Full Court's decision. | The taxpayers appealed to the Federal Court. The appeal was heard by a Full Court pursuant to paragraph 44(3)(b) of the Administrative Appeals Tribunal Act 1975 . In the Full Court the Commissioner relied on section 101 as an alternative ground to support the assessments consistent with the AAT's finding that the amount contributed was 'said to have been ... $65,000 on behalf of Brancka Cajkusic, $60,000 on behalf of Daniel Cajkusic and $65,000 on behalf of Milivoj Cajkusic (being a total contribution of $190,000)' (paragraph 6). | Issues decided by the court or tribunal | The Full Federal Court Decision | On 24 November 2006 the Full Court (Kiefel, Sundberg and Edmonds JJ) allowed the taxpayers' appeals against the AAT's decision. | The taxpayers argued that three requirements must be satisfied for a beneficiary to be assessed under section 97. Those requirements were (paragraph 14): (1) There must be income of the trust estate in the sense of a distributable net income. (2) A beneficiary must be presently entitled to a share of that income. (3) There must be net income of the trust estate within the meaning of s 95 of the 1936 Act .... | (1) There must be income of the trust estate in the sense of a distributable net income. (2) A beneficiary must be presently entitled to a share of that income. (3) There must be net income of the trust estate within the meaning of s 95 of the 1936 Act .... | The Full Court found that the trust did not have any distributable net income in the 1998 year of income: (a) as evidenced by the financial accounts of the trust for the 1998 year, the trustee, consistent with the power vested in it by clause 8(u) of the trust deed, treated the outgoings as being on revenue account (paragraph 20) (b) the accounts properly disclosed a distributable net income (before a carry forward loss from the 1997 year) on the basis that the payments had been properly applied against the gross income of the trust for the purposes of determining its distributable net income on a stand alone basis for the 1998 year (paragraph 30) (c) in the absence of any contrary direction in the trust instrument the loss from the 1997 year must be made up out of profits of the 1998 year and not out of capital so that there can be no profits properly distributable in cash until all past losses are paid (paragraph 31); and (d) therefore, there was no distributable net income for the 1998 year. | (a) as evidenced by the financial accounts of the trust for the 1998 year, the trustee, consistent with the power vested in it by clause 8(u) of the trust deed, treated the outgoings as being on revenue account (paragraph 20) (b) the accounts properly disclosed a distributable net income (before a carry forward loss from the 1997 year) on the basis that the payments had been properly applied against the gross income of the trust for the purposes of determining its distributable net income on a stand alone basis for the 1998 year (paragraph 30) (c) in the absence of any contrary direction in the trust instrument the loss from the 1997 year must be made up out of profits of the 1998 year and not out of capital so that there can be no profits properly distributable in cash until all past losses are paid (paragraph 31); and (d) therefore, there was no distributable net income for the 1998 year. | As the distributable net income of the trust for 1998 was negative, the Full Court concluded that none of the beneficiaries was presently entitled to anything. The consequence of this was that the liability for tax on the section 95 'net income' fell wholly on the trustee under section 99A of the ITAA 1936 (paragraph 31). | The Full Court also rejected the Commissioner's argument that the taxpayers were deemed to be presently entitled to income of the trust estate under section 101, on the basis that what was contributed to the employee benefit trust was paid out of the gross income of the Family Trust and then finished up in the hands of the taxpayers (paragraph 32). The Full Court considered that the reference to 'income of a trust estate' in section 101 is a reference to the distributable net income, i.e., the same income to which section 97 refers. As there was no net distributable income of the trust for the 1998 year, the Full Court concluded that there was nothing to which section 101 could apply for the 1998 year (paragraph 34). | The Commissioner's application for special leave to appeal to the High Court was refused on 24 April 2007.", "Issues_Decided": "The Full Federal Court Decision: On 24 November 2006 the Full Court (Kiefel, Sundberg and Edmonds JJ) allowed the taxpayers' appeals against the AAT's decision. The taxpayers argued that three requirements must be satisfied for a beneficiary to be assessed under section 97. Those requirements were (paragraph 14): (1) There must be income of the trust estate in the sense of a distributable net income. (2) A beneficiary must be presently entitled to a share of that income. (3) There must be net income of the trust estate within the meaning of s 95 of the 1936 Act .... (1) There must be income of the trust estate in the sense of a distributable net income. (2) A beneficiary must be presently entitled to a share of that income. (3) There must be net income of the trust estate within the meaning of s 95 of the 1936 Act .... The Full Court found that the trust did not have any distributable net income in the 1998 year of income: (a) as evidenced by the financial accounts of the trust for the 1998 year, the trustee, consistent with the power vested in it by clause 8(u) of the trust deed, treated the outgoings as being on revenue account (paragraph 20) (b) the accounts properly disclosed a distributable net income (before a carry forward loss from the 1997 year) on the basis that the payments had been properly applied against the gross income of the trust for the purposes of determining its distributable net income on a stand alone basis for the 1998 year (paragraph 30) (c) in the absence of any contrary direction in the trust instrument the loss from the 1997 year must be made up out of profits of the 1998 year and not out of capital so that there can be no profits properly distributable in cash until all past losses are paid (paragraph 31); and (d) therefore, there was no distributable net income for the 1998 year. (a) as evidenced by the financial accounts of the trust for the 1998 year, the trustee, consistent with the power vested in it by clause 8(u) of the trust deed, treated the outgoings as being on revenue account (paragraph 20) (b) the accounts properly disclosed a distributable net income (before a carry forward loss from the 1997 year) on the basis that the payments had been properly applied against the gross income of the trust for the purposes of determining its distributable net income on a stand alone basis for the 1998 year (paragraph 30) (c) in the absence of any contrary direction in the trust instrument the loss from the 1997 year must be made up out of profits of the 1998 year and not out of capital so that there can be no profits properly distributable in cash until all past losses are paid (paragraph 31); and (d) therefore, there was no distributable net income for the 1998 year. As the distributable net income of the trust for 1998 was negative, the Full Court concluded that none of the beneficiaries was presently entitled to anything. The consequence of this was that the liability for tax on the section 95 'net income' fell wholly on the trustee under section 99A of the ITAA 1936 (paragraph 31). The Full Court also rejected the Commissioner's argument that the taxpayers were deemed to be presently entitled to income of the trust estate under section 101, on the basis that what was contributed to the employee benefit trust was paid out of the gross income of the Family Trust and then finished up in the hands of the taxpayers (paragraph 32). The Full Court considered that the reference to 'income of a trust estate' in section 101 is a reference to the distributable net income, i.e., the same income to which section 97 refers. As there was no net distributable income of the trust for the 1998 year, the Full Court concluded that there was nothing to which section 101 could apply for the 1998 year (paragraph 34). The Commissioner's application for special leave to appeal to the High Court was refused on 24 April 2007.", "ATO_View_of_Decision": "The Tax Office accepts the decision as an application of conventional tax law principles in determining when a beneficiary of a trust is presently entitled to the income of a trust estate. | Specifically, a basic step in the reasoning of the Full Federal Court was that the terms of the particular trust deed under consideration (especially the first part of clause 8(u)) had the effect that there was no income of the trust estate to which the beneficiaries could be presently entitled. This was because the trustee had properly applied all of the income of the trust to meet both current year expenditures the trustee was authorised under the authority of the deed to make and also to make good prior year losses that were, in the absence of a contrary direction in the deed, properly to be made up out of income of subsequent years (see paragraphs 30 - 31). This was essentially a factual conclusion based on an inference, drawn from the way the trust accounts were prepared, that the relevant expenditures and losses were properly subtracted in computing whether the beneficiaries were entitled to any of the income of the trust estate in the relevant year. | Meaning of the words 'the income of the trust estate' in subsection 97(1) | In various places in their reasons their Honours spoke of the ' income of the trust estate' as being the ' net distributable income' (eg., paragraph 18, paragraphs 27-30 and paragraph 34). The Commissioner does not understand the Full Court to have meant these comments in the sense that the ' net distributable income' of the trust was, as a matter of principle, to be substituted directly for the words used in the statute; rather, the ' net distributable income' was to be used in determining whether the beneficiaries were presently entitled to the ' income of the trust estate' . | The expression ' presently entitled to a share of the income of the trust estate' is a composite expression, the meaning of which depends upon the application of authorities concerning ' present entitlement' and those concerning ' income of the trust estate' . | In FC of T v Totledge 40 ALR 385 at 394 a differently constituted Full Court of the Federal Court held that the composite expression ' present entitlement to a share of the income of the trust estate' was a reference to 'a present vested right to demand and receive payment of the whole or part of what has been received by the trustee as income and, retaining that character in his hands, is legally available to be distributed to those entitled to it as beneficiaries'. This view was in our opinion endorsed by the High Court in Harmer v F Cof T [1991] 173 CLR 264 at 271 and is fully consistent with the decision of the High Court in Commissioner of Taxation v Australia and New Zealand Savings Bank (1998) 194 CLR 328. | The Full Court in Cajkusic neither dealt with nor appears to have intended to raise any question about the authority of the passage referred to from Totledge . Further, in the factual circumstances in Cajkusic , the conclusion reached by the Full Court is wholly consistent with an application of the principles as outlined in Totledge . That is, although what was received by the Cajkusic Family Trust in the relevant year was received as income of the trust estate, no part of it was legally available to be distributed to beneficiaries because the trustee, acting under the authority of the deed, was required to apply that income to meet current year expenditures and prior year losses of the trust. | Effect of trust instrument on ' income of the trust estate'' | Notwithstanding some broad observations made by their Honours about the effect of trust instruments (e.g., paragraphs 18 and 27 - 30), the question before them did not involve the characterisation of a receipt and, unlike some commentators, the Commissioner does not understand the case to be authority for the proposition that the terms of a trust instrument can govern what is income, for the purposes of subsection 97(1), in the hands of the trustee. | The Commissioner considers he must continue to follow what he understands to be the reasoning of the High Court in the ANZ Savings Bank decision (see per Gleeson CJ, paragraphs 14 and 15; cf/ Full Court in Cajkusic at paragraph 29). | In ANZ Savings Bank , the High Court decided that the provisions in the trust deed dealing with the entitlements of unit holders did not alter what was the character of certain amounts in the hands of the trustee. In reaching this decision the Court explicitly adopted what had been said by the Full Federal Court in the case. The Full Federal Court said that the whole of an annuity amount, including the deductible part, was income of the trust estate 'within the meaning of the opening lines of s97(1)' notwithstanding that the deductible amount was exempt income of the trust for tax purposes and was treated as capital under the deed. | Given, however, the observations made by the Full Court in Cajkusic have created some uncertainty in relation to this issue the Commissioner will seek to further test the issue in the appellate courts as soon as the opportunity arises. | Trust Losses | We note the view expressed by the Full Federal Court that losses in one year must, in the absence of any contrary direction in the trust instrument, be made up out of profits of subsequent years and not out of capital (paragraph 31). | The correctness of this view is the subject of the taxpayer's appeal to the High Court in Raftland Pty Ltd v Commissioner of Taxation .", "Administrative_Treatment": "Implications for current Public Rulings & Determinations | Consideration will be given to whether there are any implications for public rulings or determinations. | Implications for general administration | The Commissioner does not propose to conduct active compliance activities targeted at this issue. If the issue arises in an audit or if the Tax Office is asked to rule on a specific case in the context of a private or class ruling, then the Commissioner will have no alternative but to apply the law as he understands it to operate. | As noted above, in view of some uncertainty about this issue the Commissioner will seek to further test the issue in the court as soon as the opportunity arises. | Implications for Law Administration Practice Statements | Under general consideration; however, the decision will have no impact on PS LA 2005/1 (GA) which deals with capital gains of trusts.", "Related_Documents": "None | 2006 ATC 4752 | 95 | 97 | 99A | 101 | 98 ATC 4850 | (1961) 107 CLR 604 | 69 ATC 4084 | 98 ATC 4681", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) 95 97 99A 101", "Case_References": "Commissioner of Taxation v ANZ Savings Bank Ltd (1998) 194 CLR 328 98 ATC 4850 39 ATR 419 H. R. Lancey Shipping Co. Pty Ltd v Federal Commissioner of Taxation (1951) 9 ATD 267 McBride v Hudson (1961) 107 CLR 604 Thornley v Boyd (1925) 36 CLR 52 Union Fidelity Trustee Co. of Australia Ltd v FC of T (1969) 119 CLR 177 69 ATC 4084 1 ATR 200 Upton v Brown (1884) 26 Ch D 588 Zeta Force Pty Ltd v FCT (1998) 84 FCR 70 98 ATC 4681 39 ATR 277", "Subject_References": "trustees where trust deed empowered trustee to determine whether receipts and outgoings were on revenue or capital account where trustee determined certain outgoings to be on revenue account where same outgoings not allowable deductions for tax purposes where no distributable net income of the trust for trust law purposes but section 95 'net income' for tax purposes whether beneficiaries presently entitled to the 'income of the trust estate' the meaning of the 'income of the trust estate' in section 97 and 'income of a trust estate' in section 101.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID279of2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v A Taxpayer", "Venue_Reference_No": "NSD 1303/05", "Venue": "Federal Court of Australia", "Judgment_Date": "12 July 2006", "Date_Published": "5 October 2006", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "1. The Court made suppression orders prohibiting the publication of information that would identify the name of the Respondent, the Respondent's immediate family, their address or the Respondent's immediate place of work. | 2. The matter was an appeal to the Federal Court from a decision of the Small Taxation Claims Tribunal (Tribunal), a division of the Administrative Appeals Tribunal. The Tribunal granted the Respondent partial release of his tax related liability, under section 340-5 of the Taxation Adminstration Act(1953 ), on the ground of serious hardship (see Case Summary attached). | Issues decided by the court or tribunal | 1. The Tribunal applied the correct test of serious hardship. What is required for proper maintenance and support is a relative question, which can only be determined with reference to the whole of the taxpayer's circumstances. | 2. The Tribunal's conclusions were open to it on the evidence. | 3. To establish that a Tribunal committed an error of law in drawing its inferences of fact, you need to establish that the inferences were not supported by probative evidence. | 4. The Tribunal took into account relevant considerations and was not distracted from its task by irrelevant considerations. | 5. Although the 'public interest' consideration of keeping the respondent in employment and paying taxes at a high rate is an irrelevant consideration in determining serious hardship, this issue did not distract the Tribunal. | 6. The court did not accept that the Tribunal, in effect, found that bankruptcy per se constituted serious hardship. | 7. The Tribunal's decision was not so unreasonable that no reasonable decision maker could ever have come to it. | 8. Even though the Tribunal did not expressly refer to its discretion, it did exercise the discretion in a proper manner.", "Issues_Decided": "1. The Tribunal applied the correct test of serious hardship. What is required for proper maintenance and support is a relative question, which can only be determined with reference to the whole of the taxpayer's circumstances. 2. The Tribunal's conclusions were open to it on the evidence. 3. To establish that a Tribunal committed an error of law in drawing its inferences of fact, you need to establish that the inferences were not supported by probative evidence. 4. The Tribunal took into account relevant considerations and was not distracted from its task by irrelevant considerations. 5. Although the 'public interest' consideration of keeping the respondent in employment and paying taxes at a high rate is an irrelevant consideration in determining serious hardship, this issue did not distract the Tribunal. 6. The court did not accept that the Tribunal, in effect, found that bankruptcy per se constituted serious hardship. 7. The Tribunal's decision was not so unreasonable that no reasonable decision maker could ever have come to it. 8. Even though the Tribunal did not expressly refer to its discretion, it did exercise the discretion in a proper manner.", "ATO_View_of_Decision": "Income Tax Ruling IT 2440 and Chapter 24 of the ATO Receivables Policy provides guidance to meaning of the term 'serious hardship'. | Her Honour Justice Stone acknowledged the Commissioner's policy, as outlined in IT 2440 and paragraph 24.6.18 of the ATO Receivables Policy, concerning what constitutes serious hardship. That is - \"Thus, serious hardship would be seen to exist where payment of a tax liability would result in the taxpayer being left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements.\" | Her Honour then noted [at para 17] that effect must be given to the qualification of the word reasonable . | Accordingly, whether a person will suffer serious hardship if required to meet their taxation liability is clearly a question of fact, which can only be determined by considering the individual's circumstances. | The implication of this decision is that the Commissioner's published interpretation of the law in relation to the term 'serious hardship' as set out in Income Tax Ruling IT 2440 and Chapter 24 of the ATO Receivables Policy is correct in determining release matters. | The decision turns on its own facts and does not create any direct precedent as to the circumstances which either establish serious hardship or influence the use of the discretion in relation to releasing taxpayer's from their taxation liabilities. | The ATO will not be lodging an appeal to the Full Federal Court.", "Administrative_Treatment": "The decision confirms that whether a particular person would be left without the means to achieve reasonable acquisitions of food, clothing, medical supplies, accommodation, education for children and other basic requirements is a question that can only be determined by the particular circumstances of each case. | Each release case will continue to be considered uniquely on its own facts.", "Related_Documents": "IT 2440 | 2006 ATC 4393 | 44(1) | 14ZZK | 340-5(3) | the Act | (1990) 170 CLR 321 | (1986) 162 CLR 24 | 89 ATC 4415", "Legislative_References": "Administrative Appeals Tribunal Act 1975 (Cth) 44(1) Federal Court of Australia Act 1976 (Cth) 50 Taxation Administration Act 1953 (Cth) 14ZZK 340-5(3) Income Tax Assessment Act 1936 (Cth) the Act", "Case_References": "Associated Provincial Picture Houses Limited v Wednesbury Corporation [1948] 1 KB 223 Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24 Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 Powell v Evreniades (1989) 21 FCR 252 89 ATC 4415 20 ATR 472", "Subject_References": "Administrative Law Judicial scrutiny of Tribunal decision Tribunal's reasons must be read as a whole distinction between issues of fact and law when an inference of fact may demonstrate an error of law grounds for judicial review 'no evidence' ground failure to take into account relevant consideration taking into account irrelevant consideration Wednesbury unreasonableness failure to exercise discretion no error of law in Tribunal's decision Taxation appeal meaning of 'serious hardship' factors relevant to exercise of discretion to release taxpayer from tax liability", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1303/05/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v DB Rreef Funds Management Ltd", "Venue_Reference_No": "NSD 783-4 of 2005", "Venue": "Federal Court of Australia", "Judgment_Date": "8 June 2006", "Date_Published": "27 September 2006", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "This was an appeal from a decision of the Federal Court (Sackville J) reported at (2005) 218 ALR 144. | The taxpayer was a lessor of commercial premises. In 1998 the predecessor in title of the taxpayer leased commercial premises to a tenant for a term of two years effective from 24 January 1997. This lease contained an option to renew for a number of additional terms, each of two years. An unusual feature of the lease was that the nominal rental fixed under it in 1997 was considerably higher than the market rent at the time. This was because the original lessor undertook at its own expense an extensive fit-out of the premises costing $27m and sought to amortise the cost over the expected period of the lease. | Under the agreement, the lessor was able to invoke a ratchet clause to prevent the rental falling below its original level. | The lessee was obliged to reimburse a proportion of the operating costs of the lessor. | The Commissioner decided that the taxpayer was liable to pay GST in respect of the supply made by way of the lease for each of the renewed terms and assessed the taxpayer accordingly. The taxpayer objected and then subsequently appealed to the Federal Court against the Commissioner's disallowance of its objections. | At issue was whether the taxpayer had a \"review opportunity\" arising under the lease pursuant to section 13 of the A New Tax System (Goods and Services Tax Transition) Act 1999 (the Transition Act'). The Commissioner submitted that the taxpayer had an opportunity to conduct a \"general review... of the consideration\" pursuant to s13(5)(b) in 2001 and 2003, when a renewal of the lease occurred by exercise of the option in the lease. | Issues decided by the court or tribunal | Was there a review opportunity? | The Full Court upheld Sackville J's finding that the lease did not provide the taxpayer with an opportunity to conduct a \"general review, renegotiation or alteration of the consideration\" for the supply within the terms of section 13(5)(b) of the Transition Act because: (a) the concept of a \"general review\" in s 13(5)(b) required a complete or almost universal consideration of the same subject; (b) there was no opportunity for a review of that part of the consideration which related to that part of the premises comprising the fit-out works; and (c) account had to be taken of the substantial value of those fit-out works. | (a) the concept of a \"general review\" in s 13(5)(b) required a complete or almost universal consideration of the same subject; (b) there was no opportunity for a review of that part of the consideration which related to that part of the premises comprising the fit-out works; and (c) account had to be taken of the substantial value of those fit-out works. | The Full Court also held that as the lease did not provide for any review, renegotiation or alteration of the lessee's obligation to contribute to the operating costs and the operating costs was of such a quantitative component (17 per cent) of the consideration of the supply, the lease did not provide an opportunity for a \"general review\" of the consideration. | Finally, the Full Court affirmed Sackville J's finding that the ratchet clause alone would not have precluded there from being an opportunity to conduct a general review of the consideration.", "Issues_Decided": "Was there a review opportunity?: The Full Court upheld Sackville J's finding that the lease did not provide the taxpayer with an opportunity to conduct a \"general review, renegotiation or alteration of the consideration\" for the supply within the terms of section 13(5)(b) of the Transition Act because: (a) the concept of a \"general review\" in s 13(5)(b) required a complete or almost universal consideration of the same subject; (b) there was no opportunity for a review of that part of the consideration which related to that part of the premises comprising the fit-out works; and (c) account had to be taken of the substantial value of those fit-out works. (a) the concept of a \"general review\" in s 13(5)(b) required a complete or almost universal consideration of the same subject; (b) there was no opportunity for a review of that part of the consideration which related to that part of the premises comprising the fit-out works; and (c) account had to be taken of the substantial value of those fit-out works. The Full Court also held that as the lease did not provide for any review, renegotiation or alteration of the lessee's obligation to contribute to the operating costs and the operating costs was of such a quantitative component (17 per cent) of the consideration of the supply, the lease did not provide an opportunity for a \"general review\" of the consideration. Finally, the Full Court affirmed Sackville J's finding that the ratchet clause alone would not have precluded there from being an opportunity to conduct a general review of the consideration.", "ATO_View_of_Decision": "Supplies made under certain contracts signed before GST was introduced were GST-free until the earlier of 1 July 2005 and when a \"review opportunity\" arose under such contracts. The rationale for this concession was that businesses would otherwise have had to bear the burden of the GST with no opportunity to \"pass on\" the GST to their customers, since they signed the contracts before they could reasonably be expected to have anticipated the impact of GST in negotiating prices under those contracts. | This measure is enacted in section 13 of the A New Tax System (GST Transition) Act 1999. | The Commissioner wanted to give business clear guidance about section 13, and in particular about when a review opportunity occurred under their particular contracts. That way, business could be confident that the ATO would regard them as complying with their GST obligations. To this end, the Commissioner dealt in depth with section 13 in Public Ruling GSTR 2000/16. | One question the ruling addressed was whether a review opportunity arose under section 13 if only some of the consideration for a supply were reviewable on a particular occasion. The ruling (at paragraph 152) took the view that it would be sufficient if most of the consideration were capable of review. The Commissioner considered that this view struck a reasonable balance between the interests of the supplier and of the recipient in light of the object of section 13, was commercially realistic, was supportable as a matter of interpretation and was consistent with the limited overseas case law on a similar provision. | The balance was reasonable because it would be detrimental to recipients to wholly deny them input tax credits if most of price of a supply had been reviewed to a GST-inclusive level. Conversely, it would be detrimental to suppliers to impose GST on the whole of a supply if only a small part of the price could be reviewed to reflect the impact of GST. | But the ATO accepts that this interpretation has been found to be wrong in DB Rreef and in another recent Full Federal Court decision, Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 . The Court has held in effect that a review opportunity arises only if the whole or nearly all of the consideration for a supply is capable of review. An opportunity to review about 83% of the consideration for a supply was not a \"review opportunity\" within the meaning of section 13. | The ATO also accepts the Court's decision in DB Rreef in relation to the fit-out works. However, we perceive that the particular features of the lease agreement were relatively unusual in this respect. | The ATO agrees with the Court's finding in relation to the ratchet clause which accords with the Commissioner's submissions in the case and with GSTR 2000/16. | The Commissioner is not pursuing any further appeal against these decisions.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | In light of the Full Court's decision, the ATO has amended the relevant passage in GSTR 2000/16 Goods and Services Tax: transitional arrangements - GST free supplies under existing agreements. Taxpayers who relied on the ruling as in force before this amendment to determine their GST position have the protection of section 105-60 of Schedule 1 to the Taxation Administration Act 1953. | The Tax Office will consider taxpayers' circumstances in relation to the Full Court's decision on a case-by-case basis.", "Related_Documents": "GSTR 2000/16 | 2006 ATC 4282 | 13 | 2006 ATC 4363", "Legislative_References": "A New Tax System (Goods and Services Tax Transition) Act 1999 13 13(5)(b)", "Case_References": "Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115 2006 ATC 4363 62 ATR 682", "Subject_References": "GST Whether supply was GST-free under the GST transitional provisions Whether lease agreement provided a review opportunity Whether opportunity to conduct market rent review constituted opportunity to conduct general review of consideration for the supply", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/4541/NSD783-4/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Hornibrook", "Venue_Reference_No": "NSD210/2006", "Venue": "Federal Court of Australia", "Judgment_Date": "28 November 2006", "Date_Published": "28 June 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "This appeal by the Commissioner to the Full Federal Court concerned the interplay between s 43 of the Administrative Appeals Tribunal Act 1975 and the provisions of Pt IVC of the Taxation Administration Act 1953, as they formerly stood, in relation to the remission of additional or penalty tax imposed in a 1988 year amended assessment.", "Overview_of_Facts": "The Commissioner amended the taxpayer's 1988 income tax assessment to include a further amount in assessable income upon which income tax was levied and additional tax by way of penalty (penalty tax) was imposed under section 223 of the Income Tax Assessment Act 1936. | The taxpayer objected to the amended assessment, but only against the inclusion of a further amount in assessable income. There was no ground of objection relating to penalty tax. The Commissioner disallowed the objection. The Commissioner's objection decision made no reference to penalty tax. | The taxpayer appealed to the Administrative Appeals Tribunal (the Tribunal). The taxpayer's statement of facts, issues and contentions did not raise penalty tax as an issue. The Commissioner's amended statement of facts, issues and contentions likewise made no reference to penalty tax. | The Tribunal affirmed the decision in relation to the further income but, in relation to penalty tax, remitted the matter to the Commissioner with the direction that it be remitted in full. The direction for remission of penalty tax was made without any discussion of the source of power to do so. No order was made by the Tribunal under section 14ZZK of the Taxation Administration Act 1953 (TAA) to include penalty tax as an additional ground of objection. | The Commissioner appealed to the Federal Court challenging that direction. Edmonds J dismissed that appeal. The Commissioner appealed to the Full Federal Court. | Issues decided by the court or tribunal | Gyles, Stone and Young JJ (the Court) allowed the Commissioner's appeal, holding that the Tribunal did not have the jurisdiction to remit penalty tax. Under section 14ZZ of the TAA, the Tribunal has jurisdiction to review a reviewable objection decision. A reviewable objection decision is an objection decision that is not an ineligible income tax remission decision. Broadly, under section 14ZS of the TAA an objection decision is an ineligible income tax remission decision if it relates to the remission of penalty tax and the amount of penalty tax payable does not exceed the relevant threshold amount. | In this case the amount of penalty tax assessed did not exceed the 20% per year threshold fixed by paragraph 14ZS(2)(b) of the TAA, and even though the objection decision did not refer to penalty tax it related to the remission of penalty tax because under subsection 14ZR(1) of the TAA the taxpayer's objection related to a deemed single taxation decision that included the assessment of penalty tax and associated remission of penalty tax. Thus, there was a sufficient connection between the Commissioner's objection decision and the remission of penalty tax such that, for the purposes of subsection 14ZS(2) of the TAA, the objection decision related to the remission of penalty tax. | The Court also noted that whilst section 43 of the Administrative Appeals Tribunal Act 1975 (AAT Act) gives the Tribunal broad powers to stand in the shoes of the decision maker, these general powers cannot override the clear and specific legislative intention created by sections 14ZR(2) and 14ZS of the TAA that ineligible income tax remission decisions are outside the purview of the Tribunal. | Gyles and Stone JJ also agreed at [29] with the Commissioner's alternative argument that the only decision under review by the Tribunal was that relating to primary tax by virtue of the limited scope of the objection under section 14ZZK of the TAA. As there was no relevant association between the decision as to primary tax and the decision to remit penalty tax, section 43 of the AAT Act did not empower the Tribunal to exercise the Commissioner's discretion to remit penalty tax. | Young J disagreed with the majority in this respect. In his view section 14ZZK of the TAA does not limit the powers or jurisdiction of the Tribunal and simply regulates the way in which the Tribunal is to conduct its proceedings. | During the Full Court hearing the taxpayer raised a contention as to estoppel for the first time. For this reason, Gyles and Stone JJ decided that it was appropriate to remit the matter to the Tribunal to be dealt with according to law as this would afford the taxpayer the opportunity to argue that the Tribunal's decision should not be interfered with on the basis of estoppel, if the taxpayer so decided to take that course. Young J dissented on the basis that as he was allowing the appeal by reason of sections 14ZR and 14ZS of the TAA it was unnecessary to remit it to the Tribunal.", "Issues_Decided": "Gyles, Stone and Young JJ (the Court) allowed the Commissioner's appeal, holding that the Tribunal did not have the jurisdiction to remit penalty tax. Under section 14ZZ of the TAA, the Tribunal has jurisdiction to review a reviewable objection decision. A reviewable objection decision is an objection decision that is not an ineligible income tax remission decision. Broadly, under section 14ZS of the TAA an objection decision is an ineligible income tax remission decision if it relates to the remission of penalty tax and the amount of penalty tax payable does not exceed the relevant threshold amount. In this case the amount of penalty tax assessed did not exceed the 20% per year threshold fixed by paragraph 14ZS(2)(b) of the TAA, and even though the objection decision did not refer to penalty tax it related to the remission of penalty tax because under subsection 14ZR(1) of the TAA the taxpayer's objection related to a deemed single taxation decision that included the assessment of penalty tax and associated remission of penalty tax. Thus, there was a sufficient connection between the Commissioner's objection decision and the remission of penalty tax such that, for the purposes of subsection 14ZS(2) of the TAA, the objection decision related to the remission of penalty tax. The Court also noted that whilst section 43 of the Administrative Appeals Tribunal Act 1975 (AAT Act) gives the Tribunal broad powers to stand in the shoes of the decision maker, these general powers cannot override the clear and specific legislative intention created by sections 14ZR(2) and 14ZS of the TAA that ineligible income tax remission decisions are outside the purview of the Tribunal. Gyles and Stone JJ also agreed at [29] with the Commissioner's alternative argument that the only decision under review by the Tribunal was that relating to primary tax by virtue of the limited scope of the objection under section 14ZZK of the TAA. As there was no relevant association between the decision as to primary tax and the decision to remit penalty tax, section 43 of the AAT Act did not empower the Tribunal to exercise the Commissioner's discretion to remit penalty tax. Young J disagreed with the majority in this respect. In his view section 14ZZK of the TAA does not limit the powers or jurisdiction of the Tribunal and simply regulates the way in which the Tribunal is to conduct its proceedings. During the Full Court hearing the taxpayer raised a contention as to estoppel for the first time. For this reason, Gyles and Stone JJ decided that it was appropriate to remit the matter to the Tribunal to be dealt with according to law as this would afford the taxpayer the opportunity to argue that the Tribunal's decision should not be interfered with on the basis of estoppel, if the taxpayer so decided to take that course. Young J dissented on the basis that as he was allowing the appeal by reason of sections 14ZR and 14ZS of the TAA it was unnecessary to remit it to the Tribunal.", "ATO_View_of_Decision": "The decision upholds the policy underlying sections 14ZR and 14ZS of the TAA that the Tribunal only has the power to review remission decisions where a specified threshold amount is exceeded. It ensures that a taxpayer can not otherwise avoid the application of sections 14ZR and14ZS by not objecting against the penalty tax. | Gyles J (with whom Stone J agreed) also agreed with the Commissioner's alternative position that paragraph 14ZZK(a) confines the Tribunal's subject matter of review to those matters raised in the taxpayer's objection, unless the Tribunal orders otherwise. Thus, it is for the limited purpose of reviewing the taxpayer's objection that the Tribunal has all the powers of the Commissioner under section 43 of the AAT Act. If there is no relevant association between the power to be exercised and the subject matter of review then that power cannot be exercised by the Tribunal under section 43 of the AAT Act. | However, the comments of Gyles and Stone JJ in this respect were only obiter. It is also noted that Young J expressed the opposing view that section 14ZZK of the TAA only regulates the way in which the Tribunal is to conduct its proceedings and is directed to the parties to the review. | The Commissioner remains of the view that paragraph 14ZZK(a) confines the subject matter of review to those matters raised in the grounds of objection, and that if there is no relevant association between the power to be exercised and the grounds of objection then that power cannot be exercised by the Tribunal under section 43 of the AAT Act.", "Administrative_Treatment": "None", "Related_Documents": "Not applicable | 2006 ATC 4761 | Pt IVC | 14ZL | 14ZQ | 14ZR | 14ZS | 14ZU | 14ZY | 14ZZ | 14ZZA | 14ZZK | 6 | 14 | 27 | [2006] FCAFC 27 | [2006] FCAFC 112 | 63 ATR 445 | 61 ATR 509 | [2005] FCAFC 244 | (1986) 162 CLR 1 | 97 ATC 4585 | 2006 ATC 4330 | (1990) 169 CLR 356 | (1995) 184 CLR 301 | (1998) 194 CLR 355 | (1991) 172 CLR 1 | (1987) 180 CLR 491", "Legislative_References": "Administrative Appeals Tribunal Act 1975 (AAT Act) 2A 25 27 29 32 33 35 41 43 44 Income Tax Assessment Act 1936 (ITAA) 193 207 223 227 Pt VII Taxation Administration Act 1953 (TAA) Pt IVC 14ZL 14ZQ 14ZR 14ZS 14ZU 14ZY 14ZZ 14ZZA 14ZZK Taxation Laws Amendment (No 3) Act 1991 The Act Taxation Laws Amendment (Self Assessment) Act 1992 6 14 27", "Case_References": "Australian Securities and Investments Commission v Donald (2003) 136 FCR 7 [2003] FCAFC 318 Berowra Holdings Pty Ltd v Gordon (2006) 228 ALR 387 (2006) 80 ALJR 1214 225 CLR 364 Comcare v Burton (1998) 157 ALR 522 Comcare v Etheridge (2006) 149 FCR 522 [2006] FCAFC 27 Commissioner of Taxation v Queensland Trading & Holding Company Ltd [2006] FCAFC 112 63 ATR 445 Commonwealth Bank Officers Superannuation Corporation Pty Ltd v Commissioner of Taxation (2005) 148 FCR 427 61 ATR 509 [2005] FCAFC 244 Coulton v Holcombe (1986) 162 CLR 1 Grollo Nominees Pty Ltd and Others v Commissioner of Taxation (1997) 73 FCR 452 97 ATC 4585 36 ATR 424 HBF Health Funds Inc v Minister for Health and Ageing (2006) 149 FCR 291 Hoffman v Chief of Army (2004) 137 FCR 520 Isaacs v Commissioner of Taxation (2006) 151 FCR 427 2006 ATC 4330 63 ATR 390 Lees v Comcare and Another (1999) 56 ALD 84 (1999) 29 AAR 350 Minister for Immigration and Multicultural and Indigenous Affairs v Nystrom [2006] HCA 50 O'Grady v Northern Queensland Co Ltd (1990) 169 CLR 356 PMT Partners Pty Ltd (in liq) v Australian National Parks and Wildlife Service (1995) 184 CLR 301 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Saraswati v The Queen (1991) 172 CLR 1 Secretary, Department of Social Security v Hodgson (1992) 37 FCR 32 Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1982) 148 CLR 150 Water Board v Moustakas (1987) 180 CLR 491", "Subject_References": "Income tax remission of additional or penalty tax by Administrative Appeals Tribunal Tribunal did not have power to remit additional tax in exercising its jurisdiction under s 14ZZ of the Taxation Administration Act 1953 specific prohibition in one statute not overridden by general power in complementary statute having affirmed liability for primary tax appeal allowed", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD210/2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Milne", "Venue_Reference_No": "NSD 1286/05", "Venue": "Federal Court of Australia", "Judgment_Date": "4 August 2006", "Date_Published": "5 October 2006", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "The matter was an application for review by way of an appeal to the Federal Court from a decision of the Small Taxation Claims Tribunal (Tribunal). The Tribunal had set aside the Commissioner's objection decision and remitted the proceedings to the Commissioner with the direction to grant the taxpayer full release of his tax related liability, under section 340-5 of the Taxation Administration Act (1953 ), on the ground of serious hardship. | Issues decided by the court or tribunal | 1. His Honour Justice Conti held that the Tribunal applied the correct test of serious hardship in accordance with the legislation and the Commissioner's policy. | 2. Conti J held that in the complexity of the circumstances, exaction of the tax debt from the Respondent would amount to 'serious hardship' in accordance with IT 2440 [para 54]. | 3. The Tribunal was not bound to approach the test of hardship by ' by way of appraisal of any comparison of the value of Mr Milne's assets with the amount of his liabilities at any relevant point in time' [para 54] as in circumstances peculiar to Mr Milne at the time the Tribunal heard his appeal, exaction of his taxation debt would have amounted to 'serious hardship'. The facts that his estranged spouse held an equal share in the substantially hypothecated real estate assets and that the 'Brindabella' [para 52] property was unsaleable at the time of the hearing, support this notion. | 4. The Tribunal did not fail to take into account a ' viable factor of relevance' [para 57]. Essentially this means that if the Tribunal did fail to take a consideration into account, it was not of such relevance or strength to alter the conclusions of the Tribunal. | 5. Further, the Tribunal did not take into account irrelevant considerations [para 57]. The facts and considerations taken into account by the Tribunal were relevant and appropriate. | 6. Conti J found that it was open to the Tribunal to release the Respondent based on ' the complexity of evidence before it ... at least to a substantial or significant extent' [para 53]. As such, Conti J found that the Commissioner had not established any error of law. The implication of this finding is that Conti J found that the Tribunal's finding of serious hardship and the decision to exercise the discretion were both based on probative evidence and were reasonable.", "Issues_Decided": "1. His Honour Justice Conti held that the Tribunal applied the correct test of serious hardship in accordance with the legislation and the Commissioner's policy. 2. Conti J held that in the complexity of the circumstances, exaction of the tax debt from the Respondent would amount to 'serious hardship' in accordance with IT 2440 [para 54]. 3. The Tribunal was not bound to approach the test of hardship by ' by way of appraisal of any comparison of the value of Mr Milne's assets with the amount of his liabilities at any relevant point in time' [para 54] as in circumstances peculiar to Mr Milne at the time the Tribunal heard his appeal, exaction of his taxation debt would have amounted to 'serious hardship'. The facts that his estranged spouse held an equal share in the substantially hypothecated real estate assets and that the 'Brindabella' [para 52] property was unsaleable at the time of the hearing, support this notion. 4. The Tribunal did not fail to take into account a ' viable factor of relevance' [para 57]. Essentially this means that if the Tribunal did fail to take a consideration into account, it was not of such relevance or strength to alter the conclusions of the Tribunal. 5. Further, the Tribunal did not take into account irrelevant considerations [para 57]. The facts and considerations taken into account by the Tribunal were relevant and appropriate. 6. Conti J found that it was open to the Tribunal to release the Respondent based on ' the complexity of evidence before it ... at least to a substantial or significant extent' [para 53]. As such, Conti J found that the Commissioner had not established any error of law. The implication of this finding is that Conti J found that the Tribunal's finding of serious hardship and the decision to exercise the discretion were both based on probative evidence and were reasonable.", "ATO_View_of_Decision": "The implication of this decision is that the Commissioner's published interpretation of the law as set out in Income Tax Ruling IT 2440 and Chapter 24 of the ATO Receivables Policy which provide guidance in relation to the meaning of the term 'serious hardship' are correct in determining release matters. | The decision turns on its own facts and does not create any direct precedent as to the circumstances which either establish serious hardship or influence the use of the discretion in relation to releasing taxpayers from their taxation liabilities. | Conti J acknowledged there is no special rule for solicitors; that in terms of the Legal Profession Act 2004 (NSW ) bankruptcy does not mean a solicitor must lose his or her right to practice. | The Tax Office will not be lodging an appeal to the Full Federal Court.", "Administrative_Treatment": "Although the test for serious hardship refers to normal community standards, each release case will continue to be considered uniquely on its own facts having regard to the community standard.", "Related_Documents": "IT 2440 | 2006 ATC 4503 | Schedule 1 340-5 | Schedule 1 340-15 | Schedule 1 Division 340 | Part VI Div 4B | 139J | 139K | 139P(1) | 139P(2) | 139Q | 139T(1) | 139T(2)(a) | 139T(2)(b) | 139T(2)(c) | 139T(2)(d) | 139T(2)(e) | 265 | (1956) 94 CLR 509 | [2004] AATA 1012 | 89 ATC 4415 | 50 ATR 267", "Legislative_References": "Taxation Administration Act 1953 (Cth) Schedule 1 340-5 Schedule 1 340-15 Schedule 1 Division 340 Bankruptcy Act 1966 (Cth) Part VI Div 4B 139J 139K 139P(1) 139P(2) 139Q 139T(1) 139T(2)(a) 139T(2)(b) 139T(2)(c) 139T(2)(d) 139T(2)(e) Income Tax Assessment Act 1936 (Cth) 265", "Case_References": "NSW Associated Blue-Metal Quarries Limited v Federal Commissioner of Taxation (1956) 94 CLR 509 Re Filsell and Commissioner of Taxation [2004] AATA 1012 Re Wilson and Minister for Territories (1985) 7 ALD 225 Powell v Evreniades (1989) 21 FCR 252 89 ATC 4415 20 ATR 472 Re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1979) 2 ALD 634 New South Wales Bar Association v Murphy (2002) 55 NSWLR 23 50 ATR 267", "Subject_References": "Administrative Law Context of liability to income tax review of decision of AAT to grant relief from income tax in favour of legal practitioner referable to circumstances of serious hardship implications of that statutory notion in case of long established legal practitioner adversely affected financially by marital breakdown, illness and financial misconduct of former partner whether Tribunal took into account irrelevant considerations or failed to take into account relevant considerations in its determination or otherwise of the prevalence of serious hardship", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1286/05/00001", "Unmatched_Content": ""}
{"Case_Name": "Commissioner of Taxation v Queensland Trading & Holding Co Ltd", "Venue_Reference_No": "NSD 646 and 647 of 2005", "Venue": "Federal Court of Australia", "Judgment_Date": "6 July 2006", "Date_Published": "25 February 2015", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "The taxpayers were members of the Industrial Equity Limited (IEL) group of companies which also included Spassked Pty Ltd (Spassked). The taxpayers were transferees of losses from Spassked. In Spassked Pty Ltd v FCT 2003 ATC 5099, the Full Federal Court decided that Spassked was not entitled to a deduction for interest on loans to acquire shares in a subsidiary and, therefore, Spassked had no losses which it could transfer to other group members, including each of the taxpayers under section 80G of the Income Tax Assessment Act 1936 (ITAA 1936). | Following the High Court's refusal to grant Spassked special leave to appeal against the Full Federal Court's decision, the Commissioner amended the taxpayers' assessments to deny the deduction for the losses transferred from Spassked and impose penalties under Pt VII of the ITAA 1936. | The Commissioner disallowed the taxpayers' objections to these assessments and the taxpayers lodged appeals to the Federal Court pursuant to Part IVC of the Tax Administration Act 1953 (TAA). | In the proceedings before the Federal Court, the taxpayers sought particulars in relation to the Commissioner's decision to not further remit penalty imposed pursuant to section 223 and section 226, and remitted in terms of section 227(3) of the ITAA 1936 . The particulars, and further and better particulars, were provided by the Commissioner. | Subsequently, when the taxpayers sought reasons under section 13 of the ADJR Act for the decisions not to remit the penalties, the Commissioner refused on the basis that the decisions were excluded decisions. Section 3(1) of the ADJR Act provides that a decision set out in subparagraph (ga) of Schedule 1 excludes a decision under section 14ZY of the TAA disallowing an objection to an assessment or calculation of tax, charge or duty from judicial review. | The Federal Court (Conti J), at first instance, decided for the taxpayer. The Commissioner appealed to the Full Federal Court. | Issues decided by the court or tribunal | On appeal, the Full Federal Court held that the Commissioner's refusal to further or fully remit the additional tax was subsumed in the objection decision. As a result, the objection decision was no less a decision under section 14ZY of the TAA disallowing an objection to an assessment of tax than it would be if the objection on which the decision is made had been grounded solely in matters going to primary tax. | Consequently, the court concluded that it was not necessary to consider the issues as to whether additional tax payable pursuant to Pt VII of ITAA 1936 was a tax or charge for the purposes of subparagraph (ga) of Schedule 1, or whether it was a penalty. | Further, the court said that where the issue of remission formed part of the ordinary tax appeals process, it was the Pt IVC process which was applicable. The Court found that the Full Federal Court decision in FCT v Mostyn (1987) 18 FCR 260 had no relevance to the facts before the court. Mostyn dealt with a review of the power to remit additional tax independently of the assessment and appeal process where the taxpayer had not lodged appeals against the relevant assessments. | The Commissioner's appeal was allowed.", "Issues_Decided": "On appeal, the Full Federal Court held that the Commissioner's refusal to further or fully remit the additional tax was subsumed in the objection decision. As a result, the objection decision was no less a decision under section 14ZY of the TAA disallowing an objection to an assessment of tax than it would be if the objection on which the decision is made had been grounded solely in matters going to primary tax. Consequently, the court concluded that it was not necessary to consider the issues as to whether additional tax payable pursuant to Pt VII of ITAA 1936 was a tax or charge for the purposes of subparagraph (ga) of Schedule 1, or whether it was a penalty. Further, the court said that where the issue of remission formed part of the ordinary tax appeals process, it was the Pt IVC process which was applicable. The Court found that the Full Federal Court decision in FCT v Mostyn (1987) 18 FCR 260 had no relevance to the facts before the court. Mostyn dealt with a review of the power to remit additional tax independently of the assessment and appeal process where the taxpayer had not lodged appeals against the relevant assessments. The Commissioner's appeal was allowed.", "ATO_View_of_Decision": "ATO position remains unchanged. | The previously accepted position that taxpayers who appeal against the disallowance of objections under Part IVC of the TAA do not have a right to review under s13 of the ADJR Act remains unchanged as a result of the decision of the Full Federal Court in this case.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | The Commissioner's public ruling in this matter, IT 2521, has been revised to include the findings of the Full Court. IT 2521 was subsequently withdrawn as it is no longer current and only relevant for pre-2001 years. | PS LA 2012/5 outlines the current penalty laws.", "Related_Documents": "IT 2521 | [2006] FCAFC 112 | 63 ATR 445 | 3(1) | 13 | Sch1 | 14ZL | 14ZQ | 14ZR | 14ZY | 6(1) | 175 | 175A | 177 | 2003 ATC 5099 | 87 ATC 5056", "Legislative_References": "Administrative Decisions (Judicial Review) Act 1977 3(1) 13 Sch1 Taxation Administration Act 1953 14ZL 14ZQ 14ZR 14ZY Income Tax Assessment Act 1936 6(1) 175 175A 177 227", "Case_References": "Spassked Pty Ltd v FCT 2003 ATC 5099 54 ATR 546 136 FCR 441 FCT v Mostyn 18 FCR 260 87 ATC 5056 19 ATR 588", "Subject_References": "Objections and appeals where Commissioner assessed primary and additional tax where notice of assessment incorporated notice of both where taxpayer pursued objection and appeal whether open to the taxpayer to request reasons pursuant to section 13 of the Administrative Decisions (Judicial Review) Act 1977 whether decision separate from objection decision", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD646647of2005/00001", "Unmatched_Content": "Updated to advise withdrawal of IT 2521."}
{"Case_Name": "Debonne Holdings Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "WT 2004/382", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "19 October 2006", "Date_Published": "18 December 2006", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "• Taxpayer was seeking an input tax credit for the cost of land acquired pursuant to purchase of a hotel. • Sale to taxpayer was made pursuant to 2 separate but interdependent contracts; one for sale of \"business\" (goodwill, plant, trading stock etc), other for sale of land on which hotel stood. • The contract for sale of \"business\" expressly stated [i.e. in clause 24(ii)] that \" the sale of the business was the sale of a going concern \". The expression \" the business \" used in the opening words of the business contract specifically referred to \" goodwill ... and plant, furniture, fixtures, fittings, chattels, stock in trade and other assets described in the particulars hereto \" but did not include the land. However, clause 24(i) of the business contract stated that \" the terms used here (presumably including \"supply of a going concern\") have the same meaning as those used in the GST Act \". • The contract for the sale of the land was silent on the question of \"going concern\" and provided that the purchase price included any GST liability for which the vendor might be liable. | • Taxpayer was seeking an input tax credit for the cost of land acquired pursuant to purchase of a hotel. • Sale to taxpayer was made pursuant to 2 separate but interdependent contracts; one for sale of \"business\" (goodwill, plant, trading stock etc), other for sale of land on which hotel stood. • The contract for sale of \"business\" expressly stated [i.e. in clause 24(ii)] that \" the sale of the business was the sale of a going concern \". The expression \" the business \" used in the opening words of the business contract specifically referred to \" goodwill ... and plant, furniture, fixtures, fittings, chattels, stock in trade and other assets described in the particulars hereto \" but did not include the land. However, clause 24(i) of the business contract stated that \" the terms used here (presumably including \"supply of a going concern\") have the same meaning as those used in the GST Act \". • The contract for the sale of the land was silent on the question of \"going concern\" and provided that the purchase price included any GST liability for which the vendor might be liable. | Issues decided by the court or tribunal | 1. The sale of the assets evidenced by the business contract alone (i.e. without the land) did not amount to the supply of a going concern for the purposes of s.38-325(2) of the GST Act. | 2. The word \"business\" as used in clause 24(ii) of the business contract was intended to refer to the entire hotel enterprise (including the land) and not just the assets described as being supplied pursuant to the separate \"business\" contract (i.e. goodwill, fixtures, fittings, chattels, plant, stock in trade etc). | 3. In the circumstances clause 24(ii) amounted to a sufficient agreement in writing that the supply was of a going concern for the purposes of s.38-325(1)(c) of the GST Act. | 4. (by implication) the reference to \"supply of a going concern\" in s.38-325(2) is the supply of the entire enterprise which comprises the \"going concern\" rather than to just the individual assets comprising the enterprise. | 5. The supply of an enterprise itself is a supply in the course or furtherance of that enterprise and thus not GST free unless it is the supply of a going concern or is the subject of some other specific exemption", "Issues_Decided": "1. The sale of the assets evidenced by the business contract alone (i.e. without the land) did not amount to the supply of a going concern for the purposes of s.38-325(2) of the GST Act. 2. The word \"business\" as used in clause 24(ii) of the business contract was intended to refer to the entire hotel enterprise (including the land) and not just the assets described as being supplied pursuant to the separate \"business\" contract (i.e. goodwill, fixtures, fittings, chattels, plant, stock in trade etc). 3. In the circumstances clause 24(ii) amounted to a sufficient agreement in writing that the supply was of a going concern for the purposes of s.38-325(1)(c) of the GST Act. 4. (by implication) the reference to \"supply of a going concern\" in s.38-325(2) is the supply of the entire enterprise which comprises the \"going concern\" rather than to just the individual assets comprising the enterprise. 5. The supply of an enterprise itself is a supply in the course or furtherance of that enterprise and thus not GST free unless it is the supply of a going concern or is the subject of some other specific exemption", "ATO_View_of_Decision": "The decision is not inconsistent with anything contained in the relevant Public Ruling.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | There are no implications with respect to any current Public Rulings or Determinations.", "Related_Documents": "GSTR 2002/5 | 2006 ATC 2467 | Section 38-325 | 2005 ATC 2189 | 2005 ATC 4571", "Legislative_References": "(ANTS) Goods and Services Act 1999 Section 38-325", "Case_References": "Midford v DFCT [2005] AATA 623 2005 ATC 2189 60 ATR 1009 HP Mercantile Pty Ltd v Commissioner of Taxation 143 FCR 553 2005 ATC 4571 60 ATR 106", "Subject_References": "GST GST free GST supply of a going concern Agreement in writing Supply Enterprise Business Supply of goodwill", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WT2004/382/00001", "Unmatched_Content": "Implications on Law Administration Practice Statements: There are no implications for any current Law Administration Practice Statements."}
{"Case_Name": "Dram Nominees Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "VT2004/42-46", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "10 November 2006", "Date_Published": "18 June 2007", "Document_Type": "Impact of Court Decisions Report", "Decision_Outcome": "", "Summary_of_Decision": "This was a factual case concerning the claim for interest deductions on loans obtained to finance expenditure on rented premises. There was not sufficient evidence to substantiate the nexus between the interest claimed and the rental income.", "Overview_of_Facts": "These were applications to review decisions of the Commissioner in relation to objections lodged by Dram Nominees Pty Ltd against assessments of income tax, as result of an audit, for years ended 1995 to 2000. | The applicant claimed that it purchased 2 properties under a contract dated 3/12/84 for a total of $60,000. The vendor was an associated company and the contract provided for a deposit of $6,000 with the balance payable on 3/9/90. Dram was registered as proprietor on 19/3/91. A permit for erection of an upper storey was issued in October 1984 in the name of the associated company and construction took place in February 1985. | The primary issue in this case was the claim for interest deductions on loans obtained to finance expenditure on rented premises. | The Applicant was not able to produce evidence of actual payment of the purchase price nor of the precise amount or payment of the subsequent capital expenditure. While there was some evidence of borrowing and the existence of a bank overdraft, there was no direct evidence connecting the borrowings and interest paid, to specific expenditure on the property. | here was no evidence provided as to the payment of the deposit of $6,000 or the balance of $54,000. It was submitted that the total amount of the purchase price must have been funded directly or indirectly by commercial debt. No accounting evidence was provided notwithstanding that formal accounts had been prepared by an accounting firm for each of the relevant years. A model account was drawn up in an attempt to reconcile the estimated capital expenditure on the premises and borrowings. Mr Pascoe said that they added little to the evidence needed to satisfy the onus of proof given that their starting point was the reasonable assumptions arising from the memories of the directors. The absence of any expert accounting evidence was noted by Mr Pascoe. | Issues Decided by the Court or Tribunal | The primary issue in this case was the claim for interest deductions on loans obtained to finance expenditure on rented premises. | A major problem in this case was that the applicant was not able to produce evidence of actual payment of the purchase price, nor of the precise amount or payment of the subsequent capital expenditure. There was some evidence of borrowing and the existence of a bank overdraft was provided, but the nexus between the interest claimed and the rental income was not substantially established. | The AAT decided that the Applicant was entitled to an income tax deduction for interest being 36.42% of the amount claimed. The Applicant was only able to provide evidence to establish and substantiate its interest claim to this extent.", "Issues_Decided": "The primary issue in this case was the claim for interest deductions on loans obtained to finance expenditure on rented premises. A major problem in this case was that the applicant was not able to produce evidence of actual payment of the purchase price, nor of the precise amount or payment of the subsequent capital expenditure. There was some evidence of borrowing and the existence of a bank overdraft was provided, but the nexus between the interest claimed and the rental income was not substantially established. The AAT decided that the Applicant was entitled to an income tax deduction for interest being 36.42% of the amount claimed. The Applicant was only able to provide evidence to establish and substantiate its interest claim to this extent.", "ATO_View_of_Decision": "This was a case decided on its facts. | The decision of the AAT was open to it as the Applicant's claims for a deduction for interest expenses was allowed only to the extent to which the Applicant was able to provide evidence to establish and substantiate those claims", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "TR 95/25 | 2006 ATC 2504 | 8-1 | (1997) 97 ATC 4239 | 92 ATC 4380", "Legislative_References": "Income Tax Assessment Act 1936 51(1) Income Tax Assessment Act 1997 8-1", "Case_References": "Steele v Deputy Commissioner of Taxation (1997) 154 ALR 438 (1997) 97 ATC 4239 (1997) 35 ATR 285 FC of T v Roberts; FC of T v Smith 92 ATC 4380 (1992) 23 ATR 494", "Subject_References": "Income tax Rented property Interest on borrowed funds Date of contract of sale Whether funds borrowed to meet expenditure", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VT2004/42-46/00001", "Unmatched_Content": ""}
{"Case_Name": "Eaton and Ors v Deputy Commissioner of Taxation", "Venue_Reference_No": "40911; 40912 and 40913 of 2004", "Venue": "Supreme Court", "Judgment_Date": "19 October 2006", "Date_Published": "2 July 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "The appellant taxpayers argued that a Deed of Company Arrangement extinguishes a director penalty liability for the purposes of section 222AOH of the Income Tax Assessment Act 1936 (ITAA 1936).", "Overview_of_Facts": "1. The Applicants were directors of Lofeze P/L (\"the Company\"). 2. On 11 July 2002, the ATO issued a director penalty notice (\"DPN\") pursuant to section 222AOE of the ITAA 1936 to each director in relation to unremitted group taxes between December 2000 - June 2001. 3. The notice required the directors to do one of four things within 14 days of receipt: namely, pay the amount; enter into an agreement under section 222ALA ITAA 1936; put the company into administration; or put the company into liquidation. 4. The directors did not comply with the notice by the due date (26 July 2002) and as a consequence, the Commissioner was able to take recovery action for the penalty amount. 5. On 17 July 2003, that is, after the expiration of the date specified in the DPN, the company entered into voluntary administration and subsequently a Deed of Company Arrangement was approved by creditors. The Deed of Company Arrangement provided that a payment of $51,000 to all creditors would release the company from all of its debts. 6. The amount of $51,000 was less than the amount payable under the DPN. | 1. The Applicants were directors of Lofeze P/L (\"the Company\"). 2. On 11 July 2002, the ATO issued a director penalty notice (\"DPN\") pursuant to section 222AOE of the ITAA 1936 to each director in relation to unremitted group taxes between December 2000 - June 2001. 3. The notice required the directors to do one of four things within 14 days of receipt: namely, pay the amount; enter into an agreement under section 222ALA ITAA 1936; put the company into administration; or put the company into liquidation. 4. The directors did not comply with the notice by the due date (26 July 2002) and as a consequence, the Commissioner was able to take recovery action for the penalty amount. 5. On 17 July 2003, that is, after the expiration of the date specified in the DPN, the company entered into voluntary administration and subsequently a Deed of Company Arrangement was approved by creditors. The Deed of Company Arrangement provided that a payment of $51,000 to all creditors would release the company from all of its debts. 6. The amount of $51,000 was less than the amount payable under the DPN. | Issues decided by the court or tribunal | 1. Whether a Deed of Company Arrangement extinguishes the DPN penalty? | Answer: No | The Court rejected the contention that a payment under the terms of the Deed of Company Arrangement had the effect of discharging the DPN penalty. | Section 222AOH of the ITAA 36 refers to amounts being \"paid\" or \"applied\" to the Commissioner. If an amount is paid or applied towards a DPN liability, then any payments made can be used to reduce or discharge the liability of any director who is sued for the same liability. Here, the $51,000 was paid under the terms of the Deed of Company Arrangement. There was no evidence that any amount was paid to the Deputy Commissioner of Taxation (DCT). In addition, the Court found that a discharge must mean a release, or extinction by the fulfilment, performance, execution of an obligation, duty, function etc: Commissioner of Taxation v Orica Limited [1998] 94 CLR 500. | 2. Whether the District Court has jurisdiction to hear tax recovery matters? | Answer: Yes | The Court referred to the NSW Court of Appeal's decision in Forsyth v DCT which had already dealt with the jurisdiction issue. | 3. Whether the DCT was entitled to enter judgement against each of three directors in the same amount or whether it was so unfair as to preclude the DCT from enforcing any such judgement. | The Court stated that the DCT was entitled to enter judgement against each of three directors and therefore there was no abuse of process in the DCT obtaining a separate judgment against each of three directors for the same amount, as it enabled the DCT to proceed against any one or more of the directors. This reflected the legislature's intention that directors be jointly and severally liable for penalties in these circumstances.", "Issues_Decided": "1. Whether a Deed of Company Arrangement extinguishes the DPN penalty?: Answer: No The Court rejected the contention that a payment under the terms of the Deed of Company Arrangement had the effect of discharging the DPN penalty. Section 222AOH of the ITAA 36 refers to amounts being \"paid\" or \"applied\" to the Commissioner. If an amount is paid or applied towards a DPN liability, then any payments made can be used to reduce or discharge the liability of any director who is sued for the same liability. Here, the $51,000 was paid under the terms of the Deed of Company Arrangement. There was no evidence that any amount was paid to the Deputy Commissioner of Taxation (DCT). In addition, the Court found that a discharge must mean a release, or extinction by the fulfilment, performance, execution of an obligation, duty, function etc: Commissioner of Taxation v Orica Limited [1998] 94 CLR 500. | 2. Whether the District Court has jurisdiction to hear tax recovery matters?: Answer: Yes The Court referred to the NSW Court of Appeal's decision in Forsyth v DCT which had already dealt with the jurisdiction issue. | 3. Whether the DCT was entitled to enter judgement against each of three directors in the same amount or whether it was so unfair as to preclude the DCT from enforcing any such judgement.: The Court stated that the DCT was entitled to enter judgement against each of three directors and therefore there was no abuse of process in the DCT obtaining a separate judgment against each of three directors for the same amount, as it enabled the DCT to proceed against any one or more of the directors. This reflected the legislature's intention that directors be jointly and severally liable for penalties in these circumstances.", "ATO_View_of_Decision": "The decision confirms the Commissioner's view that a Deed of Company Arrangement cannot be used as a mechanism for directors to avoid the operation of the director penalty provisions contained in Part VI, Division 9, Subdivision A of the Income Tax Assessment Act 1936 and that the DCT is able to enter judgment against more than one director for the same amount.", "Administrative_Treatment": "None", "Related_Documents": "None | 2006 ATC 4708 | 44(1)(a) | 83A | 2005 ATC 4025 | (1997) 38 ATR 26 | 98 ATC 4494", "Legislative_References": "District Court Act 1973 44(1)(a) 83A Income Tax Assessment Act 1936 160M(3) Part VI, Division 9, Subdivision A 222ALA 222AOB 222AOC(1) 222AOG 222AOH 222AOI", "Case_References": "Forsyth v Deputy Commissioner of Taxation (2002) 62 NSWLR 132 2005 ATC 4025 58 ATR 179 Stewart v DCT (1997) 38 ATR 26 DCT v Harrington (Walmsley DCJ) (No.9568/01) 1 October 2003 unreported Commissioner v Orica Limited [1998] 94 CLR 500 98 ATC 4494 39 ATR 66", "Subject_References": "Whether director liability under 222AOC of the ITAA extinguished by Deed of Company Arrangement Jurisdiction of the District Court of New South Wales Whether it is unfair to enforce judgment on the basis that it had been obtained against each of three directors for the same amount.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/40911of2004/00001", "Unmatched_Content": ""}
{"Case_Name": "Elsinora Global Ltd & Ors v Deputy Commissioner of Taxation & Anor", "Venue_Reference_No": "NSD383 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "9 November 2006", "Date_Published": "5 April 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned an appeal against the trial judge's failure to order payment of interest under the Federal Court of Australia Act 1976 (Cth).", "Overview_of_Facts": "At first instance, the applicants challenged the validity of assessments and notices issued by the Commissioner under s255 of the Income Tax Assessment Act 1936 and s260-5 of the Taxation Administration Act 1953 (the \"notices\") under s39B of the Judiciary Act 1903 . | On 3 February 2006, Edmonds J concluded that the assessments were valid assessments but held that none of the notices imposed any statutory obligation on the recipients in accordance with their terms. His Honour refused to make declarations that the notices were invalid. No cause of action for the recovery of money was raised or established as against the Deputy Commissioner. No judgement for money was entered against the Deputy Commissioner by Edmonds J. | The Deputy Commissioner instituted an appeal from that part of the judgment and orders of Edmonds J where his Honour ordered that the notices did not impose any statutory obligation on the recipients in accordance with their terms. | The applicants filed a Cross-Appeal contending that the trial judge erred by not making an order that the Deputy Commissioner pay interest on the amount withheld by one of the recipients of the notices at the rate of 9%pa from 22 January 2005 (the date the amount was withheld) to the date of payment of the interest, less any interest which in fact had accrued on the sum withheld whilst retained pursuant to the notices. | The Deputy Commissioner's appeal was subsequently discontinued. This left the Cross-Appeal to be resolved by the Full Federal Court. | Issues decided by the court or tribunal | There was no error in the judgment at first instance. | Although the Full Federal Court accepted that, in general terms, the proceeding before Edmonds J can be characterised as a proceeding for the recovery of money, s 51A of the Federal Court of Australia Act 1976 (Cth) authorises an award of interest only where there is cause of action against a party for the recovery of money, and the claim for interest is made against the same party. In other words, the statute confers a power to award interest as an incident of a cause of action for the recovery of money that results in a judgment. | In this case, there was no cause of action against the Deputy Commissioner for the recovery of money. | The Full Federal Court also concluded that as the trial judge had accepted that s51A did not apply, there was no issue as to whether the primary judge's discretion under s51A(1) had miscarried. | Neither s22 nor s23 of the Federal Court of Australia Act 1976 (Cth) empowers the Court to make an order for interest when it is not empowered to do so under s51A or under the general law. The applicants did not identify or articulate any legal or equitable claim that would give them an entitlement to an award of interest against the Deputy Commissioner under ss22 or 23.", "Issues_Decided": "There was no error in the judgment at first instance. Although the Full Federal Court accepted that, in general terms, the proceeding before Edmonds J can be characterised as a proceeding for the recovery of money, s 51A of the Federal Court of Australia Act 1976 (Cth) authorises an award of interest only where there is cause of action against a party for the recovery of money, and the claim for interest is made against the same party. In other words, the statute confers a power to award interest as an incident of a cause of action for the recovery of money that results in a judgment. In this case, there was no cause of action against the Deputy Commissioner for the recovery of money. The Full Federal Court also concluded that as the trial judge had accepted that s51A did not apply, there was no issue as to whether the primary judge's discretion under s51A(1) had miscarried. Neither s22 nor s23 of the Federal Court of Australia Act 1976 (Cth) empowers the Court to make an order for interest when it is not empowered to do so under s51A or under the general law. The applicants did not identify or articulate any legal or equitable claim that would give them an entitlement to an award of interest against the Deputy Commissioner under ss22 or 23.", "ATO_View_of_Decision": "The Tax Office considers that the correct decision was reached by the Full Court of the Federal Court given that there was no error in the judgment at first instance. The decision confirms case law regarding the issue of interest payable under the Federal Court of Australia Act 1976 (Cth).", "Administrative_Treatment": "Implications on current Public Rulings & Determinations: | None", "Related_Documents": "[2006] FCAFC 156", "Legislative_References": "Federal Court of Australia Act 1976 (Cth) 22 23 51A", "Case_References": "Elsinora Global Ltd v Healthscope Ltd (No 2) (2006) 227 ALR 570 2006 ATC 4061 61 ATR 482 Comptroller-General of Customs v Kawasaki Motors Pty Ltd (No 1) (1991) 32 FCR 219 Commonwealth v SCI Operations Pty Ltd (1998) 192 CLR 285 Victorian WorkCover Authority v Esso Australia Ltd (2001) 207 CLR 520 Thakral Fidelity Pty Ltd v Commissioner of Stamp Duties (No 2) [2001] 1 Qd R 428", "Subject_References": "Power to order interest under s51A or alternatively ss22 & 23 of the Federal Court of Australia Act 1976 (Cth) consideration of 'proceedings for the recovery of any money' for the purposes of s51A where applicants sought an order for payment of interest from Deputy Commissioner no action against Deputy Commissioner for recovery of money consideration of discretion as to rate of interest under s51A.", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD383of2006/00001", "Unmatched_Content": ""}
{"Case_Name": "Experienced Tours Australia Pty Ltd, Elly Liu and Heong Tee Teh v Commissioner of Taxation", "Venue_Reference_No": "VT2001/810-811, 996-997, 1115-1117", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "14 June 2006", "Date_Published": "6 January 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "Experienced Tours Australia Pty Ltd ('ETA') established an employee share plan company. During each of the 1996, 1997 and 1998 income years, two ETA employees, who were also the shareholders and directors of ETA, purchased a number of employee shares for $1 each. On the following day, ETA purchased the same number of employer shares for $5,001 per share representing a nominal value of $1 and a premium of $5,000. The share plan arrangement provided that the value of the premium paid on the purchase of the employer shares was transferred to the employee shares at the time that the employer shares were purchased. The arrangement was structured to avoid both income tax and fringe benefits tax, and the taxpayers' position was that: • ETA was entitled to deductions under section 51/section 8-1 for the amounts of premiums paid. • The value of the employee shares acquired by the employees for Division 13A purposes at the date of their acquisition was $1 per share notwithstanding that the share premium amount paid by ETA on its acquisition of employer shares on the following day would be allocated to the employee shares. • Paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) applied to exclude the value of the premiums from fringe benefits tax. The Commissioner did not accept that the arrangement delivered the supposed tax outcomes and assessed tax on the following bases: • Denial of section 51/section 8-1 deductions on the basis that the benefits provided to the employees were disguised distributions of profits paid to or for the benefit of the principals of ETA or otherwise represented non-deductible capital expenditure. Alternatively, Part IVA applied to deny any deductions otherwise allowable. • Alternatively, the value of the shares acquired by the employees for Division 13A purposes included the share premium amounts paid by the employer. Alternatively, Part IVA applied to include the share premium amounts in the assessable income of the employees. • Alternatively, payment of the share premium amounts or the allocation of the share premium amounts to the employee shares constituted a taxable fringe benefit and the value of the benefit provided included the share premium amounts. | • ETA was entitled to deductions under section 51/section 8-1 for the amounts of premiums paid. • The value of the employee shares acquired by the employees for Division 13A purposes at the date of their acquisition was $1 per share notwithstanding that the share premium amount paid by ETA on its acquisition of employer shares on the following day would be allocated to the employee shares. • Paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1) applied to exclude the value of the premiums from fringe benefits tax. The Commissioner did not accept that the arrangement delivered the supposed tax outcomes and assessed tax on the following bases: • Denial of section 51/section 8-1 deductions on the basis that the benefits provided to the employees were disguised distributions of profits paid to or for the benefit of the principals of ETA or otherwise represented non-deductible capital expenditure. Alternatively, Part IVA applied to deny any deductions otherwise allowable. • Alternatively, the value of the shares acquired by the employees for Division 13A purposes included the share premium amounts paid by the employer. Alternatively, Part IVA applied to include the share premium amounts in the assessable income of the employees. • Alternatively, payment of the share premium amounts or the allocation of the share premium amounts to the employee shares constituted a taxable fringe benefit and the value of the benefit provided included the share premium amounts. | The Tribunal proceedings involved all three bases of assessment. | Issues decided by the tribunal | 1. ETA was entitled to deductions under section 51 or section 8-1 in each of the years ended 30 June 1996, 1997 and 1998 for the share premium amounts of $600,000, $300,000 and $300,000 respectively. The Tribunal did not consider the Commissioner's contention that Part IVA applied in the alternative. 2. The value of the employee shares for Division 13A purposes included the amount of the share premium paid by ETA, and section 139B applied to include the discount given to the employees in relation to their employee shares ($5,000 per share) in their assessable income subject to the application of section 23L. 3. The allocation of the premium amounts to the employee shares constituted taxable fringe benefits provided to employees of ETA. 4. Given that the benefit provided to the employees was both a taxable fringe benefit provided by the employer and income derived by the employees, section 23L applied to exempt the income derived by the employees from income tax.", "Issues_Decided": "1. ETA was entitled to deductions under section 51 or section 8-1 in each of the years ended 30 June 1996, 1997 and 1998 for the share premium amounts of $600,000, $300,000 and $300,000 respectively. The Tribunal did not consider the Commissioner's contention that Part IVA applied in the alternative. 2. The value of the employee shares for Division 13A purposes included the amount of the share premium paid by ETA, and section 139B applied to include the discount given to the employees in relation to their employee shares ($5,000 per share) in their assessable income subject to the application of section 23L. 3. The allocation of the premium amounts to the employee shares constituted taxable fringe benefits provided to employees of ETA. 4. Given that the benefit provided to the employees was both a taxable fringe benefit provided by the employer and income derived by the employees, section 23L applied to exempt the income derived by the employees from income tax.", "ATO_View_of_Decision": "The Tribunal dealt first with the fringe benefits tax dispute and found that 'Liu and Teh were employees of ETA for the purpose of the FBT Act. ... I am satisfied ... that [the] benefits were provided by ETA as their employer and were provided in respect of the employment of them.' The Tribunal's acceptance that the employer/employee relationship (and not the company/shareholder relationship) was the occasion for the provision of the benefits was critical to the outcome of the cases. | FBT. | Aside from the application of paragraph (ha) of the definition of 'fringe benefit' in subsection 136(1), the Tribunal's identification of the relevant taxable fringe benefits is consistent with the ATO view and Walstern. | Section 51 and section 8-1. | The Tribunal's acceptance of the employer/employee relationship seems to be the basis for the section 51/section 8-1 outcome. | The problem with the section 51/section 8-1 decision is that although concluding that 'the premiums contributed a benefit to Liu and Teh in their capacity as employees rather than as shareholders', the Tribunal failed to consider: (i) whether the relevant payments were non-deductible capital payments; and (ii) whether Part IVA applied. | In relation to (i), much of what the Tribunal said in paragraph 13 of its decision is consistent with and arguably requires a capital finding. | Division 13A of the ITAA36. | The Tribunal found that the share premium amounts were subject to Division 13A, but also found that as fringe benefits tax applied, section 23L operated to exclude the Division 13A amounts from the employees' assessable income. If the section 23L aspect is ignored the Division 13A outcome seems correct given the Tribunal's finding (paragraph 17) that 'The incorporation and operation of ETA ESP was clearly an employee share scheme and the acquisition of employee shares was directly related to employment.' | Whether relief from double taxation should have been given to the employee assessments under section 23L (as occurred here) or the fringe benefits tax assessments under paragraph (ha) of subsection 136(1) is unclear, and the Tribunal said nothing at all on this question apart from applying section 23L. It is possible that section 23L is the appropriate provision provided that the particular fringe benefits are not attributable to the acquisition of a share as was arguably the case here. However, the Commissioner has long taken the view that where benefits provided to employees are potentially subject to both income tax and fringe benefits tax, Division 13A properly assesses the whole amount of the value provided by the employer (as the Tribunal has found), that the CGT cost base of the shares acquired is the value assessed under Division 13A, and that fringe benefits tax doesn't apply because paragraph (ha) of the definition of fringe benefit in subsection 136(1) excludes benefits 'constituted by the acquisition' of Division 13A shares from fringe benefits tax assessment. | The Tribunal's conclusion that that Part IVA would not apply where Division 13A does apply is obviously correct. | Administrative Treatment Implications | This may be an area where further law clarification is required through an appropriate vehicle, although there are few, if any, outstanding cases involving similar issues. There is nothing in the decision that affects the Commissioner's ability to pursue appropriate section 51 and Division 13A arguments in appropriate cases. | The Tribunal dealt with an employee share plan structure designed to ensure that the value for Division 13A purposes of the employee shares acquired by employees did not reflect the real benefit that the employees were obtaining. The particular share plan structure appears not to have been used for a number of years, and the Tribunal has accepted that the structure does not deliver its intended results. | Whether deductions are properly allowable under section 51 or section 8-1, and whether Part IVA applies if deductions are allowable, may depend on the facts of a particular case. | Should any disputes relating to other employee share plan arrangements of the kind dealt with in these cases arise, the Commissioner's view is: 1. The contribution made by the employer is not an income tax deduction of the employer; alternatively Part IVA applies to disallow any allowable deduction. 2. Alternatively, the amount of the share premium paid by the employer is assessable income of the participating employees pursuant to Division 13A. Section 6-5 or paragraph 26(e) may also apply depending on the facts. Alternatively, Part IVA may apply to include the amount of the premium in the assessable income of the employees. 3. Alternatively, the benefit provided by the employer by way of the share premium amount is a taxable fringe benefit. | Where deductions are allowable under section 51 or section 8-1, and Part IVA does not apply to deny the deductions, the Commissioner will generally accept either a Division 13A or a fringe benefits tax outcome as requested by the participating taxpayers. | The Commissioner does not consider that this decision impacts upon Class Rulings in relation to any genuine employee share plans.", "Administrative_Treatment": "None", "Related_Documents": "n/a | 2006 ATC 2232 | 23L | Part IVA | 6-5 | 8-1 | 50(c) | 136(1) | 2003 ATC 5076 | 2002 ATC 5201", "Legislative_References": "Income Tax Assessment Act 1936 (ITAA36) Div 13A 23L 26 51 139B Part IVA 177D(b) Income Tax Assessment Act 1997 (ITAA97) 6-5 8-1 Fringe Benefits Tax Assessment Act 1986 (FBTAA) 50(c) 136(1)", "Case_References": "Walstern Pty Ltd v FCT 2003 ATC 5076 54 ATR 423 Essenbourne Pty Ltd v FCT 2002 ATC 5201 51 ATR 629", "Subject_References": "Income tax and fringe benefits tax employee share plan premiums paid by employer on employer shares credited to account of employee shareholders whether premiums paid allowable deductions to employer whether discount on employee shares represented by premiums paid by employer assessable income of employees whether premiums paid by employer taxable fringe benefits", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VT2001/810-811/00001", "Unmatched_Content": "Appeal on foot: No. The Commissioner's appeals against the income tax decisions and Experienced Tours Australia Pty Ltd's appeal against the fringe benefits tax decision were discontinued in the Federal Court when the parties settled their disputes prior to the matters being heard."}
{"Case_Name": "Federal Commissioner of Taxation v Citylink Melbourne Ltd", "Venue_Reference_No": "M49 of 2005", "Venue": "High Court", "Judgment_Date": "20 July 2006", "Date_Published": "4 October 2006", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "In October 1995 Citylink Melbourne Limited (then known as Transurban City Link Limited) and the State of Victoria entered into a concession deed for the Melbourne City Link project. | The concession commenced in 1996 and is expected to end in 2034. It may be terminated early or extended in certain defined circumstances. | In consideration for the grant of the right to design, construct, commission and operate the City Link, to impose and collect toll, maintain and repair the road and raise other approved revenues, Transurban is obliged to pay concession fees to the State. | The fee was set at $95.6 million per annum for the construction period and the first 26 years of operations. For the remaining 9 years of the concession period a fee of $45.2 million per annum is payable. An annual fee of $1 million per annum is provided in the event that the concession period is extended beyond the expiry date. | The annual concession fee is payable by semi annual instalments in arrears in December and June each year. For any period of less than six months (relevantly at the beginning and end of the concession period) a pro rata amount is payable. | The concession fees may be satisfied, at Transurban's option, by the issue of concession notes to the State at or prior to the time that payment is due. Concession notes are a promise to pay the amount in the future subject to the presentation conditions being satisfied. The concession notes are not a negotiable instrument but are transferable. The concession notes do not bear interest. | Transurban issued concession notes for all of the concession fees that were payable in the years of income under consideration in the proceedings. | Under the security arrangement governing the project debt the obligation to pay concession fees and concession notes is subordinated to the debt due to the project lenders. While project debt is outstanding, Transurban is not permitted to pay concession fees or concession notes owing unless there is sufficient funds available in a special account maintained under the lending documents for the purposes of making distributions to equity holders and payments to the State. | The financial projections made at the commencement of the project indicated that payments to the State for concession fees (under the concession note presentation conditions) would not commence until 2013 or 2017. Further it was possible that the amounts payable could still be outstanding at the expiry date in 2034 if the traffic and toll revenue fell significantly short of the predictions. | Issues decided by the High Court | The question for the Court was whether the concession fees claimed were allowable deductions under subsection 51(1) of the Income Tax Assessment Act 1936 (years ended 30 June 1996 and 1997) and section 8-1 of the Income Tax Assessment Act 1997 (year ended 30 June 1998). In this regard there were two issues that had to be decided by the Court: 1. Whether, the amounts in question were outgoings incurred in, and properly referable to, the income year in respect of which they accrued payable; and 2. Whether the concession fees were outgoings of a capital nature. | 1. Whether, the amounts in question were outgoings incurred in, and properly referable to, the income year in respect of which they accrued payable; and 2. Whether the concession fees were outgoings of a capital nature. | Answer to the first issue | The majority of the High Court (Gleeson CJ; Gummow, Callinan and Heydon JJ adopting the written judgment of Crennan J) held: • The concession fees were incurred in the relevant year of income because Transurban was under a contractual liability to make the payments in the relevant year; • There was a contractual liability to pay the concession fees irrespective of the subordination of the State's right to payment or the concession note mechanism for discharging the liability; • Conditions affecting the timing of discharge (but not the creation of the liability) does not render the liability contingent; • Transurban was definitely committed and had completely subjected itself to the outgoings which the concession fees represent; • The concession fees were, like any periodic licence fee, payable for its period. The outgoings did not secure rights in future years and were referable to the income years in question. | • The concession fees were incurred in the relevant year of income because Transurban was under a contractual liability to make the payments in the relevant year; • There was a contractual liability to pay the concession fees irrespective of the subordination of the State's right to payment or the concession note mechanism for discharging the liability; • Conditions affecting the timing of discharge (but not the creation of the liability) does not render the liability contingent; • Transurban was definitely committed and had completely subjected itself to the outgoings which the concession fees represent; • The concession fees were, like any periodic licence fee, payable for its period. The outgoings did not secure rights in future years and were referable to the income years in question. | Answer to the second issue | The majority in agreeing with the reasons of Justice Crennan held that the concession fees were of a revenue nature. The concession fees were characterised as periodic licence fees in respect of the City Link infrastructure assets that ultimately must be surrendered to the State in contrast to periodic instalments of the purchase price of a capital asset.", "Issues_Decided": "The question for the Court was whether the concession fees claimed were allowable deductions under subsection 51(1) of the Income Tax Assessment Act 1936 (years ended 30 June 1996 and 1997) and section 8-1 of the Income Tax Assessment Act 1997 (year ended 30 June 1998). In this regard there were two issues that had to be decided by the Court: 1. Whether, the amounts in question were outgoings incurred in, and properly referable to, the income year in respect of which they accrued payable; and 2. Whether the concession fees were outgoings of a capital nature. 1. Whether, the amounts in question were outgoings incurred in, and properly referable to, the income year in respect of which they accrued payable; and 2. Whether the concession fees were outgoings of a capital nature. | Answer to the first issue: The majority of the High Court (Gleeson CJ; Gummow, Callinan and Heydon JJ adopting the written judgment of Crennan J) held: • The concession fees were incurred in the relevant year of income because Transurban was under a contractual liability to make the payments in the relevant year; • There was a contractual liability to pay the concession fees irrespective of the subordination of the State's right to payment or the concession note mechanism for discharging the liability; • Conditions affecting the timing of discharge (but not the creation of the liability) does not render the liability contingent; • Transurban was definitely committed and had completely subjected itself to the outgoings which the concession fees represent; • The concession fees were, like any periodic licence fee, payable for its period. The outgoings did not secure rights in future years and were referable to the income years in question. • The concession fees were incurred in the relevant year of income because Transurban was under a contractual liability to make the payments in the relevant year; • There was a contractual liability to pay the concession fees irrespective of the subordination of the State's right to payment or the concession note mechanism for discharging the liability; • Conditions affecting the timing of discharge (but not the creation of the liability) does not render the liability contingent; • Transurban was definitely committed and had completely subjected itself to the outgoings which the concession fees represent; • The concession fees were, like any periodic licence fee, payable for its period. The outgoings did not secure rights in future years and were referable to the income years in question. | Answer to the second issue: The majority in agreeing with the reasons of Justice Crennan held that the concession fees were of a revenue nature. The concession fees were characterised as periodic licence fees in respect of the City Link infrastructure assets that ultimately must be surrendered to the State in contrast to periodic instalments of the purchase price of a capital asset.", "ATO_View_of_Decision": "The result of this case flows from the disposition of the majority to view the concession as a licensing arrangement and the concession fees as periodic licence fees. | The decision entrenches a jurisprudential approach for the determination of when an outgoing is incurred for the purposes of the general deduction provisions. In this regard it places importance on a legal analysis of the arrangements to distinguish between conditions that concern the creation of liability and conditions that merely affect discharge. | Other than distinguishing the situation in Coles Myer Finance , the decision does not shed any further light on the properly referable principle as previously articulated and applied by the High Court. | As the majority view amounted to an application of existing principles governing the deductibility of losses and outgoings under the general deduction provisions, it is not proposed to amend current Tax Office Rulings (most relevantly TR 94/26 and TR 97/7 dealing with the meaning of incurred and the application of the properly referable principle) or issue further interpretative advice dealing with the decision.", "Administrative_Treatment": "Subject to the possible application of the general anti avoidance provisions where the necessary conditions are present, the decision supports the allowance of deductions for similar payments in similar public infrastructure concession arrangements. In each case the Tax Office will carefully consider whether the facts and circumstances are in material respects comparable to those in Transurban. | Compliance monitoring, risk assessment and audit activities will be adapted to detect and respond to non-commercial arrangement that seek to exploit the decision to avoid tax.", "Related_Documents": "TR 94/26 | TR 97/7 | 2006 ATC 4404 | 8-1 | (1953) 88 CLR 492 | (1938) 61 CLR 179 | (1944) 71 CLR 596 | (1977) 77 ATC 4151 | (1951-52) 85 CLR 306 | (1937) 56 CLR 290 | (1938) 61 CLR 337 | (1946) 72 CLR 634 | 95 ATC 4756 | (1938) 61 CLR 263 at 282. | (1938) 63 CLR 108", "Legislative_References": "Income Tax Assessment Act 1936 51(1) Income Tax Assessment Act 1997 8-1", "Case_References": "City Link Melbourne Ltd v Commissioner of Taxation (2004) 141 FCR 69 City Link Melbourne Ltd v Commissioner of Taxation (2004) 135 FCR 356 Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492 New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR 179 Nilsen Development Laboratories Pty Ltd v Federal Commissioner of Taxation (1981) 144 CLR 616 Coles Myer Finance Limited v Federal Commissioner of Taxation (1993) 176 CLR 640 Emu Bay Railway Co Ltd v Federal Commissioner of Taxation (1944) 71 CLR 596 Commercial Union Assurance Co of Australia Ltd v FCT (1977) 7 ATR 435 Federal Commissioner of Taxation v Australian Guarantee Corporation Ltd (1984) 2 FCR 483 Commonwealth Aluminium Corporation Ltd v Federal Commissioner of Taxation (1977) 77 ATC 4151 Federal Commissioner of Taxation v The Midland Railway Company of Western Australia Limited (1951-52) 85 CLR 306 W. Nevill and Company Limited v Federal Commissioner of Taxation (1937) 56 CLR 290 Sun Newspapers Limited v Federal Commissioner of Taxation (1938) 61 CLR 337 Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634 Cliffs International Inc. v Federal Commissioner of Taxation (1979) 142 CLR 140 Tata Hydro-Electric Agencies, Bombay v Income Tax Commissioner [1937] AC 685 Commissioner of Stamp Duties (NSW) v Commonwealth Funds Management Ltd 95 ATC 4756 Ogilvy and Mather Pty Ltd v Federal Commissioner of Taxation (1990) 95 ALR 663 Steele v Deputy Federal Commissioner of Taxation (1999) 197 CLR 459 Commissioner of Taxation (NSW) v Ash (1938) 61 CLR 263 at 282. Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd (1938) 63 CLR 108", "Subject_References": "The meaning of loss or outgoing incurred The application of the properly referable principle Characterisation of the outgoing - whether of a capital or revenue nature", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M49of2005/00001", "Unmatched_Content": ""}
{"Case_Name": "Hostess Marine Pty Ltd v Commissioner of Taxation", "Venue_Reference_No": "VID 85 of 2004", "Venue": "Federal Court of Australia", "Judgment_Date": "30 November 2006", "Date_Published": "30 March 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the Applicant's application of a motor yacht to own use, was exempt from sales tax, on the basis that the yacht was for use mainly for purposes other than pleasure, sport, recreation, private transport or accommodation.", "Overview_of_Facts": "The Applicant claimed exemption from sales tax under Item 59 in Schedule 1 to the former Sales Tax (Exemptions and Classifications) Act 1992 in relation to its application of a motor yacht to own use. The Commissioner considered that the requirements for exemption - namely, that the yacht be for use mainly for purposes other than pleasure, sport, recreation, private transport or accommodation for the whole of the statutory period of 2 years commencing when the yacht was applied to own use by the Applicant - were not satisfied. | The Applicant adduced evidence of arrangements it entered into for the demonstration of the yacht to prospective purchasers. These included the manufacturer's appointment of the Applicant as joint distributor and Victorian and Tasmanian agent for the sale of yachts of this type and a marketing strategy which included a media launch, individually targetted marketing and participation in various boat shows at which the yacht was demonstrated to potential purchasers. There was also evidence of extensive modifications to the yacht to ensure its continuing suitability for demonstration purposes. One commission payment of $30,000 less advertising expenses was received by the Applicant. | The Commissioner contended that there were no real prospects that the Applicant would sell sufficient vessels to make a profit. The Commissioner pointed to the absence of proper analysis of the likely profitability of the business before the yacht was purchased, certain informality in the distribution arrangements and the insurance policy of the vessel, taken over from a policy on another vessel, being endorsed only for private purposes until this matter was raised by tax officers. | The business was closed down when sales did not achieve expectations and following receipt of an unsolicited offer for purchase of the yacht at an attractive price. | Quantitatively, the time which the yacht spent at her moorings constituted an overwhelming proportion of the two year statutory period. The total personal use of the yacht was quantified as approximately 7%. | Issues decided by the court or tribunal | The Court confirmed that item 59 would be satisfied in the circumstances of this case if the Applicant intended, at the time it applied the yacht to its own use, that the yacht would be used mainly for purposes other than pleasure, sport, recreation, private transport or accommodation for the whole of the 2 year statutory period. While actual use over the statutory period may be evidence of intended use, it is the intention at the time of first application to own use that must be determined. | Having heard evidence from the controlling mind of the Applicant, the Court concluded on the preponderance of probabilities that the Applicant genuinely intended to use the yacht mainly for the purpose of displaying and demonstrating the range of yachts. | In doing so, the Court noted the 'elaborate, expensive and time-consuming' preparation and execution of the marketing strategy. The Court also noted that although criticisms had been made that the distributorship arrangements lacked sophistication, it had not been suggested that they were a sham. In relation to the failure to endorse the insurance policy for use for demonstration purposes, the Court considered this to be explicable as an oversight. | While agreeing in general with the Commissioner's contention that the Applicant did not have a realistic prospect of generating substantial profits within a reasonable time after application of the yacht to own use, the Court considered that an applier could have an intention to use a yacht for business purposes notwithstanding that the business is unlikely to generate much, if any, profit. The confidence with which a court can impute the presence or absence of a business intention depends on the weight to be attached to all the surrounding circumstances. In any case, the critical intention in this case was for the vessel to be used mainly for purposes other than pleasure, sport, recreation, private transport or accommodation. | The Court also considered that the 'down time' the yacht spent at moorings, in dry dock or a contractor's berths for repairs and modifications cast no light on the use to which the Applicant intended the vessel would be put. This is because the down time would have been broadly the same whether the Applicant intended to use the yacht for demonstration purposes or for pleasure, sport or recreation.", "Issues_Decided": "The Court confirmed that item 59 would be satisfied in the circumstances of this case if the Applicant intended, at the time it applied the yacht to its own use, that the yacht would be used mainly for purposes other than pleasure, sport, recreation, private transport or accommodation for the whole of the 2 year statutory period. While actual use over the statutory period may be evidence of intended use, it is the intention at the time of first application to own use that must be determined. Having heard evidence from the controlling mind of the Applicant, the Court concluded on the preponderance of probabilities that the Applicant genuinely intended to use the yacht mainly for the purpose of displaying and demonstrating the range of yachts. In doing so, the Court noted the 'elaborate, expensive and time-consuming' preparation and execution of the marketing strategy. The Court also noted that although criticisms had been made that the distributorship arrangements lacked sophistication, it had not been suggested that they were a sham. In relation to the failure to endorse the insurance policy for use for demonstration purposes, the Court considered this to be explicable as an oversight. While agreeing in general with the Commissioner's contention that the Applicant did not have a realistic prospect of generating substantial profits within a reasonable time after application of the yacht to own use, the Court considered that an applier could have an intention to use a yacht for business purposes notwithstanding that the business is unlikely to generate much, if any, profit. The confidence with which a court can impute the presence or absence of a business intention depends on the weight to be attached to all the surrounding circumstances. In any case, the critical intention in this case was for the vessel to be used mainly for purposes other than pleasure, sport, recreation, private transport or accommodation. The Court also considered that the 'down time' the yacht spent at moorings, in dry dock or a contractor's berths for repairs and modifications cast no light on the use to which the Applicant intended the vessel would be put. This is because the down time would have been broadly the same whether the Applicant intended to use the yacht for demonstration purposes or for pleasure, sport or recreation.", "ATO_View_of_Decision": "The Commissioner accepts that the decision was one available to the Court on the evidence presented in the case.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "ST(NS) 3 | [2006] FCA 1651 | (2006) 155 FCR 504 | 25 | 5 | Item 59 in Schedule 1 | 2000 ATC 4201 | 72 ATC 4094 | 2003 ATC 4782 | 2001 ATC 4111 | 2003 ATC 4665", "Legislative_References": "Sales Tax Assessment Act 1992 (Cth) (repealed) 25 Sales Tax (Exemptions & Classifications) Act 1992 (Cth) (repealed) 5 Item 59 in Schedule 1", "Case_References": "Davis v Federal Commissioner of Taxation 2000 ATC 4201 44 ATR 140 Thomas v Federal Commissioner of Taxation (1972) 46 ALJR 397 72 ATC 4094 3 ATR 165 Puzey v Federal Commissioner of Taxation 131 FCR 244 2003 ATC 4782 53 ATR 614 BRK (Bris) Pty Ltd v Federal Commissioner of Taxation 2001 ATC 4111 46 ATR 347 Hart v Federal Commissioner of Taxation (2003) 131 FCR 203 2003 ATC 4665 53 ATR 371", "Subject_References": "sales tax yacht exempt use item 59 application to own use mainly statutory period pleasure, sport, recreation, private transport or accommodation", "Other_References": "Sales Tax News and Views (Volume 3 - Aug/Oct 1993)", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID85of2004/00001", "Unmatched_Content": ""}
{"Case_Name": "Mulla v Commissioner of Taxation", "Venue_Reference_No": "QT2004/234", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "6 October 2006", "Date_Published": "6 December 2006", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "1. The Applicant held a licence under the Excise Act to produce tobacco leaf at a property at Mareeba in North Queensland; | 2. There only existed two Australian cigarette manufacturers that were legitimate purchasers of tobacco leaf produced in North Queensland. One of the manufacturers announced it would not purchase tobacco grown in North Queensland after the end of 2002. The other manufacturer announced it would cease purchasing tobacco leaf from North Queensland farmers after 2003. | 3. There is no other apparent legitimate Australian market for tobacco leaf produced in North Queensland; | 4. There is no established export market for Australian tobacco leaf; | 5. There is no evidence to indicate that there is a viable domestic or export market for any of the tobacco leaf the Applicant may produce in the future; | 6. The physical security of the storage facility on the Applicant's licensed premises is better than some other farmers and no worse than those on many other farms in North Queensland and Victoria; | 7. On or about 20 February 2004, a Notice of Suspension of tobacco producer licence was issued to the Applicant; | 8. On or about 12 March 2004, a Notice of Cancellation of tobacco producer licence was issued to the Applicant. | Issues decided by the court or tribunal | Senior Member Mr McCabe found that it was reasonably necessary to cancel the applicant's producer's licence to protect the revenue because it is not simply a matter of allowing the applicant to back his own commercial judgement. | SM McCabe accepted the approach taken by Deputy President Forgie in Martino v Commissioner of Taxation [2002] AATA 1242. [paragraph 50] | DP Forgie consideration of the word \"revenue\" in subsection 39G(2) of the Excise Act 1901 in paragraph 50 of Martino case - \"It includes all of the monies the crown would be entitled to collect as excise duty under the Act. But there is more to it than that: revenue arguably means the amount to which the crown is entitled net of the costs of collecting those monies and operating the regulatory regime.\" | DP Forgie considered the word necessary at paragraph 52 of Martino case by adopting the analysis of Allen J in State Drug Crime Commission v Chapman (1987) 12 NSWLR 447, in that the word necessary did not mean essential. | In relation to the standard and onus of proof, here DP Forgie referred to the authorities and explained at paragraph 54 of Martino case : \"All that is required is that the Collector, and so this Tribunal, is satisfied. Satisfaction, for all practical purposes, equates with the civil standard of proof which may be expressed as \"the balance of probabilities\". It equates with the interpretation of the expression \"reasonable satisfaction\" adopted by the Full Court of the Federal Court in Repatriation Commission v Smith (1987) 15 FCR 327 (Northrop, Beaumont and Spender JJ; and see page 335, per Beaumont J).\" | With this approach SM McCabe considered the facts before him. | Unlike the facts in the decisions of Martino case and Hazim v Commissioner of Taxation [2005] AATA 1183, there was no suggestion that the Applicant would fail to carry out his obligations under the compliance regime. Further, there was no suggestion that the Applicant had acted unlawfully in the past, and there was no reason to believe he would divert tobacco leaf from his crop onto the chop chop market. Nor was there a suggestion that the Applicant would fail to co-operate with the Commissioner's officers in the execution of their duties [see paragraph 52] | Further the Applicant stated in evidence that \"it will be impossible to develop an export market without the co-operation of other growers. He says at least 12 farmers from the district must grow a test crop.\" [see paragraph 59] | SM McCabe accepted that while it may be possible to achieve some economies in relation to the cost of supervision by the Commissioner, there was \"no doubt that administering a compliance program for even a relatively small number of growers in North Queensland will cost a substantial amount\". [paragraph 57] | SM McCabe further acknowledged that there was a possibility the tobacco leaf might languish in the storage facility for some time, if no sales for the product was found. These bales of tobacco would offer a tempting target for thieves. In turn what security arrangements that may exist may nonetheless prove inadequate given the growth in the chop chop market and reports of the involvement of organised criminal gangs. [paragraph 56] | Adopting the above approach, SM McCabe found it was \"reasonably necessary to cancel the applicant's producer's licence to protect the revenue... As more growers produce crops, the risk to the revenue grows as a result of theft and other forms of leakage. The cost of supervision also grows.\" [paragraph 59] | However, SM McCabe did so on balance only. He was of the view that the applicant had put forward a strong case. SM McCabe stated that 'If the applicant were able to develop an export market from his own efforts, I would have restored his licence.' [paragraph 60] This is the single factor that tipped the decision in the ATO's favour.", "Issues_Decided": "Senior Member Mr McCabe found that it was reasonably necessary to cancel the applicant's producer's licence to protect the revenue because it is not simply a matter of allowing the applicant to back his own commercial judgement. SM McCabe accepted the approach taken by Deputy President Forgie in Martino v Commissioner of Taxation [2002] AATA 1242. [paragraph 50] DP Forgie consideration of the word \"revenue\" in subsection 39G(2) of the Excise Act 1901 in paragraph 50 of Martino case - \"It includes all of the monies the crown would be entitled to collect as excise duty under the Act. But there is more to it than that: revenue arguably means the amount to which the crown is entitled net of the costs of collecting those monies and operating the regulatory regime.\" DP Forgie considered the word necessary at paragraph 52 of Martino case by adopting the analysis of Allen J in State Drug Crime Commission v Chapman (1987) 12 NSWLR 447, in that the word necessary did not mean essential. In relation to the standard and onus of proof, here DP Forgie referred to the authorities and explained at paragraph 54 of Martino case : \"All that is required is that the Collector, and so this Tribunal, is satisfied. Satisfaction, for all practical purposes, equates with the civil standard of proof which may be expressed as \"the balance of probabilities\". It equates with the interpretation of the expression \"reasonable satisfaction\" adopted by the Full Court of the Federal Court in Repatriation Commission v Smith (1987) 15 FCR 327 (Northrop, Beaumont and Spender JJ; and see page 335, per Beaumont J).\" With this approach SM McCabe considered the facts before him. Unlike the facts in the decisions of Martino case and Hazim v Commissioner of Taxation [2005] AATA 1183, there was no suggestion that the Applicant would fail to carry out his obligations under the compliance regime. Further, there was no suggestion that the Applicant had acted unlawfully in the past, and there was no reason to believe he would divert tobacco leaf from his crop onto the chop chop market. Nor was there a suggestion that the Applicant would fail to co-operate with the Commissioner's officers in the execution of their duties [see paragraph 52] Further the Applicant stated in evidence that \"it will be impossible to develop an export market without the co-operation of other growers. He says at least 12 farmers from the district must grow a test crop.\" [see paragraph 59] SM McCabe accepted that while it may be possible to achieve some economies in relation to the cost of supervision by the Commissioner, there was \"no doubt that administering a compliance program for even a relatively small number of growers in North Queensland will cost a substantial amount\". [paragraph 57] SM McCabe further acknowledged that there was a possibility the tobacco leaf might languish in the storage facility for some time, if no sales for the product was found. These bales of tobacco would offer a tempting target for thieves. In turn what security arrangements that may exist may nonetheless prove inadequate given the growth in the chop chop market and reports of the involvement of organised criminal gangs. [paragraph 56] Adopting the above approach, SM McCabe found it was \"reasonably necessary to cancel the applicant's producer's licence to protect the revenue... As more growers produce crops, the risk to the revenue grows as a result of theft and other forms of leakage. The cost of supervision also grows.\" [paragraph 59] However, SM McCabe did so on balance only. He was of the view that the applicant had put forward a strong case. SM McCabe stated that 'If the applicant were able to develop an export market from his own efforts, I would have restored his licence.' [paragraph 60] This is the single factor that tipped the decision in the ATO's favour.", "ATO_View_of_Decision": "This is a decision that related to legislation which has since been amended. The Excise Laws Amendment (Fuel Tax Reform and Other Measures) Act 2006 amended a number of provisions of the Excise Act . One of the amendments is the inclusion of a new ground for suspension (and thus cancellation) in subsection 39G(1) of the Excise Act . [New paragraph 39G(1)(ia) - \"the licence holder does not have a market for goods of a kind the licence relates to\"]. | The future utility of the support the case gives for the lack of a market being a grounds for suspending and cancelling licences to protect the revenue has been limited by this amendment as the existence of that specific ground means it is no longer necessary to solely rely on revenue protection as the basis for suspension/cancellation in these circumstances. | The decision reinforces the correct approach that should be taken in considering paragraph 39G(1)(m) of the Excise Act which permits suspension where \" it is necessary for the protection of the revenue\". The correct approach being that taken by Deputy President Forgie in Martino case , in that you must consider whether cancellation of the licence is reasonably necessary in light of the risks identified and the Commissioner's costs of supervision and in light of any other circumstances. | Further this is a decision that was made also on its facts, and the principles would apply in any case with similar facts.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None", "Related_Documents": "None | [2006] AATA 860 | [2005] AATA 1183 | [2002] AATA 1242 | (1987) 12 NSWLR 447", "Legislative_References": "Excise Act 1901 39G 39L 39Q 105", "Case_References": "Ahmad Abdul Razzak Hazim and Commissioner of Taxation [2005] AATA 1183 Attorney General v Walker (1849) 154 ER 833 Martino and Australian Taxation Office [2002] AATA 1242 State Drug Crime Commission v Chapman (1987) 12 NSWLR 447", "Subject_References": "Cancellation of tobacco producer licence", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QT2004/234/00001", "Unmatched_Content": ""}
{"Case_Name": "Pearson v Commissioner of Taxation", "Venue_Reference_No": "QUD 345; 346; 347 of 2005", "Venue": "Federal Court of Australia", "Judgment_Date": "5 July 2006", "Date_Published": "5 October 2006", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "1. This matter is a decision of the full Federal Court, on appeal from the decision of the Federal Court reported as [2005] FCA 250. | 2. The Appellant (Janette A Pearson) was one of two primary beneficiaries of the Jancy Trust and was entitled to receive distributions of income from the Jancy Trust in the years of income ended 30 June 1992 to 30 June 1994 inclusive. | 3. Jancy Pty Ltd as trustee for the Jancy Trust (the Jancy Trust), was the holder of 100 \"B\" class Income Units in the Corplan Financial Network Unit Trust which entitled the Jancy Trust to the whole of the net income of the Corplan Financial Network Unit Trust ('CFNUT') in the years of income ended 30 June 1992 to 1994 inclusive. | 4. The Jancy Trust was also the sole beneficiary of the Corplan Financial Group Unit Trust ('CFGUT') in the years of income ended 30 June 1992 to 1994 inclusive. | 5. The Appellant, as a beneficiary of the Jancy Trust, was entitled to receive distributions of income from the Jancy Trust (and, via the Jancy Trust, from both CFNUT and CFGUT). | 6. For each of the relevant years, a valid resolution by the trustee of the Jancy Trust was in place to distribute a share of the income of the Jancy Trust to the Appellant. | 7. A valid resolution by the trustee was in place to distribute a share of income to CFNUT to the Jancy Trust in the year ended 30 June 1992. | 8. No resolution was made in respect of the year ended 30 June 1992 by the trustee for CFGUT as that trust originally disclosed a loss for that year. | 9. No resolutions by the trustee were made for the years of income ended 30 June 1993 and 30 June 1994 for CFNUT as that trust originally disclosed a loss for each of those years. | 10. As a result of audits, the s 95 net income of each of CFGUT and CFNUT were increased with a consequential increase in the s 95 net income of the Jancy Trust for each of the relevant years of income and a consequential increase in the assessable income of the appellant of each of the relevant years of income. The audit also resulted in increases in the s 95 net income of the Jancy Trust of each of the relevant years of income independent of the adjustments to the net income of the CFGUT and the CFNUT. | 11. The Appellant appealed the Federal Court's decision with regards to the liability to include, in her income, distributions from CFGUT and CFNUT via the Jancy Trust as well as the issue of whether additional tax should have been remitted. | Issues decided by the court or tribunal | The full Federal Court found that the Jancy Trust (and, thereby, the Appellant) was presently entitled to the income of the CFNUT for the 1992, 1993 and 1994 income years and the net income of that trust was to be included in the net income of the Jancy Trust for distribution to the Appellant. | The court had regard to the provisions of the CFNUT trust deed in holding that Jancy was presently entitled to the whole of the net income of the CFNUT for the relevant years of income. The court found that Jancy's interest in the net income of the CFNUT was, vested in interest and possession, as Jancy had a present legal right to demand and receive payment of that net income. The court found for example that the deed makes it clear that if, for some reason, the quantum of the net income which is paid or applied does not extend to the whole of the net income of the relevant accounting period, cl 34(6) makes Jancy absolutely entitled to the difference. The court held that none of the observations from CPT Custodian relied on by the appellant for a contrary result affect this conclusion. [16] | The court found that the Jancy Trust was not presently entitled to a distribution from CFGUT for the 1992 income tax year. Therefore, the amount in question was not to be included in the net income of the Jancy Trust for that year for the purposes of section 95 of ITAA 1936. The consequence of this is that the amount in question was not to be included in the assessable income of the Appellant for that year. | The court restated established principles from cases such as Harmer & Ors . \"A beneficiary is 'presently entitled' to a share of the income of the trust estate if, but only if: (a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment.\" [14] | The rule in Saunders v Vautier had no application to the present case [12]. The question of whether a trust could be brought to an end in reliance on the rule in Saunders v Vautier ultimately depends upon the terms of the constituent document and the circumstances of the particular case [26]. | The full Federal Court considered that the Federal Court had not adequately addressed the issue of whether additional tax should have been remitted and accordingly remitted this matter back to the primary judge, Spender J, for decision.", "Issues_Decided": "The full Federal Court found that the Jancy Trust (and, thereby, the Appellant) was presently entitled to the income of the CFNUT for the 1992, 1993 and 1994 income years and the net income of that trust was to be included in the net income of the Jancy Trust for distribution to the Appellant. The court had regard to the provisions of the CFNUT trust deed in holding that Jancy was presently entitled to the whole of the net income of the CFNUT for the relevant years of income. The court found that Jancy's interest in the net income of the CFNUT was, vested in interest and possession, as Jancy had a present legal right to demand and receive payment of that net income. The court found for example that the deed makes it clear that if, for some reason, the quantum of the net income which is paid or applied does not extend to the whole of the net income of the relevant accounting period, cl 34(6) makes Jancy absolutely entitled to the difference. The court held that none of the observations from CPT Custodian relied on by the appellant for a contrary result affect this conclusion. [16] The court found that the Jancy Trust was not presently entitled to a distribution from CFGUT for the 1992 income tax year. Therefore, the amount in question was not to be included in the net income of the Jancy Trust for that year for the purposes of section 95 of ITAA 1936. The consequence of this is that the amount in question was not to be included in the assessable income of the Appellant for that year. The court restated established principles from cases such as Harmer & Ors . \"A beneficiary is 'presently entitled' to a share of the income of the trust estate if, but only if: (a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment.\" [14] The rule in Saunders v Vautier had no application to the present case [12]. The question of whether a trust could be brought to an end in reliance on the rule in Saunders v Vautier ultimately depends upon the terms of the constituent document and the circumstances of the particular case [26]. The full Federal Court considered that the Federal Court had not adequately addressed the issue of whether additional tax should have been remitted and accordingly remitted this matter back to the primary judge, Spender J, for decision.", "ATO_View_of_Decision": "The effect, if any, on our current understanding of the interaction of Division 6 with the principles articulated in CPT Custodian, Halloran, Buckle , and other recent cases, is not settled and may be sufficiently important to seek further judicial clarification on in the appropriate case. This present case itself was found, after consideration, not to be a suitable vehicle for special leave to consider those issues. | The decision was one that relied heavily on the particular facts of the case as found by the court, so that a decision of the High Court would not necessarily settle principles of general application. The case turned, in part, on the construction of the terms of the particular trust instrument. Also, there was a critical factual issue that mitigated against seeking to have the case considered by the High Court. That is the question of whether there was in fact any trust law income for CFGUT in the 1992 year of income [19-22]. The trustee had not resolved to distribute the net income, which, having regard to the trust deed, was fatal to a conclusion that Jancy was presently entitled such income. | Furthermore, the particular questions of law that might need to be answered on appeal were not fully dealt with by the Federal Court. The decision of the full Court does not itself articulate principles of general application. | It would therefore not have been appropriate to seek special leave in the matter if the decision merely turned on the proper construction of the particular instrument of trust, as appears to have been the case.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None directly affected by the decision.", "Related_Documents": "None | 2006 ATC 4352 | 95 | (1943) 68 CLR 199 | (2005) 2005 ATC 4925 | (1998) 98 ATC 4097 | (2006) 2006 ATC 4135 | (1991) 91 ATC 5000 | (1970) 119 CLR 444 | (1980) 80 ATC 4432 | (1982) 82 ATC 4168", "Legislative_References": "Income Tax Assessment Act 1936 (Cth) (ITAA 1936) 95", "Case_References": "Federal Commissioner of Taxation v Whiting (1943) 68 CLR 199 CPT Custodian Pty Limited (previously trading as Sandhurst Nominees (Vic) Ltd) v Commissioner of State Revenue (2005) 221 ALR 196 (2005) 2005 ATC 4925 (2005) 60 ATR 371 Chief Commr of Stamp Duties (NSW) v Buckle & Ors 192 CLR 226 (1998) 98 ATC 4097 (1998) 37 ATR 393 Halloran v Minister Administering National Parks and Wildlife Act 1974 [2006] HCA 3 (2006) 2006 ATC 4135 (2006) 61 ATR 550 Harmer & Ors v Commissioner of Taxation (1991) 173 CLR 264 (1991) 91 ATC 5000 (1991) 22 ATR 726 Taylor v Federal Commissioner of Taxation (1970) 119 CLR 444 Totledge Pty Ltd v Federal Commissioner of Taxation (1980) 31 ALR 657 (1980) 80 ATC 4432 (1980) 11 ATR 181 Federal Commissioner of Taxation v Totledge Pty Ltd (1982) 60 FLR 149 (1982) 82 ATC 4168 (1982) 12 ATR 830", "Subject_References": "Income tax trust income whether beneficiary presently entitled where immediate beneficiary is the trustee of another trust estate self-executing provisions contrast with provisions which are not self-executing relevance of rule in Saunders v Vautier where additional tax imposed on ultimate beneficiary remission thereof", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD345346347of2005/00001", "Unmatched_Content": ""}
{"Case_Name": "Peerless Marine Pty Ltd and Commissioner of Taxation", "Venue_Reference_No": "QT2005/79-90; 96-97; 324-327", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "8 September 2006", "Date_Published": "3 November 2006", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "1. On or about 23 July 1998, Peerless Marine Pty Ltd (\"Peerless\") was incorporated. | 2. Peerless registered for Goods and Service Tax (\"GST\") with a start date of 1 July 2000. | 3. Mr Stephenson, director and shareholder of Peerless, was a successful businessman who had been interested in and involved with boats for almost 50 years. For the last 15 years he has had a particular interest in powered catamarans. | 4. Mr Austin and Mr Spriggens were experienced boat builders who also had established a reputation in the luxury boat market. | 5. Mr Austin and Mr Spriggens through AS Marine Pty Ltd were involved with the construction of White Spirit for Peerless. | 6. An experienced and reputable marine designer was commissioned for the design of White Spirit . | 7. Peerless was formed for the purpose of building luxury catamarans for sale. Between 1998 and 2002 it constructed a powered catamaran, White Spirit , intending it to be used as a demonstrator vessel to assist in securing future orders for similar vessels. | 8. The construction of the 53 foot power vessel was completed in 2001. It was constructed over a period in excess of three years at a total cost in the order of $2.5 million. | 9. Peerless developed a business plan in May 1998 and updated /reviewed the business plan in June 2000, March 2001, April 2002 and September 2002. | 10. Peerless was an exhibitor (without a vessel) at the Sanctuary Cove International Boat Show in 1999 and 2000. | 11. In May 2002, White Spirit was exhibited at the Sanctuary Cove International Boat Show. | 12. Peerless advised that White Spirit was used exclusively to promote and demonstrate the Applicant's capacity to build this type of product, and for the sale of White Spirit . There was no evidence of use of the boat for the private enjoyment of any person associated with the Applicant. | 13. Logbook hours for the vessel White Spirit were recorded in the Applicant's business diary. No separate logbook was maintained. | 14. As costs increased and the time for construction blew out Peerless determined to sell the vessel if possible. But until sold White Spirit was to be available as a demonstrator. Ultimately the notion of building other boats was abandoned and the efforts of Peerless were devoted to the sale of White Spirit . The vessel had been for sale from when it had been launched. Marine brokers were engaged for this purpose. | 15. Since the 2004 Sanctuary Cove International Boat Show, \" White Spirit \" was placed on the market for sale at a selling price of $2,500,000.00. | 16. White Spirit was sold in May 2006 for $1.25 million | Issues decided by the court or tribunal | Deputy President Mr Hack found: | 1. The losses or outgoings claimed by the Applicant in its income tax returns were allowable deductions under the ITAA . They were necessarily incurred by it in carrying on a business of boat builder, and were not of a private or domestic nature. They were not denied deductibility under section 26-50. | 2. In particular, the use of the boat at all time was essential to the efficient conduct of carrying on the business, thereby satisfying paragraph 26-50(5)(d) of the ITAA97 . | 3. Consequently, the expenses were not 'non-deductible expenses' for the purposes of subsection 69-5(3) of the GST Act. GST input tax credits were therefore allowable to the Applicant. | 4. On the question of whether the Applicant was carrying on a business, the Deputy President found that the Applicant was carrying on a business from the outset [para 87]. | 5. The Deputy President paid close attention to what motivated Mr Stephenson in setting up and then operating Peerless Marine. The Deputy President concluded that Mr Stephenson went into the venture with an expectation that there was a profit to be made from constructing large powered catamarans. His interest in those vessels and the enquiries he made led him to conclude that there was, and it was this gap in the market place that Mr Stephenson believed he was capable of filing, and profiting from. [para 76] | 6. The Deputy President did not accept that the losses and outgoings were of a private or domestic nature. Mr Stephenson did not cause Peerless to build White Spirit to satisfy his private wishes and demands, but rather he did so in his capacity as the driving force behind the applicant and not any capacity designed to satisfy his private desires. [para 95] | 7. The nature of the business being carried out started \"with the intention of constructing White Spirit as a demonstrator as a boat builder, that is keeping [ White Spirit ] for that purpose once constructed....As costs increased and the time for construction blew out Peerless Marine determined to sell the vessel if possible. But until sold White Spirit was to be available as a demonstrator. Ultimately the notion of building other boats was abandoned and the efforts of Peerless marine were devoted to the sale of White Spirit in order to recoup some of the investment.\" [para 100] | 8. The Deputy President found on the facts of the case that there was sufficient connection between the incurring of the losses and outgoings and the gaining or producing of assessable income. | 9. On the question of whether the use of the boat was for a purpose essential to the efficient conduct of the business, the Deputy President found the use of White Spirit 'both during and after her construction, as a means of demonstrating to potential purchasers what it was capable of undertaking for those purchasers. That purpose was ... a purpose essential to the efficient conduct of its business.\" [para 125] | 10. As the boat expenses were not disallowed for the purposes of the ITAA, they were not 'non-deductible expenses' for the purposes of the GST Act. Input tax credits were therefore allowable.", "Issues_Decided": "Deputy President Mr Hack found: 1. The losses or outgoings claimed by the Applicant in its income tax returns were allowable deductions under the ITAA . They were necessarily incurred by it in carrying on a business of boat builder, and were not of a private or domestic nature. They were not denied deductibility under section 26-50. 2. In particular, the use of the boat at all time was essential to the efficient conduct of carrying on the business, thereby satisfying paragraph 26-50(5)(d) of the ITAA97 . 3. Consequently, the expenses were not 'non-deductible expenses' for the purposes of subsection 69-5(3) of the GST Act. GST input tax credits were therefore allowable to the Applicant. 4. On the question of whether the Applicant was carrying on a business, the Deputy President found that the Applicant was carrying on a business from the outset [para 87]. 5. The Deputy President paid close attention to what motivated Mr Stephenson in setting up and then operating Peerless Marine. The Deputy President concluded that Mr Stephenson went into the venture with an expectation that there was a profit to be made from constructing large powered catamarans. His interest in those vessels and the enquiries he made led him to conclude that there was, and it was this gap in the market place that Mr Stephenson believed he was capable of filing, and profiting from. [para 76] 6. The Deputy President did not accept that the losses and outgoings were of a private or domestic nature. Mr Stephenson did not cause Peerless to build White Spirit to satisfy his private wishes and demands, but rather he did so in his capacity as the driving force behind the applicant and not any capacity designed to satisfy his private desires. [para 95] 7. The nature of the business being carried out started \"with the intention of constructing White Spirit as a demonstrator as a boat builder, that is keeping [ White Spirit ] for that purpose once constructed....As costs increased and the time for construction blew out Peerless Marine determined to sell the vessel if possible. But until sold White Spirit was to be available as a demonstrator. Ultimately the notion of building other boats was abandoned and the efforts of Peerless marine were devoted to the sale of White Spirit in order to recoup some of the investment.\" [para 100] 8. The Deputy President found on the facts of the case that there was sufficient connection between the incurring of the losses and outgoings and the gaining or producing of assessable income. 9. On the question of whether the use of the boat was for a purpose essential to the efficient conduct of the business, the Deputy President found the use of White Spirit 'both during and after her construction, as a means of demonstrating to potential purchasers what it was capable of undertaking for those purchasers. That purpose was ... a purpose essential to the efficient conduct of its business.\" [para 125] 10. As the boat expenses were not disallowed for the purposes of the ITAA, they were not 'non-deductible expenses' for the purposes of the GST Act. Input tax credits were therefore allowable.", "ATO_View_of_Decision": "The Tribunal's conclusions were open to it on the evidence. This is a decision that was made on its facts, and would be applied in any case with similar facts. The Deputy President said in relation to the substantive issue of whether Peerless was carrying on a business of boat building, \"There was no real dispute about the legal principles involved. It was accepted on both sides that the question was one of fact.\" | The decision is not expected to have widespread implications for other cases, as the questions to be considered in each case are: • whether a business is carried on; • when it can be said that the business commenced; and • whether the use of the boat in question is essential to the efficient conduct of the business. | • whether a business is carried on; • when it can be said that the business commenced; and • whether the use of the boat in question is essential to the efficient conduct of the business. | The answers to these questions are always dependent on the facts of each case. | The decision is consistent with Taxation Ruling TR 2003/4.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | No implication as the decision is based on the facts of the case.", "Related_Documents": "Taxation Ruling TR 2003/4: Income Tax: boat hire arrangements | 2006 ATC 2419 | 8-1 | 26-50 | 7-1 | 9-20 | 11-5 | 11-15 | 11-20 | 69-5 | 195-1 | 22 | 284-90 | (1979) 79 ATC 4261 | (1942) 180 CLR 1 | (1970) 70 ATC 4061 | (1972) 72 ATC 4094 | (1989) 89 ATC 4101 | (1999) 99 ATC 4467 | (1980) 80 ATC 479 | 2006 ATC 4098 | (1980) 80 ATC 4542 | (1999) 99 ATC 4242 | 84 ATC 457", "Legislative_References": "Income Tax Assessment Act 1997 8-1 26-50 A New Tax System (Goods and Services) Act 1999 7-1 9-20 11-5 11-15 11-20 69-5 195-1 Taxation Administration Act 1953 22 284-90", "Case_References": "Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310 (1979) 79 ATC 4261 (1979) 9 ATR 873 Tweddle v Federal Commissioner of Taxation (1942) 180 CLR 1 Fairway Estates Pty Ltd v Federal Commissioner of Taxation (1970) 123 CLR 153 (1970) 70 ATC 4061 (1970) 1 ATR 726 Thomas v Federal Commissioner of Taxation (1972) 46 ALJR 397 (1972) 72 ATC 4094 (1972) 3 ATR 165 John v Federal Commissioner of Taxation (1989) 166 CLR 417 (1989) 89 ATC 4101 (1989) 20 ATR 1 Federal Commissioner of Taxation v Glennan (1999) 90 FCR 538 (1999) 99 ATC 4467 (1999) 41 ATR 413 Pedley v Federal Commissioner of Taxation 2006 ATC 2064 (2006) 62 ATR 1014 Case M67 (1980) 80 ATC 479 Ell v Federal Commissioner of Taxation 2006 ATC 4098 (2006) 61 ATR 661 Case 50 5 CBTR (NS) 329 Magna Alloys and Research Pty Ltd v Federal Commissioner of Taxation (1980) 33 ALR 213 (1980) 80 ATC 4542 (1980) 11 ATR 276 Steele v Deputy Commissioner of Taxation [1999] HCA 7 (1999) 99 ATC 4242 (1999) 41 ATR 139 Case R63 84 ATC 457", "Subject_References": "Income Tax carrying on a business of boat manufacturing is loss or outgoing deductible is loss or outgoing of a private or domestic nature, boat constructed as a demonstrator use of boat essential to the efficient conduct of business Goods and Services Tax input tax credits carrying on a enterprise non-deductible expense", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QT2005/79-90-96-97-324-327/00001", "Unmatched_Content": "Implications on Law Administration Practice Statements: There is no relevant Law Administration Practice Statement that is affected by this decision."}
{"Case_Name": "Saga Holidays Ltd v Commissioner of Taxation", "Venue_Reference_No": "NSD 657 of 2006", "Venue": "Federal Court of Australia", "Judgment_Date": "20 December 2006", "Date_Published": "17 June 2011", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the accommodation component of a tour package provided by a non resident was 'real property' as defined for GST purposes, and the Commissioner's claim for costs.", "Overview_of_Facts": "1. Saga, the Appellant, was a UK package tour operator, with no premises or employees in Australia. | 2. Saga sold 'all inclusive' Australian package tours to UK residents incorporating flights, insurance, transport, guides, excursions and accommodation at specified hotels in Australia. | 3. Saga contracted with AOT (an Australian company) to provide various components of the tours. In turn, AOT entered into contracts with Australian suppliers, including the hoteliers. | 4. Saga was registered for GST in Australia and entitled to input tax credits for acquisitions from AOT relating to the supply of components of the tours, including accommodation, but argued that it was not liable for GST on the supply of the accommodation. | 5. The tour brochures listed particular Australian hotels as those at which guests would be accommodated, with a stipulation that other, similar standard, hotels could be substituted. Room allocations were not made until the day the tour group arrived at the hotel. | Issues decided by the court or tribunal | 1. Whether the accommodation component supplied by the Appellant to overseas tourists was a supply of 'real property' as defined or a supply of a right or part of a bundle of rights. | The Court held that the supply was a supply of 'real property' as defined, being a supply of a 'contractual right exercisable in relation to land'. It followed that the supply was connected with Australia and therefore a taxable supply. | 2. Whether the factors taken into account by the primary judge, namely: a) that the litigation was in the nature of a test case; and b) the Commissioner's concession immediately before the hearing that the provision of meals in the particular circumstances of the case did not form part of the supply of the accommodation justified a departure from the general rule that costs should follow the event. | a) that the litigation was in the nature of a test case; and b) the Commissioner's concession immediately before the hearing that the provision of meals in the particular circumstances of the case did not form part of the supply of the accommodation | justified a departure from the general rule that costs should follow the event. | The Court held that, even if it might have decided differently, the decision of the primary judge involved the exercise of a wide discretion which should not be disturbed as the Court was not satisfied that a significant error in the exercise of the discretion had occurred. The Court awarded the Commissioner the costs in the appeal to the Full Court.", "Issues_Decided": "1. Whether the accommodation component supplied by the Appellant to overseas tourists was a supply of 'real property' as defined or a supply of a right or part of a bundle of rights. The Court held that the supply was a supply of 'real property' as defined, being a supply of a 'contractual right exercisable in relation to land'. It followed that the supply was connected with Australia and therefore a taxable supply. 2. Whether the factors taken into account by the primary judge, namely: a) that the litigation was in the nature of a test case; and b) the Commissioner's concession immediately before the hearing that the provision of meals in the particular circumstances of the case did not form part of the supply of the accommodation justified a departure from the general rule that costs should follow the event. a) that the litigation was in the nature of a test case; and b) the Commissioner's concession immediately before the hearing that the provision of meals in the particular circumstances of the case did not form part of the supply of the accommodation justified a departure from the general rule that costs should follow the event. The Court held that, even if it might have decided differently, the decision of the primary judge involved the exercise of a wide discretion which should not be disturbed as the Court was not satisfied that a significant error in the exercise of the discretion had occurred. The Court awarded the Commissioner the costs in the appeal to the Full Court.", "ATO_View_of_Decision": "Supply of accommodation | The decision of the Court is consistent with the Commissioner's view as set out in Goods and Services Tax Determination GSTD 2004/3: Is a supply of rights to accommodation a supply of real property for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 ? | The GST treatment endorsed by the Court has since been confirmed by the Tax Laws Amendment Act (2005 Measures No. 1) Act 2005 which amended section 9-25 in relation to supplies made from 1 October 2005. | The Tax Office also notes the Court's confirmation that the purposive approach to interpretation of the GST Act takes into account not only the syntax of the legislative provisions under consideration but also the policy and the surrounding legislative context, which includes the nature of GST as 'a practical business tax'. | Costs | The Commissioner accepts the Court's view that the decision not to award costs in the particular circumstances of this matter was within the proper ambit of the primary judge's broad discretion in relation to costs. | In that regard, the Commissioner notes that the primary judge's decision was informed by both Commissioner's concession in respect of the meals component and the primary judge's acceptance of the Appellant's submission that the case was in the nature of a test case. | While the appropriate approach will be determined on a case by case basis, other than where the Tax Office has approved test case funding, it will continue to be the usual practice of the Commissioner to seek costs where the Commissioner is successful in respect of the substantive issue in a case. In particular, the Commissioner will submit that the Court should not depart from the general rule that costs follow the event if the only distinguishing factor is that the case resolves a question of construction that is also relevant to other taxpayers' affairs.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | Addendums issued to the following GST rulings to reflect the outcomes of this case. | An Addendum to GSTD 2004/3 issued on 10 October 2007. | An Addendum to GSTR 2003/7 issued on 24 April 2007. | An Addendum issued to GSTR 2000/31C on 17 October 2007", "Related_Documents": "GSTD 2004/3 | GSTR 2003/7 | GSTR 2000/31C | 2006 ATC 4841 | 9-5(c) | 9-10 | 9-25 | 96-5 | 96-10 | 195-1 | The Act | (1958) 100 CLR 644 | (1997) 187 CLR 384 | 2003 ATC 4691 | 2001 ATC 4214 | 2005 ATC 4151 | [1989] 2 All ER 385 | (2003) 52 ATR 285 | (1959) 101 CLR 209 | (1960) 107 CLR 411 | 112 CLR 12 | 2005 ATC 4571 | (2005) ATC 479 | 91 ATC 4195 | [2005] 1 WLR 86 | [2004] 4 All ER 1091", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 (Cth) 9-5(c) 9-10 9-25 96-5 96-10 195-1 Tax Laws Amendment (2005 Measures No. 1) Act 2005 (Cth) The Act Value Added Tax Act 1994 (UK) The Act", "Case_References": "International Harvester Company of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Company (1958) 100 CLR 644 Scott v Davis (2001) 204 CLR 333 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Commissioner of Taxation v The Distribution Group Ltd (2003) 130 FCR 517 2003 ATC 4691 53 ATR 448 Chaudhri v Commissioner of Taxation (2001) 109 FCR 416 2001 ATC 4214 47 ATR 126 ACP Publishing Pty Ltd v Commissioner of Taxation (2005) 142 FCR 533 2005 ATC 4151 59 ATR 98 Customs and Excise Commissioners v Pippa-Dee Parties Ltd [1981] STC 495 [1982] TR 243 Customs and Excise Commissioners v Diners Club Ltd [1989] 2 All ER 385 American Express International Inc v Commissioner of State Revenue (2003) 52 ATR 285 Commissioner of Customs and Excise v Plantiflor Ltd [2002] 1 WLR 2287 Commissioners of Customs and Excise v Sinclair Collis [2001] STC 989 Swedish State v Stockholm Lindopark AB [2001] STC 103 Radaich v Smith (1959) 101 CLR 209 Livingston v Commissioner of Stamp Duties (Qld) (1960) 107 CLR 411 Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 112 CLR 12 HP Mercantile Pty Limited v Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 60 ATR 106 Sterling Guardian Pty Limited v Federal Commissioner of Taxation (2005) ATC 479 60 ATR 502 Allina Pty Ltd v Federal Commissioner of Taxation (1991) 99 ALR 295 91 ATC 4195 21 ATR 1320 Interlego AG v Croner Trading Pty Limited (1992) 39 FCR 348 39 FCR 348 Faaborg-Gelting Linien A/S v Finanzamt Flensburg [1996] ECR I-2395 Beynon and Partners v Commissioner of Customs and Excise [2005] 1 WLR 86 [2004] 4 All ER 1091 Burton v Honan (1952) 86 CLR 169 Customs and Excise Communities v Madgett and Baldwin (t/a Howden Court Hotel) [1998] STC 1189 Card Protection Plan Ltd v Customs and Excise Commissioners (No 2) [2002] 1 AC 202 [2001] 2 All ER 143", "Subject_References": "GST taxable supply real property costs awarded", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD6572006/00001", "Unmatched_Content": ""}
{"Case_Name": "Sargeant and Commissioner of Taxation", "Venue_Reference_No": "WS2005/18", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "3 August 2006", "Date_Published": "15 June 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case, which concerned a challenge to the use of the Australian Life Tables in determining life expectancies when calculating the deductible amount under subsection 27H(2) of the Income Tax Assessment Act 1936 .", "Overview_of_Facts": "The Applicant became a resident of Australia on 9 September 2002. Prior to this date, the Applicant had resided in South Africa for 39 years and, before then, the United Kingdom for his first 28 years. In the year ended 30 June 2003, the Applicant was in receipt of 4 pensions and annuities from overseas providers: a Mine Pension (in respect of his former employment in South Africa), a British National Insurance Scheme pension, and 2 annuities purchased from South African financial institutions. | In applying the deductible amount formula (subsection 27H(2)) in relation to the Applicant's pensions and annuities, the Applicant disagreed with the use of the Australian Life Tables (ALT) to determine his and his wife's life expectation factors. The Applicant argued that as they had only recently arrived in Australia, the ALT did not apply to them and that South African life expectancies should be used instead. The Applicant provided a letter from one of the South African pension providers which advised the annuity factor used by that pension provider in calculating the amount of the Applicant's pension. | The Applicant also contended that he was entitled to the pension rebate (section 159SM) in relation to his Mine Pension. | Issues decided by the court or tribunal | The Tribunal found that for the Applicant's pensions, both non-reversionary and reversionary, the ALT are most appropriate for use in determining life expectancies for the purposes of working out the relevant number in the deductible amount formula in subsection 27H(2), as the ALT are prepared on the basis of actual mortality rates across the Australian resident population, regardless of the origin and upbringing of individuals within this population or where or how such individuals have lived during their lives. | The Tribunal found that the Applicant had not satisfied his onus of proving that the ALT figures were inappropriate or otherwise resulted in an oppressive, onerous or extraordinary result. There was no evidence that the life expectancy figure that the Applicant sought to rely on was materially more appropriate than that derived from the ALT. | The Tribunal found that the Applicant was not entitled to a pension rebate in respect of the Mine Pension as it did not meet statutory criteria in section 159SM.", "Issues_Decided": "The Tribunal found that for the Applicant's pensions, both non-reversionary and reversionary, the ALT are most appropriate for use in determining life expectancies for the purposes of working out the relevant number in the deductible amount formula in subsection 27H(2), as the ALT are prepared on the basis of actual mortality rates across the Australian resident population, regardless of the origin and upbringing of individuals within this population or where or how such individuals have lived during their lives. The Tribunal found that the Applicant had not satisfied his onus of proving that the ALT figures were inappropriate or otherwise resulted in an oppressive, onerous or extraordinary result. There was no evidence that the life expectancy figure that the Applicant sought to rely on was materially more appropriate than that derived from the ALT. The Tribunal found that the Applicant was not entitled to a pension rebate in respect of the Mine Pension as it did not meet statutory criteria in section 159SM.", "ATO_View_of_Decision": "The Tax Office considers that the correct decision was made by the Small Taxation Claims Tribunal. The Tax Office considers that the Australian Life Tables will, other than in very exceptional circumstances, be the most appropriate way to determine life expectancies for Australian residents in receipt of lifetime pensions and annuities, regardless of whether the pension is non-reversionary (paragraph (b) of the definition of 'relevant number' in subsection 27H(4)) or reversionary (paragraph (c) of the definition of 'relevant number' in subsection 27H(4)).", "Administrative_Treatment": "None", "Related_Documents": "IT 2157 | TD 2006/72 | [2006] AATA 677 | 27H | [2004] AATA 64 | 92 ATC 204", "Legislative_References": "Income Tax Assessment Act 1936 27H 159SM 159SJ Income Tax Regulations 1936 r 9", "Case_References": "Stueckelberger v Commisioner of Taxation [2004] AATA 64 Case Z19 / AAT Case 7904 92 ATC 204 23 ATR 1143", "Subject_References": "Deductible amounts in section 27H of the Income Tax Assessment Act 1936 Calculation of 'relevant number' in deductible amount formula Use of a figure other than the life expectation factors that result from applying the Australian Life Tables in determining the 'relevant number' Pension rebate in section 159SM of the Income Tax Assessment Act 1936", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/WS2005/18/00001", "Unmatched_Content": ""}
{"Case_Name": "Toyama Pty Ltd v Landmark Building Developments Pty Ltd", "Venue_Reference_No": "4541/02", "Venue": "Supreme Court", "Judgment_Date": "28 February 2006", "Date_Published": "11 March 2010", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "Landmark and Toyama were co-owners of a property. Landmark owned two-thirds of the land as tenants in common with Toyama, which owned one-third. Trustees for sale of the property were appointed. The contract for sale provided that the sale was a taxable supply under the GST Act. | Development approval had been given by the Council for the erection of a 14-unit development upon the land. A house containing two residences was situated on part of the land. The land was marketed as a development site. The trustees expected that the land would be purchased by a developer, the house demolished, and new units built on the site. | Prior to settlement, two private rulings were obtained from the Tax Office. The advice in these rulings included that the sale was input taxed on the basis of physical characteristics of the premises and that no 'enterprise' was being carried on by the trustees. | Landmark contended that the sale was not a taxable supply and that, as a result of the trustees' alleged mistake in describing the sale as a taxable supply, the trustees acted in breach of trust and were liable to compensate Landmark. | The Court concluded that the sale was a taxable supply and in any case the trustees did not fail to exercise the requisite standard of care. | Issues decided by the court or tribunal | Although the case concerned a claim for equitable compensation against a trustee, White J considered GST issues in his judgment. | 1. Private Rulings | White J held (at 4168) that the issue was not whether the private rulings were wrong, but whether the trustees had breached their duties. Determination of that issue 'cannot be precluded by the opinion of an officer of the ATO'. | 2. Enterprise | The judge held that the trustees were carrying on an 'enterprise', that being a series of activities done in the form of a business for s 9-20(1)(a) purposes. | 3. Residential premises to be used predominantly for residential accommodation | His Honour considered the interpretation of the expression 'to be used predominantly for residential accommodation' in subsection 40-65(1) of the GST legislation. Broadly that subsection provides that supplies of real property are input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. A similar issues arises under paragraph 40-35(2)(a) in relation to supplies by way of lease, hire or licence. | His Honour concluded that the expression requires a prediction of the use of the property and that the main factor to be considered in making that prediction is the subjective intention of the purchaser or lessee. | The Commissioner was not a party to the proceedings. His Honour noted in his judgement that his conclusions on the GST issues would not bind the Commissioner. | Nevertheless, the comments in the judgement relating to the interpretation of the expression 'to be used predominantly for residential accommodation' have been carefully considered by the Tax Office.", "Issues_Decided": "Although the case concerned a claim for equitable compensation against a trustee, White J considered GST issues in his judgment. | 1. Private Rulings: White J held (at 4168) that the issue was not whether the private rulings were wrong, but whether the trustees had breached their duties. Determination of that issue 'cannot be precluded by the opinion of an officer of the ATO'. | 2. Enterprise: The judge held that the trustees were carrying on an 'enterprise', that being a series of activities done in the form of a business for s 9-20(1)(a) purposes. | 3. Residential premises to be used predominantly for residential accommodation: His Honour considered the interpretation of the expression 'to be used predominantly for residential accommodation' in subsection 40-65(1) of the GST legislation. Broadly that subsection provides that supplies of real property are input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. A similar issues arises under paragraph 40-35(2)(a) in relation to supplies by way of lease, hire or licence. His Honour concluded that the expression requires a prediction of the use of the property and that the main factor to be considered in making that prediction is the subjective intention of the purchaser or lessee. The Commissioner was not a party to the proceedings. His Honour noted in his judgement that his conclusions on the GST issues would not bind the Commissioner. Nevertheless, the comments in the judgement relating to the interpretation of the expression 'to be used predominantly for residential accommodation' have been carefully considered by the Tax Office.", "ATO_View_of_Decision": "The Tax Office is concerned that the approach outlined by his Honour may cause difficulties to vendors in particular cases as a result of the liability of the vendor being determined on the basis of the subjective intention of the purchaser which may not be known to the vendor. As a practical matter, the vendor may not be aware of a relevant change in the purchaser's intention which may impact upon the vendor's GST liability and contractual remedies may not always be effective for any misrepresentations that may be made. | The Tax Office notes that the considerations that led to the interpretation by the Full Federal Court, in the decision in Marana Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 307, of the word 'intended' in the definition of residential premises also apply in respect of the phrase 'to be used predominantly for residential accommodation'. In particular, the person having the relevant intention is not identified in the Act. | For these reasons, the Tax Office respectfully prefers the view that an objective approach is required to the interpretation of the phrase 'to be used predominantly for residential accommodation'. Accordingly, the Tax Office will continue to administer the provisions in accordance with the views in GSTR 2000/20 pending further judicial clarification. | While the Tax Office will continue to administer the legislation on this basis, it will also seek further judicial clarification of the issues if an opportunity arises in other litigation. The Tax Office has agreed to provide test case funding for a Federal Court case which is likely to provide judicial guidance on this issue. | His Honour's conclusion is contrary to the view published by the Tax Office in Goods and Services Tax Ruling GSTR 2000/20 : Goods and Services Tax : commercial residential premises that the expression 'to be used predominantly for residential accommodation' is to be applied objectively by reference to the characteristics of the premises. Entities making supplies of residential premises that rely on that Ruling continue to be protected where section 105-60 of the Taxation Administration Act 1953 applies. | The following Tax Office precedential decisions have been reviewed and it is not considered that they require amendment as a result of this decision: GSTR 2000/20 | GSTR 2000/20 | Sunchen Pty Limited as Trustee of the Sunchen Family Trust and Commissioner of Taxation [2008] AATA 838 | Sunchen Pty Ltd v Commissioner of Taxation [2010] FCA 21 | In his reasons for decision in the Sunchen case, delivered on 18 September 2008, Deputy President Block of the Administrative Appeals Tribunal considered the decision of Justice White in the Toyama case. Deputy President Block indicated that he preferred the view that an objective test is required under s 40-65(1) but considered he should decide the application for review on the basis of the test outlined by Justice White as a judge of a superior court. | In the particular circumstances of the matter, the Tribunal decided the case in favour of the Commissioner. The taxpayer lodged an appeal against the Tribunal's decision to the Federal Court of Australia. | The Commissioner requested that the Court have the matter heard by a Full Court. The Court declined that request. | In a judgement delivered on 29 January 2010, Perram J also indicated that he preferred the view that s 40-65(1) requires an objective test. However, his Honour held that, as he did not consider the decision of White J in Toyama to be plainly wrong, he should as a matter of judicial comity follow that decision. Nevertheless, the case was decided in favour of the Commissioner as Perram J found no error of law in the decision of the Tribunal. | The taxpayer has appealed against the decision of Perram J to the Full Federal Court. | Pending the decision of the Full Court in the appeal, the ATO will continue to administer s 40-65(1) in accordance with GSTR 2000/20 and taxpayers who rely on that Ruling will continue to be protected where section 105-60 of Schedule 1 to the Taxation Administration Act 1953 applies.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | None.", "Related_Documents": "GSTR 2000/20 | 2006 ATC 4160 | 9-20(1)(a) | 40-65(1) | 40-35(2)(a) | 80 ATC 4025 | 2004 ATC 5068", "Legislative_References": "A new Tax System (Goods and Services Tax) Act 1999 9-20(1)(a) 40-65(1) 40-35(2)(a)", "Case_References": "Northern Engineering Pty Limited v Federal Commissioner of Taxation 42 FLR 301 29 ALR 563 80 ATC 4025 10 ATR 584 Marana Holdings Pty Ltd v Commissioner of Taxation 214 ALR 190 2004 ATC 5068 57 ATR 521 Sunchen Pty Limited as Trustee of the Sunchen Family Trust and Commissioner of Taxation [2008] AATA 838 Sunchen Pty Ltd v Commissioner of Taxation [2010] FCA 21", "Subject_References": "GST whether sale of property was input taxed as residential premises to be used predominantly for residential accommodation Whether 'enterprise' was being carried on", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/4541/02/00001", "Unmatched_Content": ""}
{"Case_Name": "VBK and Commissioner of Taxation", "Venue_Reference_No": "VT 2005/346", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "21 July 2006", "Date_Published": "27 October 2006", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "1. In the 2000 financial year the taxpayer, a shareholder of Harris Scarfe Holdings Ltd (HSL) took up an offer to acquire convertible notes. In addition to those notes, the taxpayer had also acquired on the market the rights to buy further convertible notes. | 2. In early 2001, HSL was placed in voluntary administration. The taxpayer received two offers to purchase the notes (both of which would have resulted in substantial losses). | 3. A ruling was provided on the following questions: a. in the event that the rulee accepts an offer and sells the securities, will the disposal of the securities give rise to a revenue loss under section 70B of the Income Tax Assessment Act 1936 (ITAA 1936) in the year of disposal?; and b. Does the purchase cost ($5,433.54) of the rights to buy a further 534,044 convertible notes give rise to a revenue loss under section 70B of the ITAA 1936 in the year of disposal? | a. in the event that the rulee accepts an offer and sells the securities, will the disposal of the securities give rise to a revenue loss under section 70B of the Income Tax Assessment Act 1936 (ITAA 1936) in the year of disposal?; and b. Does the purchase cost ($5,433.54) of the rights to buy a further 534,044 convertible notes give rise to a revenue loss under section 70B of the ITAA 1936 in the year of disposal? | 4. Both questions were answered in the negative. The taxpayer objected to the ruling, and the Commissioner disallowed the objection. | 5. Subsequent to the private ruling being made, but before giving notice of objection to it, the applicant accepted a third offer, not contemplated in the ruling request to transfer the convertible notes for a consideration of $1,000. | 6. The taxpayer then sought a review by the Administrative Appeals Tribunal. | 7. The relevant statutory provisions under consideration in this ruling request included sub sections 70B(1), s 70B(2), s 70B(4) and s 70B(7) of the ITAA 1936. The Commissioner and the taxpayer were agreed on the application of the law to the facts in many respects, however the case proceeded on the following areas of contention in respect of paragraphs 70B(4)(c) and 70B(4)(d): (a) Whether the taxpayer acquired the notes in the ordinary course of trading on a securities market (sub paragraph 70B(4)(c)(i)); (b) Whether at the time the taxpayer acquired the notes, it was open to the taxpayer to acquire an identical security in the ordinary course of trading on a securities market (sub paragraph 70B(4)(c)(ii)); and (c) Whether if either offer were to be accepted, the disposal of the Notes would take place in the ordinary course of trading on a securities market (paragraph 70B(4)(d)). | (a) Whether the taxpayer acquired the notes in the ordinary course of trading on a securities market (sub paragraph 70B(4)(c)(i)); (b) Whether at the time the taxpayer acquired the notes, it was open to the taxpayer to acquire an identical security in the ordinary course of trading on a securities market (sub paragraph 70B(4)(c)(ii)); and (c) Whether if either offer were to be accepted, the disposal of the Notes would take place in the ordinary course of trading on a securities market (paragraph 70B(4)(d)). | Issues decided by the court or tribunal | 1. The Tribunal found that the notes were acquired in part by the exercise of the taxpayer's rights as a shareholder in the company and in part by the exercise of similar rights acquired on the stock exchange. In each case the acquisition of the notes resulted from a transaction entered into between the taxpayer and the company and not in the ordinary course of trading on a securities market for the purposes of sub para. 70B(4)(c)(i). | 2. The Tribunal was unable to decide whether at the time the taxpayer acquired the notes it was open to the taxpayer to acquire an identical security in the ordinary course of trading on a securities market. The Tribunal remitted the ruling back to Commissioner to obtain necessary facts to answer the question raised by sub para. 70B(4)(c)(ii). | 3. The Tribunal also held that there was no basis upon which a finding could be made as to whether the disposal of the notes would involve the ordinary course of trading on a securities market for the purposes of para. 70B(4)(d). | 4. The Tribunal found that in the circumstances, it was not possible for the Commissioner to properly exercise his functions in relation to either the ruling or the objection without first seeking further information. Accordingly, the matter was remitted back to the Commissioner for further consideration.", "Issues_Decided": "1. The Tribunal found that the notes were acquired in part by the exercise of the taxpayer's rights as a shareholder in the company and in part by the exercise of similar rights acquired on the stock exchange. In each case the acquisition of the notes resulted from a transaction entered into between the taxpayer and the company and not in the ordinary course of trading on a securities market for the purposes of sub para. 70B(4)(c)(i). 2. The Tribunal was unable to decide whether at the time the taxpayer acquired the notes it was open to the taxpayer to acquire an identical security in the ordinary course of trading on a securities market. The Tribunal remitted the ruling back to Commissioner to obtain necessary facts to answer the question raised by sub para. 70B(4)(c)(ii). 3. The Tribunal also held that there was no basis upon which a finding could be made as to whether the disposal of the notes would involve the ordinary course of trading on a securities market for the purposes of para. 70B(4)(d). 4. The Tribunal found that in the circumstances, it was not possible for the Commissioner to properly exercise his functions in relation to either the ruling or the objection without first seeking further information. Accordingly, the matter was remitted back to the Commissioner for further consideration.", "ATO_View_of_Decision": "1. An acquisition of convertible notes resulting from a transaction entered into between a taxpayer and the issuing company is not in the ordinary course of trading on a securities market for the purposes of sub paragraph 70B(4)(c)(i).[Para. 8] | 2. There were no broader implications from this decision, which ultimately turned on the finding that there were insufficient facts to rule. \"....it was not possible for the Commissioner to properly exercise his functions in relation either to the private ruling or the objection without first seeking further information as to the facts relevant to the application of s 70B(4)(c) and s 70B(4)(d) of the Income Tax Assessment Act 1936. In these circumstances it is appropriate that the matter be remitted to the Commissioner for further consideration.\" [Para 15] | 3. A new regime for private rulings applies from 1 January 2006 under Division 359 of the TAA 1953. Specifically, section 359-65 allows the Commissioner to consider additional information in determining the objection that was not considered when making the ruling.", "Administrative_Treatment": "None. | Implications on current Public Rulings & Determinations | None.", "Related_Documents": "None | 2006 ATC 160 | 14ZZK(b)(iii) | Part IVAA (repealed) | 26BB | 70B(1) | 70B(2) | 70B(4) | 70B(7) | 159GP(1) | the Act | 43(1)(c)(ii)", "Legislative_References": "Taxation Administration Act 1953 14ZAG 14ZZK(b)(iii) Part IVAA (repealed) 14ZAA (repealed) 14ZAB (repealed) 14ZAC (repealed) 14ZAD (repealed) 14ZAE (repealed) 14ZAF (repealed) 14ZAG (repealed) 14ZAH (repealed) 14ZAHA (repealed) 14ZAI (repealed) 14ZAJ (repealed) 14ZAK (repealed) 14ZAL (repealed) 14ZAM (repealed) 14ZAN (repealed) 14ZAO (repealed) 14ZAP (repealed) 14ZAQ (repealed) 14ZAR (repealed) 14ZAS (repealed) 14ZAT (repealed) 14ZAU (repealed) 14ZAV (repealed) 14ZAW (repealed) 14ZAX (repealed) 14ZAXA (repealed) 14ZAY (repealed) 14ZAZ (repealed) 14ZAZA (repealed) 14ZAZB (repealed) 14ZAZC (repealed) Income Tax Assessment Act 1936 (ITAA 1936) 26BB 70B(1) 70B(2) 70B(4) 70B(7) 159GP(1) Tax Laws Amendment (Improvements to Self Assessment) Act (No 2) 2005 (Improvements to Self Assessment Act) the Act Administrative Appeals Tribunal Act 1975 43(1)(c)(ii)", "Case_References": "", "Subject_References": "TAXATION deduction for loss on disposal of traditional securities request for private ruling inadequacy of information available to Commissioner power to request further information Commissioner's obligation to request further information", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VT2005/346/00001", "Unmatched_Content": ""}
{"Case_Name": "VCK and Federal Commissioner of Taxation", "Venue_Reference_No": "VT2005/554-556", "Venue": "Administrative Appeals Tribunal", "Judgment_Date": "12 December 2006", "Date_Published": "16 March 2007", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "Outlines the Tax Office's response to this case which concerned whether the taxpayer was entitled to income tax deductions in a business of boat charter, or whether his activities were no more than a passive investment.", "Overview_of_Facts": "The Commissioner disallowed deductions claimed by VCK in respect of a boat on the basis that he did not use or hold the boat mainly for letting it on hire in the ordinary course of a business that he carried on, as required by section 26-50. | Pursuant to two separate Management Agreements, (one with QC from 4 October 2001 until it was terminated in October 2003 and one with HCC from 20 October 2003), VCK appointed charter operators to hire out his boat. | VCK's evidence was that he entered the arrangements in reliance on a one page \"Analysis of Charter Boat Ownership Benefits\" which contained projections of annual income and expenses for a comparable boat. The Analysis projected a cash return of $23,804; however it did not take into account depreciation of the boat and any interest payable on the loan used to acquire the boat. | VCK's accountant reviewed the Analysis and concluded that, taking into account all expenses (including depreciation and interest), profits would be generated after three years, with progressive increases each year thereafter. | Income did not meet expectations and maintenance costs were much higher than anticipated. VCK made losses of approximately $50,000 in each of the relevant years (compared to the projected loss of $32,571 referred to in the Accountant's advice). VCK became increasingly concerned and in October 2003 he removed the boat from the QC arrangement and placed it in charter with another charter operator (HCC). | The Commissioner had argued that the agreement between VCK and QC contained certain features that characterised it as a lease agreement rather than an agency agreement. The Tribunal found that the agreement was correctly characterised as an agreement under which QC was the agent for VCK. The Commissioner did not question this characterisation of the agreement between VCK and HCC. | VCK did not use the boat for private use notwithstanding that the respective Management Agreements allowed up to four weeks of personal use. | Issues decided by the court or tribunal | • Was VCK carrying on a business of chartering his boat? • Were his activities no more than a passive investment? • Whether section 26-50 of the ITAA97 operates to deny deductions claimed in relation to a boat. | • Was VCK carrying on a business of chartering his boat? • Were his activities no more than a passive investment? • Whether section 26-50 of the ITAA97 operates to deny deductions claimed in relation to a boat. | The Tribunal found that VCK's activities in chartering the boat through HCC constituted a business. The Tribunal accepted that VCK, relying on the projections provided by QC, had an expectation of profit. This was notwithstanding that he may have been \"naïve in accepting the projections from [QC] who might be seen as having an interest in persuading [him] to become involved in chartering\" and \"naïve in not factoring in the interest costs on borrowings and depreciation of the boat\". Nevertheless, the Tribunal accepted evidence from VCK's accountant that not only would 'there... be a positive cash flow before interest and depreciation', but also that 'a profit should emerge in later years'. That is, the accountant considered that the activity would be profitable, taking into account interest and depreciation as elements of calculating the profitability of the activity. | The Tribunal therefore found that 'on balance and on the particular facts of this case ... [VCK] was carrying on a business of chartering his boat'. As noted above, the Tribunal had also found that the arrangement between VCK and QC was correctly characterised as an agency agreement, rather than the provision of a boat to QC under the terms of a lease. | Section 26-50 therefore did not operate to deny the deductions claimed; the taxpayer was carrying on a business of chartering his boat and as such the outgoings and depreciation were deductible.", "Issues_Decided": "• Was VCK carrying on a business of chartering his boat? • Were his activities no more than a passive investment? • Whether section 26-50 of the ITAA97 operates to deny deductions claimed in relation to a boat. • Was VCK carrying on a business of chartering his boat? • Were his activities no more than a passive investment? • Whether section 26-50 of the ITAA97 operates to deny deductions claimed in relation to a boat. The Tribunal found that VCK's activities in chartering the boat through HCC constituted a business. The Tribunal accepted that VCK, relying on the projections provided by QC, had an expectation of profit. This was notwithstanding that he may have been \"naïve in accepting the projections from [QC] who might be seen as having an interest in persuading [him] to become involved in chartering\" and \"naïve in not factoring in the interest costs on borrowings and depreciation of the boat\". Nevertheless, the Tribunal accepted evidence from VCK's accountant that not only would 'there... be a positive cash flow before interest and depreciation', but also that 'a profit should emerge in later years'. That is, the accountant considered that the activity would be profitable, taking into account interest and depreciation as elements of calculating the profitability of the activity. The Tribunal therefore found that 'on balance and on the particular facts of this case ... [VCK] was carrying on a business of chartering his boat'. As noted above, the Tribunal had also found that the arrangement between VCK and QC was correctly characterised as an agency agreement, rather than the provision of a boat to QC under the terms of a lease. Section 26-50 therefore did not operate to deny the deductions claimed; the taxpayer was carrying on a business of chartering his boat and as such the outgoings and depreciation were deductible.", "ATO_View_of_Decision": "An appeal from a decision of the Administrative Appeal Tribunal lies only for errors of law, not of fact. A conclusion of fact may, however, constitute an error of law if the conclusion is not reasonably open to it on the evidence. The Tribunal's conclusions of fact were open to it on the evidence. Conclusions as to whether a business is being carried on are usually only involve questions of fact. | In relation to whether the taxpayer was engaged in more than the mere passive receipt of income (i.e., a business), the Tribunal had regard to both the character of the contract, as a contract of an agency not a lease, and also to the additional activities undertaken by the taxpayer and his partner, to show that an active business was being carried on by the taxpayer. It accepted, as a fact, the taxpayer's evidence of his profit-making intentions. The Commissioner considers that the decision was, as noted by the Tribunal, one that turned on its own particular facts. It raises no implications for the views expressed in Taxation Ruling TR 2003/4.", "Administrative_Treatment": "Implications on current Public Rulings & Determinations | In light of the findings of the Tribunal in this case, particular attention will be paid in current and future cases to: • The actual activities of the taxpayer in addition to the form of contract, to determine whether the activity is correctly characterised as the carrying on of a business rather than the receipt of passive income; and • Consistent with evidence produced to the Tribunal in this matter, whether there is evidence available that the taxpayer, and (where available) their professional advisers have considered the profitability of the boat chartering activity, including interest and depreciation. | • The actual activities of the taxpayer in addition to the form of contract, to determine whether the activity is correctly characterised as the carrying on of a business rather than the receipt of passive income; and • Consistent with evidence produced to the Tribunal in this matter, whether there is evidence available that the taxpayer, and (where available) their professional advisers have considered the profitability of the boat chartering activity, including interest and depreciation.", "Related_Documents": "TR 2003/4 - Income Tax: boat hire arrangements | 2006 ATC 257 | 8-1 | 26-50 | 40-25 | 14ZZE | 2006 ATC 4098 | [2006] FCA 71 | (1979) 79 ATC 4261 | 2006 ATC 2419", "Legislative_References": "Income Tax Assessment Act 1997 8-1 26-50 40-25 Taxation Administration Act 1953 14ZZE", "Case_References": "Ell & Anor v Federal Commissioner of Taxation 2006 ATC 4098 [2006] FCA 71 Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310 (1979) 9 ATR 873 (1979) 79 ATC 4261 Re Peerless Marine and the Federal Commissioner of Taxation [2006] AATA 765 2006 ATC 2419 (2006) 63 ATR 1303", "Subject_References": "Income Tax carrying on a business of boat chartering is loss or outgoing deductible passive income or business prospect of profit", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VT2005/554-556/00001", "Unmatched_Content": ""}
{"Case_Name": "Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd", "Venue_Reference_No": "VID 719 of 2005", "Venue": "Federal Court of Australia", "Judgment_Date": "10 July 2006", "Date_Published": "5 October 2006", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "", "Overview_of_Facts": "1. Coles Supermarkets Australia Pty Ltd (\"Coles\") operated a supermarket as a tenant in a Queensland shopping centre owned by Westley Nominees Pty Ltd (Westley) and Paul J Spira (hereafter collectively referred to as \"Westley\"). Westley was not the original owner of the Centre, having bought the property from another entity in 1993. Coles' lease was already in effect when Westley bought the centre. | 2. Under the lease agreement Coles paid to Westley the following amounts: a \"base amount\" of rent, the \"annual percentage rent\" calculated as a function of the supermarket's turnover, a contribution to the lessor's operating expenses, after-hours charges and a \"promotion fund contribution\". The base amount of rent for the supermarket was subject to review to the market rate on 4 March 2004 under the lease agreement. But the other amounts were not. For the 12 months before 4 March 2004 the various amounts represented approximately the following proportions of the total payments under the lease: • Base amount of rent: 51.94% • Annual percentage rent: 21.27% • Contribution to outgoings: 18.46% • After hours charges: 7.8% • Promotion fund contribution: 0.51%. | • Base amount of rent: 51.94% • Annual percentage rent: 21.27% • Contribution to outgoings: 18.46% • After hours charges: 7.8% • Promotion fund contribution: 0.51%. | 3. Coles and Westley were in dispute as to whether Westley's supply to Coles was GST-free under s 13 of the A New Tax System (Goods and Services Tax Transition) Act 1999 (Cth) (the \"GST Transition Act\"). Coles contended that the supply became taxable because a review opportunity arose in March 2004. Westley disagreed, and gave Coles a notice purportedly under section 15K of the GST Transition Act. Westley's purpose in doing so was in effect to pass on the GST liability for the supply to Coles under the process in Division 2 of Part 3 of the Act. But that process was only available for supplies that were GST-free under section 13 immediately before 1 July 2005. | 4. Coles reacted by seeking a declaration from the Federal Court that, as a review opportunity arose in March 2004, the supply became taxable from that time and therefore the purported section15K notice was of no effect. At first instance the Court granted Coles the declaratory relief sought: Coles Supermarkets Australia Pty Ltd v Westley Nominees Pty Ltd [2005] FCA 839. The Commissioner was not a party to this proceeding. | 5. Westley appealed to the Full Federal Court. On application, the Commissioner was joined as a party to the appeal. | Issues decided by the court: | 1. Did Westley make a supply to Coles under the lease even though Westley did not originally grant the lease but merely acquired the reversionary interest in the property when it bought the centre? | 2. If so, did Westley make a single supply of the supermarket premises so that all of Coles' payments under the lease were part of the consideration for that one supply? | 3. Given that not all of the consideration was subject to a market review in March 2004, did a review opportunity nevertheless arise under paragraph 13(5)(b) of the GST Transition Act?", "Issues_Decided": "1. Did Westley make a supply to Coles under the lease even though Westley did not originally grant the lease but merely acquired the reversionary interest in the property when it bought the centre? 2. If so, did Westley make a single supply of the supermarket premises so that all of Coles' payments under the lease were part of the consideration for that one supply? 3. Given that not all of the consideration was subject to a market review in March 2004, did a review opportunity nevertheless arise under paragraph 13(5)(b) of the GST Transition Act?", "ATO_View_of_Decision": "Issue 1 | The Tax Office agrees with the Full Court's conclusion on issue 1. The conclusion accords with the general understanding of the design of the GST. The Court recognised that Parliament would be unlikely to have enacted a broad-based indirect tax that might apply to rent received by an original lessor but not to rent received by the original lessor's successor in title. Westley's argument may now be regarded as discredited. In that we perceive that most taxpayers would have already been complying with the GST law on the basis endorsed by the Court, the decision on issue 1 will not require changes to current practices. | We took the view that Westley made a supply within the very broad terms of subsection 9-10(1). Although concluding by way of obiter that the indications pointed away from a construction that the supply fell within subsection 9-10(1), it was unnecessary for the court to come to a concluded view on this. The court held that there was a supply within subsection 9-10(2). We expect that the Courts will consider these sub sections and other aspects of the interpretation of section 9-10 further in future cases. | Issue 2 | The Tax Office agrees with the Full Court's conclusion on issue 2. The decision accords with the view taken in GSTD 2000/10 (\"Goods and Services Tax: Are outgoings payable by a tenant under a commercial property lease part of the consideration for the supply of the premises?\"). The Court noted at [59] that its conclusion is consistent with the approach of the English cases on composite and mixed supplies. The Tax Office's view on this question also draws on the English cases: see GSTR 2001/8 (\"Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts\"). To that extent we take the decision to be support for the principles expressed in GSTR 2001/8. In view of the UK experience though, more difficult questions of composite versus mixed supplies can be expected to arise in future cases. | Issue 3 | The Tax Office accepts the Full Court's decision on issue 3, though it was contrary to the Commissioner's submissions. The Commissioner took the view that it was enough if most, meaning more than 50%, of the consideration were subject to review. | The Full Court's decision was consistent with its decision in Commissioner of Taxation v DB Rreef Funds Management Limited [2006] FCAFC 89. GSTR 2000/16 (\"Goods and Services Tax: transitional arrangements - GST-free supplies under existing agreements\") has already been amended to reflect this decision and the related decision of the Court in DB Rreef .", "Administrative_Treatment": "Issues 1 and 2 do not require any changes to current administrative practices. As mentioned in the Decision Impact Statement for DB Rreef , the Tax Office will consider taxpayers' circumstances in relation to the Full Court's decision on issue 3 on a case-by-case basis. | Implications for current Public Rulings & Determinations: | The Tax Office does not consider that any other Rulings or Determinations need to be revised following Westley v Coles .", "Related_Documents": "GSTR 2000/16 | 2006 ATC 4363 | section 9-5 | section 9-10 | section 9-20 | section 156-22 | section 195-1 | section 6 | section 12 | section 13 | 2005 ATC 4302", "Legislative_References": "A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 9-10 section 9-20 section 156-22 section 195-1 A New Tax System (Goods and Services Tax Transition) Act 1999 section 6 section 12 section 13", "Case_References": "DB Rreef Funds Management Ltd v Commissioner of Taxation (2005) 218 ALR 144 2005 ATC 4302 59 ATR 388 Case M58 (1990) 12 NZTC 2,333", "Subject_References": "Goods and Services Tax transitional legislation existing agreements lease where landlord sells reversion whether incoming landlord makes a supply to existing tenant where tenant obliged under lease to pay rent and other amounts variously described for enjoyment of premises whether other amounts part of consideration for the supply whether separate supplies where market rent review available only in respect of rent so-called whether opportunity to conduct market rent review constituted opportunity to conduct general review of consideration for the supply whether a review opportunity for the purposes of transitional provision whether supply was GST-free", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID719of2005/00001", "Unmatched_Content": "Answers: 1. Yes. The ordinary meaning of \"supply\" is arguably extended by pars (f) and (g), if not by pars (a) to (e), of subsection 9-10(2) of the A New Tax System (Goods and Services Tax) Act 1999 (the \"GST Act\") [16]. The legislation discloses an intention of Parliament that the purchaser of a reversion is to be regarded as continuing to make the supply which its predecessor in title contracted to make [20]. | 2. Yes. Amounts for the base amount of rent, annual percentage rent, operating expenses, after-hours charges and the promotion fund contribution are part of the consideration in money for the supply of the supermarket premises by Westley to Coles on its assumption of the former landlord's obligations under the original lease [61]. | 3. No. The Full Court found that no review opportunity arose because Westley did not have the opportunity to conduct a general review of the consideration for the supply [66]. Only the base amount of the rent for the supermarket was able to be reviewed on 4 March 2004. Had all of the components of the consideration other than a very small component such as the promotion fund contribution (0.51%) been able to be reviewed it would have been open to conclude that there was a review opportunity."}
{"Case_Name": "Commissioner of Taxation v Hall [2026] FCAFC 43", "Venue_Reference_No": "VID 779 of 2025", "Venue": "Full Federal Court of Australia", "Judgment_Date": "10 April 2026", "Date_Published": "17 June 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case, which considered the taxpayer's entitlement to deductions for occupancy (rent) expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), and car expenses under section 28-12 of the ITAA 1997 or, alternatively, section 8-1 of the ITAA 1997. | 2. The Full Federal Court determined that the taxpayer was not entitled to claim a deduction under section 8-1 of the ITAA 1997 for occupancy expenses, nor a deduction for car expenses under section 28-12 of the ITAA 1997 or, alternatively, section 8-1 of the ITAA 1997 in the income year ended 30 June 2021 (relevant income year). | 3. All judgment references in this Decision impact statement are to the judgment of Commissioner of Taxation v Hall [2026] FCAFC 43 unless otherwise indicated. | 4. All further legislative references in this Decision impact statement are to the ITAA 1997 unless otherwise indicated.", "Overview_of_Facts": "5. During the relevant income year, the taxpayer was employed full time by the Australian Broadcasting Commission (ABC) in Melbourne as a sports presenter and producer. [1] His role comprised 2 components: a predominantly digital role [2] , and a live broadcast role performed at the ABC's Southbank Studios. [3] | 6. After moving to Melbourne in June 2020, the taxpayer rented a 2-bedroom apartment. [4] The taxpayer was required by his employer to work from home [5] , and therefore he set aside one bedroom for this purpose. COVID-19 lockdowns and employer directions prevented [6] him from attending the ABC's Southbank Studios for the digital production duties, requiring that work to be performed from home, and attending the studios only for live broadcast duties. [7] His work pattern involved either working entirely from home or undertaking the digital production duties at home before travelling to the studios for live broadcasts. [8] | 7. The taxpayer used the second bedroom exclusively as a workspace, though it was not physically distinct from the rest of the apartment. [9] His wife separately conducted online yoga classes from the living area. [10] The taxpayer travelled by private car between his home and Southbank Studios when performing live broadcast duties. [11] | 8. The taxpayer claimed deductions of $5,878.87 for occupancy expenses [12] relating to the home workspace and $1,148.40 for car expenses [13] for travel between home and the studios on mixed-duty days. These claims were disallowed at audit and objection, and the taxpayer subsequently sought a review of the Commissioner's objection decision in the then Administrative Appeals Tribunal. [14] | 9. The Administrative Review Tribunal [15] (Tribunal) set aside the Commissioner's objection decision and allowed the deductibility of both expenses in full. [16] | 10. The Commissioner appealed the Tribunal's decision to the Federal Court. The appeal was heard by the Full Court of the Federal Court, which allowed the Commissioner's appeal, set aside the Tribunal's decision and affirmed the Commissioner's objection decision. [17]", "Issues_Decided": "11. The Court considered the Commissioner's appeal from the Tribunal's decision, addressing the following questions of law, being whether: (a) a portion of rent paid for domestic accommodation referable to use as a home office is deductible under section 8-1; and (b) car expenses for travel between a home office and a workplace, calculated by reference to paragraph 28-25(3)(a), are deductible. (a) a portion of rent paid for domestic accommodation referable to use as a home office is deductible under section 8-1; and (b) car expenses for travel between a home office and a workplace, calculated by reference to paragraph 28-25(3)(a), are deductible. | Occupancy expenses – characterisation of expenditure under section 8-1: 12. Subsections 8-1(1) and 8-1(2) operate cumulatively [18] but address distinct inquiries. Subsection 8-1(1) requires that the loss or outgoing be sufficiently connected to gaining or producing assessable income. This involves identifying the essential character of the expenditure. [19] That character is not determined by use, necessity, or lack of choice [20] , and is not displaced merely by apportionment. [21] By contrast, subsection 8-1(2) asks whether the outgoing is nevertheless of a kind expressly excluded from deductibility, including because it is private or domestic in character (paragraph 8-1(2)(b)). [22] 13. The Court confirmed and applied the High Court authorities of Faichney [23] , Handley [24] and Forsyth [25] , which establish that a home office ordinarily remains part of the home and does not become a business premises merely because it is used regularly or necessarily for income-earning activities. A separate enquiry is still required as to whether the expense is private or domestic. The Court found that the Tribunal erred in identifying and applying the correct legal principles of the High Court authorities by treating the necessity to use, and the use of, the second bedroom as determinative of the essential character of the rent. [26] 14. The Court considered Swinford [27] , a case relied on by the taxpayer, where Hunt J of the New South Wales Supreme Court held that a self-employed scriptwriter's home office constituted a business premises. It observed that Hunt J appeared to treat satisfaction of the positive limb in former subsection 51(1) of the Income Tax Assessment Act 1936 (ITAA 1936) (now subsection 8-1(1)) as sufficient, without separately addressing whether the expense was private or domestic under the negative limb in former subsection 51(1) of the ITAA 1936 (now subsection 8-1(2)). [28] Hunt J held that the second bedroom was the scriptwriter's business premises because it was the 'sole base of operations'. [29] However, the Court observed that the correct test is drawn from Handley and Forsyth, that the determinative question is instead the essential character of what the outgoing secured. [30] 15. The Court found that the Tribunal erred in allowing a deduction for occupancy expenses [31] by treating a single outgoing for rent as 2 outgoings where one was 'additional expenditure' for the second bedroom. [32] The Tribunal placed undue weight on work-related use, necessity to use, and exclusivity of the space [33] without separately considering the essential character test. The Court confirmed that an expense can be connected to income-earning activities yet remain non-deductible if its essential character is private or domestic. [34] The Court indicated that it was not appropriate to treat part of the rent as a separate outgoing [35] or that the use of the second bedroom for income-producing activities makes it a business premises. [36] The Court confirmed that an outgoing does not need to be 'purely' private or domestic to be excluded by paragraph 8-1(2)(b). [37] 16. In applying subsection 8-1(1), the Court considered that the outgoing for rent had a connection to the derivation of assessable income, in that part of the premises was used for income-producing activities and not merely for personal convenience. [38] However, the Court emphasised that this did not conclude the inquiries. [39] 17. In separately considering paragraph 8-1(2)(b), the Court held that the essential character of the expenditure was rent paid to secure domestic accommodation. That character was not altered by the taxpayer's use of part of the premises for work, nor by the circumstances requiring him to work from home. Accordingly, the outgoing was excluded from deductibility as private or domestic in nature. [40] The deduction for occupancy expenses was denied on these grounds. | Car expenses – travel to work versus travel in work: 18. Section 28-12 allows a deduction for car expenses if a taxpayer owned or leased a car [41] for an amount calculated using one of 2 prescribed methods: the cents per kilometre method or the logbook method. [42] A taxpayer must use one of these methods unless an exception applies. If neither method can be used, no deduction is available for car expenses. 19. Section 28-25 sets out the formula for the cents per kilometre method, limiting deductions to travel that qualifies as income-producing or between workplaces. [43] Subsection 25-100(3) excludes home-to-work travel. [44] In such a case, the only available basis for claiming a deduction is car expenses incurred in the course of producing assessable income under paragraph 28-25(3)(a). [45] 20. The Court found that the Tribunal erred in allowing a deduction for car expenses [46] on the basis of its finding that the taxpayer was 'at work the entire time' while travelling between home and the Southbank Studios. [47] This finding did not support the conclusion that the travel was in the course of producing assessable income or that the expenses were incurred in gaining that income. [48] 21. Accordingly, distinct duties performed by the taxpayer at different locations constitute separate income-earning activities, which cease and commence as the taxpayer moves between the locations. [49] Travel between those locations is not income-producing where no work is performed during the journey. [50] Such travel is properly characterised as travel 'to' perform work, or after work has ceased, rather than travel 'in' performing work. [51] Travel is not in the course of employment unless it forms part of an activity already under way at the time of the journey. [52]", "ATO_View_of_Decision": "22. The Court's decision supports the ATO views in the following public advice and guidance dealing with the deductibility of occupancy expenses and work-related transport expenses: • Taxation Ruling TR 93/30 Income tax: deductions for home office expenses • Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? • Employees guide for work expenses. | • Taxation Ruling TR 93/30 Income tax: deductions for home office expenses • Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? • Employees guide for work expenses. | Occupancy expenses | 23. Occupancy expenses (for example, rent, mortgage interest, rates) are generally private and not deductible and may only be apportioned on a reasonable basis where the home (or a part of it) is a place of business, not merely a place of convenience for performing work. | 24. The Court's reasoning is consistent with this approach: even where substantive work is performed at home, that does not, of itself, alter the essential character of the expenses that relate to the home. Necessity or employer requirement to work from home is not, of itself, determinative of deductibility of occupancy expenses. What matters is whether the home is properly characterised as a place of business forming part of the income-earning structure, rather than simply a location where work is undertaken. | 25. The Court's analysis of the relevant High Court authorities reaffirms that a home office remains part of the home. It does not become business premises merely because it is used regularly or necessarily for income-earning activities. A separate assessment is always required to determine whether an occupancy expense is private or domestic. This position is consistent with long-standing High Court authorities and is unaffected by contemporary or pandemic-era working arrangements. | 26. Running expenses (for example, internet, electricity, depreciation of equipment) of a home office differ to occupancy expenses and may be deductible to the extent those expenses relate to work use. | Work-related transport expenses | 27. The cost of travel between home and a regular workplace is generally private and not deductible (subject to very limited exceptions). Travel expenses are not deductible where they are incurred merely as a prerequisite to commencing income-earning activities, rather than in the course of performing those activities. | 28. The Court's decision aligns with this approach: where duties at home and another location are separate and no work is undertaken during travel, the travel is to commence or resume work, not in performing it. | 29. Accordingly, working from home does not, of itself, convert home-to-work and work-to-home travel into income-producing travel, nor alter its character as ordinary commuting. This position is unaffected by contemporary or pandemic-era working arrangements.", "Administrative_Treatment": "30. We are reviewing the impact of this decision on the public advice and guidance listed at paragraph 22 of this Decision impact statement.", "Related_Documents": "2026 ATC 21-010 | TR 93/30 | TR 2021/1 | ITAA 1997 8-1 | ITAA 1997 8-1(1) | ITAA 1997 8-1(2) | ITAA 1997 8-1(2)(b) | ITAA 1997 25-100(3) | ITAA 1997 28-12 | ITAA 1997 28-25 | ITAA 1997 28-25(3)(a) | Administrative Review Tribunal Act 2024 172 | 72 ATC 4245 | 81 ATC 4157 | 148 CLR 182 | 81 ATC 4165 | 55 ALJR 345 | 84 ATC 4803 | 2025 ATC 10-758 | Employees guide to work expenses", "Legislative_References": "ITAA 1936 51(1) ITAA 1997 8-1 ITAA 1997 8-1(1) ITAA 1997 8-1(2) ITAA 1997 8-1(2)(b) ITAA 1997 25-100(3) ITAA 1997 28-12 ITAA 1997 28-25 ITAA 1997 28-25(3)(a) Administrative Review Tribunal Act 2024 172", "Case_References": "Federal Commissioner of Taxation v Faichney [1972] HCA 67 129 CLR 38 72 ATC 4245 3 ATR 435 47 ALJR 35 Federal Commissioner of Taxation v Forsyth [1981] HCA 15 148 CLR 203 81 ATC 4157 11 ATR 657 55 ALJR 340 Handley v Federal Commissioner of Taxation [1981] HCA 16 148 CLR 182 81 ATC 4165 11 ATR 644 55 ALJR 345 Swinford v Federal Commissioner of Taxation [1984] 3 NSWLR 118 80 FLR 1 84 ATC 4803 15 ATR 1154 Hall and Commissioner of Taxation [2025] ARTA 600 2025 ATC 10-758 Commissioner of Taxation v Hall [2026] FCAFC 43 315 FCR 189 2026 ATC 21-010", "Subject_References": "", "Other_References": "Employees guide to work expenses", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/vid779of2025-final/00001", "Unmatched_Content": "Implications for affected advice or guidance | Commissioner of Taxation 17 June 2026 | Footnotes: [1] Hall and Commissioner of Taxation [2025] ARTA 600 ( Hall – first instance ) at [2]. | [2] Hall – first instance at [9]. | [3] Hall – first instance at [10]. | [4] Hall – first instance at [7]. | [5] Hall – first instance at [64]. | [6] In 2021, no Victorian Chief Health Officer restrictions prevented the taxpayer from working at the Southbank Studios between 26 March and 27 May ( Hall – first instance at [28]). Although the ABC allowed some staff to return to the Southbank Studios between 29 March and 25 May, the taxpayer was not among those permitted to do so full-time ( Hall – first instance at [30–31]). | [7] Hall – first instance at [22-30]. | [8] Hall – first instance at [11]. | [9] Hall – first instance at [2], [14] and [15]. | [10] Hall– first instance at [8]. | [11] Hall– first instance at [19] and [20]. | [12] This amount represented the portion of the total rent paid during the year attributable to the second bedroom, calculated on a per square metre basis. | [13] This amount was calculated using the cents per kilometre method for motor vehicle expenses. | [14] The Administrative Appeals Tribunal was replaced by the Administrative Review Tribunal on 14 October 2024. | [15] Hall – first instance . | [16] Hall – first instance at [6] and [83]. | [23] At [11-16] ( Federal Commissioner of Taxation v Faichney [1972] HCA 67). | [24] At [17-22] ( Handley v Federal Commissioner of Taxation [1981] HCA 16). | [25] At [23-31] ( Federal Commissioner of Taxation v Forsyth [1981] HCA 15). | [26] At [67] and [70]. Also refer to [104]. | [27] Swinford v Federal Commissioner of Taxation [1984] 3 NSWLR 118. | [31] At [75] and [100]. Also refer to [104]. | [35] At [62] and [71–74]. | [44] At [79–81] and [85]. | [48] At [98]. Also refer to [104]."}
{"Case_Name": "Ziegler v Commissioner of Taxation [2025] FCAFC 168", "Venue_Reference_No": "QUD 617 and 618 of 2024", "Venue": "Full Federal Court of Australia", "Judgment_Date": "26 November 2025", "Date_Published": "17 June 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case, which considered the tax effect of various transactions undertaken by Mr Ziegler (taxpayer) and associated entities following the settlement of earlier disputes with the Commissioner. | 2. In particular, this case considered: • whether a credit recorded on an income tax account was relevantly received as an assessable recoupment where a corresponding amount had been deducted from assessable income in an earlier income year • the Commissioner's duty to assess penalties and notify liability to penalties where a previously notified liability is considered incorrect • the proper identification of 'scheme' and 'purpose' relevant to a determination made under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 (ITAA 1936) that no imputation benefit is to arise, and • the statutory meaning of 'excessive' and the taxpayer's onus of proof in proceedings under Part IVC of the Taxation Administration Act 1953 (Part IVC proceedings). | • whether a credit recorded on an income tax account was relevantly received as an assessable recoupment where a corresponding amount had been deducted from assessable income in an earlier income year • the Commissioner's duty to assess penalties and notify liability to penalties where a previously notified liability is considered incorrect • the proper identification of 'scheme' and 'purpose' relevant to a determination made under paragraph 177EA(5)(b) of the Income Tax Assessment Act 1936 (ITAA 1936) that no imputation benefit is to arise, and • the statutory meaning of 'excessive' and the taxpayer's onus of proof in proceedings under Part IVC of the Taxation Administration Act 1953 (Part IVC proceedings). | 3. The decision provides authoritative guidance on each issue and confirms key aspects of the Commissioner's existing administrative practice. | 4. All judgment references in this Decision impact statement are to the judgment of Ziegler v Commissioner of Taxation [2025] FCAFC 168 unless otherwise indicated.", "Overview_of_Facts": "5. Following settlement of earlier disputes with the Commissioner, an income tax assessment of Orrong Strategies Pty Ltd (Orrong) for the 2008 income year was made. | 6. In accordance with the terms of the settlement, the tax liabilities were payable in 2 instalments, the first on 20 August 2009, the second on 21 July 2010. | 7. The first amount of $550,000 was paid on time. The balance of $3.35 million plus general interest charge (GIC) was paid early, in the 2010 income year. | 8. The taxpayer and associated entities undertook various transactions which ultimately resulted in the taxpayer getting an imputation credit of $2,993,610 from a dividend declared by Orrong. The Court found that, taking into account deductions to which the taxpayer considered he was entitled, and carried forward losses, the taxpayer received a refundable tax offset of $2,993,610 in the 2010 income year. | 9. The Commissioner made a determination under paragraph 177EA(5)(b) of the ITAA 1936 that no imputation benefit was to arise and gave the taxpayer an administrative overpayment notice under section 8AAZN of the Taxation Administration Act 1953 (TAA). | 10. Additionally: • In the 2009 income year, the taxpayer had claimed, and was allowed, a deduction under former paragraph 25-5(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) for GIC of $13,698,643. • To give effect to the settlement, among other things, the Commissioner had recalculated the taxpayer's liability to the GIC and recorded a credit on the taxpayer's income tax account in the sum of $13,698,643 on 16 August 2010. • The taxpayer returned that amount as an assessable recoupment in the 2011 income year but later took the position that it was not an assessable recoupment under subsection 20-20(3) of the ITAA 1997. | • In the 2009 income year, the taxpayer had claimed, and was allowed, a deduction under former paragraph 25-5(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) for GIC of $13,698,643. • To give effect to the settlement, among other things, the Commissioner had recalculated the taxpayer's liability to the GIC and recorded a credit on the taxpayer's income tax account in the sum of $13,698,643 on 16 August 2010. • The taxpayer returned that amount as an assessable recoupment in the 2011 income year but later took the position that it was not an assessable recoupment under subsection 20-20(3) of the ITAA 1997. | 11. Following an audit, the Commissioner issued penalty notices to the taxpayer for the 2011 and 2012 income years, and to Wellton Holdings Pty Ltd for the 2011 to 2014 income years assessed on the basis of 25% of the relevant shortfall amounts. | 12. Upon further review, the Commissioner concluded that the shortfall amounts resulted from intentional disregard of a taxation law and issued penalty notices recording administrative penalties calculated at 75% or 90% of the relevant shortfall. The Commissioner did not seek to disturb the Administrative Appeals Tribunal's decision [1] on review that the relevant shortfalls were instead the product of recklessness that ought to be calculated on 50% of the relevant shortfall.", "Issues_Decided": "'Assessable recoupment' issue: 13. The Court held that a credit recorded on an Income Tax Account reflecting a recalculation of a liability to the GIC is relevantly 'received' as an assessable recoupment where a corresponding amount has in fact been deducted from assessable income in an earlier year. [2] 14. In particular, the Court found that the Commissioner's credit to the taxpayer's Income Tax Account of an amount for refund of the GIC reflected an actual transaction that was 'received as recoupment of a loss or outgoing' within the meaning of subsection 20-20(3) of the ITAA 1997. [3] 15. Importantly, the Court confirmed that paragraph 20-20(3)(b) of the ITAA 1997 is engaged where an amount has been actually deducted, regardless of whether the taxpayer was lawfully entitled to that deduction. | 'Power to amend an assessment of administrative penalty' issue: 16. The Court held that the Commissioner's duty under subsection 298-30(1) of Schedule 1 to the TAA to assess administrative penalties is not spent when first exercised. Rather, the Commissioner has a continuing duty and power to assess liability to administrative penalties as the occasion requires. [4] 17. This decision is now the binding authority for the proposition that [5] : … if the Commissioner, having made an assessment of penalties under s 298-30(1), reaches the view that the assessment is incorrect, then the Commissioner must continue his obligation of assessment under s 298-30(1) and notify the liability to pay the penalty under s 298-10. … A taxpayer dissatisfied with the assessment as altered may object by reason of s 298-30(2). | '177EA determination' issue: 18. The Court confirmed that: • a scheme for the disposition of membership interests may comprise a single step • the purpose in paragraph 177EA(3)(e) of the ITAA 1936 is that of persons who entered into or carried out the scheme, determined objectively having regard to the relevant circumstances, and • it is not necessary to incorporate those circumstances as a step in the scheme. • a scheme for the disposition of membership interests may comprise a single step • the purpose in paragraph 177EA(3)(e) of the ITAA 1936 is that of persons who entered into or carried out the scheme, determined objectively having regard to the relevant circumstances, and • it is not necessary to incorporate those circumstances as a step in the scheme. 19. The decision reinforces the breadth of section 177EA of the ITAA 1936, including the inclusive nature of the 'relevant circumstances' in subsection 177EA(17) of the ITAA 1936. | 'In Part IVC proceedings, an assessment is shown to be excessive only by reference to the proper operation of the relevant statutory provisions' issue: 20. The Court confirmed that, in Part IVC proceedings, 'excessiveness' concerns the taxpayer's substantive liability under the tax law. 21. A taxpayer must establish what the correct assessment should have been; it is not sufficient to simply identify error. 22. In particular, a (contended) departure from the terms of a settlement deed does not establish excessiveness, as liability is determined by the operation of the tax law unless statutory effect is given to such arrangements (such as by way of a binding taxation ruling).", "ATO_View_of_Decision": "23. We consider that the decision confirms and strengthens the Commissioner's existing views. | 24. In particular, the decision provides authority for the following propositions: • A recoupment is assessable under section 20-20 of the ITAA 1997 where an amount has been in fact deducted, irrespective of entitlement. • The Commissioner has a continuing duty to assess administrative penalties and may amend a penalty assessment where it is considered incorrect. • For the purposes of section 177EA of the ITAA 1936, a scheme may be identified broadly, including as a single step, and purpose is determined objectively by reference to the relevant circumstances. • In Part IVC proceedings, 'excessiveness' depends on the correct application of the tax law, and not on administrative conduct or contractual arrangements. | • A recoupment is assessable under section 20-20 of the ITAA 1997 where an amount has been in fact deducted, irrespective of entitlement. • The Commissioner has a continuing duty to assess administrative penalties and may amend a penalty assessment where it is considered incorrect. • For the purposes of section 177EA of the ITAA 1936, a scheme may be identified broadly, including as a single step, and purpose is determined objectively by reference to the relevant circumstances. • In Part IVC proceedings, 'excessiveness' depends on the correct application of the tax law, and not on administrative conduct or contractual arrangements.", "Administrative_Treatment": "25. The decision does not require any change to existing ATO advice and provides additional judicial support for current administrative practice.", "Related_Documents": "2025 ATC 20-983 | ITAA 1936 177EA | ITAA 1936 177EA(3)(e) | ITAA 1936 177EA(5)(b) | ITAA 1936 177EA(17) | ITAA 1997 20-20 | ITAA 1997 20-20(3) | ITAA 1997 20-20(3)(b) | ITAA 1997 20-30 | 2024 ATC 10-735", "Legislative_References": "ITAA 1936 177EA ITAA 1936 177EA(3)(e) ITAA 1936 177EA(5)(b) ITAA 1936 177EA(17) ITAA 1997 20-20 ITAA 1997 20-20(3) ITAA 1997 20-20(3)(b) ITAA 1997 20-30 ITAA 1997 25-5(1)(c) TAA 1953 8AAZN TAA 1953 Sch 1 298-30(1)", "Case_References": "BSKF and Commissioner of Taxation [2024] AATA 3377 2024 ATC 10-735 121 ATR 182 Ziegler v Commissioner of Taxation [2025] FCAFC 168 313 FCR 574 2025 ATC 20-983 Ziegler v Commissioner of Taxation [2026] HCADisp 89", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/QUD617of2024/00001", "Unmatched_Content": "ATO view of this decision | Implications for affected advice or guidance | Aaron.Elbourne@ato.gov.au | Commissioner of Taxation 17 June 2026 | [2] In this way, an equivalent outcome is achieved where a reduced liability to GIC is the result of a recalculation of that liability (following an amended assessment) to that achieved under subsection 20-25(2A) of the ITAA 1997 where the Commissioner remits an amount of GIC. Under subsection 20-25(2A), the remitted amount of GIC is taken to be received as a recoupment. | [3] See [20] and [21] (compare with taxpayer's contention recorded at [16(a)]). | [4] See [71-78] (in particular [72], [74] and [78])."}
{"Case_Name": "Commissioner of Taxation v Bendel [2026] HCA 18", "Venue_Reference_No": "M47/2025", "Venue": "High Court", "Judgment_Date": "10 June 2026", "Date_Published": "26 June 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case which concerns whether a private company's failure to call for payment of entitlements to income of an associated trust was the provision of 'financial accommodation' or a transaction 'which in substance effects a loan' and, therefore, a loan for the purposes of section 109D of the Income Tax Assessment Act 1936. | 2. All legislative references in this Decision impact statement are to the Income Tax Assessment Act 1936 unless otherwise indicated.", "Overview_of_Facts": "3. This case was an appeal by the Commissioner from the Full Federal Court's decision of 19 February 2025 [1] , which held that a private company's unpaid present entitlements (UPEs) to trust income were not loans for the purpose of section 109D. | 4. The Steven Bendel 2005 Discretionary Trust (the Trust) was a discretionary trust. Its trustee was Gleewin Pty Ltd (the Trustee). | 5. The beneficiaries of the Trust included Mr Bendel and Gleewin Investments Pty Ltd (Gleewin) (together, the Respondents). | 6. Mr Bendel was the sole shareholder and director of the Trustee and Gleewin. | 7. Mr Bendel and Gleewin were made presently entitled to income of the Trust for each of the 2013 to 2016 income years by way of resolutions by the Trustee to 'set aside' identified amounts for them (the Resolutions). | 8. The Trust deed provided that any amount set aside ceased to form part of the Trust Fund, was instead held by the Trustee on separate trust for the beneficiary absolutely, and the Trustee was empowered to invest, apply or deal with the funds of that separate trust under other relevant provisions in the deed. | 9. However, the accounting records prepared by the Trustee did not separately record the amounts set aside for Gleewin. Those amounts were instead booked to a 'Beneficiaries Current Account' balance in the liabilities section of the Trust's balance sheet. | 10. In each of the 2013 to 2017 income years, the Trust made some payments for, or on behalf of, Gleewin that had the effect of reducing Gleewin's current account balance. However, that balance remained substantially unpaid by Gleewin's lodgment day [2] for each of its 2013 to 2016 income year income tax returns. | 11. The accounting records of the Trust also showed that in the 2014 to 2017 income years, it made significant payments to Mr Bendel, shown as owing to the Trust. | 12. Gleewin had never called for payment of any of the Trust income set aside for its benefit in any of the years in question. It remained relevantly passive. | 13. The Commissioner issued amended assessments to the Respondents for each of the 2014 to 2017 income years. Those assessments reflected additional amounts included in their assessable income under section 97, on the basis that: • the outstanding amounts represented loans from Gleewin to the Trust within the meaning of subsection 109D(3) that were taken to be dividends paid to the Trust under subsection 109D(1), and • the beneficiaries entitled to the Trust's income had a corresponding proportion of each deemed dividend included in their assessable income by section 97. | • the outstanding amounts represented loans from Gleewin to the Trust within the meaning of subsection 109D(3) that were taken to be dividends paid to the Trust under subsection 109D(1), and • the beneficiaries entitled to the Trust's income had a corresponding proportion of each deemed dividend included in their assessable income by section 97. | 14. The Commissioner made no argument that there had been a breach of trust or of the fiduciary duties of the Trustee.", "Issues_Decided": "Issue 1: What was the character of the amounts set aside for Gleewin by the Resolutions?: 15. It was not in dispute that the Resolutions made Gleewin and Mr Bendel presently entitled to a share of the income of the Trust for the relevant income years. 16. The majority (Gageler CJ, Gordon, Edelman, Steward and Gleeson JJ) considered that the exercise of the power in the Trust deed to 'set aside' (as distinct from the power to pay or apply) a share of income, in conjunction with the directions in the Trust deed about the Trustee was to deal with amounts so set aside, meant that each of those amounts were held by the Trustee on separate trusts. 17. In reaching that view, their Honours rejected the Commissioner's contentions that: • there was insufficient certainty as to the property which would be the subject of any separate trusts over the amounts set aside, and • the Trust's accounts expressed an admission by the Trustee that there existed an unconditional relationship of debtor and creditor between Gleewin and the Trustee. • there was insufficient certainty as to the property which would be the subject of any separate trusts over the amounts set aside, and • the Trust's accounts expressed an admission by the Trustee that there existed an unconditional relationship of debtor and creditor between Gleewin and the Trustee. 18. In her dissenting judgement, Jagot J found that: • the Resolutions did not give rise to separate trusts, and • a debtor–creditor relationship had arisen between the Trustee and Gleewin. • the Resolutions did not give rise to separate trusts, and • a debtor–creditor relationship had arisen between the Trustee and Gleewin. 19. Beech-Jones J considered that there was no basis for the High Court to depart from the position accepted in the Full Court of the Federal Court that there existed a debtor–creditor relationship between Gleewin and the Trustee, nor should it entertain revisiting the Full Court's concurrent findings that Gleewin's entitlements were not held on separate trust. | Issue 2: Did Gleewin make a loan within the meaning of subsection 109D(3) to the Trust during each of the 2014 to 2017 years in respect of the Trust income set aside for it?: 20. The majority decided that Gleewin did not make a loan to the Trustee within the meaning of subsection 109D(3). There was, therefore, no dividend deemed to have been paid by Gleewin to the Trust under subsection 109D(1). 21. In reaching its decision, the majority considered that, for the purposes of subsection 109D(3): • the 'provision of financial accommodation' requires the company to do something which transfers, supplies or grants value or pecuniary assistance, involving some bilateral activity • there is no 'provision of financial accommodation' when a private company does nothing • mere inactivity cannot satisfy the language of 'advance', 'provision', 'payment' or 'transaction', and • simply doing nothing, or acquiescing to the retention of funds, is not a transaction which in substance effects a loan. • the 'provision of financial accommodation' requires the company to do something which transfers, supplies or grants value or pecuniary assistance, involving some bilateral activity • there is no 'provision of financial accommodation' when a private company does nothing • mere inactivity cannot satisfy the language of 'advance', 'provision', 'payment' or 'transaction', and • simply doing nothing, or acquiescing to the retention of funds, is not a transaction which in substance effects a loan. 22. The majority also relied on the statutory context and legislative history of Division 7A in support of its conclusion. In particular: • the structure of Division 7A distinguishes between loans (and their forgiveness, including under section 109F) and UPEs addressed separately under Subdivision EA, and • the replacement of former section 109UB with Subdivision EA, indicated that Parliament considered it necessary to enact specific provisions dealing with UPEs, rather than relying on the definition of 'loan'. • the structure of Division 7A distinguishes between loans (and their forgiveness, including under section 109F) and UPEs addressed separately under Subdivision EA, and • the replacement of former section 109UB with Subdivision EA, indicated that Parliament considered it necessary to enact specific provisions dealing with UPEs, rather than relying on the definition of 'loan'. 23. Both Jagot and Beech-Jones JJ considered that Gleewin had provided financial accommodation within the meaning of paragraph 109D(3)(b) to the Trustee. | Issue 3: Did section 6-25 of the Income Tax Assessment Act 1997 prevent a deemed dividend from being included in the Trust's net income or, alternatively, the Applicant's assessable income?: 24. Consistent with its conclusion for Issue 2 (that is, section 109D was not engaged by the circumstances of Gleewin and the Trust), the majority found it unnecessary to decide this issue. 25. Jagot and Beech-Jones JJ considered that section 6-25 of the Income Tax Assessment Act 1997 did not apply.", "ATO_View_of_Decision": "26. The High Court's reasoning makes it clear that section 109D does not apply in relation to a private company's entitlement to a share of trust income that remains unpaid where the company does not take action in respect of that entitlement. | 27. However, a private company beneficiary's inaction in respect of an unpaid entitlement to trust income may be insufficient to spare potential implications under other taxation laws, including Subdivision EA and section 100A. | 28. Relevantly, the majority observed that 'the facts here broadly correspond with the circumstances to which Subdivision EA is addressed'. [3] That is consistent with their characterisation of the amounts set aside by the Trustee – albeit on separate trust for Gleewin – as an 'unpaid present entitlement'. While their Honours were not determining the issue, their language suggests that Subdivision EA may apply where the funds to which a private company has been made presently entitled have been set aside on a separate trust and other relevant requirements are met. | 29. These outcomes contradict the position the Commissioner has taken in Taxation Determination TD 2022/11 Income tax: Division 7A: when will an unpaid present entitlement or amount held on sub-trust become the provision of 'financial accommodation'? (which we will withdraw) and other advice as detailed in paragraphs 44 to 46 of this Decision impact statement, which we will review and amend as appropriate. | 30. This decision also highlights the need to carefully examine the particular facts and circumstances in determining the character of an amount to which a beneficiary is presently entitled, including: • terms of the trust deed • terms of any resolutions by the trustee or trustees • accounting records of the parties, and • any other dealings in respect of that amount (for example, making it subject to a loan agreement). | • terms of the trust deed • terms of any resolutions by the trustee or trustees • accounting records of the parties, and • any other dealings in respect of that amount (for example, making it subject to a loan agreement). | 31. Depending on those matters, the beneficiary's entitlement and the trustee's subsequent dealings with that amount may support the conclusion that the parties have entered into a separate trust relationship or another form of financial arrangement. In some circumstances, a beneficiary's present entitlement to a share of trust income may be dealt with in a way which gives rise to a presently enforceable debt owed by the trustee to the beneficiary.", "Administrative_Treatment": "Application of section 109D | 32. The Commissioner will apply section 109D to arrangements involving UPEs on the basis of the ATO view of the decision described in paragraphs 27 to 32 of this Decision impact statement. | 33. Accordingly, where a private company beneficiary has not taken any relevant action in respect of its UPE, the Commissioner will not treat the UPE as a loan for the purposes of section 109D. This will be the case whether or not the amount in question is held on a separate trust. | 34. In contrast, where parties have taken steps that result in a UPE being satisfied, replaced or otherwise dealt with in a manner that gives rise to a loan within subsection 109D(3), the arrangement will be characterised accordingly. The entitlement will not be treated as remaining unpaid merely because those steps were taken based on a mistaken understanding of the law. Where the entitlement has already been satisfied or converted into a loan, it has ceased to be a UPE. This decision does not reinstate it as a mere UPE. The tax consequences of any additional dealings with funds associated with a former UPE will depend on the particular circumstances of those dealings. | Other provisions | 35. In situations where a private company beneficiary has a UPE and the trust (including any relevant separate trust) pays, makes a loan to, forgives a debt of a shareholder or associate of a shareholder of that company, we may have cause to consider the application of Subdivision EA. | 36. Further, in situations where the UPE arises out of, or in connection with, an arrangement intended to reduce someone's tax liability, where someone else benefits, and that is entered into outside the course of ordinary family or commercial dealing, section 100A may apply, making the trustee liable to tax at the top marginal rate. [4] | Implications for previous arrangements | 37. Where arrangements involving UPEs have been implemented in accordance with TD 2022/11 or prior ATO administrative guidance, including Law Administration Practice Statement PS LA 2010/4 Division 7A: trust entitlements (now withdrawn), those UPEs will not be treated as loans unless the parties have taken steps that result in an arrangement falling within subsection 109D(3). | 38. For example, for the purposes of Division 7A: • UPEs that have simply been left outstanding will not, without more, be loans • UPEs set aside and held on separate sub-trusts in accordance with PS LA 2010/4 will not be loans, but • UPEs that have been made subject to complying loan terms are, as a matter of fact, loans, and will continue to be treated consistently as loans. | • UPEs that have simply been left outstanding will not, without more, be loans • UPEs set aside and held on separate sub-trusts in accordance with PS LA 2010/4 will not be loans, but • UPEs that have been made subject to complying loan terms are, as a matter of fact, loans, and will continue to be treated consistently as loans. | 39. A variation to the terms of an investment agreement between a separate or sub-trust and the main trust (for example, changes to interest rate or term) will not, of itself, result in the arrangement constituting a loan or in the amount being treated as an UPE for the purposes of Subdivision EA. However, this will depend on the nature and effect of the variation having regard to all the circumstances. | Objections | 40. Taxpayers who have been assessed on the basis that UPEs without more were loans for the purposes of section 109D may seek an amendment (where they remain within amendment periods) or lodge an objection (where they are outside of amendment periods). | 41. Decisions in respect of amendment requests or objections will involve a consideration of relevant facts and circumstances, including the terms of the trust deed, resolutions of the trustee, accounting records, and any subsequent dealings with the entitlement, to confirm whether the circumstances are within the scope of the High Court's reasoning. | 42. For objections that are outside the standard time limits, requests for an extension of time will be considered having regard to the taxpayer's circumstances, including whether the objection arises as a result of this decision.", "Related_Documents": "2026 ATC 21-021 | TR 2022/4 | TR 2015/4 | TD 2022/11 | TD 2015/20 | TD 2011/15 | ITAA 1936 Div 6 | ITAA 1936 97 | ITAA 1936 100A | ITAA 1936 Div 7A | ITAA 1936 Subdiv EA | ITAA 1936 109D | ITAA 1936 109D(1) | ITAA 1936 109D(3) | ITAA 1936 109D(6) | ITAA 1936 109F | ITAA 1997 6-25 | 2025 ATC 20-946 | PCG 2022/2 | PCG 2017/13 | PS LA 2010/4W", "Legislative_References": "ITAA 1936 Div 6 ITAA 1936 97 ITAA 1936 100A ITAA 1936 Div 7A ITAA 1936 Subdiv EA ITAA 1936 109D ITAA 1936 109D(1) ITAA 1936 109D(3) ITAA 1936 109D(6) ITAA 1936 109F ITAA 1936 109UB ITAA 1997 6-25", "Case_References": "Commissioner of Taxation v Bendel [2025] FCAFC 15 307 FCR 544 122 ATR 197 2025 ATC 20-946", "Subject_References": "", "Other_References": "PCG 2022/2 PCG 2017/13 PS LA 2010/4W", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/M47/2025/00001", "Unmatched_Content": "Taxpayers can rely on this Decision impact statement to provide them with protection from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty, nor will they have to pay interest on the underpayment provided they reasonably relied on this Decision impact statement in good faith. However, even if they do not have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it. | ATO view of this decision | Implications for affected advice or guidance | Implications for affected advice or guidance: 43. As a consequence of this decision, we will withdraw TD 2022/11. | • Taxation Ruling TR 2022/4 Income tax: section 100A reimbursement agreements • Taxation Ruling TR 2015/4 Income tax: CGT small business concessions: unpaid present entitlements and the maximum net asset value test • Taxation Determination TD 2015/20 Income tax: Division 7A: is a release by a private company of its unpaid present entitlement a 'payment' within the meaning of Division 7A of Part III of the Income Tax Assessment Act 1936? • Taxation Determination TD 2011/15 Income tax: Division 7A – unpaid present entitlements – factors the Commissioner will take into account in determining the amount of any deemed entitlement arising under section 109XI of the Income Tax Assessment Act 1936 • Practical Compliance Guideline PCG 2022/2 Section 100A reimbursement agreements – ATO compliance approach • Practical Compliance Guideline PCG 2017/13 Division 7A – PS LA 2010/4 sub-trust arrangements maturing in or after the 2016–17 income year. | 45. To the extent that we withdraw a public ruling, it will continue to apply to schemes that had begun to be carried out before the withdrawal, where favourable to the taxpayer. [5] | 46. We may also issue further guidance, as appropriate, to assist taxpayers and their advisers to understand the implications of the decision and to support the consistent administration of Division 6 and Division 7A. | Footnotes: [1] Commissioner of Taxation v Bendel [2025] FCAFC 15. | [2] As defined in subsection 109D(6), being the earlier of the due date for lodgment of the private company's income tax return or the date on which that return is lodged. | [3] Commissioner of Taxation v Bendel [2026] HCA 18 at [64]. | [4] See Taxation Ruling TR 2022/4 Income tax: section 100A reimbursement agreements | [5] Subsection 358-20(3) of Schedule 1 to the Taxation Administration Act 1953 ."}
{"Case_Name": "SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36", "Venue_Reference_No": "SAD 127 of 2025", "Venue": "Full Federal Court", "Judgment_Date": "27 March 2026", "Date_Published": "1 July 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to this case, which considered: • whether 3 brothers, who together comprised all of the directors of a corporate trustee of a discretionary trust, were each an 'employee' within the meaning of that term in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), and • if the brothers were each found to be an employee, whether car benefits provided to them by the corporate trustee of the discretionary trust were provided 'in respect of' their employment. | • whether 3 brothers, who together comprised all of the directors of a corporate trustee of a discretionary trust, were each an 'employee' within the meaning of that term in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), and • if the brothers were each found to be an employee, whether car benefits provided to them by the corporate trustee of the discretionary trust were provided 'in respect of' their employment. | 2. All legislative references in this Decision impact statement are to the FBTAA unless otherwise indicated. | 3. All judgment references in this Decision impact statement are to the judgment of SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36, unless otherwise indicated.", "Overview_of_Facts": "4. The taxpayer, SEPL Pty Ltd in its capacity as the corporate trustee of a discretionary trust (SFT Trust), was engaged in a business involving petrol stations, convenience stores, fast food and tobacco outlets, and gift shops that was initially established by the parents of the 3 brothers as a small operation. [1] The business grew over time. [2] | 5. Following the death of the father and the retirement of the mother as director, the 3 brothers became the only shareholders and directors of SEPL Pty Ltd. [3] They collectively comprised the Trustee Board. [4] The Trustee Board allocated responsibility to each of the brothers for particular aspects of the taxpayer's business, and the brothers described the allocated roles they performed as that of 'Chief Executive Officer', 'Managing Director' and 'Executive Director'. [5] | 6. The 3 brothers and the mother were also among a lengthy list of eligible beneficiaries of the SFT Trust, which included extended family members. [6] | 7. The 3 brothers did not receive salaries and there were no written contracts of employment for any of them. There was also no record of any board resolution to enter into such an employment agreement, and managers were employed to oversee all relevant business functions. [7] | 8. The 3 brothers 'worked in the business' and 'played an active \"hands on\" role in the management of the [taxpayer's] affairs'. [8] They were 'completely immersed' in the business, leaving 'little time for other pursuits'. [9] | 9. The 3 brothers benefited from the taxpayer's business in 2 ways. Firstly, sharing the taxpayer's business profits through an informal arrangement reached between the brothers, with the profits being distributed to each of the brother's family trusts (also eligible beneficiaries of the SFT Trust). [10] Secondly, each brother had the exclusive use of luxury and high-performance cars owned by the taxpayer in its capacity as trustee of the SFT Trust. [11] | 10. The 3 brothers genuinely believed they were entitled to benefits (specifically, the private use of cars) as beneficiaries of the SFT Trust, not because they saw it as a reward for their work as directors or as employees. [12] | 11. Each brother used the cars allocated to them for both business and private use over the 2016 to 2020 fringe benefits tax (FBT) years (the relevant FBT years). [13] The expenses associated with the private use of the cars were debited to the mother's beneficiary loan account with the SFT Trust, which was then cleared by trust distributions. [14] The taxpayer claimed tax deductions for the estimated business use of the cars by the 3 brothers. [15] | 12. The taxpayer did not pay any FBT during the relevant FBT years in respect of the private use of the cars by the 3 brothers. | History of the dispute | 13. At audit, the Commissioner was of the view that the taxpayer was liable to pay FBT on the value of the car benefits provided to the 3 brothers. As a result, the Commissioner included the taxable value of the private use of the cars in amended FBT assessments for the relevant FBT years. | 14. The taxpayer objected to the amended FBT assessments. The objection was disallowed. The taxpayer sought review of the objection decision by the Administrative Appeals Tribunal (Tribunal). | 15. The Tribunal set aside the Commissioner's objection decision and substituted it with a decision that the objection be allowed. [16] | 16. On appeal to the Federal Court, the Commissioner contended that the Tribunal had erred on both issues and the appeal was allowed. [17] The primary judge held that the 3 brothers were 'employees' within the meaning of the FBTAA and the car benefits were therefore provided 'in respect of' their employment. [18] | 17. The primary judge in the Federal Court set aside the Tribunal's decision, affirming the Commissioner's objection decision and dismissing the taxpayer's application for review. [19] | 18. The taxpayer then appealed this decision to the Full Federal Court. On 27 March 2026, the Full Federal Court (Perry, O'Callaghan and Thawley JJ) (Full Court) unanimously allowed the taxpayer's appeal on both issues. [20]", "Issues_Decided": "Meaning of 'employee' in subsection 136(1): Statutory scheme of the FBTAA 19. The Full Court explained that the question whether each of the 3 brothers were an employee of the taxpayer depended on the meaning of the term 'employee', as it appeared in the definition of 'fringe benefit' in subsection 136(1). [21] 20. 'Employee' is defined in subsection 136(1) as a 'current employee', which is further defined in subsection 136(1) as 'a person who receives, or is entitled to receive, salary or wages'. 21. The expression 'salary or wages' is defined in subsection 136(1) as a payment from which an amount must be withheld under a provision in Schedule 1 to the Taxation Administration Act 1953 (TAA). Table item 1 of subparagraph (b)(ii) of the definition of 'salary or wages' in subsection 136(1) refers to a 'payment to employee' in section 12-35 of Schedule 1 to the TAA, which in turn refers to withholding an amount from salary, wages, commission, bonuses or allowances paid to an individual 'as an employee'. 22. The Full Court held that it was also relevant to consider section 137. [22] Section 137 operates on the concept of 'salary or wages' and, only through that mechanism, affects whether a person is an employee. [23] 23. The Full Court observed that the term 'employment' appeared in paragraph 137(1)(b) and then only for the limited purpose of ascertaining whether the person is an 'employee' under the FBTAA. [24] Definition of 'employment' 24. The Full Court did not accept that the word 'employment' expanded the statutory meaning of employee and explained that the definition of employment depended upon a 'person being treated as an employee'. [25] 25. The Full Court held that the word 'employment' was descriptive of what a person has if they are an employee. [26] It did not lead the statutory inquiry into whether a person was an employee or whether they performed some kind of expanding function. [27] Operation and scope of section 137 26. The Full Court approached section 137 on the same basis as the Tribunal, holding that: • Section 137 did not itself supply the meaning of 'employee'. [28] • The answer to the hypothetical question posed by paragraph 137(1)(c) depended upon whether a cash payment would have been made to a person 'as an employee', and that this permitted consideration of the ordinary (common law) meaning of the word 'employee'. [29] • Any hypothetical cash payment would have been made to the relevant brother not 'as an employee' but in his capacity as a proprietor, controller, and discretionary beneficiary of the trust. [30] • This meant that the condition in subparagraph 137(1)(c)(i), that the hypothetical cash payment 'would constitute salary or wages' under section 12-35 of Schedule 1 to the TAA, was not satisfied. [31] • Section 137 did not itself supply the meaning of 'employee'. [28] • The answer to the hypothetical question posed by paragraph 137(1)(c) depended upon whether a cash payment would have been made to a person 'as an employee', and that this permitted consideration of the ordinary (common law) meaning of the word 'employee'. [29] • Any hypothetical cash payment would have been made to the relevant brother not 'as an employee' but in his capacity as a proprietor, controller, and discretionary beneficiary of the trust. [30] • This meant that the condition in subparagraph 137(1)(c)(i), that the hypothetical cash payment 'would constitute salary or wages' under section 12-35 of Schedule 1 to the TAA, was not satisfied. [31] Ordinary meaning of 'employee' 27. The word 'employee' in section 12-35 of Schedule 1 to the TAA bears its ordinary meaning, which is its common law meaning. [32] Reliance on section 12-40 of Schedule 1 to the TAA 28. Table item 2 of the definition of 'salary or wages' in subsection 136(1) concerns section 12-40 of Schedule 1 to the TAA, and addresses payments to company directors. The Full Court considered that the Commissioner's reliance on section 12-40 of Schedule 1 to the TAA did not assist their case and that the primary judge erred in relying on that provision. [33] | Whether benefits are provided 'in respect of' employment: 29. The Full Court considered the issue of whether, on the hypothetical basis that each of 3 brothers were an employee under subsection 136(1), the car benefits were provided to them 'in respect of' their employment. [34] 30. The definition of 'fringe benefit' in subsection 136(1) requires that the benefit be provided 'in respect of the employment of the employee'. [35] 31. While the definition of 'in respect of' in subsection 136(1) is broad, the Full Court held that the breadth of the definition did not displace the need for a meaningful connection between the benefit and the employment. [36] That is consistent with the reasoning of the Full Federal Court in J & G Knowles v Commissioner of Taxation [2000] FCA 196 (J & G Knowles), the existence of some causal relationship is not of itself determinative and the connection must be sufficient or material having regard to the object and structure of the FBT regime. [37] 32. J & G Knowles recognised that the capacity in which the benefit was received is relevant. [38] The Full Court held that the 'Tribunal did not err in considering the basis on which the benefits were received, including – in addition to the objective circumstances – how the brothers themselves understood the arrangements'. [39] 33. The Full Court considered that 'J & G Knowles makes clear that, even if employment is a cause, the benefit may still properly be characterised as arising from a different relationship, with the employment relationship not being sufficiently material to satisfy the statutory test'. [40] 34. The Full Court held that it was open for the Tribunal to conclude that the arrangement, taken as a whole, was one operating by reason of the brothers' relationship to the trust and family structure rather than by reason of any employment relationship. [41]", "ATO_View_of_Decision": "Meaning of the term 'employee' within the statutory scheme of the FBTAA | 35. We accept that whether an individual is an employee depends upon the relevant definitions in subsection 136(1), including the meaning of the terms: • 'employee' as it appears in the definition of 'fringe benefit' [42] • 'current employee' within the meaning of the definition of 'employee' [43] • 'salary or wages' [44] , and • the operation of section 12-35 of Schedule 1 to the TAA, through the definition of 'salary or wages'. [45] | • 'employee' as it appears in the definition of 'fringe benefit' [42] • 'current employee' within the meaning of the definition of 'employee' [43] • 'salary or wages' [44] , and • the operation of section 12-35 of Schedule 1 to the TAA, through the definition of 'salary or wages'. [45] | 36. In noting that the meaning of employee in section 12-35 of Schedule 1 to the TAA is an undefined legislative term, the Full Court concluded that, in the absence of any countervailing indications in the context or purpose, the term bears it ordinary meaning. [46] | 37. The High Court in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) held that the 'ordinary meaning' of 'employee' was its common law meaning. [47] Further, the High Court in Personnel Contracting and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 explained how to determine whether a person is an employee within the common law meaning of the term. [48] Subject to its modifications, the FBTAA used the word 'employee' in a similar way. [49] We accept the Full Court's adoption of the High Court's explanation of how to determine whether a person is an employee within the common law meaning of the term. [50] | 38. We acknowledge that the Full Court held that the FBTAA extends or varies who might be an employee, but in applying the relevant provisions in this case, which involved section 12-35 of Schedule 1 to the TAA, we are required to determine whether any benefits (if they had been paid in cash) would have been paid to an individual 'as an employee' within the common law meaning of the term. [51] | Definition of 'employment' and operation and scope of section 137 | 39. We accept that the word 'employment' is descriptive of what a person has if they are an employee and does not lead an inquiry into whether a person is an employee or whether they perform some kind of expanding function. [52] | 40. We also acknowledge that section 137 has a limited function and operates as a safeguarding measure to ensure that the FBT legislation could still operate where remuneration was provided only in non-cash form. [53] | Unique and unusual factual circumstances of this case | 41. The Full Court's understanding of the statutory scheme of the FBTAA reflects the importance of correctly identifying an employee, particularly in circumstances where an individual is: • a shareholder and a director of the corporate trustee (SEPL Pty Ltd), and • an appointor (with the power to appoint to remove the trustee and to appoint discretionary objects) and an eligible beneficiary of the discretionary trust (SFT Trust). | • a shareholder and a director of the corporate trustee (SEPL Pty Ltd), and • an appointor (with the power to appoint to remove the trustee and to appoint discretionary objects) and an eligible beneficiary of the discretionary trust (SFT Trust). | 42. We recognise that the finding that the 3 brothers were each not an employee was based on the unique and unusual factual circumstances in this case, including: • a closely held family arrangement involving a discretionary trust • no employment contracts and no payment of salary or wages to the 3 brothers who, as directors, played an active, hands on role in the management of the business, and • the debit to the mother's beneficiary account, reflecting the private use of the vehicles by the 3 brothers, which was then cleared by trust distributions. | • a closely held family arrangement involving a discretionary trust • no employment contracts and no payment of salary or wages to the 3 brothers who, as directors, played an active, hands on role in the management of the business, and • the debit to the mother's beneficiary account, reflecting the private use of the vehicles by the 3 brothers, which was then cleared by trust distributions. | 43. The particular facts and circumstances of a case will always need to be closely considered, and as a result, we consider: • Directors of a corporate trustee of a discretionary trust may still fall within the definition of 'employee' for FBT purposes, even if the common law meaning of the term is applied. • The capacity in which persons, including directors of a corporate trustee of a discretionary trust, receive benefits from the trust will need to be determined having regard to all of the facts and circumstances of a case. This includes, but is not limited to, the terms of the trust deed, the actions of the trustee in exercising their duties under the trust, as well as the nature of the benefit provided. | • Directors of a corporate trustee of a discretionary trust may still fall within the definition of 'employee' for FBT purposes, even if the common law meaning of the term is applied. • The capacity in which persons, including directors of a corporate trustee of a discretionary trust, receive benefits from the trust will need to be determined having regard to all of the facts and circumstances of a case. This includes, but is not limited to, the terms of the trust deed, the actions of the trustee in exercising their duties under the trust, as well as the nature of the benefit provided. | 44. Even though the provision of car benefits were not subject to FBT in this case, we note that different taxing provisions may apply to other arrangements involving the private use of car benefits and trusts (for example, Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) may be considered where there are loans from private companies or unpaid present entitlements to private companies, including provisions that treat the use of company assets by shareholders or their associates as a payment (such as section 109CA of the ITAA 1936)). | Meaning of 'in respect of' their employment | 45. We consider that the Full Court was correct in confirming that while the definition of 'in respect of' in subsection 136(1) is broad, the existence of some causal relationship is not, of itself, determinative. [54] The definition still requires a meaningful connection which is sufficient or material, having regard to the object and structure of the FBT regime. [55] | 46. We accept that it was open for the Tribunal to regard the arrangement which the 3 brothers were participating in, taken as a whole, to be operating by reason of the brothers' relationship to the trust and family structure rather than by reason of any employment relationship. [56] We accept that the absence of a direct distribution by the taxpayer of the cars, or of their value, to the brothers did not necessarily result in a conclusion that the benefit was provided 'in respect of' their employment. [57] | 47. In addition to the objective circumstances, we note that the subjective intention of the individual (that is, how they themselves understood the arrangement) may be a relevant factor in determining whether the benefits were provided 'in respect of' their employment. [58]", "Administrative_Treatment": "48. We are reviewing the impact of this decision on related advice, including: • Miscellaneous Taxation Ruling MT 2019 Fringe benefits tax: shareholder employees of family private companies and directors of corporate trustees • Miscellaneous Taxation Ruling MT 2016 Fringe benefits tax: benefits not taxable unless provided in respect of employment • Chapters 1, 7 and 22 of Fringe benefits tax – a guide for employers . | • Miscellaneous Taxation Ruling MT 2019 Fringe benefits tax: shareholder employees of family private companies and directors of corporate trustees • Miscellaneous Taxation Ruling MT 2016 Fringe benefits tax: benefits not taxable unless provided in respect of employment • Chapters 1, 7 and 22 of Fringe benefits tax – a guide for employers .", "Related_Documents": "2026 ATC 21-008 | MT 2019 | MT 2016 | FBTAA 1986 136(1) | FBTAA 1986 137 | TAA 1953 Sch 1 12-35 | TAA 1953 Sch 1 12-40 | 2025 ATC 20-963 | [2022] HCA 1 | 2000 ATC 4151 | [2022] HCA 2 | 96 ALJR 144", "Legislative_References": "FBTAA 1986 136(1) FBTAA 1986 137 TAA 1953 Sch 1 12-35 TAA 1953 Sch 1 12-40", "Case_References": "BQKD and Commissioner of Taxation [2024] AATA 1796 120 ATR 107 Commissioner of Taxation v SEPL Pty Ltd as trustee of the SFT Trust [2025] FCA 581 2025 ATC 20-963 123 ATR 179 Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 275 CLR 165 96 ALJR 89 398 ALR 404 J & G Knowles v Commissioner of Taxation [2000] FCA 196 96 FCR 402 2000 ATC 4151 44 ATR 22 SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36 315 FCR 1 2026 ATC 21-008 ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 275 CLR 254 96 ALJR 144 398 ALR 603", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/SAD127of2025/00001", "Unmatched_Content": "ATO view of this decision | Implications for affected advice or guidance | Aruni.Abeysinghe@ato.gov.au | Commissioner of Taxation 1 July 2026 | Footnotes: [1] BQKD and Commissioner of Taxation [2024] AATA 1796 ( BQKD ) at [17–19]. | [5] BQKD at [41], [54] and [61]. | [8] BQKD at [3], [56] and [77]. | [10] Commissioner of Taxation v SEPL Pty Ltd as trustee of the SFT Trust [2025] FCA 581 ( SEPL FCA ) at [5]. | [13] At [4] and SEPL FCA at [5]. | [14] At [4] and SEPL FCA at [6] and [127]. | [18] SEPL FCA at [88–89], [96-97] and [151]. | [20] At [1], per Perry J, at [2], per O'Callaghan J and at [81], per Thawley J. | • first, that a benefit has been provided by one person to another (paragraph 137(1)(a)), • second, that 'but for' section 137 the benefit would not be regarded as having been provided 'in respect of the employment' of the recipient (paragraph 137(1)(b)), and • third, that if the benefit were instead provided by way of a cash payment, that cash payment would constitute 'salary or wages' under the definition in subsection 136(1) (subparagraph 137(1)(c)(i)). | If all 3 conditions are met, paragraph 137(1)(d) applies so that, for 'the purpose only of ascertaining whether a person is an employee or an employer', the benefit is treated 'as if' it were salary or wages paid to the second person when applying the definitions in subsection 136(1). | [25] At [33–34] and [38–40]. | [29] At [46] and BQKD at [14–15]. | [30] At [47] and BQKD at [21], [62–66], [90–92]. | [32] At [15]. The Full Court at [49-50] referred to the High Court decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 to explain how to determine whether a person is an employee within the common law meaning of the term. | [37] At [68] and J & G Knowles at [26] and [29]. | [47] Personnel Contracting at [93], per Gageler and Gleeson JJ, and at [161], per Gordon J. | [55] At [68] and J & G Knowles at [26] and [29]."}
{"Case_Name": "Department of Education v Commissioner of Taxation [2026] FCA 898", "Venue_Reference_No": "VID 204 of 2025", "Venue": "Federal Court of Australia", "Judgment_Date": "10 July 2026", "Date_Published": "5 August 2026", "Document_Type": "Interim Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Interim decision impact statement outlines the ATO's response to this case, which considered whether the Victorian Department of Education (Department) was liable to superannuation guarantee charge (SGC) under the Superannuation Guarantee (Administration) Act 1992 (SGAA) because the Department did not pay superannuation contributions in relation to a 'salary loading allowance' paid annually to teachers. | 2. The Federal Court found that the Department was not liable to SGC for failing to pay superannuation contributions in relation to the salary loading allowance, as the allowance did not fall within the relevant notional earnings base or within the relevant employees' ordinary time earnings (OTE). | 3. This decision is currently subject to appeal to the Full Federal Court. | 4. All legislative references in this Interim decision impact statement are to the SGAA as in force prior to 1 July 2026 [1] , unless otherwise indicated. | 5. All judgment references in this Interim decision impact statement are to the judgment of the Federal Court in Department of Education v Commissioner of Taxation [2026] FCA 898 unless otherwise indicated. | Overview of the facts | 6. The Department pays a salary loading allowance to eligible teachers employed by the Department. The allowance is paid annually on a specific date. The teachers are entitled to the allowance if they complete the year of service doing their ordinary hours of work and remain employed by the Department on the specific date. [2] The allowance is calculated as 17.5% of the total of 4 weeks of the teacher's normal salary. [3] | 7. During the periods in dispute, the Department did not pay superannuation contributions for its employee teachers in relation to the salary loading allowance paid to them. | 8. For the relevant quarters prior to 1 July 2008, it was accepted by the parties that former section 13 applied [4] , and that the Department would be liable for SGC if the salary loading allowance fell within the applicable notional earnings base. | 9. The relevant notional earnings base in this case was that provided for under the State Employees Retirement Benefits Act 1979 (Vic) and the State Superannuation Act 1988 (Vic). [5] These Acts required superannuation to be paid on 'salary' as defined in the Acts. Relevantly, the definition of 'salary' excluded 'recreation leave allowance' and 'payments of a temporary character'. | 10. For the relevant quarters from 1 July 2008, it was accepted by the parties that the Department would be liable for SGC if the salary loading allowance fell within the definition of OTE in section 6. [6] | 11. In 2024, the Commissioner issued amended notices of assessment of SGC to the Department for the relevant quarters in the period 2004 to 2022, to include SGC related to the failure to make superannuation contributions in relation to the salary loading allowance for a total of 18 teachers that had made enquiries at that time. [7] The amended assessments were issued on the basis that the Department had not successfully reduced their charge percentage for the relevant employees to nil for the periods in dispute because, in the Commissioner's view, the salary loading allowance fell within the relevant notional earnings base and was OTE, respectively. [8] | 12. Objections against the amended assessments were disallowed in full. | 13. The Department appealed the objection decision to the Federal Court. The Department argued that the salary loading allowance: • did not form part of the notional earnings base for periods prior to 1 July 2008, because [9] – it was effectively an annual leave loading and therefore excluded from 'salary' as a 'recreation leave allowance', or – it was a payment of a temporary character, and therefore was excluded from 'salary' • did not form part of OTE because it – was effectively an annual leave loading and was paid to compensate for the lost opportunity to work overtime [10] and to cushion employees against additional expenses incurred while on leave [11] – was paid at a higher rate because it was 17.5% of the base salary. [12] | • did not form part of the notional earnings base for periods prior to 1 July 2008, because [9] – it was effectively an annual leave loading and therefore excluded from 'salary' as a 'recreation leave allowance', or – it was a payment of a temporary character, and therefore was excluded from 'salary' • did not form part of OTE because it – was effectively an annual leave loading and was paid to compensate for the lost opportunity to work overtime [10] and to cushion employees against additional expenses incurred while on leave [11] – was paid at a higher rate because it was 17.5% of the base salary. [12] | – it was effectively an annual leave loading and therefore excluded from 'salary' as a 'recreation leave allowance', or – it was a payment of a temporary character, and therefore was excluded from 'salary' | – was effectively an annual leave loading and was paid to compensate for the lost opportunity to work overtime [10] and to cushion employees against additional expenses incurred while on leave [11] – was paid at a higher rate because it was 17.5% of the base salary. [12] | Issues decided by the Court | Issue 1 – for periods prior to 1 July 2008, whether the salary loading allowance formed part of the notional earnings base | 14. The Court held that the salary loading allowance did not form part of the relevant notional earnings base for periods prior to 1 July 2008. | 15. The Court considered evidence regarding the purpose of the allowance when it was first introduced in the 1970s, and accepted that the salary loading allowance was introduced to give teachers an equivalent loading to the recreation leave loading enjoyed by their public service counterparts. [13] The Court further accepted that the salary loading allowance was named as it was, and structured as it was, due to the particular arrangements of teachers which resulted in the formal entitlement to 4 weeks' annual leave not being taken over an identified period within the school holidays. [14] | 16. The Court held that that the expression 'recreation leave allowance' in the relevant Acts is properly to be construed as capturing allowances that were, in substance, recreation leave allowances even if they were not paid when an employee literally took annual (recreation) leave. [15] The Court found that the salary loading allowance was therefore a recreation leave allowance, albeit one paid in a bespoke manner due to the peculiarities of the teaching profession, and that it had not lost that character since it was first introduced in the 1970s. [16] Accordingly, the salary loading allowance was not 'salary' as defined under the relevant Acts and therefore did not form part of the notional earnings base. | 17. The Court rejected the arguments from the Department that the allowance was paid to compensate for the lost opportunity to work overtime during holiday periods [17] , or to cushion the employee against additional expenses incurred during leave. [18] The Court also rejected the argument that the salary loading allowance was of a temporary character, on the basis that although it was only paid once a year it was paid on an ongoing, recurring basis. [19] | Issue 2 – for periods from 1 July 2008, whether the salary loading allowance is OTE | 18. The Court held that the salary loading allowance was not OTE for periods from 1 July 2008. | 19. The Court held that, where an industrial award or agreement nominates a salary for an employee's ordinary hours, that is the payment they receive at ordinary rates of pay for their ordinary hours. [20] Amounts that are paid in addition to these amounts will not be OTE. [21] | 20. The Court found that the salary loading allowance was an amount additional to the base salary in the relevant industrial agreements and therefore was not OTE, even though teachers did not need to perform any work beyond their ordinary hours to receive the payment and it was not compensation for a lost opportunity to work overtime. [22] | 21. The Court considered that it was not relevant to the analysis that: • it was not established by the Department that the allowance was compensation for a lost opportunity to work overtime [23] • the allowance was introduced to give teachers the equivalent of annual leave loading [24] , or • the allowance was, or paid at, a different rate. [25] | • it was not established by the Department that the allowance was compensation for a lost opportunity to work overtime [23] • the allowance was introduced to give teachers the equivalent of annual leave loading [24] , or • the allowance was, or paid at, a different rate. [25]", "Overview_of_Facts": "", "Issues_Decided": "Issue 1 – for periods prior to 1 July 2008, whether the salary loading allowance formed part of the notional earnings base: 14. The Court held that the salary loading allowance did not form part of the relevant notional earnings base for periods prior to 1 July 2008. 15. The Court considered evidence regarding the purpose of the allowance when it was first introduced in the 1970s, and accepted that the salary loading allowance was introduced to give teachers an equivalent loading to the recreation leave loading enjoyed by their public service counterparts. [13] The Court further accepted that the salary loading allowance was named as it was, and structured as it was, due to the particular arrangements of teachers which resulted in the formal entitlement to 4 weeks' annual leave not being taken over an identified period within the school holidays. [14] 16. The Court held that that the expression 'recreation leave allowance' in the relevant Acts is properly to be construed as capturing allowances that were, in substance, recreation leave allowances even if they were not paid when an employee literally took annual (recreation) leave. [15] The Court found that the salary loading allowance was therefore a recreation leave allowance, albeit one paid in a bespoke manner due to the peculiarities of the teaching profession, and that it had not lost that character since it was first introduced in the 1970s. [16] Accordingly, the salary loading allowance was not 'salary' as defined under the relevant Acts and therefore did not form part of the notional earnings base. 17. The Court rejected the arguments from the Department that the allowance was paid to compensate for the lost opportunity to work overtime during holiday periods [17] , or to cushion the employee against additional expenses incurred during leave. [18] The Court also rejected the argument that the salary loading allowance was of a temporary character, on the basis that although it was only paid once a year it was paid on an ongoing, recurring basis. [19] | Issue 2 – for periods from 1 July 2008, whether the salary loading allowance is OTE: 18. The Court held that the salary loading allowance was not OTE for periods from 1 July 2008. 19. The Court held that, where an industrial award or agreement nominates a salary for an employee's ordinary hours, that is the payment they receive at ordinary rates of pay for their ordinary hours. [20] Amounts that are paid in addition to these amounts will not be OTE. [21] 20. The Court found that the salary loading allowance was an amount additional to the base salary in the relevant industrial agreements and therefore was not OTE, even though teachers did not need to perform any work beyond their ordinary hours to receive the payment and it was not compensation for a lost opportunity to work overtime. [22] 21. The Court considered that it was not relevant to the analysis that: • it was not established by the Department that the allowance was compensation for a lost opportunity to work overtime [23] • the allowance was introduced to give teachers the equivalent of annual leave loading [24] , or • the allowance was, or paid at, a different rate. [25] • it was not established by the Department that the allowance was compensation for a lost opportunity to work overtime [23] • the allowance was introduced to give teachers the equivalent of annual leave loading [24] , or • the allowance was, or paid at, a different rate. [25]", "ATO_View_of_Decision": "22. The Commissioner has appealed the Federal Court's decision in respect of both issues. | 23. Draft Law Companion Ruling LCR 2026/D1 Payday Super: qualifying earnings continues to reflect the Commissioner's views on the interpretation of OTE, which is included within the term 'qualifying earnings' in section 10A of the SGAA from 1 July 2026. However, the Commissioner will not seek to finalise that Ruling until the appeal process has concluded.", "Administrative_Treatment": "24. Pending the outcome of the appeal process, where a decision turns on whether a particular amount is OTE, we do not propose to finalise: • requests for advice concerning whether particular amounts fall within the meaning of OTE • decisions in compliance activity, including issuing SGC assessments or amended SGC assessments • objection decisions in relation to objections against SGC assessments or amended SGC assessments. | • requests for advice concerning whether particular amounts fall within the meaning of OTE • decisions in compliance activity, including issuing SGC assessments or amended SGC assessments • objection decisions in relation to objections against SGC assessments or amended SGC assessments. | 25. However, if a decision is required to be made (for example, because the employer's period of review will elapse or the employer gives notice requiring the Commissioner to make an objection decision), our decisions will be consistent with the existing ATO view of the law. In these circumstances, recovery of the liability will generally be deferred pending the outcome of the appeal and would only be pursued if the Commissioner is ultimately successful. | Commissioner of Taxation 5 August 2026 | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] The SGAA has recently been amended by the Treasury Laws Amendment (Payday Superannuation) Act 2025 , with effect from 1 July 2026. The legislative references in this Interim decision impact statement are to the SGAA as in force prior to 1 July 2026, unless otherwise indicated, as this case relates to periods prior to those amendments having effect. | [2] At [19]. Teachers not employed by the Department at that date can still receive salary loading allowance if they ceased employment due to old age or ill health. Part-time teachers and those who commenced employment part-way during the year receive a pro-rata entitlement to the salary loading allowance. | [3] Up to a specified cap that changes year to year. | [4] At [10]. | [5] At [10]. | [6] At [13–14]. | [7] At [4]. | [8] Section 23. | [9] At [11]. | [10] At [68]. | [11] At [32]. | [12] At [70]. | [13] At [38]. | [14] At [39]. | [15] At [56]. | [16] At [58]. | [17] At [41]. | [18] At [60]. | [19] At [60]. | [20] At [63]. | [21] At [66]. | [22] At [65]. | [23] At [69]. | [24] At [69]. | [25] At [71].", "Related_Documents": "2026 ATC 21-028 | LCR 2026/D1 | SGAA 6(1) | SGAA 10A | SGAA former 13 | SGAA former 23 | State Employees Retirement Benefits Act 1979 (Vic) | State Superannuation Act 1988 (Vic) | Treasury Laws Amendment (Payday Superannuation) Act 2025", "Legislative_References": "SGAA 6(1) SGAA 10A SGAA former 13 SGAA former 23 State Employees Retirement Benefits Act 1979 (Vic) State Superannuation Act 1988 (Vic) Treasury Laws Amendment (Payday Superannuation) Act 2025", "Case_References": "Department of Education v Commissioner of Taxation [2026] FCA 898 2026 ATC 21-028", "Subject_References": "", "Other_References": "", "Is_Interim": true, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/VID204of2025/00001", "Unmatched_Content": ""}
{"Case_Name": "Alcoa of Australia Ltd and Commissioner of Taxation [2025] ARTA 482", "Venue_Reference_No": "2022/3549 - 3564", "Venue": "Administrative Review Tribunal", "Judgment_Date": "30 April 2025", "Date_Published": "27 August 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This case concerned the transfer pricing consequences under former Division 13 of the Income Tax Assessment Act 1936 (ITAA 1936) of corrupt dealing that had infected a commercial transaction. The transaction involved sales of alumina made by Alcoa of Australia (AoA) through an intermediary during 1993 to 2009 (excluding 1996) (Relevant Years). The sales were delivered to a smelter in Bahrain owned by Aluminium Bahrain B.S.C. (Alba). | 2. The Administrative Review Tribunal (Tribunal) determined that the dealing was not at arm's length by reason of steps taken to facilitate bribery of foreign officials but found that the dealing had not resulted in AoA receiving consideration that was less than the consideration that would have been received in an arm's length dealing. This conclusion was one of fact. | 3. All legislative references in this Decision impact statement are to the ITAA 1936, unless otherwise indicated. All references to Division 13 are to former Division 13. | 4. All decision references in this Decision impact statement are to the decision of Alcoa of Australia Ltd and Commissioner of Taxation [2025] ARTA 482, unless otherwise indicated. | Overview of material facts | 5. The arrangement that is the subject of this case was the subject of criminal and civil investigations in the United States of America (US). | 6. As of 1990, AoA was supplying alumina directly to Alba under a 10-year agreement with Alba (1990 Supply Agreement). [1] Under this agreement, the first 600,000 metric tonne (m/t) of alumina was priced in accordance with a formula (Formula Tonnage). [2] For any alumina supplied over and above that volume, the price was negotiated annually (Market Tonnage). [3] Under that agreement, the Formula Tonnage was invoiced to, and paid for by, Alba. [4] | 7. 1993 was the first year the supply exceeded 600,000 m/t and in which Market Tonnage was supplied. In this year, AoA commenced to supply the Market Tonnage through an entity associated with Mr Dahdaleh (a VPD Entity). [5] While the 1990 Supply Agreement contemplated some of the supplies may be made through an agent or distributor at AoAs nomination, the VPD Entity was neither a party to the 1990 Supply Agreement nor had been nominated under it. [6] The VPD Entity was not associated with AoA through shareholding or common directorships. [7] | 8. In 1993, the invoices for the Market Tonnage were invoiced to the VPD Entity and the VPD Entity was liable to pay AoA. [8] Other than these invoices, the terms on which the Market Tonnage was supplied to the VPD Entity were not put in writing. [9] The VPD entity on-sold the alumina to Alba. This arrangement continued throughout 1994 and 1995. | 9. In 1996, AoA entered into another agreement with Alba to vary the terms of the 1990 Supply Agreement. [10] On the same day, AoA entered into a sales agreement with a VPD Entity for the supply of Market Tonnage from 1 January 1997 to 31 December 2000. [11] This agreement was superseded by another agreement entered into 3 months later (1996 Alumet Supply Agreement) pursuant to which AoA agreed to supply Market Tonnage to a VPD Entity from 1 January 1997 to 31 December 2001. [12] | 10. Under the 1996 Alumet Supply Agreement, there was no longer an annual negotiation of prices for the Market Tonnage. Instead [13] : • For 1997, the price was fixed at US$65 m/t. [14] • For 1998 to 2001, a formula applied to quantities up to and including 375,000 m/t. • For annual quantities over 375,000 m/t, Alcoa and the VPD Entity would agree on pricing based on global alumina market conditions. | • For 1997, the price was fixed at US$65 m/t. [14] • For 1998 to 2001, a formula applied to quantities up to and including 375,000 m/t. • For annual quantities over 375,000 m/t, Alcoa and the VPD Entity would agree on pricing based on global alumina market conditions. | 11. During the period 1997 to 2001 [15] , Formula Tonnage was invoiced to Alba pursuant to the 1990 Supply Agreement (as amended) and Market Tonnage was invoiced to the VPD Entity under the 1996 Alumet Supply Agreement. [16] The VPD Entity on-sold the alumina to Alba. | 12. During the period 1993 to 2001, both types of tonnages were commingled on the same ship and sent to Bahrain. | 13. In 2002, AoA and a VPD Entity entered into a 3-year Distribution Agreement for all alumina to be provided to Alba. [17] AoA no longer had a supply contract with Alba. [18] | 14. In 2005, AoA and a VPD Entity entered into a 10-year Distribution Agreement. This was terminated in 2009. [19] | 15. Throughout 1993 to 2009, the price at which the VPD Entities sold the alumina to Alba was not known to AoA. [20] Some of the invoices issued by the VPD Entities to Alba were set out by the Tribunal. They show that Alba was paying the VPD Entity for the Market Tonnage between 18.9% and 109.2% more than the price paid by the VPD Entities to AoA for the same alumina. [21] | 16. In the US the Department of Justice brought criminal proceedings against AoA's related company, Alcoa World Alumina LLC (AWA). [22] In 2014, AWA entered into a plea agreement whereby it pleaded guilty to one count of violating the Foreign Corrupt Practices Act 1977 (USA). [23] | 17. Administrative proceedings were also brought by the US Securities and Exchange Commission, Alcoa Inc, the US parent of AoA, submitted an offer of settlement and consented to findings of fact. Alcoa Inc's offer of settlement records that between 1989 and 2009 AoA and AWA 'retained a consultant to acts as their middleman in connection with sales of alumina to Alba and knew or consciously disregarded the fact that the relationship with the consultant was designed to generate funds that facilitate corrupt payments to Bahraini officials'. [24] Further, '[o]n sales where the consultant acted as purported distributor, no legitimate services were provided to justify the role of the consultant as distributor'. [25] | 18. After an audit, the Commissioner issued amended assessments for the Relevant Years. The amended assessments were issued on the basis of determinations under Division 13 for the 1993 to 1995 and 1997 to 2009 years. The Commissioner adjusted the consideration received for the Market Tonnage. The Commissioner did not adjust the prices of the sales to Alba of Formula Tonnage as there was no evidence that these sales produced a less than arm's length consideration as a result of non-arm's length dealings. | 19. AoA objected to the amended assessments. The Commissioner disallowed the objections and AoA sought review by the Tribunal. | 20. The Commissioner instructed its expert witnesses to prepare reports to opine on the arm's length consideration in respect only of the supplies between AoA and the VPD Entities. [26] AoA instructed its expert witnesses to prepare reports to opine on the arm's length consideration on the basis that where the alumina was supplied under 2 contracts, they should be construed as governing one overall commercial arrangement for the supply of alumina to Alba. [27] | 21. On 30 April 2025, the Tribunal handed down a decision finding that AoA had proved the assessments were not excessive. The Commissioner did not appeal this decision.", "Overview_of_Facts": "", "Issues_Decided": "Burden of proof: 22. The Tribunal decided that, consistent with the reasoning in Binetter v Commissioner of Taxation [2016] FCAFC 163 and in accordance with section 14ZZK of the Taxation Administration Act 1953, it was for the taxpayer to prove that the parties were dealing at arm's length. [28] | Dealing at arm's length: 23. The Tribunal decided that subsection 136AD(1) did not require that the parties to the transaction must be group members or otherwise be commonly controlled. [29] 24. The Tribunal agreed with the Commissioner's contention that facilitating the payments of bribes is inconsistent with an arm's length dealing. [30] 25. The Tribunal further decided that AoA had not proved that it was dealing at arm's length with the VPD Entities. The Tribunal rejected the taxpayer's submission that little or no weight should be given to the Offer of Settlement, findings by the US Securities and Exchange Commission and agreed Statement of Facts in the criminal proceedings. [31] The Tribunal did not itself make a positive finding that AoA 'knew of or consciously disregarded' that the VPD entities were inserted to facilitate bribes. [32] | The relevant supply and the relevant international agreement: 26. This issue is relevant only to the 1993 to 2001 period during which AoA invoiced Alba and the VPD Entities separately and, in respect of the period 1997 to 2001, there existed separate written contracts. 27. The Commissioner's case was that under paragraph 136AD(1)(a), the relevant 'supply' was the supply of alumina to the VPD Entities and that this occurred under an 'international agreement' which did not incorporate the terms of any agreement by which AoA sold alumina to Alba. 28. The Tribunal agreed that the 'supply' for the purposes of paragraph 136AD(1)(a) was the supply to the VPD entities. [33] However, the Tribunal decided that the 'international agreement' was a tripartite agreement which included the terms of the 1990 Supply Agreement. [34] | Depersonalisation: 29. The Tribunal said that the depersonalisation required meant neither 'utter disembodiment' nor a party 'standing entirely in the shoes of the taxpayer'. [35] They found that what was appropriate in this transaction was to consider a transaction between AoA and the VPD Entities that involved no bribery or corruption but still retained the supply by AoA to Alba of Formula Tonnage at a price higher than the Market Tonnage as part of the 'commercial context'. [36] They considered that the appropriate degree of depersonalisation did not require that the dealings with Alba be removed as a characteristic. [37] 30. The Tribunal found that to ignore the Formula Tonnage was to 'change an integral aspect of the actual supply by Alcoa'. [38] They further found that there was substantial evidence that the prices had been negotiated in tandem. [39] | Arm's length consideration: 31. Having found that the relevant international agreement was a tripartite arrangement and that the supply of Formula Tonnage and Market Tonnage was inextricably linked, the Tribunal considered that the relevant hypothetical had to have the same characteristics. [40] The Tribunal went on to conclude that the Formula Tonnage could not be ignored for the purposes of determining whether AoA received less than arm's length consideration. [41] 41 They further concluded that irrespective of the view of what the relevant 'supply' and 'international agreement' was, the consideration for the Market Tonnage encompassed the promises made regarding both the Market Tonnage and Formula Tonnage. [42] 32. The Tribunal went on to find that the approach adopted by the expert witnesses for AoA was to be preferred for the period 1993 to 2001. [43] They concluded that the evidence of those experts established that the consideration received in respect of Market Tonnage, while low on its own, was not less than arm's length when considered in the context of the contemporaneous supply of Formula Tonnage. [44] The relevant comparator was therefore the 'average of the prices for Market Tonnage and Formula Tonnage'. [45] For this period, the Tribunal then appeared to rely on a combination of the arm's length prices opined by the industry expert for the Commissioner, applied to the combined actual consideration, and the arm's length prices opined by the industry expert for AoA. [46] 33. In respect of the period 2002 to 2009, the Tribunal also concluded that the consideration received was not less than arm's length consideration. [47]", "ATO_View_of_Decision": "Burden of proof | 34. We agree that it is for the taxpayer to prove that the parties were dealing at arm's length. | Dealing at arm's length | 35. We agree that the concept of 'dealing at arm's length' does not require there to be common control or other association. The transfer pricing laws are directed to where profits have been shifted overseas in circumstances where they ought to have been taxable in Australia. This is regardless of whether it can be identified that some other entity within a group of entities associated through shareholding or directorship received the 'shifted' profits. [48] | 36. We agree with the Tribunal's view that parties to an arrangement designed to facilitate bribery and corruption are not dealing at arm's length. The concept of an arm's length dealing does not encompass illegal bribes regardless of how commercially advantageous or otherwise they may be. | The relevant supply and the relevant international agreement | 37. The Commissioner took a different view to the one found by the Tribunal regarding the identification of the 'international agreement', and did not consider that the Market Tonnage supplies were made under a tripartite 'international agreement' which encompassed the terms and conditions upon which the supplies of Formula Tonnage were made. While the Tribunal noted that there was 'some force' [49] to the Commissioner's contentions in this regard, they ultimately identified the 'international agreement' differently. | 38. This aspect of the decision of the Tribunal is unlikely to impact future Division 13 cases. The arrangement that gave rise to dispute regarding the nature of the relevant international agreement was very unusual. | 39. If other arrangements did arise in which it is necessary to determine whether 2 separate contracts form the one 'international agreement' for the purposes of paragraph 136AD(1)(a), we will consider the terms, objects and circumstances of those agreements, and the agreement under which the obligation to supply the property arises, on a case-by-case basis. | Depersonalisation | 40. We will continue to apply the approach set out in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62, Commissioner of Taxation v Glencore Investment Pty Ltd [2020] FCAFC 187 and Singapore Telecom Australia Investments Pty Ltd v Commissioner of Taxation [2024] FCAFC 29 at [134]. In particular, we will be guided by the view that 'objective attributes or features ... should be included' and that the focus is not on the 'subjective or special factors of the parties involved'. [50] | Arm's length consideration | 41. The Tribunal's finding of the relevant 'consideration' flowed from its view of the international agreement and the relevant degree of depersonalisation to apply when considering the hypothetical agreement. This led to its acceptance that the right approach was to compare the arm's length consideration with the average of the consideration received for the Market Tonnage and Formula Tonnage. | 42. We will consider the totality of evidence to establish the arm's length conditions that might reasonably be expected to operate and the arm's length consideration. Noting the highly unusual facts attending these transactions, we do not consider that the Tribunal's findings and approach on these facts requires any alteration to our general approach in this regard.", "Administrative_Treatment": "43. This decision has no implications for our advice and guidance products.", "Related_Documents": "TAA 1953 14ZZK | Foreign Corrupt Practices Act 1977 | (USA) | 2025 ATC 10-754 | 2016 ATC 20-593 | 2020 ATC 20-770 | 2017 ATC 20-615 | 99 ATC 5138 | 2024 ATC 20-897 | 2010 ATC 20-190", "Legislative_References": "ITAA 1936 former Div 13 TAA 1953 14ZZK TAA 1953 136AD(1) TAA 1953 136AD(1)(a) Foreign Corrupt Practices Act 1977 (USA)", "Case_References": "Alcoa of Australia Ltd and Commissioner of Taxation [2025] ARTA 482 2025 ATC 10-754 Binetter v Commissioner of Taxation [2016] FCAFC 163 249 FCR 534 2016 ATC 20-593 104 ATR 145 (2016) 346 ALJR 357 Commissioner of Taxation v Glencore Investment Pty Ltd [2020] FCAFC 187 281 FCR 219 2020 ATC 20-770 Chevron Australia Holdings Pty Ltd v Commissioner of Taxation [2017] FCAFC 62 251 FCR 40 2017 ATC 20-615 105 ATR 599 (2017) 345 ALJR 570 San Remo Macaroni Co v Commissioner of Taxation [1999] FCA 1468 99 ATC 5138 43 ATR 53 Singapore Telecom Australia Investments Pty Ltd v Commissioner of Taxation [2024] FCAFC 29 302 FCR 192 2024 ATC 20-897 118 ATR 323 SNF (Australia) Pty Ltd v Commissioner of Taxation [2010] FCA 635 2010 ATC 20-190 79 ATR 193", "Subject_References": "", "Other_References": "", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/2022/3549-3564/00001", "Unmatched_Content": "ATO view of this decision | Implications for affected advice or guidance | Danielle.Ellershaw@ato.gov.au | Commissioner of Taxation 27 August 2026 | [7] At [3]. None of the VPD Entities referenced in this Decision impact statement were associated with AoA through shareholding or common directorships. There were a number of VPD Entities involved throughout the Relevant Years. They are all referred to as a VPD Entity or, collectively, as VPD Entities. | [15] No Market Tonnage was supplied in 1996 as AoA and the VPD Entity did not reach agreement as to price: at [432]. | [17] At [472] and [484-485]. | [44] At [416] in respect of the period 1993 to 1995 and at [468] for the period 1997 to 2001. | [48] See further San Remo Macaroni Co v Commissioner of Taxation [1999] FCA 1468, at [65], per Hill J. | [50] Commissioner of Taxation v Glencore Investment Pty Ltd [2020] FCAFC 187 at [178], per Middleton and Steward JJ, endorsing Middleton J in SNF (Australia) Pty Ltd v Commissioner of Taxation [2010] FCA 635 at [44]."}
{"Case_Name": "Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145", "Venue_Reference_No": "NSD 1716 of 2024", "Venue": "Full Federal Court of Australia", "Judgment_Date": "21 October 2025", "Date_Published": "4 September 2026", "Document_Type": "Decision Impact Statement", "Decision_Outcome": "", "Summary_of_Decision": "1. This Decision impact statement outlines the ATO's response to the decision of the Full Court of the Federal Court of Australia in Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145. | 2. The decision concerned an appeal against the refusal of the Appellants' applications to stay their Federal Court of Australia proceedings (the substantive proceedings) pending finalisation of the mutual agreement procedure (MAP) between the competent authorities of Australia and Ireland under the Agreement between the Government of Australia and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains [1983] ATS 25 (DTA). | 3. At first instance [1] , the Commissioner successfully opposed the stay, relying on evidence that the case had broader significance, and would more efficiently resolve the dispute. | 4. The Full Court concluded that, on the evidence before it, the stay applications should have been granted. The decision does not concern, and does not determine, the substantive characterisation of software payments under Australia's tax treaties. | 5. All judgment references in this Decision impact statement are to the judgment of Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145, unless otherwise indicated.", "Overview_of_Facts": "6. The substantive proceedings test the position expressed in Taxation Ruling TR 2026/2 Income tax: royalties - character of payments in respect of software and intellectual property rights that certain payments made by Australian software distributors are royalties and subject to withholding tax. | 7. In this Decision impact statement, the 3 appellants are collectively referred to as Oracle. Oracle Corporation Australia Pty Ltd and Vantive Australia Pty Ltd are collectively referred to as Oracle Australia and Oracle CAPAC Services Unlimited Company is referred to as Oracle Ireland. | 8. The central issue in dispute concerns whether payments from Oracle Australia to Oracle Ireland (the central licensor of Oracle software to Oracle subsidiaries) to allow Oracle Australia to distribute software to other software distributors and end users in Australia are 'royalties' as defined by section 6(1) of the Income Tax Assessment Act 1936 and Article 13 of the DTA. | 9. The Commissioner concluded that the payments were royalties subject to withholding tax under sections 128B and 128C of the Income Tax Assessment Act 1936, and notified Oracle Australia of the penalties for failing to withhold (section 16-30 of Schedule 1 to the Taxation Administration Act 1953). | 10. In the typical Australian tax treaty definition, as well as the DTA, a payment for the use of, or the right to use, copyright is a royalty. Since 'copyright' is not defined, the Commissioner contended that the term takes its meaning from Australian law and that this meant the dispute largely turned on the application of the Copyright Act 1968. | 11. Oracle commenced proceedings seeking declarations from the Federal Court that the payments are not royalties, as well as appealing the Commissioner's objection decisions. However, Oracle also applied to stay those proceedings to allow the MAP cases between Australia and Ireland, including any potential arbitration, to be completed. The outcome of any arbitration would not be precedential and would not be accompanied by reasons. | 12. At first instance, Justice Perram concluded that the stay should be refused. [2] His Honour found that the public interest in the judicial determination of the royalties question for the benefit of others was of sufficient weight such that the stay applications should be refused.", "Issues_Decided": "13. The issue on appeal was whether the primary judge erred in concluding that the stay should be refused on the public interest grounds. 14. Hespe, Button and Younan JJ found: • the Commissioner had not led sufficient evidence to establish that Oracle's arrangements were sufficiently similar to the arrangements of other entities such that the Court decision would provide broader guidance [3] , • the letters from the United States Treasury were not sufficient evidence that there was broader uncertainty on how the word 'copyright' should be interpreted in Australia's tax treaties. [4] • the Commissioner had not led sufficient evidence to establish that Oracle's arrangements were sufficiently similar to the arrangements of other entities such that the Court decision would provide broader guidance [3] , • the letters from the United States Treasury were not sufficient evidence that there was broader uncertainty on how the word 'copyright' should be interpreted in Australia's tax treaties. [4] 15. The Full Court allowed the appeal and ordered that the substantive proceedings be stayed pending completion of the MAP processes.", "ATO_View_of_Decision": "16. The Full Court's conclusions were directed to the suitability of these proceedings as a vehicle for resolving broader issues of public importance, based on the evidence before it. The findings on the evidence meant that Oracle was not a suitable case for the Commissioner to pursue an appeal to the High Court of Australia. | 17. The Commissioner recognises the MAP as an important mechanism for resolving cases of potential double taxation between competent authorities, operating alongside domestic legal processes within Australia's treaty framework. However, where resolution through administrative or bilateral processes does not provide sufficient clarity for the consistent administration of Australia's tax treaties, we will continue to regard judicial consideration as an appropriate mechanism for resolving questions of treaty interpretation. | 18. The Commissioner's approach to characterising payments as royalties is consistent with established principles, including the need to identify whether consideration is paid for the use, or right to use, intellectual property rights. | 19. Nonetheless, we acknowledge that extensive feedback has been provided on the position expressed in TR 2026/2, and the complexity in applying established principles of royalty characterisation to modern business models is an issue that continues to arise in compliance activity. A court decision would therefore provide welcome guidance on the interpretation of royalties in the context of Australian tax treaties. | 20. We will continue to seek appropriate opportunities to obtain judicial clarification on these issues, consistent with established treaty principles and the need for clarity in their application to contemporary software arrangements. | 21. Where we seek to rely on the broader public importance of court proceedings to oppose a stay determination, we will have regard to the Full Court's comments concerning the need for more detailed evidence, including of the arrangements of other taxpayers that may benefit from judicial consideration of an issue.", "Administrative_Treatment": "", "Related_Documents": "2025 ATC 20-975 | TR 2026/2 | ITAA 1936 128B | ITAA 1936 128C | TAA 1953 Sch 1 16-30 | 2024 ATC 20-936 | Agreement between the Government of Australia and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains [1983] ATS 25", "Legislative_References": "ITAA 1936 128B ITAA 1936 128C TAA 1953 Sch 1 16-30 Copyright Act 1968", "Case_References": "Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2024] FCA 1262 2024 ATC 20-936 Oracle Corporation Australia Pty Ltd v Commissioner of Taxation [2025] FCAFC 145 2025 ATC 20-975", "Subject_References": "", "Other_References": "Agreement between the Government of Australia and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains [1983] ATS 25", "Is_Interim": false, "Source_URL": "https://www.ato.gov.au/law/view/document?docid=LIT/ICD/NSD1716of2024/00001", "Unmatched_Content": "ATO view of this decision | Melissa.Spurge@ato.gov.au | Commissioner of Taxation 4 September 2026 | Footnotes: [1] Oracle Corporation Australia Pty Ltd v Commissioner of Taxation (Stay Application) [2024] FCA 1262. | [2] Oracle Corporation Australia Pty Ltd v Commissioner of Taxation (Stay Application) [2024] FCA 1262 at [85] and [86]."}